M/S Atm Forgings, Focal Point, Jalandhar v. The Commissioner Of Income Tax Ii, Jalandhar

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.598 of 2008 (O&M) Date of decision: 26.08.2013 M/s ATM Forgings, Focal Point, Jalandhar ...Appellant Versus The Commissioner of Income Tax II, Jalandhar ...Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTALHON’BLE MR. JUSTICE JASPAL SINGHHON’BLE MR. JUSTICE JASPAL SINGH Present: Mr. Sanjay Bansal, Sr. Advocate with Mr. Parvesh Saini, Advocate for the appellant. Mr. Vivek Sethi, Advocate for the revenue. Ajay Kumar Mittal,J. 1.This order shall dispose of ITA Nos.598 and 618 of 2008as both the appeals arise out of the common order dated 27.2.2008relating to the assessment year 2002-03. However, the facts are beingtaken from ITA No.598 of 2008. 2.ITA No.598 of 2008 has been preferred by the assesseeunder Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 27.2.2008, Annexure P.1 passed by theIncome Tax Appellate Tribunal, Armtisar Bench, Amritsar (in short,“the Tribunal”) arising out of ITA No.91/ASR/2006 for theassessment year 2002-03. Both the appeals were admitted on6.8.2009 to consider following substantial question of law:- “Whether on the facts and in the circumstances of thecase, the Tribunal was legally correct in upholding theorder of the Assessing Officer without adverting to theevidence and material brought on record by theassessee?” 3. 3.Briefly, the facts necessary for adjudication of thecontroversy involved, as available on record, may be noticed. Theassessee was engaged in the business of manufacture and sale of handtools and had shown gross profit of ` 1,41,23,368/- on sales of`10,32,07,794/- which worked out to 13.7% as against gross profit of`1,03,72,313/- on sales of ` 7,59,09,692/- at the rate of 13.7% of thelast year. The Assessing Officer vide order dated 28.3.2005,Annexure P.3 made an addition on account of goods purchased fromtwo parties - M/s Rajiv Electrics Trading Company and KrishnaHardware and Mill Store. Depreciation on machinery purchased fromthese two parties was also disallowed. Thus, total additionaggregating to ` 29,92,104/- was made by the Assessing Officer tothe total income of the appellant. The Commissioner of Income Tax(Appeals) [CIT(A)] vide order dated 31.1.2006, Annexure P.2 partlyallowed the appeal on account of purchases made from the abovementioned two parties and also granted relief in respect of depreciation of machinery purchased from them. The appellant aswell as the revenue filed appeals before the Tribunal. Vide orderdated 27.2.2008, Annexure P.1,the Tribunal accepted the appeal ofthe revenue by maintaining the order of the Assessing Office holdingthat the purchases made from the two firms were bogus. The Tribunaldismissed the appeal of the assessee in view of the above finding bysetting aside the order of the CIT(A) granting partial relief to theappellant. On the question of depreciation, the Tribunal remandedback the matter to the CIT(A) with a direction to decide the issue byrecording a specific finding. Hence the present appeals by theassessee. 4. Learned counsel for the appellant submitted that theTribunal while setting aside the order of CIT(A) and restoring theorder passed by the Assessing Officer has recorded in its order dated27.2.2008 that the additions made by the Assessing Officer werejustified and the order of CIT(A) was unsustainable withoutconsidering and dealing with the material on record and withoutassigning any reasons. According to the learned counsel, the Tribunalwas required to deal with all factual and legal issues involved andallowing of appeal of the revenue by the Tribunal was against theprinciples of natural justice. 5.Learned counsel for the respondent-revenue on the otherhand supported the order passed by the Tribunal. 6. After hearing learned counsel for the parties, we findforce in the submissions of learned counsel for the assessee- appellant. 5.Learned counsel for the respondent-revenue on the otherhand supported the order passed by the Tribunal. 6. After hearing learned counsel for the parties, we findforce in the submissions of learned counsel for the assessee- appellant. 7. 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 reasonedorder by an authority whether administrative, quasi judicial orjudicial, had laid down as under:- “51. Summarizing the above discussion, this Courtholds:holds: a. In India the judicial trend has always been torecord reasons, even in administrative decisions, ifsuch decisions affect anyone prejudicially. b. A quasi-judicial authority must record reasons insupport of its conclusions.support of its conclusions. c. Insistence on recording of reasons is meant to serve the wider principle of justice that justicemust not only be done it must also appear to bedone as well.must not only be done it must also appear to bedone as well. d. Recording of reasons also operates as a validrestraint on any possible arbitrary exercise ofjudicial and quasi-judicial or even administrativepower.restraint on any possible arbitrary exercise ofjudicial and quasi-judicial or even administrativepower. e. Reasons reassure that discretion has beenexercised by the decision maker on relevantgrounds and by disregarding extraneousconsiderations.exercised by the decision maker on relevantgrounds and by disregarding extraneousconsiderations. f. Reasons have virtually become as indispensablecomponent of a decision making process asobserving principles of natural justice by judicial,quasi-judicial and even by administrative bodies.component of a decision making process asobserving principles of natural justice by judicial,quasi-judicial