In an important judgment, ITAT, Chennai has followed the Punjab & Haryana High Court in upholding the revision u/s 263 on the ground that and the Assessing Office (AO) had not discussed anything in the assessment order with regard to issues under consideration.  The ITAT held that in Income Tax proceedings, the AO is expected to record his own reasons for the conclusion reached.

The Punjab and Haryana High Court had delivered its judgment relying on the Supreme Court in a case of Court Marital in which it was held that:

The requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact whether the decision is subject to appeal, revision or judicial review. It may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a Court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. [62H; 63A-B] The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge.

The view of the ITAT, Chennai is in sharp contrast with Delhi ITAT which in a recent order dated 22-10-2015 which relying on the judgment(s) of Delhi High Court and Allahabad High Court has held that mere fact that the assessment order does not mention the inquires made by the Assessing Officer does not mean that he did not apply his mind and would not make the order erroneous.

INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI

ITA No.1288/Mds/2015 Assessment Year : 2010-11
M/s Medall Health Care Pvt. Ltd (Appellant) vs Principal Commissioner of Income Tax (Respondent
Date of Order: 22-01-2016

ORDER

PER N.R.S. GANESAN, JUDICIAL MEMBER:

This appeal of the assessee is directed against the order of the Principal Commissioner of Income Tax, Chennai-4, Chennai, dated 23.03.2015 and pertains to assessment year 2010-11.

2. Shri T. Vasudevan, the Ld. counsel for the assessee, submitted that the Assessing Officer completed the assessment after making proper enquiry. In fact, the Assessing Officer called for the details pertaining to confirmation of business loss, payment made to Registrar of Companies, claim of depreciation on goodwill, operational expenses, etc. The Principal Commissioner in exercise of his revisional power under Section 263 of the Income-tax Act, 1961 (in short 'the Act') found that the Assessing Officer has not discussed and verified the claim of the assessee. Therefore, according to the Ld. counsel, he found that the order of the Assessing Officer is erroneous and prejudicial to the interests of Revenue. According to the Ld. counsel, the Principal Commissioner directed the Assessing Officer to disallow the claim of the assessee and to make a fresh assessment. Placing reliance on the unreported judgment of Bombay High Court in CIT v. Fine Jewellery (India) Ltd. in Income Tax Appeal No.296 of 2013 dated 3rd February, 2015, the Ld. counsel submitted that if the Assessing Officer conducted an enquiry and accepted the claim of the assessee, it is not necessary to discuss the same in the assessment order. The fact that the assessment order does not contain any discussion with regard to enquiries made by the Assessing Officer and the reasons for the decision taken, it does not mean that the Assessing Officer has not applied his mind. The very fact that the Assessing Officer raised specific enquiries during the course of assessment proceedings showed that the Assessing Officer applied his mind to the facts of the case. Therefore, the Principal Commissioner is not justified in exercising his revisional jurisdiction under Section 263 of the Act.

3. On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the Assessing Officer, being a quasi-judicial authority, and the proceeding before him being a judicial proceeding, the assessment order shall contain the reasons for conclusion. According to the Ld. D.R., the Assessing Officer is expected to make proper enquiry and pass a speaking order in respect of the issues arising for consideration. Since the Assessing Officer has not discussed anything in the assessment order, according to the Ld. D.R., the Principal Commissioner has rightly exercised his revisional jurisdiction.

4. We have considered the rival submissions on either side and perused the relevant material available on record. We have carefully gone through the order of the assessment. The Assessing Officer has not discussed anything in the assessment order with regard to issues arising for consideration. The contention of the Ld. counsel for the assessee is that the Assessing Officer called for details and the same were filed before him. Therefore, there was presumption that the Assessing Officer applied his mind to the facts of the case and accepted the case of the assessee. This Tribunal is of the considered opinion that the proceeding before the Assessing Officer being a judicial proceeding, the Assessing Officer is expected to record his own reasons for the conclusion reached. Whether it is an administrative order or judicial order, the reasons for conclusion or decision taken has to be recorded in the order itself. The reason for the conclusion reached in the order cannot be substituted by way of filing an affidavit or document in a proceeding that may take place at a later stage. We find that the Punjab &Haryana High Court had an occasion to examine this issue in CIT v. Sunil Kumar Goel [2005] 274 ITR 53. The Punjab& Haryana High Court, after considering the judgment of the Constitutional Bench of the Apex Court in S.N.Mukherjee v. Union of India, AIR 1990 SC 1984 , has observed as follows:

