Db Income Tax Appeal v. Ram Singh& Connected Appeals As Per Schedule-A Appendedto This Judgment

1 DB ITA-117/2004& connected casesas per Schedule-A appended IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJAIPUR BENCH, JAIPUR JUDGMENT *** DB Income Tax Appeal No.117/2004 CIT Vs. Ram Singh& connected appeals as per Schedule-A appendedto this judgment. Order reserved on: 14/12/2013 Order pronounced on: 21/01/2014 HON'BLE MR. JUSTICE AJAY RASTOGIHON'BLE MR. JUSTICE J.K. RANKA Mr. Sameer Jain]Mrs. Parintoo jain]Mr. R.B. Mathur]Mr. Anuroop Singhi for]Mr. J.K. Singhi ], for the revenue. Mr. R.P. Garg]Mr. P.K. Kasliwal]Mr. Prakul Khurana]Mr. Naresh Gupta]Mr. Anurag Kalavatiya]Mr. Mahendra Gargiya ], for the assessees BY THE COURT 1.These Income Tax Appeals u/Sec. 260A of the Income Tax Act,(for short, IT Act') are directed against the orders of the Income TaxAppellate Tribunal, Jaipur Bench, Jaipur (for short, 'ITAT'). Most of theappeals have been preferred by the revenue while in some of the cases,the assessees have also chosen to file appeals as well as cross objection. 2 DB ITA-117/2004& connected casesas per Schedule-A appended 2.Since a common substantial question of law is involved in thebunch cases relating to liquor contractors, all these appeals are beingdisposed of by this common order with consent of the parties. 2-AIn DB ITA No.117/2004, 244/2005, 254/2005 & 293/2005following substantial questions of law were framed by the Court: :Substantial question of law in DB ITA No.117/2004 “Whether in the facts and circumstances of the case theappellate tribunal and the learned Commissioner (Appeals)were justified in deleting the additions exorbitantly withoutstating any logic reason or arguments despite the fact thatthe application of Section 145(2) of the Act was not disputedand whether the finding of the Tribunal is perverse?”:Substantial question of law in DB ITA No.244/2005 “1.Whether in the facts and circumstances of the case theITAT and CIT(A) were justified in law in restricting theadditions without assigning any reasons when the invoking ofthe provisions of section 145 of the Act has been upheld?2.Whether in the facts and circumstances of the case, theITAT & CIT(A) has not acted perversely in reducing andrestricting the trading additions without assigning anyreasons and making estimation over estimation?” DB ITA-117/2004& connected casesas per Schedule-A appended Substantial question of law in DB ITA No.254/2005: “Whether it is implicit under the provisions of Section 145(2)of the Act, 1961 to necessarily make some additions uponrejection of accounts when there is no material to supportthat assessee has earned higher income and under thesecircumstances whether the adhoc trading additions ofRs.2,00,000/- was justified.” :Substantial question of law in DB ITA No.293/2005 “Whether it is implicit under the provisions of section 145(2)of the Act, 1961 to make some additions on rejection ofaccounts when there is no material to support that assesseehas earned higher income and under these circumstanceswhether the trading additions of Rs.80,00,000/- was justifiedwhen the same was not supported by any material onrecord?” 3.The assessees are liquor contractors and were awarded license bythe State of Rajasthan for sale of Indian made country liquor (IMCL)under Rule 67(1) and 67(kk) of the Rajasthan Excise Rules, 1956 soalso the retail sale of beer and Indian made foreign liquor (IMFL) underRule 3-A of Rajasthan Foreign Liquor (Grant of Wholesale and Retail)Sale License, Rules, 1982 under exclusive privilege system for differentplaces. In some of the cases, the assessees had formed Association OfPersons (AOP) and obtained license/contract to sell the liquor asaforesaid exclusively. The licenses were obtained by successful biddersand other than these licensees, no other person was permitted to sale DB ITA-117/2004& connected casesas per Schedule-A appended4 the liquor which is a prohibited commodity. 3.The assessees are liquor contractors and were awarded license bythe State of Rajasthan for sale of Indian made country liquor (IMCL)under Rule 67(1) and 67(kk) of the Rajasthan Excise Rules, 1956 soalso the retail sale of beer and Indian made foreign liquor (IMFL) underRule 3-A of Rajasthan Foreign Liquor (Grant of Wholesale and Retail)Sale License, Rules, 1982 under exclusive privilege system for differentplaces. In some of the cases, the assessees had formed Association OfPersons (AOP) and obtained license/contract to sell the liquor asaforesaid exclusively. The licenses were obtained by successful biddersand other than these licensees, no other person was permitted to sale DB ITA-117/2004& connected casesas per Schedule-A appended4 the liquor which is a prohibited commodity. 4.In the State of Rajasthan contracts for wholesale and retail sale ofliquor are awarded separately by the Excise Commissioner for a fiscalyear after obtaining tenders from the registered contractors and itcomes somewhere in the month of January/February of the precedingfiscal year for contract of the next financial year and by and large, thebusiness begins from 1[st] of April and ends by 31[st] of March of the nextyear. 