1982 (9) TMI 48 - HC - Income Tax

Summary

Issues:
1. Change of previous year for income tax assessment.
2. Commissioner's power to revise an order under section 263 of the Income Tax Act.
3. Application of promissory estoppel in tax matters.
4. Validity of the fresh order passed by the Income Tax Officer without hearing the assessee.

Analysis:

1. Change of Previous Year for Income Tax Assessment:
The petitioners, publishers of newspapers and periodicals, requested a change in their accounting year due to difficulties in decision-making caused by the existing year-end. The Income Tax Officer (ITO) initially approved the change to a 16-month period ending on 30th April, 1976. However, the Commissioner later deemed this change prejudicial to revenue and directed the ITO to reconsider. The ITO subsequently refused the change, reverting the previous year to the calendar year ending on 31st December. The petitioners challenged this decision, arguing that the refusal was not an order and thus not subject to revision under section 263 of the Income Tax Act.

2. Commissioner's Power to Revise Orders under Section 263:
The Commissioner's power to revise orders under section 263 is limited to erroneous orders prejudicial to the revenue. The key contention in this case was whether the ITO's consent or refusal to change the previous year constituted an order subject to revision. The court held that the grant or refusal of consent under section 3(4) qualifies as an order, as it involves the exercise of discretion and imposition of conditions. Therefore, the Commissioner had the authority to revise the ITO's decision regarding the change in the previous year.

3. Application of Promissory Estoppel:
The petitioners argued for the application of promissory estoppel, claiming they had acted upon the ITO's initial approval and altered their financial position accordingly. However, the court rejected this argument, stating that statutory provisions, such as section 263 of the Income Tax Act, override any estoppel that may arise from administrative decisions.

4. Validity of Fresh Order by Income Tax Officer:
The court scrutinized the fresh order passed by the Income Tax Officer declining the change in the previous year without hearing the petitioners. It was observed that the order lacked reasoned consideration and appeared arbitrary. The court emphasized that the refusal of consent could have significant consequences for the assessee and should not be made without affording the assessee an opportunity to be heard. Consequently, the court quashed the fresh order and directed the ITO to reconsider the petitioners' application for a change in the previous year with proper regard to the circumstances.

In conclusion, the court upheld the Commissioner's power to revise the ITO's decision on changing the previous year, emphasizing the need for reasoned consideration and due process in such matters.