CIT v. Vikas Chemi Gum India

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The Tax Publishers2005 TaxPub(DT) 1364 (P&H-HC) : (2005) 006 (I) ITCL 0322 : (2005) 276 ITR 0032 : (2005) 196 CTR 0123 : (2005) 146 TAXMAN 0256 CIT v. Vikas Chemi Gum India () INCOME TAX --Appeal (Tribunal)----ORDER OF TRIBUNALNon-speaking order--AO made addition on account of value of 'Bardana' used for storing 'churi and korma'. The CIT(A) deleted the addition and also gave a finding that the total turnover would also include the amount realised by way of bye-products, i.e., 'churi and korma' for purposes of section 80HHC(3)(b). The Tribunal approved order of the CIT(A) but no reasons were given by it. Held: The order passed by the Tribunal was a non-speaking order and was thus vitiated due to violation of principle of natural justice, therefore, issue was remanded back to the Tribunal. Income Tax Act, 1961 s.254 Income Tax Act, 1961 s.80HHC INCOME TAX --Income----ADDITIONPreceding year s order of assessment not challenged on similar facts-- Held: Since the revenue did not challenge the order passed by the Tribunal in relation to the assessment year 1986-87 vide which it confirmed the order of the CIT(A) deleting the addition made by the AO on account of value of Bardana used for storing Churi and Korma , it could not challenge similar order passed in relation to the relevant assessment year 1988-89. Income Tax Act, 1961 s.4 Income Tax Act, 1961 s.143 CIT v. Vikas Chemi Gum India In the Punjab & Haryana High Court G.S. Singhvi & Viney Mittal, JJ. IT Appeal No. 186 of 1999 8 February 2005 Counsel : Rajesh Bindal for the Revenue P.C. Jain for the Assessee JUDGMENT G.S. Singhvi, J. In this. appeal filed under section 260A of the Income Tax Act, 1961 (herein after referred to as 'the Act'), Commissioner of Income-tax, Rohtak (Appellant) has prayed for determination of the following questions of law: '(i) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in confirming the order of Id. CIT(A), who deleted the addition of Rs. 1,38,860 made on account of value of 'Bardana' used for storing 'churi and korma? (ii) Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal was right in law in confirming the order of CIT(A), who directed the assessing officer to exclude the sale of 'churi korma' out of total turnover while working out deduction under section 80HHC?' 2. For the assessment year 1988-89, the respondent filed return on 29-71988 declaring total income of Rs. 2,20,900. The assessing officer finalised the assessment under section 143(3) read with section 184(7) of the Act. He allowed deduction of Rs. 42,95,542 under section 80HHC of the Act. The appeal filed by the assessee was partly allowed by CIT(A), Rohtak (for short, 'CIT(A)'). He referred to section 80HHC(l) of the Act and held: 'It will be clear from the reading of the said sub-section that where an eligible assessee was engaged in the business of export of allowable goods or merchandise, he was straight away to be allowed a deduction of 4 per cent of the net foreign exchange realisation and over and above this, 50 per cent of the remaining profit derived by him from the export of such goods /merchandise was also admissible to him as deduction. (ref. Board's Circular No. 469 dated 23-9-1986). In order to arrive at the 50 per cent of the profits, sub-section (3) of section 80HHC was to be resorted to. This section quantified the profits, (a) in the case of an assessee who was engaged in exclusive report, (b) in the case of an assessee who was doing export as well as other business in India. It would, therefore, appear that the assessing officer was not justified in over-looking the provisions of sub-section (1) and straight away resorting to sub-section (3)(b) of section 80HHC. The assessing officer has himself mentioned in his order referred in para 7 that the deduction at the rate of 4 per cent of the net foreign exchange realisation of the appellant at Rs. 11,98,16,475 works out to Rs. 47,92,659. In view of this, he is directed to allow deduction of the said amount of Rs. 47,92,659 under clause (a) of sub-section (1) and rest of the deduction (exceeding Rs. 47,92,659) if any, eligible to the appellant under clause (b) of sub-section (1) read with section (3)(b) of section 80HHC, subject to the creation of necessary reserve and ensuring that the overall deduction does not exceed the profit derived by the appellant from export. These directions are given with the finding that the total turnover of the appellant win also include the amount realised on sale of bye-product(s) i.e., Churi, Korma, for the purpose of section (3)(b) of section 80HHC as these do represent the sale proceeds of the appellant.' 3. The appeal filed by the revenue against the order of the CIT(A) was dismissed by the Income Tax Appellate Tribunal (Delhi Bench 'A' Delhi) (herein after referred to as 'the Tribunal') vide its order dated 26-4-1999. Paragraph 4.4 of that order reads as under: '4.4 We have considered the rival submission and have gone through the relevant material available on record. We find that the CIT (Appeals) has discussed this issue at length. After considering the submissions of the assessee given in paragraph 7.1, we agree with his finding given on this issue and find no material to take a different view in the matter, as the matter is discussed in detail. As such this ground is also rejected.' 