5.By and large, the revenue district is divided into various groups ofshops, known as liquor group after combining two or more tehsils orareas of tehsils of a district. While in retail sale of particular liquor groupof shops can only operate and for wholesale: sale of liquor is awardedto a licensee for whole of the Rajasthan. In some cases, the liquorcontract is awarded for two years consecutively with some increase inguarantee amount in the second year of contract. Profitability in liquorbusiness depends on several factors like socio economic condition,literacy, drinking habits of population of area of operation. If the areais prosperous from agricultural, industrial and commercial point of view,there is likelihood to be more consumption of all kinds of liquor. If it isurban area, then there will be more consumption of IMFL and Beer. DB ITA-117/2004& connected casesas per Schedule-A appended 5 6.According to the terms of license, a liquor contractor is required tolift liquor from the Government of Rajasthan for a specified value withthe stipulation that if the contractor does not take delivery for thespecified value, it is liable to make good the deficiency at the end of theyear to the State Government called as “shortfall”. The shortfallpayments are directly linked with the profitability in the sense that whenthere is less demand of liquor, a contractor prefers to lift less quantityof liquor and prefers to pay “shortfall”. As per the excise rules, theliquor contractor has to maintain complete stock register and record ofall its employees as per “Nokarnama” approved by the District ExciseOfficer. No other person can be placed as an employee unless thedetails of the employees are provided to the District Excise Officer. Theliquor contractor has to submit monthly account of receipt of liquor, salethereof and balance stock at the end of the month to the ExciseInspector by 5[th] of the following month. In the case of country liquor,the purchases are made from the Excise Department through permits.Accordingly, purchases of IMCL as also purchases of IMFL and Beer canbe made from wholesale licensees of IMFL distilleries respectively afterseeking permission of the Excise Department and while the purchasesare proved but it is an admitted fact that the sale price is not fixed andthe assessees have neither issued sale voucher to the purchaser normaintained. 6 DB ITA-117/2004& connected casesas per Schedule-A appended 6 DB ITA-117/2004& connected casesas per Schedule-A appended 7.During the course of assessment proceedings, the assessees werespecifically asked to furnish shop-wise & brand-wise details of allreceipts and sale of IMCL, IMFL and Beer which were admittedly notproduced. Vouchers for expenses were required to be produced. Insome cases some vouchers were produced but, by and large, inmajority of cases even vouchers were not produced. The assesseswere also required to produce the details of sale of bottles and bardanawhich too was not provided and a lumpsum amount was credited onaccount of such sale. Details of purchases, being regulated and as perthe guidelines of the Excise Department, were produced but salevouchers, have not been produced for verification. The AssessingOfficer was of the view that in the absence of sale vouchers, theassessees are at liberty to charge selling price as per their own sweetwill and since the assessees had monopoly and have exclusivejurisdiction to sale goods in that area/district, could charge any amount.What amount was actually charged by the assessees was not knownsince sales are not open to verification. The AO was of the view that inview of the deficiency the books of accounts are liable to be rejectedu/s 145(3) of the IT Act. 8.It was the claim of the assessees that all the purchases are DB ITA-117/2004& connected casesas per Schedule-A appended7 vouched, detailed and verifiable and they have produced the relevantpurchase vouchers/permits of the purchase of the liquor, but in so faras the sale bills are concerned, it was submitted that since the quantumof liquor is so small, in the case of IMCL, the same is being sold inpouches which costs Rs.30/- to Rs.70/-, in cases of Beer the amountranged from Rs.50/- to Rs.70/- and in IMFL small bottles were of lowrate, therefore, it was not practically possible to maintain the salevouchers. It was further submitted that in this particular trade thecustomers never like to disclose the identity and therefore, even if thesale voucher is maintained, name of recipient, name of purchaser willhave to be left blank. However, it was submitted that the purchasesare entirely vouched and when purchases are entirely vouched, thenthe consequential sale version ought to have been accepted as the salewas out of the very goods purchased by the assessees. 9. It was also submitted by the assessees that all the details asdesired by the Excise Department except sale vouchers had beenmaintained and all the books of accounts and supporting vouchers weregenerally produced and maintained in accordance with the Excise Rules.However, it was stated by the assessees that they did maintain saleregister wherein day to day stock details are recorded and merelybecause the sale vouchers have not been maintained, there is no 8 justification for rejecting books of accounts. DB ITA-117/2004& connected casesas per Schedule-A appended 10.However, the AO rejected the books of account and tradingresults u/s 145 of the IT Act by holding that non-maintenance of thesale vouchers is a major defect since the sale is not open to verification.The assessing officer relied upon the judgment of the Apex Court in thecase of CIT Vs. British Paints India Limited, (1991)188 ITR 44, M/s. LalChand Wailati Ram Vs. CIT: (1978) 111 ITR 244 (P&H); M/s. BombayCycle Stores Co. Ltd. Vs. CIT: (1958) 33 ITR 13 (Bombay); SN NamaSivayam Chettier Vs. CIT: (1960) 38 ITR 579 (SC); Commissioner ofIncome-tax Vs. MC Millan & Co.: 38 ITR 182 (SC). 