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TMI Blog1992 (6) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... cember, 1982 " that the accounting year of the Company will be changed subject to the approval of Income-tax Officer." It was further resolved that 1st April to 31st March be adopted as Accounting year of the Company instead of the calendar year. We would like to mention here that most of the parties with whom we deal follow their year ending on such date. Our garden is situated in the Darrang District of Assam where season starts from April of the year, moreover their remains a large quantity of unsold teas at the end on 31st December. On view of such it is very difficult for us to estimate the value of unsold teas at the end of the year, so Cash Budget from the month of January cannot be prepared correctly which is very much essential for fixing our drawing limit by the Bank. We therefore request you to kindly allow us necessary permission for change of the accounting year from calendar year to financial year, on obtaining such permission we shall close our books of accounts as on 31st March, 1983 i.e., for the period of 15 months from 1-1-1982 to 31st March, 1983. As the rate of taxation of company is uniform and there be no escapement of any assessment year there will no loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or change of its accounting year from the calendar year 1982 to 31-3-1983 (a period of 15 months) was granted by the Assessing Officer subject to certain conditions which are contained in his letter extracted above. 3. On 1-8-1983 the assessee filed its return of income declaring a total income of Rs. 64.656 for the assessment year 1983-84. The previous year was a period of 15 months from 1- 1- 1982 to 31-3-1983. While completing the assessment under section 143(3) of the IT Act on 14-8-1985 the Assessing Officer did not accept the change of accounting year. The reasons for his refusal to recognise the change in the accounting year, notwithstanding that he had earlier granted the request for the change though subject to certain conditions, are contained in the opening portion of the assessment order for the assessment year 1983-84. In short, they are that the assessee did not comply with the conditions subject to which the change was granted though it had accepted the same and had agreed to abide by them. He noticed that the assessee had declared a total income of only Rs. 64,656 even though it was expressly stipulated in the order granting the change that the net profit should n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot impose illegal conditions or conditions which are repugnant or contrary to the provisions of the Act or the Rules. He pointed out that the conditions laid down by the Assessing Officer were invalid and illegal, being contrary to the provisions of the Act. He further submitted that the Assessing Officer cannot impose an impossible condition that the net profit for the changed accounting year should under no circumstances be less than that for the old accounting year. Referring to the second condition, Mr. Poddar submitted that it is not open to the ITO to curtail the right of the assessee to install new plant and machinery if the exigencies of the business required it. He also pointed out that the ITO had imposed another untenable condition viz. that even 'sudden' and 'unforeseen' expenses will not be allowed in the assessments. In support of his contentions, he referred to the following decisions :-- (i) J.K. Synthetics Ltd. v. O.S ; Bajpai ITO [1976] 105 ITR 864 (All.) (ii) CIT v. Sri Hari Prosad Lohia [1983] 143 ITR 276 (Cal.) (iii) Assam Frontier Tea Ltd. v. LAC [1987] 164 ITR 253 (Gauhati) (iv) VXL India Ltd. v. ITO [1987] 168 ITR 805 (Guj.) (v) ITO v. Harbanslal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Tea Ltd.'s case pointed out that the legislative intent and policy underlying the provision appear to be clearly to give consent, save in exceptional circumstances, with or without conditions. The Calcutta Bench of the Tribunal in Harbanslal Malhotra Sons Ltd.'s case held that a condition that the depreciation allowance should be reduced proportionately where the previous year consisted of only 3 months was an invalid condition being opposed to the provisions of the statute. Judging the present case by the principles laid down in the above decisions, it is clear that the conditions imposed by the ITO are unreasonable. The first and third conditions (conditions (a) and (c) in the order dated 30-12-1982) in effect mean the same thing, that the profit for the changed pervious year should not be less than the profit for the old previous year. We are unable to appreciate, given the vicissitudes of any business, how it would be possible for the assessee to comply with such a condition. It is the natural aim of every person carrying on business to improve the same and earn more profits. However, it would be impossible to accept such a condition as a sort of stipulation the fulfilment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reduction of tax liability including the surtax. That, in fact, is not a condition to be imposed upon an assessee but is a consideration which has to be kept in mind by the Income-tax Officer while permitting the change of the previous year. He has to see that as a result of the change the assessee does not gain an undue advantage by way of reduction in tax liability. If he apprehends that there will be a reduction in tax liability, he can impose suitable conditions to guard against it. But to say that there win be no reduction in tax liability as a result of the change in the previous year is by itself not a condition. If the Income-tax Officer meant that the tax on the income of the original previous year should not be less than the income of the changed previous year, he was clearly imposing an impossible condition. The tax liability depends directly on the quantum of income and if the income varies the tax liability is bound to vary. No one can prevent it. Once the length of the previous year is fixed the income of that previous year has to be taxed, whether the income is less or more than the income of the original previous year." These observations clearly show that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y oblique considerations, such as evasion of tax and merely because the assessee was unable to comply with the conditions set by the ITO. Secondly, it is not as if the reduction in the profits for the assessment year 1983-84 by reason of the change in the previous year would be decisive of the question. The assessee is a company and has to pay tax on every rupee of its income. It grows tea and between January and March of every calendar year, normally, it has to incur heavy cultivation expenses. The first flush of the tea crop starts flowing in only by the end of April or early May. In the very first year of the change, viz., assessment year 1983-84, therefore, the cultivation expenses of two calendar years--those of 1982 and 1983--would have been debited in the accounts. That would explain the fall in the profits in the first year. However, that feature will not be repeated in the succeeding years when the status quo ante would be restored, in the sense that the accounts of each succeeding year would show the cultivation expenses incurred in the last three months (Jan.-- Mar.) only. The receipts from sale of tea would also be disclosed during the earlier part of the accounting per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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