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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI CHANDRA POOJARI
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax, Chennai-V, Chennai, dated 11.03.2014, in exercise of his power under Section 263 of the Income-tax Act, 1961 (in short 'the Act').
Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the Assessing Officer completed the assessment under Section 143(3) of the Act by allowing the claim of the assessee with regard to Directors remuneration and Key Man Insurance. However, the administrative Commissioner found that the service of the Directors and Key Man Insurance are utilised for the business of both the units, i.e. DTA unit and EOU. Therefore, the administrative Commissioner found the expenses incurred by the assessee towards Directors remuneration and Key Man Insurance have to be apportioned in proportion to the turnover of each unit. The Commissioner directed the Assessing Officer to modify the assessment order by increasing the expenses of EOU from `12 lakhs to `51,54,394/- and reducing the expenses of DTA unit from `48,81,920/- to `9,27,526/-. The direction of the Commissioner resulted in increase in income of the DTA unit to the extent of `39,54,394/-. On query from the Bench whether the Assessing Officer has discussed about the expenses incurred with regard to Directors remuneration and Key May Insurance, the Ld.counsel clarified that there is no discussion in the assessment order.
However, all the details were filed before the Assessing Officer. revise the order of the Assessing Officer.
On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the Assessing Officer without any discussion and application of mind, allowed the claim of the assessee towards Directors remuneration and Key Man Insurance without apportioning the same in proportion to the turnover of each unit. Therefore, the Commissioner has rightly found that the expenses have to be apportioned among the two units in proportion to the turnover of each unit. Since the Assessing Officer has not applied his mind to the material available on record, according to the Ld. D.R., the Commissioner has rightly revised the order of the Assessing Officer, in exercise of his power under Section 263 of the Act.
We have considered the rival submissions on either side and perused the relevant material on record. The proceeding before the Assessing Officer is a judicial proceeding and the Assessing Officer is performing a judicial function. The role of the Assessing Officer is that of the Investigation Officer to the Department and adjudicating authority between the Department and the assessee. Therefore, adjudicating the tax dispute under the scheme of the Income-tax Act. The Assessing Officer is expected to apply his mind to the material available on record to record his own reasons for the conclusion reached in the assessment order. In the case before us, the assessee claimed Directors remuneration and Key Man Insurance policy. The Assessing Officer without any discussion in the assessment order allowed the claim of the assessee.
Therefore, this Tribunal is of the considered opinion that there is an error which is prejudicial to the interests of Revenue. We find that the Punjab &Haryana High Court had an occasion to examine this issue in CIT v. Sunil Kumar Goel [2005] 274 ITR 53. The Punjab &Haryana High Court, after considering the judgment of the Constitutional Bench of the Apex Court in S.N.Mukherjee v. Union of India, AIR 1990 SC 1984, has observed as follows:
“ In S.N.Mukherjee v. Union of India, AIR 1990 SC 1984, a Constitution Bench of the Supreme Court discussed the development of law on this subject in India, Australia, Canada, England and the United States of America and after making reference to a large number of judicial precedents, their Lordships culled out the following propositions (page 1995) :
"The decisions of this court referred to above indicate that with regard to the requirement to record reasons the approach of this court is more in line with that of the American Courts. An important consideration which has weighed with the court for holding that an administrative authority exercising quasi- judicial functions must record the reasons for its decision, is that such a decision is subject to the appellate jurisdiction of this court under article 136 of the Constitution as well as the supervisory jurisdiction of the High Courts under article 227 of the Constitution and that the reasons, if recorded, would enable this court or the High Courts to effectively exercise the appellate or supervisory power. But this is not the sole consideration. The other considerations which have also weighed with the court in taking this view are that the requirement of recording reasons would (i) guarantee consideration by the authority; (ii) introduce clarity in the decisions; and (iii) minimise chances of arbitrariness in decision making. In this regard a distinction has been drawn between ordinary courts of law and tribunals and authorities exercising judicial functions on the ground that a judge is trained to look at things objectively uninfluenced by considerations of policy or expediency whereas an executive officer generally looks at things from the stand point of policy and expediency.
Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this court in holding that an administrative authority must record reasons for its decision, are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances of arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact whether the decision is subject to appeal, revision or judicial review. It may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge." In Testeels Ltd. v. N. M. Desai [1970] 37 FJR 7; AIR 1970 Guj 1, a Full Bench of the Gujarat High Court has made an extremely lucid enunciation of law on the subject and we can do no better than to extract some of the observations made in that decision. The same are (headnote of AIR 1970 (Guj):
"The necessity of giving reasons flows as a necessary corollary from the rule of law which constitutes one of the basic principles of the Indian Constitutional set-up. The administrative authorities having a duty to act judicially cannot therefore decide on considerations of policy or expediency. They must decide the matter solely on the facts of the particular case, solely on the material before them and apart from any extraneous considerations by applying pre-existing legal norms to factual situations. Now the necessity of giving reasons is an important safeguard to ensure observance of the duty to act judicially. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and excludes or, at any rate, minimises arbitrariness in the decision-making process.
Another reason which compels making of such an order is based on the power of judicial review which is possessed by the High Court under article 226 and the Supreme Court under article 32 of the Constitution. These courts have the power under the said provisions to quash by certiorari a quasi-judicial order made by an administrative officer and this power of review can be effectively exercised only if the order is a speaking order. In the absence of any reasons in support of the order, the said courts cannot examine the correctness of the order under review. The High Court and the Supreme Court would be powerless to interfere so as to keep the administrative officer within the limits of the law. The result would be that the power of judicial review would be stultified and no redress being available to the citizen, there would be insidious encouragement to arbitrariness and caprice. If this requirement is insisted upon, then, they will be subject to judicial scrutiny and correction."
If the order passed by the Tribunal is scrutinised in the light of the aforementioned proposition of law, we do not find any difficulty in setting aside the same on the ground of violation of the rules of natural justice. The flowery language used by the Tribunal to justify its acceptance of the respondent's plea that he did not know the law does not warrant our affirmation. In our opinion, the Tribunal was duty bound to record tangible and cogent reasons for upsetting well reasoned orders passed by the Assessing Officer and the Commissioner of Income-tax (Appeals). It should have directed its attention to the language of sections 271D and 271E of the Act in conjunction with other provisions of the same family and then decided by a reasoned order whether the respondent had been able to make out a case for deleting the penalty. The order passed by the Tribunal should have clearly reflected the application of mind by the learned members.”
In view of the above, this Tribunal is of the considered opinion that the application of mind should be reflected in the assessment order.
The reasons recorded in the assessment order would be the live link to the material available on record and the mind of the decision maker. In the absence of any reasons recorded in the assessment order, this Tribunal is of the considered opinion that there is an error which is prejudicial to the interests of Revenue. Therefore, the Commissioner has rightly exercised his power under Section 263 of the Act. In the case before us, the Commissioner has directed the Assessing Officer to modify the assessment order by increasing the reducing the expenses of the DTA unit from `48,81,920/- to `9,27,526/-. This Tribunal is of the considered opinion that the Commissioner ought to have remitted back the matter to the file of the Assessing Officer to examine the matter after giving an opportunity to the assessee. Such an opportunity was not given to the Assessing Officer and the Assessing Officer has also failed to examine the claim of the assessee. This Tribunal is of the considered opinion that the Assessing Officer has to examine the expenses incurred by the assessee with regard to Directors remuneration and Kay Man Insurance independently without being influenced by any of the observation made by the Commissioner in the impugned order or by this Tribunal in this order. Accordingly, while confirming the order of the Commissioner, this Tribunal directs the Assessing Officer to examine the claim of the assessee towards Directors remuneration and Key Man Insurance independently and thereafter decide the same, in accordance with law, without being influenced by any of the observation made by the Commissioner.
In the result, the appeal of the assessee is allowed for statistical purposes.