11. After rejecting the books of accounts, in some of the cases, the AOhas estimated gross profit rate and in some of the cases net profit rateand in some of the cases adhoc estimated addition had been made. 10.However, the AO rejected the books of account and tradingresults u/s 145 of the IT Act by holding that non-maintenance of thesale vouchers is a major defect since the sale is not open to verification.The assessing officer relied upon the judgment of the Apex Court in thecase of CIT Vs. British Paints India Limited, (1991)188 ITR 44, M/s. LalChand Wailati Ram Vs. CIT: (1978) 111 ITR 244 (P&H); M/s. BombayCycle Stores Co. Ltd. Vs. CIT: (1958) 33 ITR 13 (Bombay); SN NamaSivayam Chettier Vs. CIT: (1960) 38 ITR 579 (SC); Commissioner ofIncome-tax Vs. MC Millan & Co.: 38 ITR 182 (SC). 11. After rejecting the books of accounts, in some of the cases, the AOhas estimated gross profit rate and in some of the cases net profit rateand in some of the cases adhoc estimated addition had been made. 12. The matters were challenged before the respective Commissioner ofIncome Tax (Appeals) (for short, the 'CIT(A) by the assessees who hasupheld the finding of the assessing officer about rejection of books ofaccounts under Section 145(3) but gave relief by reducing tradingaddition. In some of the cases, the CIT(A) relied upon comparativecases of similarly situated liquor contractors and past history and DB ITA-117/2004& connected casesas per Schedule-A appended 9 decided the appeals but by and large without much of discussion ordershave been passed. 13. It will be appropriate to quote the observation of the CIT Appealsmade in the case of asseessee M/s. Ram Singh & Party for theassessment year 1995-96 dt.13.9.1996 which reads ad infra- “That the book results of the appellant cannot be reliedupon is not disputed. Considering the book results ofthe appellant, during this year as compared to theearlier year, I feel that an addition to the extent of Rs.1lac will be justified. The appellant will get a relief ofRs.11,35,929/-. In effect, the appeal is partly allowed”. 14.Against the order of CIT(A), revenue has preferred appeal beforeITAT and in some of the cases, the assessees have also chosen to fileappeal and in some cases, cross-objections were also filed. 15.The ITAT, after hearing the parties, agreed with the contention asto rejection of the books of accounts under Section 145(3) of the Actand in some cases, even the counsels for the assessees admitted thatprovisions of Section 145 are applicable. However, in so far as theaddition on account of quantum, the ITAT, did not adopt a particularyardstick on account of the fact that, different places may have different DB ITA-117/2004& connected casesas per Schedule-A appended10 facts and chose to reduce/further the GP rate/NP rate/adhoc addition.The ITAT has neither discussed the factual foundation and submissionsand by cryptic order decided the appeals. These orders of the ITAThave been assailed before us as aforesaid. 16.Learned counsel for the revenue contended that when the AOgave well reasoned order after discussing the entire issue and alsobrought in material on record, the CIT(A) also by and large, in majorityof the cases, gave detailed reasoning but the ITAT, being a final factfinding authority, was to address the issue in an appropriate mannerand not in a summary or in perfunctory manner. 17.Learned counsel for revenue contends that the Tribunal searchingfor definite evidence to test the validity of the additions made by theAO has transgressed into the realm of indefiniteness from the realm ofguesswork for computation of income where the books of account ofassessee have been rejected by the AO holding that it is not possible toascertain the true income of the assessee from such books of accountand therefore, the finding of the Tribunal in holding that the resultsshown in the books of account by the assessee ought to be accepted isnot sustainable. DB ITA-117/2004& connected casesas per Schedule-A appended11 17.Learned counsel for revenue contends that the Tribunal searchingfor definite evidence to test the validity of the additions made by theAO has transgressed into the realm of indefiniteness from the realm ofguesswork for computation of income where the books of account ofassessee have been rejected by the AO holding that it is not possible toascertain the true income of the assessee from such books of accountand therefore, the finding of the Tribunal in holding that the resultsshown in the books of account by the assessee ought to be accepted isnot sustainable. DB ITA-117/2004& connected casesas per Schedule-A appended11 18.Counsel for revenue further contends that ITAT is the final factfinding authority has not recorded any finding or reasoning inrestricting, reducing, estimating lump sum ad hoc amount, at the sametime, the Tribunal has not given any justification inconfirming/enhancing/reducing additions made by the CIT (A). Theorders passed by ITAT are not Speaking Order. 