“In S. N. Mukherjee v. Union of India, AIR 1990 SC 1984, a Constitution Bench of the Supreme Court discussed the development of law on this subject in India, Australia, Canada, England and the United States of America and after making reference to a large number of judicial precedents, their Lordships culled out the following propositions (page 1995) :

"The decisions of this court referred to above indicate that with regard to the requirement to record reasons the approach of this court is more in line with that of the American Courts. An important consideration which has weighed with the court for holding that an administrative authority exercising quasi judicial functions must record the reasons for its decision, is that such a decision is subject to the appellate jurisdiction of this court under article 136 of the Constitution as well as the supervisory jurisdiction of the High Courts under article 227 of the Constitution and that the reasons, if recorded, would enable this court or the High Courts to effectively exercise the appellate or supervisory power. But this is not the sole consideration. The other considerations which have also weighed with the court in taking this view are that the requirement of recording reasons would (i) guarantee consideration by the authority; (ii) introduce clarity in the decisions; and (iii) minimise chances of arbitrariness in decision making. In this regard a distinction has been drawn between ordinary courts of law and tribunals and authorities exercising judicial functions on the ground that a judge is trained to look at things objectively uninfluenced by considerations of policy or expediency whereas an executive officer generally looks at things from the stand point of policy and expediency.

Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this court in holding that an administrative authority must record reasons for its decision, are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances of arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact whether the decision is subject to appeal, revision or judicial review. It may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge."

In Testeels Ltd. v. N. M. Desai [1970] 37 FJR 7; AIR 1970 Guj 1, a Full Bench of the Gujarat High Court has made an extremely lucid enunciation of law on the subject and we can do no better than to extract some of the observations made in that decision. The same are (headnote of AIR 1970 (Guj):

"The necessity of giving reasons flows as a necessary corollary from the rule of law which constitutes one of the basic principles of the Indian Constitutional set-up. The administrative authorities having a duty to act judicially cannot therefore decide on considerations of policy or expediency. They must decide the matter solely on the facts of the particular case, solely on the material before them and apart from any extraneous considerations by applying pre-existing legal norms to factual situations. Now the necessity of giving reasons is an important safeguard to ensure observance of the duty to act judicially. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and excludes or, at any rate, minimises arbitrariness in the decision-making process.

Another reason which compels making of such an order is based on the power of judicial review which is possessed by the High Court under article 226 and the Supreme Court under article 32 of the Constitution. These courts have the power under the said provisions to quash by certiorari a quasi-judicial order made by an administrative officer and this power of review can be effectively exercised only if the order is a speaking order. In the absence of any reasons in support of the order, the said courts cannot examine the correctness of the order under review. The High Court and the Supreme Court would be powerless to interfere so as to keep the administrative officer within the limits of the law. The result would be that the power of judicial review would be stultified and no redress being available to the citizen, there would be insidious encouragement to arbitrariness and caprice. If this requirement is insisted upon, then, they will be subject to judicial scrutiny and correction."

If the order passed by the Tribunal is scrutinised in the light of the aforementioned proposition of law, we do not find any difficulty in setting aside the same on the ground of violation of the rules of natural justice. The flowery language used by the Tribunal to justify its acceptance of the respondent's plea that he did not know the law does not warrant our affirmation. In our opinion, the Tribunal was duty bound to record tangible and cogent reasons for upsetting well reasoned orders passed by the Assessing Officer and the Commissioner of Income-tax (Appeals). It should have directed its attention to the language of sections 271D and 271E of the Act in conjunction with other provisions of the same family and then decided by a reasoned order whether the respondent had been able to make out a case for deleting the penalty. The order passed by the Tribunal should have clearly reflected the application of mind by the learned members.”

5. In view of the judgment of Apex Court in S.N.Mukherjee (supra), the judgment of Bombay High Court in Fine Jewellery (India) Ltd. (supra) may not be applicable to the facts of the case. By placing reliance on the judgment of Apex Court in S.N.Mukherjee (supra), we do not find any reason to interfere with the order of the Principal Commissioner. However, the Assessing Officer is expected to make an independent enquiry. Therefore, we direct the Assessing Officer to conduct an independent enquiry and pass a speaking order by recording his own reasons without being influenced by any of the observation made by the Principal Commissioner in his impugned order.

6. With the above observation, the appeal of the assessee is dismissed.

Order pronounced on 22nd January, 2016 at Chennai.

(A. Mohan Alankamony)           (N.R.S. Ganesan)
Accountant Member                 Judicial Member