In a recent judgment, the High Court of Punjab and Haryana has set aside the order of ITAT and remanding the matter back to the Tribunal for fresh adjudication on the ground that it was not a speaking and reasoned order as per guidelines laid down by the Supreme Court.

Case Details:
Income Tax Appeal (ITA) No. 40of 2013 ; AY: 2007-08
Commissioner of Income Tax-II, Amritsar (Appellant) vs Indra Sen Aggarwal   (Respondent)
Date of Order : 27-08-2015
Coram: Justice Ajay Kumar Mittal and Justice Ramendra jain

Facts of the Case(s):
The return of the assessee was processed under Section 143(1) of the Income Tax Act 1961. Later, the Commissioner of Income Tax-II (CIT), Amritsar cancelled the assessment under Section 263 holding the same to be erroneous and prejudicial to the interest of the revenue and directed the Assessing Officer to complete the assessment de novo after affording fresh opportunity to the assessee. Feeling aggrieved, the assessee filed an appeal before the Tribunal who allowed the appeal and set aside the order of the CIT.

Contentions of the Revenue:
Department submitted that the Tribunal while reversing the findings of the CIT had not passed the reasoned speaking order which is the mandate as laid down by the Hon'ble Apex Court. It was further submitted that the Tribunal had failed to consider the fact that no enquiries were made to verify the genuineness of the deposits and withdrawals made by the assessee in his bank accounts. Department relied on judgments of the Punjab and Haryana High Court in Kandi Friends Educational Trust v. CIT-II, Chandigarh, ITA No. 191 of 2012 and Commissioner of Income Tax v. Raja Industries (2012) 340 ITR 344 (P&H).

Excerpts from the High Court Judgment:
The Hon'ble Apex Court in M/s Kranti Associates Pvt. Ltd. and another v. Sh. Masood Ahmed Khan and others, (2010) 9 SCC 496 while dealing with the requirement of passing a reasoned order by an authority whether administrative, quasi judicial or judicial, had laid down as under:-

“17. The expression 'speaking order' was first coined by Lord Chancellor Earl Cairns in a rather strange context. The Lord Chancellor, while explaining the ambit of Writ of Certiorari, referred to orders with errors on the face of the record and pointed out that an order with errors on its face, is a speaking order. (See 1878-97 Vol. 4 Appeal Cases 30 at 40 of the report).

18. This Court always opined that the face of an order passed by a quasi-judicial authority or even an administrative authority affecting the rights of parties, must speak. It must not be like the 'inscrutable face of a Sphinx'.

19 to 50 XX XX XX 51.

Summarizing the above discussion, this Court holds:

(a) In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially.

(b) A quasi-judicial authority must record reasons in support of its conclusions.

(c) Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well.

(d) Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power.

(e) Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations.

(f) Reasons have virtually become as indispensable component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies.

(g) Reasons facilitate the process of judicial review by superior Courts.

(h) The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice.

(i) Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system.

(j) Insistence on reason is a requirement for both judicial accountability and transparency.

(k) If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism.

(l) Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or 'rubber-stamp reasons' is not to be equated with a valid decision making process.

(m) It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor (1987) 100 Harward Law Review 731-737).

(n) Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See (1994) 19EHRR 553, at 562 para 29 and Anya vs. University of Oxford, 2001 EWCA Civ 405, wherein the Court referred to Article 6 of European Convention of Human Rights which requires, "adequate and intelligent reasons must be given for judicial decisions".

(o) In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of "Due Process".

According to the revenue, the assessee had declared short term capital loss of ` 1,83,68,197/- on the sale of equity shares and long term capital loss amounting to ` 22,77,400/- on sale of long term investment in equity shares. The assessee had made deposits to the tune of ` 97.50 lacs and withdrawals amounting to ` 94,96,560/- from account No. 006601508908 on different dates. The source of credit entries in the bank account was not explained by the assessee and no enquiry whatsoever was made by the Assessing Officer to find out the genuineness of the deposits. The CIT held the assessment proceedings to be prejudicial and erroneous to the interest of the revenue and cancelled the same by directing the Assessing Officer to complete the assessment de novo after affording fresh opportunity to the assessee. The Tribunal set aside the order of the CIT by observing that he was not justified in cancelling the assessment made by the Assessing Officer under Section 143(3) of the Act. The entirety of the facts were required to be gone before upsetting the order of the CIT by the Tribunal. Further, the order dated 30.7.2012 (Annexure A-3) passed by the Tribunal is not a speaking order giving detailed reasons allowing the appeal of the assessee except mentioning that once having examined the source of deposits, the CIT cannot be given power to give his opinion and direct the Assessing Officer to write the order as per the desires of the CIT. It was also noticed that even if inadequate examination or enquiry had been conducted by the Assessing Officer, the CIT cannot direct the Assessing Officer to re-write the order or to make the enquiry again. The Tribunal being final fact finding authority was required to deal with all aspects of factual matrix and then record its conclusions based thereon.

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