Commissioner Of Income Tax Ii v. Surat Beverages Ltd....opponent(S

O/TAXAP/291/2013 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 291 of 2013With TAX APPEAL NO. 669 of 2013 For Approval and Signature: HONOURABLE MR.JUSTICE M.R. SHAHandHONOURABLE MS JUSTICE SONIA GOKANI =============================================1.Whether Reporters of Local Papers may be allowed to see Yesthe judgment ?2.To be referred to the Reporter or not ?Yes3.Whether their Lordships wish to see the fair copy of the Nojudgment ?4.Whether this case involves a substantial question of law as to Nothe interpretation of the constitution of India, 1950 or any order made thereunder ?5.Whether it is to be circulated to the civil judge ?No =============================================COMMISSIONER OF INCOME TAX II....Appellant(s)Versus SURAT BEVERAGES LTD....Opponent(s) =============================================Appearance: MR MANAV A MEHTA, ADVOCATE for the Appellant(s) No. 1 MR TEJ SHAH, ADVOCATE for the Opponent(s) No. 1 ============================================= CORAM: HONOURABLE MR.JUSTICE M.R. SHAH andHONOURABLE MS JUSTICE SONIA GOKANI Date : 22/07/2013 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1.0] As both these tax appeals are against the same judgment and order passed by the Income Tax Appellate Tribunal (hereinafter referred to as “ITAT”) and as such they are cross appeals, they are disposed of by this common judgment and order. [1.1] Tax Appeal No.291/2013 has been preferred by the Revenue challenging the impugned judgment and order dated 05.10.2012 passed by the learned ITAT in Appeal being ITA No.1189 and 1934/Ahd/2010 by which the learned ITAT has partly allowed the said appeal preferred by the assessee and has dismissed the appeal of the Revenue. [1.2] Tax Appeal No.669/2013 has been preferred by the assessee challenging the aforesaid judgment and order passed by the learned ITAT insofar as partly allowing the appeal only and not allowing the appeal preferred by it in toto. [2.0] Facts leading to the present appeals in nut-shell are as under: That the assessee is engaged in the business of manufacturing and packaging drinking water, pet performs, per bottles, moulds and mould spares. That the assessee submitted the return of income for the assessment year 2006-07 declaring total income of 2,30,600/-. That later on the case was taken up for scrutiny assessment. That the Assessing Officer passed the order of assessment by making addition of Rs.1,22,88,377/- as unaccounted expenditure under section 69C of the Income Tax Act, 1961 (hereinafter referred to as “Act”). The AO also treated the said share trading loss of Rs.9,91,673/- as speculative loss under section 73 of the Act. Feeling aggrieved and dissatisfied with the order of assessment passed by the AO, the assessee preferred appeal before the CIT(A) and by order dated 10.02.2010, the CIT(A) partly allowed the said appeal and modified the order passed by the AO with respect to addition of Rs.1,22,88,377/- and sustained the addition to the extent of Rs.61,44,189/- and the balance amount came to be deleted. That the CIT(A) confirmed the order passed by the AO with respect to treating share trading loss of Rs.9,91,673/- as speculative loss under section 73 of the Act as during the course of the hearing, the assessee did not press the said ground of appeal. Feeling aggrieved and dissatisfied with the order of assessment passed by the AO, the assessee preferred appeal before the CIT(A) and by order dated 10.02.2010, the CIT(A) partly allowed the said appeal and modified the order passed by the AO with respect to addition of Rs.1,22,88,377/- and sustained the addition to the extent of Rs.61,44,189/- and the balance amount came to be deleted. That the CIT(A) confirmed the order passed by the AO with respect to treating share trading loss of Rs.9,91,673/- as speculative loss under section 73 of the Act as during the course of the hearing, the assessee did not press the said ground of appeal. Feeling aggrieved and dissatisfied with the order passed by the CIT(A) dated 10.02.2010, both, the assessee as well as the Revenue preferred appeals before the ITAT being Appeal Nos.1189 and 1934/Ahd/2010. It appears that the Revenue preferred appeal before the ITAT against the order passed by the CIT(A) in sustaining the addition to the extent of Rs.61,44,189 only and deleting the balance amount and the assessee preferred appeal against sustaining the addition to the extent of Rs.61,44,189/-. That by impugned common judgment and order the Tribunal has partly allowed the appeal of the assessee sustaining addition of Rs.30 lac on an estimate basis in place of the addition of Rs.61,44,189/- sustained by the CIT(A) and consequently dismissed the appeal of the revenue. Feeling aggrieved and dissatisfied with the impugned common judgment and order both the revenue as well as the assessee have preferred the present appeals. [3.0] A common grievance made by the learned counsel appearing for the Revenue and even the learned counsel appearing for the assessee is that the impugned common judgment and order passed by the learned ITAT is a non-reasoned and non-speaking order. It is submitted by the learned counsel appearing for the revenue as well as assessee that as such no reasons have been assigned by the ITAT in modifying the order passed by the CIT(A) and while sustaining the addition of Rs.30 lac. It is submitted that as such while passing the impugned judgment and order the ITAT has not assigned any reasons whatsoever. It is submitted that being a quasi judidical / judicial authority, the ITAT was supposed to assign atleast some reasons either in support of addition of Rs.30 lac or not confirming either the order of the AO or the order passed by the CIT(A). Under the circumstances, it is requested to quash and set aside the impugned common judgment and order and remand the matter to the Appellate Tribunal to consider