19.They drew our attention to some of the orders which have beenpassed by the Tribunal just in three lines without discussing facts,without discussing arguments and on the basis of assumptions &presumptions drastically reduced the income in round figures. Theycontended that all the three authorities, namely; AO, CIT(A) as well asITAT have come to a categorical finding as to rejection of books ofaccounts and invoking of provisions of Section 145, therefore, a fairestimate was required to be made by the Assessing Officer and inalmost all the cases, the Assessing Officer has passed well reasonedorder, the ITAT ignored the said findings in a summary and crypticmanner. They also contended that the Assessing Officer has broughtadequate material on record to justify the additions. Following Table may be perused to highlight the point:- DB ITA-117/2004& connected casesas per Schedule-A appended12 20.Counsel for the revenue placed reliance on (2012) 344 ITR 653(Guj) Director of Income Tax (Exemption) Vs. Shia Dawoodi BohraJamat; (2011) 331 ITR 301 (Allahabad) Commissioner of Income TaxVs. Deepak M Kothari; (2005) 2SCC 329 Mangalore Ganesh Beedi WorksVs. The Commissioner of Income Tax, Mysore & Anr. & judgment of thisCourt reported in 199 CTR 422 (Raj) Commissioner of Income Tax Vs.Sunil Talwar Murlidhar & Party. 21.On the strength of the aforesaid judgment, they contended thatthe appeals filed by the revenue deserve to be allowed or in thealternatively the matter may be remitted to the ITAT to decide thematter afresh for passing a speaking order. 22.Per-contra, ld. counsel for the assessees contended that even theAssessing Officer had no material to make such huge additions and theestimation, if at all is to be fair and reasonable and when huge additionswere made without any apparent basis or evidence, both the appellate DB ITA-117/2004& connected casesas per Schedule-A appended13 21.On the strength of the aforesaid judgment, they contended thatthe appeals filed by the revenue deserve to be allowed or in thealternatively the matter may be remitted to the ITAT to decide thematter afresh for passing a speaking order. 22.Per-contra, ld. counsel for the assessees contended that even theAssessing Officer had no material to make such huge additions and theestimation, if at all is to be fair and reasonable and when huge additionswere made without any apparent basis or evidence, both the appellate DB ITA-117/2004& connected casesas per Schedule-A appended13 authorities, after considering the similarly situated cases or/and othermaterial, had allowed the appeals by giving certain relief. Theycontended that it is not that the entire addition has been knocked off bythe CIT(A) or by the ITAT but additions by and large have beensustained and it cannot be said that the ITAT has not applied its mind.They also contended that once the CIT(A) had given cogent reasons,then the ITAT need not give its own reasons being a higher appellateauthority. They also contended that a higher appellate authority canaffirm the order of the lower appellate authority by following the sameand even may mention “allowed” or “dismissed” without even givingfacts and circumstances. They contended that the complete recordexcept sale vouchers was there, and question of any addition does notarise and both the CIT(A) as well as ITAT have come to a reasonableconclusion of income which could have been earned by an assessee onthe given facts and circumstances. They contended that the ITAT canalways interfere with best judgment of the AO being final fact findingauthority. How and in what manner the estimation of the income is tobe adjudged is within the realm of ITAT. 23.Ld. counsel for the assessees, in support of their cases, reliedupon the judgments in the case of CIT Madras Vs. Mahalakshmi TextileMills Ltd.: 66 ITR 710(SC); CIT Vs. Gotan Lime Khanij Ugyog: 256 ITR DB ITA-117/2004& connected casesas per Schedule-A appended14 243 (Raj.); CIT Vs. Jewels Emporium: (2004) 186 CTR 464 (Raj.);Kansara Bearing P. Ltd. Vs. ACIT: 270 ITR 235 (Raj.); Malapani Houseof Stones Vs. CIT: 264 ITR 764 and CIT Vs. Dr. AP Bahal: 322 ITR 71(Raj.). 24.We have carefully considered the arguments advanced and haveperused the impugned orders and material on record. As regardsrejection of books of accounts, cogent reasons have been assigned byall the three Income-tax Authorities and we see no reason to take adifferent view. It is well settled that in a best judgment assessmentthere is always a certain degree of guess work. The authoritiesconcerned should make a honest and fair estimate of the income evenin a best judgment assessment and should not act arbitrarily. It isequally true that assessee is himself to be blamed as he did not submitproper accounts. 25.It is no doubt true that it was the duty of the assessee to place allfacts truthfully before the assessing authority and if he fails to do hisduty, he cannot be allowed to call upon the assessing authority to proveconclusively what turnover he has actually suppressed but, at the sametime, Sec.145 of the Act, 1961 confers sufficient powers upon the AOto make such computation in such manner as he determines for DB ITA-117/2004& connected casesas per Schedule-A appended15 deducing the correct profit and gains. This means that where accountsare prepared without disclosing true and correct sale/income, it is theduty of the AO to determine the taxable income by making suchcomputation as he thinks fit and it is therefore not only the right but theduty of the assessing officer to act in exercise of its judicious discretionwithin the ambit of law for determining the correct taxable income. DB ITA-117/2004& connected casesas per Schedule-A appended15 deducing the correct profit and gains. This means that where accountsare prepared without disclosing true and correct sale/income, it is theduty of the AO to determine the taxable income by making suchcomputation as he thinks fit and it is therefore not only the right but theduty of the assessing officer to act in exercise of its judicious discretionwithin the ambit of law for determining the correct taxable income. 