Definition of Previous Year

Some years ago (around 15 years back) different previous years were adopted by the assessees i.e. Diwali,Rathyatra,Ramnavmi and financial year. Many times confirmation of accounts were not possible in this situation. To remove the difficulties; financial year was taken as the previous year and accordingly amendments were made in the Income Tax Act. Since the previous year's income is taxable under I T Act hence income is to be assessed for the financial year (period) ending on 31st March. There are so many deeming fictions in the Income Tax Act. Hence even though full year is not there in a particular year of commencement of the business; still it is known as previous year ( although full financial year is not there).

Dear Ajay,

The entire Income Tax is based on the previous year..

Had the defination of previous year not clarified this thing (that in case of newly setup business Previous year will start from the date of business) then this leaves the scope of litigation where assessee can claim that he cannot be assessed since his case does not falls within the defination of previous year.

I hope u understand.