the aforesaid appeals afresh and to pass speaking and reasoned order. [4.0] Heard learned counsel appearing on behalf of both the appellants at length and considered the impugned common judgment and order passed by the learned ITAT. [4.1] At the outset it is required to be noted that the AO, while passing the order of assessment, made addition of Rs.1,22,88,377/- as unaccounted expenditure under section 69C of the Act, which came to be reduced by the CIT(A) to the extent of Rs.61,44,189/-. In further appeal, the learned Appellate Tribunal has reduced the addition/sustained the addition of Rs.30 lac. While sustaining the addition of Rs.30 lac – partly allowing the appeal preferred by the assessee and dismissing the appeal preferred by the Revenue, from the impugned judgment and order, it appears that the learned ITAT has passed the impugned judgment and order by observing in para 8 as under: [4.1] At the outset it is required to be noted that the AO, while passing the order of assessment, made addition of Rs.1,22,88,377/- as unaccounted expenditure under section 69C of the Act, which came to be reduced by the CIT(A) to the extent of Rs.61,44,189/-. In further appeal, the learned Appellate Tribunal has reduced the addition/sustained the addition of Rs.30 lac. While sustaining the addition of Rs.30 lac – partly allowing the appeal preferred by the assessee and dismissing the appeal preferred by the Revenue, from the impugned judgment and order, it appears that the learned ITAT has passed the impugned judgment and order by observing in para 8 as under: “8.We have heard the rival submissions and carefully perused the material on record. Even though, the learned AR has reasoned out in various ways, he has not produced the actual and accurate working for the valuation of work in progress before the Revenue or before us. Further, to justify the assessee’s claim that it has valued the work in progress on the basis of market value; the assessee has not submitted any valuation report. Therefore, the decision of the case; Sanjeev Woolen Mills vs. CIT, 279 ITR 434 relied upon by the learned AR is not applicable to its facts of the case. Looking at the complexity of the issue, the learned CIT(A) had sustained addition of Rs.61,44,189/- on an estimate basis. On an overall examination of the facts, we are of the considered view that an addition of Rs.30,00,000/- requires to be sustained to meet the end of justice. Accordingly, we sustain an addition of Rs.30,00,000/- on an estimate basis. Since, we have further reduced the addition confirmed by the learned CIT(A), we hereby dismiss the appeal of the revenue.” Thus, from the aforesaid it appears that as such no reasons have been assigned at all while dismissing the appeal preferred by the revenue and partly allowing the appeal preferred by the assessee and sustaining addition of Rs.30 lac except observing that “On an overall examination of the facts, we are of the considered view that an addition of Rs.30,00,000/- requires to be sustained to meet the end of justice”. Thus, as such the impugned judgment and order passed by the learned ITAT is absolutely a non-reasoned and non-speaking order. [5.0] While taking up tax appeals, we have come across similar non-speaking and non-reasoned orders passed by the ITAT and passing the order on estimate basis by deleting and/or making addition by observing that “to meet with the ends of justice”. It cannot be disputed that ITAT, while deciding the appeals, is required to pass the order judiciously and it should reflect that the Tribunal has applied the mind on a particular issue. ITAT is a judicial authority and it should exercise the powers under section 254 of the Act and as per sub-section (4) of section 254 save as provided in section 256 or section 260A, orders passed by the appellate tribunal on appeal shall be final. Therefore, a great care should be taken by the ITAT while exercising the powers under section 254 of the Act and while deciding the appeals in exercise of powers under section 254 of the Act. It is true that sub-section (1) of section 254 provides that the appellate tribunal may pass such orders as it thinks fit, but that does not mean that the tribunal is not required to assign any reasons and/or the Tribunal is not required to pass a speaking order. In the case of Ravi Yashwant Bhoir vs. Collector reported in (2012)4 SCC 407, the Hon’ble Supreme Court had an occasion to consider the rationale behind the requirement of recording reasons in order. In the said decision, it is observed and held by the Hon’ble Supreme Court that requirement of recording reasons is one of the principles of natural justice. It is further observed and held by the Hon’ble Supreme Court that right to reasons is an indispensable part of sound judicial system. In the said decision the Hon’ble Supreme Court in paras 44 and 46 has observed as under: rationale behind the requirement of recording reasons in order. In the said decision, it is observed and held by the Hon’ble Supreme Court that requirement of recording reasons is one of the principles of natural justice. It is further observed and held by the Hon’ble Supreme Court that right to reasons is an indispensable part of sound judicial system. In the said decision the Hon’ble Supreme Court in paras 44 and 46 has observed as under: “44. This Court while deciding the issue in Sant Lal Gupta and Ors. v. Modern Co-operative Group Housing Society Ltd., placing reliance on its various earlier judgments held as under: (SCC pp.345-46, para 27) “27. It is a settled legal proposition that not only administrative but also judicial orders must be supported by reasons recorded in it. Thus, while deciding an issue, the court is bound to give reasons for its conclusion. It is the duty and obligation on the part of the Court to record reasons while disposing of the case. The hallmark of order and exercise of judicial power by a judicial forum is for the forum to disclose its reasons by itself and giving of reasons has always been insisted upon as one of the fundamentals of sound administration of the justice delivery system, to make it known that there had been proper and due application of mind to the issue before the court and also as an essential requisite of the principles of natural justice. ‘3...The giving of reasons for a decision is an essential attribute of judicial and judicious disposal of a matter before courts, and which is the only indication to know about the manner and quality of exercise undertaken, as also the fact that the court concerned had really applied its mind.’