ITR No. 10 of 1996 1 IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITR No. 10 of 1996 Date of decision: 04.07.2008 The commissioner of Income -tax Patiala ..... Revenue Versus M/s Maltax Malsers Ltd., Ranni, Patiala ..... Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE RAKESH KUMAR GARG Present:- Mr. K.L. Goyal, Advocate for the Revenue. Mr. Akshay Bhan, Advocate for the respondent-assessee. RAKESH KUMAR GARG, J. The assessee company is manufacturing malt from Barley. In addition to this, the company has income from dealings in indian made foreign liquor, on wholesale basis. The assessee company filed its return of income on 29.06.1984 declaring net income of Rs.11,85,890/-. The accounting period of the assessee company for assessment year 1983-84 ended on 30th Nov.1982. The assessee company moved an application for change of its accounting period from 30th November to 30th June. While allowing the said application on ITR No. 10 of 1996 2 30.12.1982, the Assessing Officer had imposed a condition that depreciation allowance for assessment year 1984-85 will be restricted to 7/12 of the admissible amount of depreciation. The said order was never challenged by the assessee. During the course of assessment proceedings, the Assessing Officer allowed depreciation to the extent of 7/12 of the admissible amount of depreciation. The assessee preferred appeal to Commissioner of Income Tax ( Appeals ), Ludhiana ( hereinafter referred to as the CIT(A) ), who held that in view of the rule 5(1) of the Income-tax Rules, the assessee was entitled to full depreciation instead of 7/12. When the matter came before the Income Tax Appellate Tribunal, Chandigarh ( hereinafter referred to as 'the Tribunal ), it was observed that the assessee in the present case did not file any appeal against the conditions imposed by the Assessing Officer while permitting change in the “previous year” because no such appeal lies under the Income-tax Act. The Tribunal while relying upon the judgment of the Hon'ble Gujrat High Court in the case of VXL India v. CIT ( 168 ITR 804 ) and J.K. Synthetic Ltd. v. ITO ( 105 ITR 864 ) held that there was no estoppel against the law and if the condition imposed by the Income Tax Officer while permitting a change in the “previous year” was invalid and even if it is not challenged by the Assessing Officer, the full depreciation is allowable to the assessee at the prescribed rate irrespective of the user of the assets. On a petition filed by the ITR No. 10 of 1996 3 revenue, in compliance of the directions of this Court, passed in ITC No. 185 of 1993 dated April 10, 1996, under Section 256(2) of the Income Tax Act, 1961, the Tribunal referred the following question of law to this Court for its opinion:- “Whether on the facts and circumstances of the case, the Appellate Tribunal was right in law in upholding the decision of CIT (A) allowing full depreciation, when the Assessing Officer while passing order under Section 3(4) imposed condition that depreciation allowance for the assessment year 1984-85 will be restricted to 7/12 of the admissible did not challenge the same in appeal?” Shri K.L. Goyal, Advocate for the revenue has argued that since the order dated 30.12.1982 allowing the change of the previous year has been accepted by the Assessing Officer by imposing a condition upon the assessee which was obligatory, therefore, the CIT(A) as well as the Tribunal have erred at law by allowing full depreciation to the assessee. On the other hand, Mr. Akshay Bhan, learned counsel for the assessee-respondent has vehemently argued that the Assessing Officer cannot impose condition arbitrarily and contrary to the provisions of the Income Tax Act and the conditions which the Income Tax Officer can impose while ITR No. 10 of 1996 4 permitting a change in the “previous year” must be valid, legal and reasonable. He further argued that there is no estoppel against the law and if the condition imposed by the Income Tax Officer while permitting a change in the previous year was invalid, the same can be ignored by the Assessing Authority while granting the benefit of full depreciation under Section 32 read with Rule 5(i) of the Income Tax Rules, which permitted full depreciation to the assessee. In support of his arguments, the learned counsel has placed reliance upon the judgment of Hon'ble Gujarat High Court in the case of VXL India v. CIT (supra) and J.K. Synthetic Ltd. v. ITO(supra) for the proposition The conditions which the Act imposes, while permitting a change in the “previous year” must be