ITAT cancels Commissioner's order under sec 263 of Income-tax Act, income not taxable in assessment year.

The Income-tax Appellate Tribunal (ITAT) was correct in canceling the Commissioner's order under section 263 of the Income-tax Act. The court held that the income for the period from November 16, 1982, to March 31, 1983, should not be taxed in the assessment year 1984-85. The court ruled in favor of the assessees, agreeing that the firm's assessment for that period was valid, and the Assessing Officer's order was not erroneous. The ITAT's decision was upheld, invalidating the Commissioner's interference under section 263.

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Issues Involved:
1. Whether the Appellate Tribunal was right in law and on facts in cancelling the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961.
2. Whether the income for the period November 16, 1982, to March 31, 1983, should be taxed in the assessment year 1984-85.

Issue-Wise Detailed Analysis:

1. Cancellation of the Commissioner's Order under Section 263:
The primary issue was whether the Income-tax Appellate Tribunal (ITAT) was correct in cancelling the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961. The Commissioner had invoked section 263, arguing that the income of the period from November 16, 1982, to March 31, 1983, should have been taxed in the assessment year 1984-85, as the assessees were not allowed to change the previous year without the consent of the Income-tax Officer.

The ITAT, relying on the provisions of section 3(1)(f) and the decision of the Bombay High Court in CIT v. McKenzies Limited [1980] 121 ITR 458, held that the assessment made by the Inspecting Assistant Commissioner for the period from November 16, 1982, to March 31, 1983, under section 143(3) read with section 176 was in accordance with section 3(1) of the Act. Consequently, the ITAT cancelled the Commissioner's orders under section 263.

2. Taxation of Income for the Period November 16, 1982, to March 31, 1983:
The core of the dispute was whether the income for the period from November 16, 1982, to March 31, 1983, should be taxed in the assessment year 1984-85. The Revenue argued that since the Samvat year was the previous year for the firm and the assessees' share in the firm's income, the assessees should have filed only one return for the assessment year 1983-84 and another for the assessment year 1984-85. Filing two returns for the assessment year 1983-84 and one for 1984-85 without the consent of the Income-tax Officer was deemed erroneous.

The assessees contended that section 3(1)(f) mandates that the period determined as the previous year for the assessment of the firm's income must be treated as the previous year for the assessees' share in the firm's income. Since the firm was assessed for the period from November 16, 1982, to March 31, 1983, the assessees were entitled to rely on this period as their previous year without needing the Income-tax Officer's consent.

The court agreed with the assessees, stating that section 3(1)(f) is mandatory and that the firm's assessment for the period from November 16, 1982, to March 31, 1983, was valid. The firm's dissolution on March 31, 1983, and the subsequent assessment by the same officer who assessed the firm justified the assessees' filing of returns for the same period. The court found that the ITAT was correct in applying section 3(1)(f) and holding that the Assessing Officer's order was not erroneous, thus invalidating the Commissioner's interference under section 263.

Conclusion:
The court concluded that the ITAT was right in cancelling the Commissioner's order under section 263, and the income for the period from November 16, 1982, to March 31, 1983, should not be taxed in the assessment year 1984-85. The question was answered in the affirmative, in favor of the assessees and against the Revenue.

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