1989 (2) TMI 168 - AT - Income Tax

Summary

Issues Involved:
1. Whether the Dy. CIT(A) was justified in holding that the assessee had exercised his option to close the previous year on 31st August 1984 instead of 31st March 1984.
2. Whether the defects pointed out by the ITO in the assessee's books of account were valid grounds for rejecting the revised return.
3. Whether the assessee can opt for a different period of the previous year in the revised return.
4. Whether the commission income earned before the amendment in the Act can be taxed under the amended provisions.
5. Whether the Dy. Commissioner (A) erred in charging interest under sections 139 and 215.

Issue-wise Detailed Analysis:

1. Option to Close the Previous Year:
The main issue was whether the Dy. CIT(A) was justified in holding that the assessee had exercised his option to close the previous year on 31st August 1984 instead of 31st March 1984. The assessee trust, established on 15th September 1983, initially filed a return showing the previous year ending on 31st August 1984. Later, the assessee filed a revised return showing the previous year ending on 31st March 1984. The ITO did not accept the revised return, arguing that the assessee could not change the previous year without prior approval and that the change was made to avoid tax. The Tribunal found that the assessee had not opted for the period of the previous year in the original return with full knowledge of the Act's provisions. The assessee had the right to correct this mistake by filing a revised return before the assessment was completed, as per section 139(5) of the Act.

2. Defects in Books of Account:
The ITO pointed out several defects in the assessee's books of account, such as discrepancies in dates and handwriting, and the presence of unnumbered pages. However, the Tribunal found that these defects did not prevent the assessee from filing a revised return. The Tribunal noted that there was no over-writing, cutting, interpolation, or fabrication in the books. The Tribunal held that clerical mistakes should not come in the way of filing a revised return to correct the mistake of the previous year. The Tribunal emphasized that if the ITO found the books defective, he could reject the book results, but this did not affect the assessee's right to file a revised return.

3. Opting for a Different Period in Revised Return:
The Tribunal examined whether the assessee could opt for a different period of the previous year in the revised return. It was noted that the assessee had shown the year ending on 31st August 1984 in the original return and later corrected it to 31st March 1984 in the revised return. The Tribunal referred to several cases, including CIT vs. Lady Kanchanbai and Anr., CIT vs. Lachmandas Veerbhandas, and Beco Engg. Co. Ltd. vs. CIT, which supported the assessee's right to correct the previous year in the revised return. The Tribunal concluded that the assessee could correct the mistake by opting for the period up to 31st March 1984, thereby making the commission income assessable in the year 1984-85 and not in 1985-86.

4. Taxation of Commission Income:
The Tribunal addressed whether the commission income earned before the amendment in the Act could be taxed under the amended provisions. The assessee argued that the commission income earned on 28th February 1984 could not be taxed under the amended provisions that came into force on 1st April 1985. The Tribunal referred to the decision in CIT vs. Laxman Singh, which held that amendments not given retrospective effect could not tax income earned before the amendment. The Tribunal agreed with the assessee's submission and held that the commission income could not be taxed under the amended provisions.

5. Charging of Interest:
The Tribunal examined whether the Dy. Commissioner (A) erred in charging interest under sections 139 and 215. Since it was held that the commission income could not be assessed in the assessment year 1985-86, the issue of interest became consequential. The Tribunal concluded that no interest could be charged on income that was not assessable in the assessment year 1985-86.

Conclusion:
The appeal of the assessee was allowed, holding that the assessee could correct the previous year in the revised return, the commission income could not be taxed under the amended provisions, and no interest could be charged on non-assessable income.