26. It is also true that while determining the correct taxable income, Itis estimate against estimation, but that should be supported by somejustification which is initial duty caste upon AO and when the appealsare being preferred either before the CIT (Appeals) or before the ITATwho is the final fact finding authority, the finding of AO could notordinarily be disturbed except under perversity. But the CIT (Appeals)or the ITAT as the case may be when taking decision for reversingeither finding of fact recorded by the AO or by the CIT (Appeals) then itwas obligatory upon the CIT (A) or the Tribunal to have discussedfactual finding appreciated by the AO or CIT (A) and placed forconsideration by the assessee or by the Revenue as the case may be inits proper perspective and is expected from the authority holdingappellate jurisdiction to exercise its judicious discretion based on dueappreciation of material on record and being fact finding authority, thefinding of the AO or the CIT (Appeals), ordinarily will not be disturbed DB ITA-117/2004& connected casesas per Schedule-A appended except on the ground of perversity. 27.Every law that provides for some form of adjudication also usuallyprovides for appeal in one form or the other against orders passed bythe lower authorities. This is based on the concept of equity andrecognition that every authority is fallible. The mechanism of appealprovides safeguard against erroneous, unjust or invalid orders. Theappeal proceedings ordinarily embrace all proceedings whereby anappellate authority is called upon to review, affirm, reverse or modifythe decisions of the lower or subordinate authority. 28.Under the Scheme of Act appellate proceedings are treated as acontinuation of the proceedings initiated by the subordinate authority.Therefore, the law applicable to the proceedings before the subordinateor original authority is continued to be played before the appellateauthority. 29.It is true that proceedings before the CIT (Appeals) areconsidered to be an extension of the initial assessment proceeding.Therefore apart from the powers specifically vested in the CIT (A), theCIT (A) is empowered to make further enquiry as he thinks fit or maydirect the AO to make further enquiry and submit report thereof. In fact DB ITA-117/2004& connected casesas per Schedule-A appended17 the power of the CIT (A) is co-extensive with the power of AO. He cando what the AO can do or could have done in the assessmentproceedings. 30.The CIT (A) may confirm, reduce, enhance or annul theassessment. The CIT (A) while making an order in writing is required tostate the facts of the case, the points for determination, the decisionthereon as well as the reasoning underlying the decision. Thus, he is infact required to pass a speaking order. In absence of reasonableverification by CIT (A) obviously based on appreciation of material onrecord, the very purpose of legislation in providing appeal before theAppellate Tribunal (second appellate) will remain empty formality.Either of the party aggrieved by an order of CIT (Appeals) may filefurther appeal to the ITAT. The Tribunal is the last and final fact findingauthority under the scheme of Act, 1961. This fact needs to be kept inmind when presenting the matter before the ITAT that no fresh factswould be considered by High Court or by Supreme Court. 31.In the instant case the CIT (Appeals) in some of the cases and insome of the cases ITAT has made certain lump sum deductions oradditions to the income computed by the AO and we find that the ld. DB ITA-117/2004& connected casesas per Schedule-A appended18 Tribunal rejected the basis adopted by the AO on the ground that theAO has no cogent material to adopt GP rate or NP rate different thansuch rate disclosed by the assessee, nor any material has been broughton record by the AO to reject the turn over disclosed by the assesseeand at the same time, the ITAT has taken the very same figures ofturnover which were not acceptable as correct and rejected the booksof accounts. 32.It is true that the matter of estimate cannot be interfered with bythis Court being a finding of fact and some amount of indefinitenessand application of rule of thumb is bound to be there but where thededuction itself being lump sum is not in the realm of guesswork and,therefore, this Court could not have interfered with and the matterwould have rested at that. But unfortunately the Tribunal has not actedon estimates but has proceeded on books of accounts in arriving itsown conclusion which is apparent manifest misconception about natureof best judgment assessment and end conclusion of the Tribunal isfounded on premise which itself has been rejected as credible and inthe end, the conclusion stands vitiated. 33.The ITAT enjoins special status under the income tax jurisdiction.The ITAT is a quasi-judicial body whose duties and functions are very DB ITA-117/2004& connected casesas per Schedule-A appended19 vital in the enforcement of the direct tax laws. It is a final fact findingbody and second appellate authority. 34.The ITAT is vested with all the powers of the Income TaxAuthorities referred to under Sec. 131 by virtue of Sec.255(6). Thesame section further clarifies that any proceedings before the ITAT shallbe deemed to be judicial proceedings within the meaning of Sections193 and 228 and for the purpose of Sec.196 of the Indian Penal Code.The ITAT has also been deemed to be a Civil Court for all purposes ofSec. 