4. At the commencement of hearing, Shri Rajesh Bindal made an oral request for permission to file amended memo of appeal after correcting the apparent mistakes in the body of the appeal as well as the frame of question No. (ii). The request made by Shri Rajesh Bindal is accepted because learned counsel for the respondent gave out that he does not have any objection. The amended memo of appeal filed by Shri Bindal is taken on record. Shri Rajesh Bindal also produced fax message dated 4-4-2005 received from Joint Commissioner of Income-tax, l3hiwani Range, Bhiwani in which the officer concerned has stated that his office is not in a position to intimate the fate of the reference application filed in regard to the assessment year 1986-87. 5. Shri P.C. Jain, learned counsel for the respondent says that his client too does not have any information about the filing of application by the revenue under section 256(2) of the Act in relation to the assessment year 1986-87. Shri Jain also gave out that the revenue did not challenge the order passed by the Tribunal in relation to the assessment year 1987-88 vide which both the questions, of which determination has been sought in this appeal, were decided in favour of the respondent. 6. We have heard learned counsel for the parties and perused the record. 7. Since the appellant did not challenge the order passed by the Tribunal in relation to the assessment year 1986-87 vide which it confirmed the order of the CIT(A) deleting the addition made by the assessing officer on account of value of 'Bardana' used for storing 'Churi' and 'Korma', it cannot challenge similar order passed in relation to the assessment year 1988-89. Reference in this connection can appropriately be made to the judgment of the Supreme Court in Berger Paints India Ltd. v. CIT (2004) 266 ITR 991(SC). 8. As regards question No. (ii), we find that the Tribunal has neither considered the points raised by the appellant nor assigned any reason for approving the order passed by the CIT(A). To put it differently, the order of the Tribunal is a non-speaking order and is thus, vitiated due to violation of the rules of natural justice. 9. The requirement of recording of reasons and communication there of has been read as an integral part of the concept of fair procedure. The necessity of giving reasons flows from the concept of rule of law which constitute one of the cornerstones of our constitutional set up. The administrative authorities charged with the duty to act judicially cannot decide the matters on considerations of policy or expediency. The requirement of recording of reasons by such authorities is an important safeguard to ensure observance of the rule of law. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and minimises arbitrariness in the decision making process. Another reason which makes it imperative for the quasi-judicial authorities to give reasons is that their orders are not only subject to the right of the aggrieved persons to challenge the same by filing statutory appeal and revision but also by filing writ petition under article 226 of the Constitution. Such decisions can also be challenged by way of appeal under article 136 of the Constitution of India. The High Courts have the power to issue writ of certiorari to quash the orders passed by a quasi-judicial authority/Tribunal. Likewise, in appeal the Apex Court can nullify such order/decision. These powers can be effectively exercised by the superior Courts only if the order under challenge contains reasons. If such order is cryptic and devoid of reasons, the courts cannot effectively exercise the power of judicial review and we cannot countenance a situation in which the administrative authorities vested with the power to decide the rights of the parties may stultify the powers of the courts simply by not recording reasons in support of their decisions and/or by refraining from communicating such reasons to the affected person. This is the reason why the courts have insisted on rigorous compliance of the requirement of recording of reasons and communication thereof by every quasi-judicial authorityHari Nagar Sugar Mills Ltd, v. Shyam Sunder Jhunjhunwala AIR 1961 SC 1669; Madhya Pradesh Industries Ltd. v. Union of India AIR 1966 SC 671; Bhagat Raja v. Union of India AIR 1967 SC 1606; Mahabir Prasad Santosh Kumar v. State of UP AIR 1970 SC 1302; Travancore Rayons Ltd. v. Union of India AIR 1971 SC 862; State of Punjab v. Bakhtawar Singh AIR 1972 SC 2083; Siemens Engg. & Mfg. Co. of India Ltd. v. Union of India AIR 1976 SC 1785; Ajantha Industries v. CBDT AIR 1976 SC 437 and S.N Mukherjee v. Union of India AIR 1990 SC 1984. 10. In Testeels Ltd. v. N.M. Desai, Conciliation Officer AIR 1970 Guj. 1, a Full Bench of the Gujarat High Court referred to American, British and Australian cases on the subject and laid down the following propositions: '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.' (p. 1) (Emphasis herein printed inalics supplied) 11. In the result, the appeal is partly allowed. Question No. (i) is answered against the department. As regards question No. (ii), the case is remanded to the Tribunal with the direction that it should decide the appeal afresh by assigning cogent reasons. OPEN SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2005 TaxPub(DT) 1364 (P&H-HC) : (2005) 006 (I) ITCL 0322 : (2005) 276 ITR 0032 : (2005) 196 CTR 0123 : (2005) 146 TAXMAN 0256

