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TMI Blog1986 (9) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... irm should end at the end of every calendar year and so the first year of the assessee-firm is from 27-7-1980 to 31-12-1980. In fact, on 31-12-1980 the first year's accounts were closed and profit and loss account was prepared. The firm was dissolved on 31-3-1981. Two returns were filed - one for the assessment year 1981-82 for the period from 27-7-1980 to 31-12-1980 and another for the assessment year 1982-83 covering period 1-1-1981 to 31-3-1981. 3. A letter was issued by the ITO calling upon the assessee for filing its objections as to why the incomes of both the periods should not be clubbed as the accounting years for both the years fall within one financial year. For this the assessee filed a reply. In the said reply after stating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e financial year. But it does not give option to the assessee to close the accounts on two different dates for two different periods in the same financial year. In case the firm got dissolved during the same financial year necessarily the assessee has to close the accounts on the date of dissolution. It has no option in the matter since on the date of dissolution the accounts have to be finalised. Once the accounts are finalised on the date of dissolution the option given to the assessee under section 3(1)(d)(ii) stands automatically exercised. Therefore, in such a situation it cannot have a second option to close the accounts on 31-12-1980 even if originally stipulated in the partnership deed. On the said reasoning the AAC held that even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has drawn our attention to Sampat Iyengar on Income-tax Law, revised by Justice S. Ranganathan, Seventh edn., Vol. 4, p. 3841, paragraphs 5 and 6. The learned author gives an illustration in order to clarify the real scope and ambit of sub-section (1) of section 176. "...Thus, if the accounting year of an assessee be the financial year and the business is discontinued on, say, the 15th August, 1983 i.e., during the assessment year 1983-84, the income of the period between the 1st April, 1983 and 15th August, 1983 will be income of a broken period contemplated by sub-section (1) of section 176. On the other hand, if the accounting year of assessee be, say, 1st July to 30th June, and the business is discontinued on 15th August, 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with section 3(1) (d) (ii). So also, it is contended by the learned counsel for the assessee that making two assessments one for the period from 27-7-1980 to 31-12-1980 and another from 1-1-1981 to 31-3-1981 is quite in accordance with section 176(2) and hence there is nothing illegal either in filing two returns or requesting to accept the returns for the two assessment years, viz., 1981-82 and 1982-83. 8. The learned departmental representative in a bid to justify the action of both the lower authorities relied upon the Supreme Court decision in Esthuri Aswathaiah v. CIT [1966] 60 ITR 411. In that case it was held that the total income for a period of 21 months can be assessed at rates specified in the relevant Finance Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of the income of the previous year and a special and separate assessment in the same assessment year in respect of the income of the broken period between the end of the previous year and the end of the discontinuance; it does not contemplate, as the counsel submitted, assessments in the same assessment year in respect of two previous years." At page 413 the Hon'ble Supreme Court also held that section 3 does not define the length of the previous year. Therefore, in our opinion, it appears that as it is a newly started business it can choose its own previous year under clause 8 of the partnership deed the firm determined to close its accounts by the end of the calendar year. Therefore, 31-12-1980 is the end of the first assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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