195 and Chapter XXXIV of Code of Criminal Procedure. The ITAT,being a judicial body, while exercising judicial powers under the statute,is not empowered to employ its jurisdiction arbitrarily. Whatever it does,must be done in consonance with the sound judicial principles and inaccordance with accepted doctrine applicable to judicial bodies. Anyappeal against the order of the ITAT involving only a substantialquestion of law can be filed by either of the parties before the HighCourt, In the case, where no substantial question of law is involved,then order passed by the ITAT attains finality. Therefore, onerous dutyis casted on the Tribunal to pass speaking, reasonable and ordersshorn of any arbitrariness. 35.It would be appropriate to quote few orders passed by the ITAT. DB ITA-117/2004& connected casesas per Schedule-A appended20 In the case of CIT Vs. Ram Singh & Party (DB ITA 117/2004) the ITATpassed order in the following terms:- “The solitary grievance in both the appeals is related totrading addition made on account of country liquor byapplying section 145. The AO made the addition ofRs.11,89,764/-. But the same was reduced by the CIT(A)to Rs.1,50,000/-. By following the earlier decisions of theTribunal, we are of the view that the addition is still.looking on higher side Therefore, by modifying both theorders of the lower authorities we restrict the addition toRs.1 lac only. ITA 2216/JP/96- Ram Singh & PartyITA 2162/JP/96-By the Department 35.It would be appropriate to quote few orders passed by the ITAT. DB ITA-117/2004& connected casesas per Schedule-A appended20 In the case of CIT Vs. Ram Singh & Party (DB ITA 117/2004) the ITATpassed order in the following terms:- “The solitary grievance in both the appeals is related totrading addition made on account of country liquor byapplying section 145. The AO made the addition ofRs.11,89,764/-. But the same was reduced by the CIT(A)to Rs.1,50,000/-. By following the earlier decisions of theTribunal, we are of the view that the addition is still.looking on higher side Therefore, by modifying both theorders of the lower authorities we restrict the addition toRs.1 lac only. ITA 2216/JP/96- Ram Singh & PartyITA 2162/JP/96-By the Department In both the appeals, the first grievance is related to thetrading addition made on account of country liquor byapplying section 145. The AO made the addition ofRs.10,32,239/- on estimate basis under the head ofcountry liquor account. The same was reduced by the CIT(A) to Rs.1,50,000/-. However, the addition is still looking.on higher side By following our earlier order in a numberof cases, we modify both the orders of the lowerauthorities and restrict the addition to 1 lac. Thus theassessee gets further relief of Rs.50,000/-. The second grievance of both the parties is related to thetrading addition on account of IMFL and Beer account.The AO made the addition of Rs.12,35,921/-. But the CIT DB ITA-117/2004& connected casesas per Schedule-A appended (A) has reduced it to Rs.1 lac by following the Tribunal'sorder. However, the addition is still looking on higher side.Therefore, by modifying both the orders of the lowerauthorities we restrict the addition to Rs.75,000/- Thus,the assessee will get further relief of Rs.25,000/- on adhocbasis. Thus appeal filed by the assessee is partly allowedand the appeal filed by the department is dismissed.” 36.In the case of CIT Vs. M/s. Amin Mohd. & Party (DB ITA244/2005) the ITAT observed as under:- “By considering the rival submissions and considering thematerial available on record, we are of the view that in theliquor business the location, time, quality, quantity andturnover are relevant. In the instant case, we uphold theapplication of section 145 for the reasons mentioned in theorder of the A.O. However, the addition made is looking on.higher side Therefore, by keeping in mind the doctrine ofequity, justice and good conscious, we modify both theorders of the lower authorities and restrict the addition toRs.2,00,000/- (Rs.Two Lakhs) only. 37.In the case of Bhanwar Ali Habib & Party Vs. CIT (DB ITA293/2005) the ITAT observed as under:- “5.In the circumstances mentioned above, we modify theorders of lower authorities and by keeping in mind the doctrineof equity justice and good conscious restrict the additions as DB ITA-117/2004& connected casesas per Schedule-A appended mentioned below:- 38.On perusal of the above, orders it as apparent and patent thatthe ITAT has not even recorded the arguments advanced by the partiesnor has it come out with the discernible basis as to why adhoc statedaddition has been sustained. There is no recording of facts and there isno discussion about any comparable cases or the past history orworking for the adhoc addition and deletion. There is no reasonassigned as to why Tribunal does not agree with the finding recordedby AO or CIT(A). We fail to understand as to how Tribunal has arrivedto a conclusion in confirming, enhancing, reducing or deleting theestimation of income arrived at by CIT(A) & AO. The Tribunal issupposed to set out reasons in support of its decision by narrating fullfacts and discussing the issues in detail so that the person aggrievedknows why it has come to a particular conclusion. 