M/S ATM FORGINGS vs. C I T

This order shall dispose of ITA Nos.598 and 618 of 2008 as both the appeals arise out of the common order dated 27.2.2008 relating to the assessment year 2002-03. However, the facts are being taken from ITA No.598 of 2008. 2. ITA No.598 of 2008 has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”)

Briefly, the facts necessary for adjudication of the controversy involved, as available on record, may be noticed. The assessee was engaged in the business of manufacture and sale of hand tools 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 the last year. The Assessing Officer vide order dated 28.3.2005, Annexure P.3 made an addition on account of goods purchased from two parties - M/s Rajiv Electrics Trading Company and Krishna Hardware and Mill Store. Depreciation on machinery purchased from these two parties was also disallowed. Thus, total addition aggregating to ` 29,92,104/- was made by the Assessing Officer to the total income of the appellant. The Commissioner of Income Tax (Appeals) [CIT(A)] vide order dated 31.1.2006, Annexure P.2 partly allowed the appeal on account of purchases made from the above mentioned two parties and also granted relief in respect of depreciation of machinery purchased from them. The appellant as well as the revenue filed appeals before the Tribunal. Vide order dated 27.2.2008, Annexure P.1,the Tribunal accepted the appeal of the revenue by maintaining the order of the Assessing Office holding that the purchases made from the two firms were bogus. The Tribunal dismissed the appeal of the assessee in view of the above finding by setting aside the order of the CIT(A) granting partial relief to the appellant. On the question of depreciation, the Tribunal remanded back the matter to the CIT(A) with a direction to decide the issue by recording a specific finding. Hence the present appeals by the assessee.

Learned counsel for the appellant submitted that the Tribunal while setting aside the order of CIT(A) and restoring the order passed by the Assessing Officer has recorded in its order dated 27.2.2008 that the additions made by the Assessing Officer were justified and the order of CIT(A) was unsustainable without considering and dealing with the material on record and without assigning any reasons. According to the learned counsel, the Tribunal was required to deal with all factual and legal issues involved and allowing of appeal of the revenue by the Tribunal was against the principles of natural justice.

Learned counsel for the respondent-revenue on the other hand supported the order passed by the Tribunal.

After hearing learned counsel for the parties, we find force in the submissions of learned counsel for the assessee- appellant.

The Hon'ble Apex Court in M/s Kranti Associates Pvt. Ltd. and another v. Sh. Masood Ahmed Khan and others, (2010) 9 SCC 496 while dealing with the requirement of passing a reasoned order by an authority whether administrative, quasi judicial or judicial, had laid down as under:- “51. Summarizing the above discussion, this Court holds: a. In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially. b. A quasi-judicial authority must record reasons in support of its conclusions. c. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well. d. Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power. e. Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations. f. Reasons have virtually become as indispensable component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies. g. Reasons facilitate the process of judicial review by superior Courts. h. The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice. i. Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system. j. Insistence on reason is a requirement for both judicial accountability and transparency. k. If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism. l. Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or 'rubber-stamp reasons' is not to be equated with a valid decision making process. m. It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor (1987) 100 Harward Law Review 731-737). "adequate and intelligent reasons must be given for judicial decisions". o. In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of "Due Process".

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 11 thereof noticed the contentions of the parties and accepted the appeal of the revenue without giving any cogent and convincing reasons. It reads thus:- “11. In this regard, we find that the department correctly contends that the learned CIT(A) has failed to appreciate the detailed findings of fact recorded in the assessment order. Rather, the learned CIT(A) has not even considered these findings of the AO which are based on enquiries got conducted in the matter. The learned CIT(A) has merely brushed these findings aside as “irregularities”. We find that these findings of the AO as detailed in the assessment order, are not “irregularities”. They are definite and firm finding of fact recorded on the basis of the investigation conducted. The allocation made by the learned CIT (A) on proportionate basis with reference to the earlier year, in our considered opinion, is not at all called for, particularly when in the earlier year no enquiry whatsoever is stated to have been got conducted by the AO. It is settled law that each year is independent and the rule of consistency notwithstanding, res judicata is not applicable to income tax proceedings, where the facts are materially different for two assessment years in the case of an assessee. In the present case, the fact which is materially different between the year and the preceding year is, to reiterate, that in the preceding assessment year, no enquiry was got conducted into the matter whereas, in the year under consideration, a detailed enquiry was got conducted by the AO which has been elaborately discussed in the assessment order. The addition made by the AO had as its basis the result of such enquiry. Therefore, the order of the learned CIT(A) is not sustainable and is liable to be set aside. The assessment order, on the other hand, is entitled to be revived. Ordered accordingly.” Therefore, the order dated 27.2.2008 does not satisfy the requirements as enunciated by the Apex Court noticed herein above. Thus, the substantial question of law is answered in favour of the appellant-assessee and against the revenue. Accordingly, after setting aside the order of the Tribunal dated 27.2.2008 which is passed in violation of the principles of natural justice as per the law laid down by the Apex Court as mentioned above, the matter is remanded to the Tribunal to decide afresh after affording an opportunity of hearing to the parties in accordance with law. As a result, both the appeals are allowed. (Ajay Kumar Mittal) Judge August 26, 2013 (Jaspal Singh) 'gs' Judge