ORDER
B.L. Chhibber, Accountant Member
1. This appeal by the assessee is directed against the order of Commissioner of Income-tax, Baroda under Section 263 of the Income-tax Act, 1961.
2. The assessee-company’s previous year for the assessment year 1985-86 ended on 30-6-1984. Income for the 12 months ending on 30-6-1984 was assessed by the Assessing Officer in the assessment year 1985-86 by order under Section 143(3) dated 4-1-1988. The assessee-company was amalgamated with M/s. Nestler Boilers (P.) Ltd. w.e.f. 30-12-1984. The accounts for the six months ended on 31-12-1984 in the case of the assessee-company were made up showing the net profit of Rs. 2,86,074. This income was assessed by the Assessing Officer in the hands of the company in the assessment year 1986-87. The CIT was of the view that assessment order passed under Section 143(3) dated 4-1-1988 was erroneous insofar as it was prejudicial to the interests of the revenue on the following grounds :
The income assessed at Rs. 3,83,170 for the period of 6 months from 1-7-1984 to 31-12-1984, viz., date of amalgamation, is assessable as income from the assessment year 1985-86 (taking the previous year of 18 months) and not for assessment year 1986-87.
According to the learned CIT under the provisions of Section 3 of the Income-tax Act, the previous year of the assessee is the financial year immediately preceding the assessment year or any period of 12 months following such period as may be determined by the Board or any authority authorised by the Board. The learned CIT held that since the 6 months’ period ended on 31-12-1984 during the financial year 1984-85 this income of the company should have assessed in the assessment year 1985-86. He, therefore, by the impugned revisional order set aside the assessment framed by the Assessing Officer and directed him to pass fresh assessment in which the income for the period 1-7-1984 to 31-12-1984 should be determined and included in the total for assessment year 1985-86.
3. Shri J.P. Shah, the learned counsel for the assessee submitted that the CIT erred in coming to the conclusion of prejudicial because his conclusion is not supported by any material either in the notice or in the revisional order. According to the learned counsel, such a conclusion can be sustained only if it is shown either in the notice or in the revisional order that there is tax loss on comparison of figures of assessment for two years, which exercise he has neither done in the notice nor in the revisional order. The CIT has proceeded as if the words “error” and “prejudice” are synonymous. The learned counsel further submitted that the CIT failed to appreciate that ordinarily the accounting period is of 12 months and not of 18 months and in support of this contention he drew our attention to the definition of previous year in Sub-section (4) of Section 3 of the Act which gives an option to the assessee to choose the previous year. The learned counsel further submitted that the order of the learned CIT is bad for the additional reason that he directs the addition of Rs. 3,83,170 in the assessment year 1985-86 but does not direct the exclusion thereof from the assessment year 1986-87 in which it was rightly taxed.
4. The learned D.R. relied upon the order of the CIT.
5. We have considered the rival submissions and find force in the submissions of the learned counsel for the assessee. Sub-section (4) of Section 3, as it stood prior to the amendment with effect from 1-4-1989, read 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) or 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.
From the above it is evident that the option is to be exercised by the assessee and since the assessee had been regularly following the year ending on 30th June the action of the learned CIT in directing the Assessing Officer to extend the previous year to a period of 18 months is legally untenable. We, accordingly, cancel the order passed by the learned CIT.
6. In the result, the appeal is allowed.