* The reason is the heartbeat of every conclusion. It introduces clarity in an order and without the same, the order becomes lifeless. Reasons substitute subjectivity with objectivity. The absence of reasons renders an order indefensible/unsustainable particularly when the order is subject to further challenge before a higher forum. Recording of reasons is the principle of natural justice and every judicial order must be supported by reasons O/TAXAP/291/2013 JUDGMENT recorded in writing. It ensures transparency and fairness in decision making. The person who is adversely affected must know why his application has been rejected." “46.The emphasis on recording reason is that if the decision reveals the 'inscrutable face of the sphinx', it can be its silence, render it virtually impossible for the courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. Right to reason is an indispensable part of a sound judicial system, reasons at least sufficient to indicate an application of mind of the authority before the court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary requirements of natural justice is spelling out reasons for the order made. In other words, a speaking out, the inscrutable face of the sphinx is ordinarily incongruous with a judicial or quasi-judicial performance.” In the case of Board of Trustees of Martyrs Memorial Trust vs. Union of India reported in (2012)10 SCC 734, in para 22, the Hon’ble Supreme Court has held as under: 22.Brevity in judgment writing has not lost its virtue. All long judgments or orders are not great nor are brief orders always bad. What is required of any judicial decision is due application of mind, clarity of reasoning and focused consideration. A slipshod consideration or cryptic order or decision without due reflection on the issues raised in a matter may render such decision unsustainable. Hasty adjudication must be avoided. Each and every matter that comes to the court must be examined with the seriousness it deserves. In the case of Board of Trustees of Martyrs Memorial Trust vs. Union of India reported in (2012)10 SCC 734, in para 22, the Hon’ble Supreme Court has held as under: 22.Brevity in judgment writing has not lost its virtue. All long judgments or orders are not great nor are brief orders always bad. What is required of any judicial decision is due application of mind, clarity of reasoning and focused consideration. A slipshod consideration or cryptic order or decision without due reflection on the issues raised in a matter may render such decision unsustainable. Hasty adjudication must be avoided. Each and every matter that comes to the court must be examined with the seriousness it deserves. In the case of Real Estate Agencies vs. State of Goa reported in (2012)12 SCC 170 while emphasizing the necessity of giving reasons by the Courts/Tribunals/Judiciary, it is held that, manner of reaching a decision and reasons for reaching such decisions are sacrosanct to judicial process. While emphasizing the need to pass a reasoned order, the Hon’ble Supreme Court in the case of Certified Area Committee vs. Additional Director, Consolidation reported in (2002)10 SCC 87, has held as under: “The reasons are the flesh and blood of Judicial adjudication and such reasons must be shown in the orders which are liable to be challenged in the Superior Court”. Considering the aforesaid law laid down by the Hon’ble Supreme Court and the requirement of passing a reasoned and speaking order, considering the facts of the case on hand and the impugned common judgment and order passed by the ITAT, the impugned judgment and order cannot be sustained. No reasons at all have been assigned by the learned Tribunal while dismissing the appeal preferred by the Revenue and partly allowing the appeal preferred by the assessee and sustaining the addition of Rs.30 lac. The impugned order passed by the learned Tribunal is absolutely on estimate basis without assigning any reasons and as such no reasons have been assigned at all while dismissing the appeal preferred by the Revenue. As stated hereinabove both, the Revenue as well as the assessee are aggrieved by the impugned judgment and order and a common grievance is made that the impugned order passed by the learned ITAT is a non-speaking and non-reasoned order and it is prayed to remand the matter to the ITAT for its fresh decision. [6.0] In view of the above and for the reasons stated above, both these appeals succeed. Impugned common judgment and order dated 05.10.2012 passed by the learned ITAT in Appeal being ITA No.1189 and 1934/Ahd/2010 is hereby quashed and set aside and the matters are remanded to the learned ITAT to decide the aforesaid two appeals afresh in accordance with law and on merits and to pass a reasoned and speaking order. Consequently, the aforesaid two appeals are ordered to be restored to file of learned ITAT for its fresh decision and for passing a O/TAXAP/291/2013 JUDGMENT reasoned and speaking order considering the aforesaid decisions of the Hon’ble Supreme Court and this Court. Both these Appeals are Allowed accordingly to the aforesaid extent. However, it is made clear that this Court has not expressed anything on merits in favour of either parties. Sd/- (M.R.SHAH, J.) Sd/- (MS SONIA GOKANI, J.) Ajay