The Commissioner Of Income Tax, Jalandhar v. M/S Punjab Gas Cyclinder Ltd. Ludhiana

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITR No. 26 of 1996 (O&M)Date of decision: November 13, 2009 The Commissioner of Income Tax, Jalandhar ...Appellant Versus M/s Punjab Gas Cyclinder Ltd. Ludhiana. ...Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE GURDEV SINGH Present: Mr. Vivek Sethi,Advocate for the appellant.Mr. Rajiv Sharma, Advocate, for Mr. S.K. Mukhi, Advocate, for the respondent. ORDER 1. Income-Tax Appellate Tribunal, Chandigarh Bench, hasreferred following question of law for opinion of this Court arising outof its order dated 20.7.1995 in ITA No. 167 of 1990 relating toassessment year 1985-86:- “(i) Whether, on the facts and in the circumstances of thecase, the Tribunal was right in law in holding that theassessee had a right to exercise option to adopt its previousyear from 1.1.1983 to 30.6.1984 under Section 3 (1) (e) (i)and was not required to obtain permission under Section 3(4) of the Income-tax Act, on the ground that business hadcommenced with effect from 1.12.1983”. The assessee is engaged in the business of manufacturing of cylinders. It filed return for the assessment year in question by treatingthe previous year to be from 1.12.1983 to 30.6.1984. The AssessingOfficer held that this amounted to change of previous year withoutpermission under Section 3 (4) of the Act and on that ground claim forloss for that year was rejected. The plea of the assessee was that sincenew business of the assessee had commenced on 1.12.1983, provisionunder Section 3 (4) was not applicable, as the assessee had a right ofchoice under Section 3 (1) (e) (i). The Tribunal upheld the plea of theassessee with the following observations:- “In the present case, the only controversy to be determinedis whether the assessee did commence business w.e.f.1.12.1983? If it was so, the assessee had a right to exerciseoption in respect of adoption of the previous year u/s 3 (1)(3) (i) of the Act. There was no other source of income priorto 1.12.1983. There was no question of any new source ofincome in the hands of the assessee. The ld. Counsel hasexplained that it was only by mistake that the assessee whileexplaining justification for the change in the previous year,took the plea that it was a new source of income. But thatplea should not damage the assessee's case, on the basis ofactual facts. This was also pointed out by the ld. counselthat even if the previous year adopted by the assessee wasnot acceptable and the accounting period was treated ashaving ended on 31.12.1983 to 31.12.1984, loss could havebeen determined and allowed to be carried forwardaccordingly. By way of alternative plea, the ld. Counsel has contended that the loss upto the period 31.12.1984, shouldhave been allowed. It is also explained that the loss from1.1.1983 to 31.12.1983 had been shown in the books ofaccount at Rs. 1,63,080/-. Loss from 1.3.1983 to 31.12.1983had been shown in the books of account at Rs. 8,66,671/-.Loss from 1.1.1984 to 31.12.1984 had been shown at Rs.18,02,848/-. The plea of the ld. Counsel is that if the lossupto 30.6.1984 was not allowed after rejecting the assessee'splea. In regard to the adoption of previous year, the lossshould have been allowed, treating the accounting yearhaving been closed on 30.12.1984. But that has also notbeen allowed. In any, 1986-87, the year ending has beenshown by the assessee as 30.6.1985, and that has beenaccepted. In view of this also, the ld. counsel has claimedthat the revenue, by its very conduct, has allowed theprevious year adopted by the assessee in subsequentassessment years. We are in agreement with the ld. counselthat no misc. income had been shown at all in any of thethree earlier years and there was no question of having anysource of income for those years. We also find substance inthe assessee's plea that there was not net source of income,though it was explained mistakenly before the A.O. Thatfrom 1.12.1983, the assessee had started earning incomefrom a new source. Since the facts are said to be otherwise,the assessee's mistaken belief is said to be otherwise, theassessee's mistaken belief is said to be of no relevant and of no consequence. Looking to the entire facts, we are of theview that when the business had commenced w.e.f.1.12.1983, the assessee-company had a right to exercise theoption to adopt a previous year u/s 3 (1) (e) (i) of the Act.We, therefore, accept the assessee's plea that the claim ofloss shown upto 30.6.1984, has to be allowed, treating the'previous year' as ending on 30.67.1984.” 3.We have heard learned counsel for the parties and perusedthe record. 4.Learned counsel for the appellant has placed reliance on Commissioner of Income-tax vs. Ravinder Kumar(1989) 180 ITR 203(P&H) wherein business not being new business, it was held that choiceof previous year without permission could not be exercised. Thisjudgment is clearly distinguishable as in the present case, the businessof the assessee has been held to be new business. 5.In view of reasons given by the Tribunal, it standsestablished that the business of the assessee commenced on 1.12.1983and in such a situation the Tribunal was justified in holding that noprior permission was required under Section 3 (1) (e) (i). The questionreferred, thus, has to be answered against the revenue and in favour ofthe assessee. 6.Reference is disposed of. (ADARSH KUMAR GOEL) JUDGE November 13, 2009 prem (GURDEV SINGH ) JUDGE