CIT v. Vikas Chemi Gum India ()

INCOME TAX

--Appeal (Tribunal)----ORDER OF TRIBUNALNon-speaking order--AO made addition on account of value of 'Bardana' used for storing 'churi and korma'. The CIT(A) deleted the addition and also gave a finding that the total turnover would also include the amount realised by way of bye-products, i.e., 'churi and korma' for purposes of section 80HHC(3)(b). The Tribunal approved order of the CIT(A) but no reasons were given by it. Held: The order passed by the Tribunal was a non-speaking order and was thus vitiated due to violation of principle of natural justice, therefore, issue was remanded back to the Tribunal.

Income Tax Act, 1961 s.254

Income Tax Act, 1961 s.80HHC

INCOME TAX

--Income----ADDITIONPreceding year s order of assessment not challenged on similar facts-- Held: Since the revenue did not challenge the order passed by the Tribunal in relation to the assessment year 1986-87 vide which it confirmed the order of the CIT(A) deleting the addition made by the AO on account of value of Bardana used for storing Churi and Korma , it could not challenge similar order passed in relation to the relevant assessment year 1988-89.

Income Tax Act, 1961 s.4

Income Tax Act, 1961 s.143

In the Punjab & Haryana High Court G.S. Singhvi & Viney Mittal, JJ.

IT Appeal No. 186 of 1999 8 February 2005

Counsel : Rajesh Bindal for the Revenue P.C. Jain for the Assessee

JUDGMENT

G.S. Singhvi, J.

In this. appeal filed under section 260A of the Income Tax Act, 1961 (herein after referred to as 'the Act'), Commissioner of Income-tax, Rohtak (Appellant) has prayed for determination of the following questions of law:

'(i) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in confirming the order of Id. CIT(A), who deleted the addition of Rs. 1,38,860 made on account of value of 'Bardana' used for storing 'churi and korma?

(ii) Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal was right in law in confirming the order of CIT(A), who directed the assessing officer to exclude the sale of 'churi korma' out of total turnover while working out deduction under section 80HHC?'

2. For the assessment year 1988-89, the respondent filed return on 29-71988 declaring total income of Rs. 2,20,900. The assessing officer finalised the assessment under section 143(3) read with section 184(7) of the Act. He allowed deduction of Rs. 42,95,542 under section 80HHC of the Act. The appeal filed by the assessee was partly allowed by CIT(A), Rohtak (for short, 'CIT(A)'). He referred to section 80HHC(l) of the Act and held:

'It will be clear from the reading of the said sub-section that where an eligible assessee was engaged in the business of export of allowable goods or merchandise, he was straight away to be allowed a deduction of 4 per cent of the net foreign exchange realisation and over and above this, 50 per cent of the remaining profit derived by him from the export of such goods /merchandise was also admissible to him as deduction. (ref. Board's Circular No. 469 dated 23-9-1986). In order to arrive at the 50 per cent of the profits, sub-section (3) of section 80HHC was to be resorted to. This section quantified the profits, (a) in the case of an assessee who was engaged in exclusive report, (b) in the case of an assessee who was doing export as well as other business in India.

It would, therefore, appear that the assessing officer was not justified in over-looking the provisions of sub-section (1) and straight away resorting to sub-section (3)(b) of section 80HHC. The assessing officer has himself mentioned in his order referred in para 7 that the deduction at the rate of 4 per cent of the net foreign exchange realisation of the appellant at Rs. 11,98,16,475 works out to Rs. 47,92,659. In view of this, he is directed to allow deduction of the said amount of Rs. 47,92,659 under clause (a) of sub-section (1) and rest of the deduction (exceeding Rs. 47,92,659) if any, eligible to the appellant under clause (b) of sub-section (1) read with section (3)(b) of section 80HHC, subject to the creation of necessary reserve and ensuring that the overall deduction does not exceed the profit derived by the appellant from export. These directions are given with the finding that the total turnover of the appellant win also include the amount realised on sale of bye-product(s) i.e., Churi, Korma, for the purpose of section (3)(b) of section 80HHC as these do represent the sale proceeds of the appellant.'

3. The appeal filed by the revenue against the order of the CIT(A) was dismissed by the Income Tax Appellate Tribunal (Delhi Bench 'A' Delhi) (herein after referred to as 'the Tribunal') vide its order dated 26-4-1999. Paragraph 4.4 of that order reads as under:

'4.4 We have considered the rival submission and have gone through the relevant material available on record. We find that the CIT (Appeals) has discussed this issue at length. After considering the submissions of the assessee given in paragraph 7.1, we agree with his finding given on this issue and find no material to take a different view in the matter, as the matter is discussed in detail. As such this ground is also rejected.'

