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C.I.T. v. Bharat Nepal Timber Traders - INCOME TAX REFERENCE No. 80 of 1985 [2004] RD-AH 1419 (17 November 2004)


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Court No. 37

I.T.R. 80 of 1985

C.I.T.  Vs. M/s  Bharat Nepal Timber Traders, Kheri

Hon'ble R.K. Agrawal, J.

Hon'ble Prakash Krishna, J.

The Income Tax Appellate Tribunal, Allahabad has referred the following question of law under Section 256 (1) of the Income Tax Act, 1961, hereinafter referred to as the Act for opinion to this Court.

"Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in upholding the order of the C.I.T. (Appeal) directing the I.T.O. to compute the assessee's income in accordance with the previous year adopted by the assessee?'

Briefly stated the facts giving rise to the present Reference as  follows :-

The reference relates to the assessment year 1978-79. During previous year relating to the assessment year 1976-77, the respondent firm under went a change in the constitution w.e.f. 2nd November, 1975. When the firm was being reconstituted the partners decided to close the account on the basis of Diwali year instead of financial year which was being adopted before. The Income Tax Officer did not accept the change holding that the department had not allowed it. He applied the assessments under assessment year 1976-77 and 1977-78 by making several adjustments as a consequence of the non acceptance of the change in the previous order. He did the same in respect of the assessment year in question also. However, in appeal the Commissioner of Income Tax (Appeal) following the order passed by the Tribunal for the assessment years 1976-76 and 1977-78 directed the Income Tax Officer to compute respondent's income in accordance with the previous year adopted by the respondent. Revenue's appeal before the Tribunal has failed.

We have heard Sri A.N. Mahajan, learned Standing Counsel for the Revenue and Shri V.K. Rastogi, appearing for the respondent/assessee.

We find that the Tribunal has relied upon its earlier order for the assessment years 1976-77 and 1977-78, wherein the change in the previous year had been allowed. The matter came up before this Court in a Reference being I.T.R. No. 217 of 1981, which was decided vide judgment and order dated 8th September, 1997. The second question referred in the aforementioned Income Tax Reference was regarding electing previous year in independently of what was the previous year of the old firm. This Court has held that it was not open to the reconstituted firm to elect a different previous year except in accordance with law. This Court has held as follows :-

"Turning to the second question, the controversy for consideration is whether the assessee firm was entitled to elect the Dewali year in place of financial year w.e.f. 3rd Nov., 1975. The Tribunal proceeded on the footing that after retirement of the three partners, absolutely a new and distinct entity came into being and, therefore, the distinct entity was at liberty to elect the Dewali year. The approach of the Tribunal was that upon retirement of the three partners from the firm, the predecessor firm was succeeded by absolutely a new entity, which was at liberty to elect a new previous year either the Dewali year or some other year. It is not the finding of the Tribunal that any firm is entitled to elect a new previous year at any time during the accounting period. We, therefore, proceed by the reasoning of the Tribunal. In view of the decision of the Supreme Court in the case of Empire Estate (supra), it must be held that no new and distinct entity came into being upon retirement of the three partners after 2nd Nov., 1975, but the assessee firm continued the business after being reconstituted. This being so, the reasoning of the Tribunal that after retirement of the three partners, absolutely a new entity came into being which was at liberty to elect a new previous year of its own, is faulty and cannot be sustained. The reconstituted firm could not have elected a new previous year, except in accordance with law."

The judgment is reported in (1998) 149 C.T.R.  (Allahabad) 438.

Respectfully following the aforesaid decision we answer the question referred to us in the negative i.e. in favour of the Revenue and against the assessee. There will be no order as to costs.

Dt. 17.11.2004



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