and even by administrative bodies. g. Reasons facilitate the process of judicial reviewby superior Courts.by superior Courts. h. The ongoing judicial trend in all countries committed to rule of law and constitutionalgovernance is in favour of reasoned decisionsbased on relevant facts. This is virtually the lifeblood of judicial decision making justifying theprinciple that reason is the soul of justice. i. Judicial or even quasi-judicial opinions these days can be as different as the judges andauthorities who deliver them. All these decisionsserve one common purpose which is todemonstrate by reason that the relevant factorshave been objectively considered. This isimportant 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 process then it is impossible to knowwhether the person deciding is faithful to the doctrine ofprecedent 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 avalid decision making process. m. It cannot be doubted that transparency is thesine qua non of restraint on abuse of judicialpowers. Transparency in decision making not onlymakes the judges and decision makers less prone toerrors but also makes them subject to broaderscrutiny. (See David Shapiro in Defence of JudicialCandor (1987) 100 Harward Law Review 731-737). n. Since the requirement to record reasons making process then it is impossible to knowwhether the person deciding is faithful to the doctrine ofprecedent 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 avalid decision making process. m. It cannot be doubted that transparency is thesine qua non of restraint on abuse of judicialpowers. Transparency in decision making not onlymakes the judges and decision makers less prone toerrors but also makes them subject to broaderscrutiny. (See David Shapiro in Defence of JudicialCandor (1987) 100 Harward Law Review 731-737). n. Since the requirement to record reasons emanates from the broad doctrine of fairness indecision making, the said requirement is nowvirtually a component of human rights and wasconsidered 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 EuropeanConvention of Human Rights which requires,"adequate and intelligent reasons must be given forjudicial decisions". o. In all common law jurisdictions judgments playa vital role in setting up precedents for the future.Therefore, for development of law, requirement ofgiving reasons for the decision is of the essenceand is virtually a part of "Due Process". 8.It would be apposite to refer to the order of the Tribunal dated 27.2.2008 which would show that the Tribunal has in para 11thereof noticed the contentions of the parties and accepted the appealof the revenue without giving any cogent and convincing reasons. Itreads thus:- “11. In this regard, we find that the departmentcorrectly contends that the learned CIT(A) hasfailed to appreciate the detailed findings of factrecorded in the assessment order. Rather, thelearned CIT(A) has not even considered thesefindings of the AO which are based on enquiries gotconducted in the matter. The learned CIT(A) hasmerely brushed these findings aside as“irregularities”. We find that these findings of theAO as detailed in the assessment order, are not“irregularities”. They are definite and firm findingof fact recorded on the basis of the investigation conducted. The allocation made by the learned CIT(A) on proportionate basis with reference to theearlier year, in our considered opinion, is not at allcalled for, particularly when in the earlier year noenquiry whatsoever is stated to have been gotconducted by the AO. It is settled law that each yearis independent and the rule of consistencynotwithstanding, res judicata is not applicable toincome tax proceedings, where the facts arematerially different for two assessment years in thecase of an assessee. In the present case, the factwhich is materially different between the year andthe preceding year is, to reiterate, that in thepreceding assessment year, no enquiry was gotconducted into the matter whereas, in the yearunder consideration, a detailed enquiry was gotconducted by the AO which has been elaboratelydiscussed in the assessment order. The additionmade by the AO had as its basis the result of suchenquiry. Therefore, the order of the learned CIT(A)is not sustainable and is liable to be set aside. Theassessment order, on the other hand, is entitled to berevived. Ordered accordingly.” Therefore, the order dated 27.2.2008 does not satisfy therequirements as enunciated by the Apex Court noticed herein above.Thus, the substantial question of law is answered in favour of theappellant-assessee and against the revenue. Accordingly, after settingaside the order of the Tribunal dated 27.2.2008 which is passed inviolation of the principles of natural justice as per the law laid downby the Apex Court as mentioned above, the matter is remanded to theTribunal to decide afresh after affording an opportunity of hearing to ITA No.598 of 2008 Therefore, the order dated 27.2.2008 does not satisfy therequirements as enunciated by the Apex Court noticed herein above.Thus, the substantial question of law is answered in favour of theappellant-assessee and against the revenue. Accordingly, after settingaside the order of the Tribunal dated 27.2.2008 which is passed inviolation of the principles of natural justice as per the law laid downby the Apex Court as mentioned above, the matter is remanded to theTribunal to decide afresh after affording an opportunity of hearing to ITA No.598 of 2008 the parties in accordance with law. As a result, both the appeals are allowed. (Ajay Kumar Mittal)Judge August 26, 2013'gs' (Jaspal Singh) Judge