GURCHARAN KAUR vs. COMMISSIONER OF INCOME TAXK

This appeal has been preferred by the appellant-assessee under section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 27.2.2008, Annexure P.1, passed by the Income Tax Appellate Tribunal, Amritsar Bench Amritsar (in short, “the Tribunal”) in ITA No.616 (ASR)/2004 for the assessment year 2001-02. It was admitted on 16.12.2009 to consider following substantial question of law:- “Whether the Tribunal mi irected itself in law as well as on facts in upholding the order passed by the Commissioner of Income Tax under Section 263 of the Act whereby the latter had reversed the order of the Assessing officer allowing deduction under Section 37 of the Act in respect of advertisement expenses?”

A few facts relevant for the decision of the controversy involved, as narrated in the appeal may be noticed. The assessee filed his return of income for the year under consideration on 31.10.2001 declaring income of ` 19,67,981/- disclosing income from business and other sources. GURBAX SINGH 2014.10.13 11:08 integrity of this document High Court Chandigarh On 31.3.2003, a revised return of income was filed declaring income of ` 21,53,330/- further disclosing income of ` 1,44,000/- on account of property and interest received on MIS at ` 41,435/-. The Assessing officer observed that the assessee had exported coffee worth ` 2,09,71,277/- giving GP rate of 1.42% as against 3.56% of the preceding assessment year. With regard to fall in GP rate, the assessee submitted that coffee was being exported for M/s Hindustan Lever Limited and that for the year under consideration, the assessee had to incur freight and carriage expenses at ` 36,33,959/- as per agreement between the parties. It was observed that the assessee had also received commission of ` 92,16,009/- on sale of coffee in Russia from the said two parties and this commission was being received on account of indirect export in lieu of which, the assessee had to incur the expenses for promotion of the business in Russia. Vide order dated 27.2.2004, Annexure P.3, assessment was completed at a total income of ` 23,51,256/- under Section 143(3) of the Act. The Assessing Officer granted deduction claimed by the appellant towards advertisement expenses under Section 37 of the Act on the basis of documentary evidence furnished. The Commissioner of Income Tax (CIT) exercising power under Section 263 of the Act passed an order dated 6.10.2004, Annexure P.2 reversing the claim for deduction allowed by the Assessing Officer towards advertisement expenses under Section 37 of the Act by drawing inference from the documentary evidence which had been furnished in the proceedings under Section 143(3) of the Act before the Assessing Officer and held that the order passed by the Assessing Officer granting the said deduction was erroneous and prejudicial to the interest of the revenue. The assessee filed GURBAX SINGH 2014.10.13 11:08 integrity of this document High Court Chandigarh appeal before the Tribunal. Vide order dated 27.2.2008, Annexure P.1, the Tribunal dismissed the appeal. Hence the instant appeal by the assessee.

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

Learned counsel for the appellant-assessee referred to Annexure P.5 and submitted that following material had been produced by the assessee but the same was not considered by the CIT and the Tribunal:- Sr.No. Particulars Remarks i) Copies

On the other hand, learned counsel for the revenue submitted that the Tribunal had rightly decided the issue against the assessee and in favour of the revenue as the assessee had failed to produce the communication received from Hindustan Lever Limited whose goods were exported to Russia in order to establish that advertisement expenses had been incurred by the assessee. It was also argued that major portion of the expenses incurred was prior to the sales made to the foreign buyer and in such a situation, the same was inadmissible.

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 GURBAX SINGH 2014.10.13 11:08 integrity of this document High Court Chandigarh 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). n. Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and GURBAX SINGH 2014.10.13 11:08 integrity of this document requires, "adequate and intelligent reasons must be given for judicial decisions". o. In all common law juri ictions 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".

Adverting to the factual matrix in the present appeal, perusal of the order dated 27.2.2008, Annexure P.1 passed by the Tribunal shows that the documents and the data produced by the assessee as mentioned above have not been taken into consideration. Therefore, the order does not satisfy the requirements as enunciated by the Apex Court noticed herein above. Thus, the substantial question of law is answered accordingly and after setting aside the order of the Tribunal dated 27.2.2008, Annexure P.1 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, the appeal stands disposed of. (Ajay Kumar Mittal) Judge September 03, 2014 (Fateh Deep Singh) ‘gs' Judge GURBAX SINGH 2014.10.13 11:08 integrity of this document High Court Chandigarh