1991 (8) TMI 134 - AT - Income Tax

Issues Involved:
1. Change of previous year for the assessee.
2. Appealability of the Income-tax Officer's order under section 3(4) of the Income-tax Act.
3. Impact of the Commissioner's order under section 264 on the Income-tax Officer's decision.
4. Loss of revenue to the exchequer due to the change in the previous year.
5. Consistency of the previous year's change in subsequent assessments.

Detailed Analysis:

1. Change of Previous Year for the Assessee:
The assessee, a closely held company engaged in the manufacture and sale of tread rubber, sought permission to change its accounting period from 12 months ending on 30th June 1981 to 15 months ending on 30th September 1981. The Income-tax Officer initially rejected this request, citing potential revenue loss due to deductions for investment allowance and additional depreciation. The CIT (Appeals) overruled this decision, stating that the loss of revenue in a particular year cannot be the sole criterion for refusing the change and that the tax rates and statutory deductions would remain stable over the years.

2. Appealability of the Income-tax Officer's Order under Section 3(4):
The tribunal addressed whether an order under section 3(4) of the Income-tax Act is appealable. It cited the case of Hari Prosad Lohia, which held that determining the accounting period is integral to the assessment process. Therefore, the tribunal rejected the revenue's contention that no appeal would lie against the Income-tax Officer's order under section 3(4).

3. Impact of the Commissioner's Order under Section 264:
The Commissioner of Income-tax set aside the Income-tax Officer's order, stating that it was based on irrelevant considerations and lacked proper application of mind. However, the tribunal clarified that the Commissioner's order did not direct the Income-tax Officer to grant the change of the previous year but rather to reconsider the application in accordance with the law. The tribunal emphasized that the Commissioner's order should not be interpreted as a directive to grant the change but to reassess the application.

4. Loss of Revenue to the Exchequer:
The tribunal examined the revenue's claim of loss due to the change in the previous year. The working sheet provided by the revenue indicated a significant surtax liability if the change was not allowed. The tribunal concluded that there was indeed a loss to the exchequer, particularly in terms of surtax liability. Consequently, the Income-tax Officer was justified in refusing the change.

5. Consistency of Previous Year's Change in Subsequent Assessments:
The tribunal addressed the contention that the Income-tax Officer had accepted the previous year's change in subsequent assessments (1986-87 and 1987-88). It held that each assessment year is a separate unit, and the doctrine of res judicata does not apply to tax proceedings. Therefore, acceptance of the change in subsequent years does not imply acceptance for the assessment year 1982-83.

Conclusion:
The tribunal set aside the order of the Commissioner of Income-tax (Appeals) and upheld the Income-tax Officer's decision to refuse the change of the previous year. The appeal of the revenue was allowed, considering the loss to the exchequer and the proper application of the law by the Income-tax Officer.

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