23 DB ITA-117/2004& connected casesas per Schedule-A appended 23 DB ITA-117/2004& connected casesas per Schedule-A appended 39.Similar view has been considered by this Court in (2005) 199 CTR(Raj) 422 Commissioner of Income Tax Vs. Sunil Talwar Murlidhar &Party and followed in (2005) 199 CTR (Raj.) 427. In Sunil Talwar’s casesupra, it has been observed which reads ad infra- In our opinion, on the face of it, it is contradictory interms that the very foundation on which the books ofaccount rejected by the AO and which order has beenaffirmed by the Tribunal, should be taken to be thebasis for accepting the assessee's results because nomaterial was produced by the AO. It is to set atnaught the initial presumption which at least shiftedthe burden on the assessee to prove that resultsdeclared by his books of account are still correct. Theburden of proving exact facts to sustain the additionsmade on best judgment with definiteness is toconvert best judgment, which is in the very nature aguesswork, to an assessment in accordance withrejected books of account to a definiteness. Thetribunal has failed to consider the undisputed andunquestionable fact on which the AO has proceededto make the assessment, even the fact was notdisputed by the assessee that cost price wasverifiable for carrying the guesswork. Therefore, inour opinion, the decision of the Tribunal in deletingthe additions made by the AO as reduced by the CIT(A) cannot be sustained in law.”. DB ITA-117/2004& connected casesas per Schedule-A appended24 40.The principles fully hold the present case also. In the entire orderthe Tribunal has not recorded any finding of fact and no reasons areassigned as to why the Tribunal does not agree with the findingrecorded by the AO or CIT (Appeals) as the case may be. 41.The Hon'ble Apex Court in the case of Kranti Associates (P) Ltd.Vs. Masood Ahmed Khan: (2010)9 SCC 496, while dealing with therequirement of passing reasoned order by an authority whetheradministrative, quasi-judicial or judicial, has laid down as under:- a. In India the judicial trend has always been torecord reasons, even in administrative decisions, if suchdecisions affect anyone prejudicially. b. A quasi-judicial authority must record reasons insupport of its conclusions. c. Insistence on recording of reasons is meant toserve the wider principle of justice, that justice must notonly be done it must also appear to be done as well. d. Recording of reasons also operates as a validrestraint on any possible arbitrary exercise of judicialand quasi-judicial or even administrative power. e. Reasons reassure that discretion has beenexercised by the decision maker on relevant groundsand by disregarding extraneous considerations. f. Reasons have virtually become as indispensable acomponent of a decision making process as observingprinciples of natural justice by judicial, quasi-judicial andeven by administrative bodies. DB ITA-117/2004& connected casesas per Schedule-A appended 25 g. Reasons facilitate the process of judicial review bysuperior Courts. h. The ongoing judicial trend in all countries committedto rule of law and constitutional governance is in favourof reasoned decisions based on relevant facts. This isvirtually the life blood of judicial decision makingjustifying the principle that reason is the soul of justice. i. Judicial or even quasi-judicial opinions these dayscan be as different as the judges and authorities whodeliver them. All these decisions serve one commonpurpose which is to demonstrate by reason that therelevant factors have been objectively considered. Thisis important for sustaining the litigants' faith in thejustice delivery system. j. Insistence on reason is a requirement for bothjudicial accountability and transparency. h. The ongoing judicial trend in all countries committedto rule of law and constitutional governance is in favourof reasoned decisions based on relevant facts. This isvirtually the life blood of judicial decision makingjustifying the principle that reason is the soul of justice. i. Judicial or even quasi-judicial opinions these dayscan be as different as the judges and authorities whodeliver them. All these decisions serve one commonpurpose which is to demonstrate by reason that therelevant factors have been objectively considered. Thisis important for sustaining the litigants' faith in thejustice delivery system. j. Insistence on reason is a requirement for bothjudicial accountability and transparency. k. If a Judge or a quasi-judicial authority is notcandid enough about his/her decision making processthen it is impossible to know whether the persondeciding is faithful to the doctrine of precedent or toprinciples 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 decisionmaking process. m. It cannot be doubted that transparency is the sinequa non of restraint on abuse of judicial powers.Transparency in decision making not only makes thejudges and decision makers less prone to errors but alsomakes them subject to broader scrutiny. (See David DB ITA-117/2004& connected casesas per Schedule-A appended26 Shapiro in Defence of Judicial Candor (1987) 100Harward Law Review 731-737). n. Since the requirement to record reasons emanatesfrom the broad doctrine of fairness in decision making,the said requirement is now virtually a component ofhuman rights and was considered part of StrasbourgJurisprudence. See (1994) 19 EHRR 553, at 562 para 29and Anya v. University of Oxford 2001 EWCA Civ 405,wherein the Court referred to Article 6 of EuropeanConvention of Human Rights which requires, "adequateand intelligent reasons must be given for judicialdecisions". o. In all common law jurisdictions judgments play avital role in setting up precedents for the future.Therefore, for development of law, requirement ofgiving reasons for the decision is of the essence and isvirtually a part of "Due Process". 