S.P. Bharucha, J.
1. The petitioners, Bennett Coleman & Co. Ltd., are publishers of newspapers and periodicals. Their previous year for the purposes of the I.T. Act, 1961, was the period of 12 months ending on the preceding December 31. On February 15, 1976, the petitioners wrote to the Commissioner of Income-tax, with copes to the IAC and their ITO, asking for approval to their request contained in the said letter to change the previous year to July/June and to prepare accounts for the period of 18 months from January 1, 1976. The letter stated that the Government's annual newsprint policy covered the period April to March and was usually announced in May. It, therefore, became unrealistic for the petitioners to work on the budget and review the performance for business decisions and action for almost five months in their accounting year. By changing the accounting year to July/June, this difficulty would be overcome and it would facilitate decision making.
2. On February 28, 1976, the budget proposals were announced and contained some reliefs to newspapers.
3. On April 3, 1976, the petitioners wrote to their ITO modifying the request made in their letter dated February 25, 1976, and asked for approval of the change of the previous year to end on April 30. In other words, they requested that the period of 16 months, namely, January 1, 1975, to April 30, 1976, be accepted as the previous year 1977-78 income-tax assessment, after the 1975-76 assessment, the previous year of which ended on December 31, 1974. On April 15, 1976, the ITO addressed a communication to the petitioners year from January/December to May/April was allowed subject to the following conditions :
'(a) There will be no previous year relevant to the assessment year 1976-77. However, the assessee-company should file the return of income for the said year showing 'NIL' income.
(b) The previous year relevant to the assessment year 1977-78 will be for 16 months commencing from January 1, 1975, and ending on April 30, 1976.
(c) The advance tax paid by the assessee-company for the assessment year 1976-77 on the basis of estimate file under section 212(3A) of the Income-tax Act, 1961, will be transferred and adjusted against the advance tax payable for the assessment year 1977-78.
(d) No interest under section 214 of the Income-tax Act, 1961, will be payable on the advance tax paid for the assessment year 1976-77, which will be adjusted against the advance tax demand for the assessment year 1977-78.'
4. The ITO asked the petitioners to intimate to him whether they were agreeable to the conditions mentioned. On May 3, 1976, the petitioners informed the ITO that they so agreeable. Appropriate resolutions were passed by the petitioners' board and accounts were prepared on the aforesaid basis.
5. On May 26, 1976, the Finance Bill received assent. It incorporated the relief to newspapers.
6. On January 24, 1977, the CIT, Bombay City VI, addressed to the petitioners a notice under s. 263 of the Act. The notice stated that the ITO's order dated April 25, 1976, giving approval to the change in the previous year was erroneous and prejudicial to the interests of the Revenue. At the time when the order was made the Finance Bill had been introduced but its provisions had not been considered. The petitioners' income from January 1, 1975, to December 31, 1975, which would have been liable to tax for the assessment year 1976-77, would not be liable to be taxed for the assessment year 1977-78 as per the provisions of the Finance Act, 1976. Thus, the petitioners' income for the period January 1, 1975, to December 31, 1976, would bear no surcharge if a deposit of the equivalent amount was made with the Industrial Development Bank of India and the petitioners would be entitled to pay less surtax. The notice stated :
'In view of this, the Income-tax Officer should not have given approval to the change of previous year without safeguarding the interests of Revenue.
In view of the reasons given above, I propose to cancel the above order of the Income-tax Officer and direct him to examine the matter afresh and impose all suitable conditions to safeguard the interests of the Revenue.'
7. By the notice the petitioners were given an opportunity to show cause why such order should not be passed.
8. On June 30, 1977, the Commissioner passed an order under s. 263 of the Act. He recorded that the petitioners' representative at the hearing had only stated that the change requested for was for genuine reasons and if any conditions were required to be imposed to safeguard the interests of the Revenue the petitioners should be allowed an opportunity to discuss the same. The order of the ITO, dated April 15, 1976, allowing a change in the previous year was set aside and the ITO was directed to pass a fresh order according to law after safeguarding the interests of the Revenue and after allowing an opportunity to the petitioners to be heard.
9. On March 21, 1979, the first respondent, then the petitioners' ITO, passed this order :
'The assessee has applied, vide their letters dated 25-2-1976 and 3-4-1976, that they may be permitted to change the previous year from the calendar year to the year ending on April 30, 1976. The change requested for was originally granted by my predecessor, vide his letter dated April 15, 1976. The CIT, vide his order under section 263 dated 25-6-1977 has set aside the above-mentioned change in the previous year. After a careful consideration of the issues involved, I am of the opinion that the change requested for, if granted, would be seriously prejudicial to the interests of the Revenue. Therefore, I hereby refuse to grant change in the previous year requested for by the assessee. The previous year of the assessee-company shall continue to be the calendar year ending on December 31, of each year.'
10. on March 26, 1979, the petitioners filed this petition impugning the order dated June 25, 1977, under s. 263 of the Act and the other dated March 21, 1979, declining approval.
