1991 (2) TMI 199 - AT - Income Tax

Tribunal upholds legitimacy of tax planning in Assessing Officer's decision

ASIAN INVESTMENTS LTD. Versus ASSISTANT COMMISSIONER OF INCOME TAX.

The Tribunal held that the Assessing Officer's decision to grant a change in the previous year for the assessee was legitimate tax planning and did not ... - Issues Involved:1. Legitimacy of the change in the previous year granted by the Assessing Officer.2. Alleged suppression of capital gains by the assessee.3. Validity of the sale and lease-back transactions.4. Prejudice to the interests of the Revenue.Detailed Analysis:1. Legitimacy of the change in the previous year granted by the Assessing Officer:The assessee, an investment company, requested a change in its accounting year to synchronize with a sister company, SAFE. The Assessing Officer initially rejected the request due to unclear reasons but later permitted the change, resulting in a 15-month accounting period ending on 30th September 1986. The CIT found this order erroneous and prejudicial to the interests of Revenue, arguing that the change was requested to facilitate the set-off of capital gains against depreciation losses. The Tribunal noted that the assessee provided different administrative reasons at different times, which contributed to the confusion. However, the Tribunal concluded that there was no error in the Assessing Officer's order as the change in the previous year was a legitimate exercise in tax planning and did not mislead the Department.2. Alleged suppression of capital gains by the assessee:The CIT pointed out that the assessee had made significant capital gains in May 1986, which were not disclosed in the summarised profit and loss account submitted to the Assessing Officer. This led to the presumption of suppression of truth. However, the Tribunal found that the statement filed by the assessee was for advance tax purposes and did not include capital gains, which were not liable to advance tax. The Tribunal held that the omission did not mislead the Assessing Officer as the capital gains were later assessed under the head 'capital gains' in the final assessment order.3. Validity of the sale and lease-back transactions:The CIT argued that the assessee managed to make paper losses through purchase and lease-back transactions during the quarter ending 30th September 1986 to set off against the capital gains. The Tribunal found that these transactions were entered into at arm's length and were a legitimate exercise in tax planning. The Tribunal also noted that there was no evidence of any negotiation with the entities involved in these transactions before the request for the change in the previous year.4. Prejudice to the interests of the Revenue:The CIT argued that the change in the previous year was prejudicial to the interests of Revenue as it allowed the assessee to set off capital gains against depreciation losses, thereby postponing the payment of tax. The Tribunal, however, concluded that no prejudice was caused to the Revenue as the set-off of depreciation loss against capital gains was a legitimate exercise in tax planning. The Tribunal also noted that any setting aside of the order of the Assessing Officer now would be an exercise in futility as it would prejudice the assessee, who would be unable to deposit the sale proceeds of the shares in eligible securities under section 54E within the prescribed time limit.Conclusion:The Tribunal held that the order of the CIT under section 263 was not justified as there was no error in the Assessing Officer's order granting the change in the previous year, and no prejudice was caused to the Revenue. Hence, the order of the CIT was cancelled, and the appeal was allowed.