4. At the commencement of hearing, Shri Rajesh Bindal made an oral request for permission to file amended memo of appeal after correcting the apparent mistakes in the body of the appeal as well as the frame of question No. (ii). The request made by Shri Rajesh Bindal is accepted because learned counsel for the respondent gave out that he does not have any objection. The amended memo of appeal filed by Shri Bindal is taken on record.

Shri Rajesh Bindal also produced fax message dated 4-4-2005 received from Joint Commissioner of Income-tax, l3hiwani Range, Bhiwani in which the officer concerned has stated that his office is not in a position to intimate the fate of the reference application filed in regard to the assessment year 1986-87.

5. Shri P.C. Jain, learned counsel for the respondent says that his client too does not have any information about the filing of application by the revenue under section 256(2) of the Act in relation to the assessment year 1986-87. Shri Jain also gave out that the revenue did not challenge the order passed by the Tribunal in relation to the assessment year 1987-88 vide which both the questions, of which determination has been sought in this appeal, were decided in favour of the respondent.

6. We have heard learned counsel for the parties and perused the record.

7. Since the appellant did not challenge the order passed by the Tribunal in relation to the assessment year 1986-87 vide which it confirmed the order of the CIT(A) deleting the addition made by the assessing officer on account of value of 'Bardana' used for storing 'Churi' and 'Korma', it cannot challenge similar order passed in relation to the assessment year 1988-89. Reference in this connection can appropriately be made to the judgment of the Supreme Court in Berger Paints India Ltd. v. CIT (2004) 266 ITR 991(SC).

8. As regards question No. (ii), we find that the Tribunal has neither considered the points raised by the appellant nor assigned any reason for approving the order passed by the CIT(A). To put it differently, the order of the Tribunal is a non-speaking order and is thus, vitiated due to violation of the rules of natural justice.

9. The requirement of recording of reasons and communication there of has been read as an integral part of the concept of fair procedure. The necessity of giving reasons flows from the concept of rule of law which constitute one of the cornerstones of our constitutional set up. The administrative authorities charged with the duty to act judicially cannot decide the matters on considerations of policy or expediency. The requirement of recording of reasons by such authorities is an important safeguard to ensure observance of the rule of law. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and minimises arbitrariness in the decision making process. Another reason which makes it imperative for the quasi-judicial authorities to give reasons is that their orders are not only subject to the right of the aggrieved persons to challenge the same by filing statutory appeal and revision but also by filing writ petition under article 226 of the Constitution. Such decisions can also be challenged by way of appeal under article 136 of the Constitution of India. The High Courts have the power to issue writ of certiorari to quash the orders passed by a quasi-judicial authority/Tribunal. Likewise, in appeal the Apex Court can nullify such order/decision. These powers can be effectively exercised by the superior Courts only if the order under challenge contains reasons. If such order is cryptic and devoid of reasons, the courts cannot effectively exercise the power of judicial review and we cannot countenance a situation in which the administrative authorities vested with the power to decide the rights of the parties may stultify the powers of the courts simply by not recording reasons in support of their decisions and/or by refraining from communicating such reasons to the affected person. This is the reason why the courts have insisted on rigorous compliance of the requirement of recording of reasons and communication thereof by every quasi-judicial authorityHari Nagar Sugar Mills Ltd, v. Shyam Sunder Jhunjhunwala AIR 1961 SC 1669; Madhya Pradesh Industries Ltd. v. Union of India AIR 1966 SC 671; Bhagat Raja v. Union of India AIR 1967 SC 1606; Mahabir Prasad Santosh Kumar v. State of UP AIR 1970 SC 1302; Travancore Rayons Ltd. v. Union of India AIR 1971 SC 862; State of Punjab v. Bakhtawar Singh AIR 1972 SC 2083; Siemens Engg. & Mfg. Co. of India Ltd. v. Union of India AIR 1976 SC 1785; Ajantha Industries v. CBDT AIR 1976 SC 437 and S.N Mukherjee v. Union of India AIR 1990 SC 1984.

10. In Testeels Ltd. v. N.M. Desai, Conciliation Officer AIR 1970 Guj. 1, a Full Bench of the Gujarat High Court referred to American, British and Australian cases on the subject and laid down the following propositions:

'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.' (p. 1) (Emphasis herein printed inalics supplied)

11. In the result, the appeal is partly allowed. Question No. (i) is answered against the department. As regards question No. (ii), the case is remanded to the Tribunal with the direction that it should decide the appeal afresh by assigning cogent reasons.

OPEN