1997 (10) TMI 55 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of the CIT's order under Section 264 of the IT Act.
2. Evidence supporting the Tribunal's findings.
3. Justification of the Tribunal's decision regarding the previous year.
4. Impact of change in the previous year on surtax liability.

Issue-wise Detailed Analysis:

1. Interpretation of the CIT's Order under Section 264 of the IT Act:
The assessee contended that the CIT's order under Section 264 allowed them to change the previous year. However, the Tribunal and the Court found that the CIT's order merely permitted the assessee to file a return for any period they chose and directed the ITO to consider the application afresh under Section 3(4) of the IT Act while finalizing the assessment for the year 1982-83. The Court held that the CIT did not give a directive to the ITO to grant the change of the previous year, thus rejecting the assessee's contention.

2. Evidence Supporting the Tribunal's Findings:
The Tribunal's findings were based on a computation sheet provided by the Departmental Representative, which was not part of the lower authorities' records. The Court found that the Tribunal did not follow the proper procedure under Rules 29 to 31 of the IT (Appellate Tribunal) Rules, 1963, for admitting additional evidence. Consequently, the Court held that the Tribunal should not have relied on the unsigned work-sheets and should have remanded the matter to the ITO for fresh consideration.

3. Justification of the Tribunal's Decision Regarding the Previous Year:
The Tribunal upheld the ITO's decision to refuse the change of the previous year from June to September, citing potential loss to the exchequer due to surtax liability. The Court agreed that the potential adverse effect on surtax liability was a valid consideration. However, it found that the Tribunal did not have sufficient evidence to conclusively determine the surtax liability impact and should have remanded the matter to the ITO for a detailed examination. The Court also noted that the Tribunal was unsure about the surtax impact for subsequent years.

4. Impact of Change in the Previous Year on Surtax Liability:
The Court discussed the integral connection between the IT Act and the Companies (Profits) Surtax Act, 1964. It held that any adverse effect on surtax liability due to a change in the previous year is a valid reason to deny such a change. However, the Court found that the Tribunal did not have adequate evidence to support its conclusion on the surtax liability for the assessment year 1982-83 and subsequent years. Therefore, the matter should be remanded to the ITO for a thorough review.

Conclusion:
The Court answered question No. 1 in IT Ref. No. 125/92 in the negative, favoring the Revenue. Questions 2(a) to 2(g) were deemed unnecessary to answer. Question No. 3 was not answered as it was another facet of question No. 1. The question in IT Ref. No. 4/94 was not answered due to the need for remanding the matter to the ITO. Question No. 1 in IT Ref. Nos. 166 and 167/1995 was answered in the affirmative, favoring the assessee. Question No. 2 was not answered due to the answer to question No. 1 in IT Ref. No. 125/92. Question No. 3 was answered in the affirmative, favoring the Revenue.