1972 (2) TMI 12 - HC - Income Tax

Scope and extent of the power of the Income-tax Officer under section 3(4) of the Income-tax Act, 1961 - Income-tax Act, 1961 does not require recording of reasons while exercising his discretion under section 3(4) in refusing to approve the proposed change in previous year. Also, the reasons for refusal need not be communicated to the assessee - the court cannot substitute its own opinion or discretion for that of the Income-tax Officer

Summary

Issues Involved:
1. Scope and extent of the power of the Income-tax Officer under section 3(4) of the Income-tax Act, 1961.
2. Whether the refusal to change the accounting year by the Income-tax Officer was arbitrary or capricious.
3. The relevance of the interest of revenue in the decision-making process under section 3(4).

Detailed Analysis:

1. Scope and Extent of the Power of the Income-tax Officer under Section 3(4):
The primary issue in these writ petitions is the scope and extent of the power of the Income-tax Officer under section 3(4) of the Income-tax Act, 1961. The petitioner, a company governed by the Companies Act, 1956, sought to change its accounting year from January-December to June-May. The petitioner requested permission from the Income-tax Officer to close the accounting year commencing January 1, 1970, to May 31, 1971. The Income-tax Officer, after seeking certain information, refused the request citing the absence of any cogent reason. The petitioner then approached the Central Board of Direct Taxes and the Commissioner of Income-tax, but their requests were ultimately denied.

2. Whether the Refusal to Change the Accounting Year by the Income-tax Officer was Arbitrary or Capricious:
The petitioner argued that the refusal to change the accounting year was arbitrary and untenable, as no reasons were provided for the refusal. However, the court held that the statute does not require the recording or communication of reasons by the Income-tax Officer when exercising discretion under section 3(4). The court emphasized that the decision to allow a change in the accounting year lies within the discretion of the Income-tax Officer, and this court cannot examine the sufficiency or adequacy of the material on which the decision was based. The court further stated that the discretion of the Income-tax Officer is subject to judicial review only if exercised in a mala fide or arbitrary manner or on extraneous considerations.

3. The Relevance of the Interest of Revenue in the Decision-Making Process under Section 3(4):
The court highlighted that the interest of the revenue is a primary consideration under the Act. The petitioner's contention that the interest of the revenue would not suffer was found to be without merit. The court noted that even by following the terms offered by the petitioner, there would be some loss to the revenue, at least for the first year. The Income-tax Officer and the respondents argued that permitting the change would allow the petitioner to defer the payment of advance tax and other tax obligations, thereby prejudicing the interest of the revenue. The court found that the refusal to change the accounting year was based on a bona fide consideration of protecting the revenue's interest and was neither arbitrary nor capricious.

Conclusion:
The court concluded that the petitioner failed to demonstrate any reason for interference with the impugned order. The refusal to permit the change in the accounting year was based on relevant considerations, primarily the interest of the revenue. The writ petitions were dismissed with costs, affirming the discretion exercised by the Income-tax Officer under section 3(4) of the Income-tax Act, 1961.