11. It was contended by Mr. Kolah, learned counsel for the petitioners, that the accord or refusal of consent to the change of the previous under was not an order of the ITO. Not being an order, the provisions of s. 263 were not attracted and the Commissioner was not entitled to revise it.
12. 'Previous year', under the provisions of s. 3 of the Act, means the financial year immediately preceding the assessment year, or if the accounts of the assessee have been made up to a date within the said financial year, then at the option of the assessee the twelve months ending on such date. Sub-section (4) of s. 3 provides that an assessee shall not be entitled 'to vary the meaning of the expression 'previous year' as then applicable to him, except with the consent of the Income-tax Officer and upon such conditions as the Income-tax Officer may think fit to impose'.
13. Section 263(1) of the Act reads thus :
'The Commissioner may call for and examine the record of any proceedings under this Act, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.'
14. It is thus clear that the Commissioner can only revise : (a) an order, and (b) an order that is prejudicial to the interests of the Revenue.
15. It was Mr. Kolah's submission that under s. 3(4) of the Act, accord or refusal of consent was not required to be given by the passing of an order nor was the consent given by the ITO on April 15, 1976, in fact an order. Mr. Joshi, learned counsel for the respondents, submitted that accord or refusal of consent by the ITO under s. 3(4) was an order. The consent of the ITO dated April 15, 1976, was, therefore, an order, which could be revised by the Commissioner under s. 263. Mr. Joshi made a reference to a judgment of the Supreme Court in Esthuri Aswathiah v. CIT : 60ITR411(SC) . An order of the ITO granting consent under s. 3(4) was termed therein an order. Whether or not it was an order was not in question nor have any reasons been given for so terming it. This judgment does not assist Mr. Joshi.
16. In my view, the grant of consent or the refusal to do so under s. 3(4) of the Act amounts to an order within the ordinary meaning of that word. The grant or refusal is made on the application of the assessee. The exercise of discretion is required. Consent may be granted subject to such conditions as the ITO may think fit to impose. This calls for an application of mind. The accord of sanction subject to conditions must be explained in a speaking order as must the refusal of consent. The grant or refusal of consent would, therefore, be an order and would fall within the scope of s. 263.
17. It was contended by Mr. Kolah that the only record which the Commissioner had to take into account under s. 263 of the Act was the record as it existed when the ITO passed the order under s. 3(4) and the law as it stood then. It was, therefore, not open to the Commissioner to take the Finance Bill that became law subsequent to the ITO's order into account. Mr. Joshi is right when he points out that at the time the ITO passed the order the budget proposals had been announced and were validly taken into consideration by the Commissioner in passing the order under s. 263.
18. Mr. Kolah submitted that the doctrine of promissory estoppel applied in that the petitioners had acted upon the order granting consent and had prepared their accounts accordingly and had, therefore, altered their position to their prejudice. This argument can be disposed of simply : no estoppel can operate against the provisions of a statute. Section 263 of the Act gave the Commissioner the power to revise the ITO's order, and he was not estopped from doing so.
19. This brings me to the last argument advanced by Mr. Kolah which attacks the fresh order dated March 21, 1979, passed by the 1st respondents under s. 3(4). It was pointed out that the order had been passed by a person other than the ITO who had passed the original order, and he had passed it without hearing the petitioners. It was submitted that the order had been passed mechanically, without application of mind, by borrowing the phraseology of the section. It was also submitted that the discretion under s. 3(4) had to be reasonably exercised and could not be controlled by some insignificant loss. It was urged, on the other hand, by Mr. Joshi that the order had been passed after a careful consideration of the issues involved based upon the records of the case.
20. The provisions of s. 3(4) of the Act cannot be used to decline consent to a bona fide request by the assessee because of a (comparatively) insignificant loss of revenue. Section 3(4) empowers the ITO to impose such conditions as he may think fit. The 1st respondent ought to have applied his mind to the conditions that he should impose rather than flatly turn down the petitioners' request. There is no indication in the order of what induced him to follow this course. It smacks of arbitrariness. Refusal of consent could have serious consequences for the assessee. It is imperative that an order refusing consent or even an order granting consent on conditions should not be passed without first hearing the assessee. The petitioners were not heard before the order refusing consent was passed.
21. It would appear from a perusal of the 1st respondent's order that the only real reason for passing it was that the Commissioner had in the order under s. 263 of the Act said that the original order granting consent affected the interests of the Revenue. The 1st respondent failed to notice that the order under s. 263 required him to hear the petitioners and to prescribe conditions that would offset the loss to the Revenue. In the circumstances, the order of the 1st respondent under s. 3(4) dated March 21, 1979, must be quashed and set aside. The ITO, Company Circle VI (3), shall consider the petitioners' application for consent for alteration of the previous year afresh and pass an order having regard to what is stated herein.
22. Rule made absolute. No order as to costs.