42.We have noticed following observations of the Karnataka HighCourt in CIT Vs. Gauthamchand Bhandari reported in (2012) 347 ITR491,499:- “We cannot avoid observing that of late thequality of orders that are come out from the Tribunal inexercise of its appellate power under section 256 of theAct are found to be wanting and in many respect andmany a times the orders are very prefecture, even non-speaking orders and has no correlation to the factsituation that prevails in a given case. DB ITA-117/2004& connected casesas per Schedule-A appended We also notice that the members of the Tribunalhave developed an unhealthy habit of quoting totallyunrelated judgments which are not applicable at all tothe facts of the case, to pass orders not otherwisesustainable on facts or in law. We strongly deprecatesuch a tendency on the part of the members of theTribunal, which is quite naturally a professional Tribunalcomprised of expert members, one member from theRevenue side and another member from the accountingside, with considerable experience in their respectivefields and to whom we can attribute expertise. We feelsorry that the confidence posed by the Legislature isnot being justified by passing orders that are outcomefrom the Tribunal now-a-days. It is high time themethod of recruitment to the Tribunal is also reviewedby the authority concerned and at least henceforth it isensured that the members of some standing, integrityand competence are put in place as members of theTribunal and not all and sundry. The Legislature, particularly the Union Parliamentmay also take note of such tendency on the part of theTribunal and ensure for suitable legislative measure sothat the purpose and the object with which suchTribunals are constituted really subserve not only theinterest of aggrieved assessee but also to ensure thatthe Revenue's interest is not simply scarified orjeopardized by errant members. Registrar General of this court is directed to sendcopies of this judgment to the Law Commission ofIndia, Secretary to Department of Revenue, Ministry of DB ITA-117/2004& connected casesas per Schedule-A appended28 Finance,. Government of India, Secretary toGovernment, Ministry of law and Parliamentary Affairs,Government of India and the Central Board of DirectTaxes, New Delhi.” 43.The impugned orders passed by the Tribunal do not satisfy therequirements enunciated by the Apex Court noticed here-in-above. 44.It is no doubt true that in an order of affirmation, repetition of thereasons elaborately may not be necessary but even then the argumentsadvanced/points urged deserves to be dealt with. Reasons foraffirmation have to be indicated, though in appropriate cases they maybe briefly stated. Recording of reasons is part of fair procedure andreasons are harbinger between the mind of the maker of the decision inthe controversy and the decision or conclusion arrived at and theyalways substitute subjectivity with objectivity and as observed inAlexander Machiniery (Dudley) Ltd. Crabtree, 1974 L.C.R. 120, failure togive reasons amounts to denial of justice and this is what was alsoabserved by the Apex Court in 2005 (2) SC 329 Mangalore GaneshBeedi Works Vs. CIT & Anr. 45.We find the judgments of the ITAT being the stereo typed, non-speaking, unreasoned, arbitrary and whimsical, and we have no option DB ITA-117/2004& connected casesas per Schedule-A appended29 except to remand the matter back to the ITAT to re-visit the issueafresh de-novo in accordance with the guidelines, referred to hereinabove and as summarized herein above. 46.Resultantly, in our considered view, all the impugned orderspassed by the ITAT, wherein appeals (Schedule-A) have been filedeither by the revenue or by the assessees cannot be sustained in theeyes of law and are hereby quashed & set aside to be decided afreshand de-novo in accordance with law. The Cross Objection No.100/2011filed in DB ITA No.372/2005 also stands disposed of in the above terms.We also direct the ITAT to decide all the matters expeditiously but inno case later than six months from the date parties are called upon toput their appearance before the ITAT. However, it is made clear thatthe ITAT may not be influenced/inhibited by any of the observations,referred to herein above and may decide independently on merits inaccordance with law. Parties are directed to appear before the ITAT on10/03/2014. No costs. [J.K. RANKA],J ,J. Dsr/Raghu/p.29/ DB ITA-117/2004& connected casesas per Schedule-A appended 30 Schedule A to Judgment in Income Tax Appeal No.117/2004 CIT Vs. Ram Singh S.Income TaxTitleNo.Appeals 1117/2004 CIT Vs. Ram Singh & Party 2118/2004 CIT Vs. Ram Singh & Party 3119/2004 CIT Vs. Hai Singh Amar Singh & Party 4120/2004 CIT Vs. M/s Trilok Chand Roop Narain & Party 5 121/2004 CIT Vs. M/s. Dwarka Prasad Hemraj & Party 6 122/2004 CIT Vs. Hari Singh Amar Singh & Party 7 126/2004 CIT Vs. Bharat Singh & Party [J.K. RANKA],J ,J. Dsr/Raghu/p.29/ DB ITA-117/2004& connected casesas per Schedule-A appended 30 Schedule A to Judgment in Income Tax Appeal No.117/2004 CIT Vs. Ram Singh S.Income TaxTitleNo.Appeals 1117/2004 CIT Vs. Ram Singh & Party 2118/2004 CIT Vs. Ram Singh & Party 3119/2004 CIT Vs. Hai Singh Amar Singh & Party 4120/2004 CIT Vs. M/s Trilok Chand Roop Narain & Party 5 121/2004 CIT Vs. M/s. Dwarka Prasad Hemraj & Party 6 122/2004 CIT Vs. Hari Singh Amar Singh & Party 7 126/2004 CIT Vs. Bharat Singh & Party 8127/2004 CIT Vs. Trilok Chand Roop Narain & Party9128/2004 CIT Vs. Bharat Singh & Party9128/2004 CIT Vs. Bharat Singh & Party10188/2004[Bhagwan Das Brijendra Singh & Party Vs. CIT]