valid, legal and reasonable and the Revenue Authority cannot impose conditions which are contrary to the provisions of the Income Tax. We have heard learned counsel for the parties and perused the record of the reference. From the arguments raised by learned counsel for the parties, the following two issues emerge for the decision of this reference:- “1- Whether and what is the meaning of previous year as provided under Section 3(4) of the Income Tax Act? ITR No. 10 of 1996 5 2- Whether the Assessing Officer is competent to impose any condition while allowing such change in the previous year” Under Section 3 of the Income Tax Act, 1961 ( as applicable ), “the previous year means”, “the financial year immediately preceding the assessment year”. Sub-section 4 of Section 3 of the Income Tax Act, entitles the assessee to vary the meaning of the expression “previous year” as applicable to him with the consent of the Assessing Officer and upon such conditions as the Assessing Officer may think fit to impose. Section 3(4) of the Income Tax reads as under:- “ Where in respect of a particular source of income or in respect of a business or profession newly set up, an assessee has once exercised the option under clause (b) of sub-clause (ii) of clause (d) or sub-clause (i) of clause (e) of sub-section (1) or has once been assessed, then he shall not, in respect of that source, or, as the case may be, business or profession, be entitled to vary the meaning of the expression “previous year” as then applicable to him, except with the consent of the Assessing Officer and upon such conditions as the Assessing Officer may think fit to impose”. ITR No. 10 of 1996 6 Rule 5 (1) of the Income Tax Rules provides that depreciation is allowable to the full accounting period irrespective of the fact as to whether the machinery has worked for a full year or even for a day. Rule 5(1) of the Income Tax Rules reads as under:- “5(1) Subject to the provisions of sub-rule (2) the allowance under clause (ii) of sub-section (1) of section 32 in respect of depreciation of any block of assets shall be calculated at the percentages specified in the second column of the Table in Appendix 1 to these rules on the written down value of such block of assets as are used for the purposes of the business or profession of the assessee at any time during the previous year.” From the perusal of the provisions of Section 3(4) of the Income Tax, it is clear that the assessee has the option to choose his accounting year ending on any date within the preceding financial year as his 'previous year'. Once he exercises this option, the meaning of the expression “previous year” as applicable to him is determined, and he cannot exercise this option again so as to vary the meaning of the expression 'previous year' as then applicable to him, except with the consent ITR No. 10 of 1996 7 of the Income-tax Officer and upon such conditions as the Income-tax Officer may think fit to impose. If the assessee wants to change the meaning of the previous year as then applicable to him, he must obtain the consent of the Income-tax Officer, and the Income-tax Officer may refuse to give his consent, but if he does give his consent, he has ample power to impose the condition that the full period from the end of the 'previous year' for the preceding year's assessment to the end of the new accounting year should be taken as the previous year for the current assessment year. Rule 5(1) of the Income-tax Rules provides for depreciation allowable to the assessee according to which the assessee is entitled to full depreciation as the said depreciation is allowable to the assessee under Section 32 of the Income Tax Act at the prescribed rate irrespective of the period of user of the assets. In view of the above situation, any condition to the contrary imposed by the ITO while permitting a change in the “previous year” cannot be made applicable,as it is well settled that there cannot be estoppel against the law. We agree with the judgment of Gujrat High Court in the case of VXL India v. CIT (supra), wherein it has been held that the Assessing Officer could not impose condition arbitrarily and the conditions should ITR No. 10 of 1996 8 not go against the spirit of the Income Tax Act. The facts of the present case are similar to the instant appeal. Thus in view of the above discussion, the question of law referred by the Tribunal is answered in affirmative i.e. against the revenue and in favour of the assessee. ( RAKESH KUMAR GARG ) JUDGE ( RAJIVE BHALLA ) July 04, 2008 JUDGE dinesh