Abdul Hakim Khan, New Delhi vs Assessee

Date of Hearing : 07.01.2015 Date of Pronouncement : 09.01.2015

ORDER

Per N. K. Saini, AM:

This is an appeal by the assessee against the order dated 05.01.2012 of ld. CIT(A)-XXVIII, New Delhi.

2. Following grounds have been raised in this appeal:

"1. That the Learned Assessing Officer has erred in law and circumstances of the case in passing the impugned order ex-parte.

2. That the Learned Assessing Officer has violated the principles of Natural justice by not affording the assessee a reasonable opportunity of being heard.

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3. That the Learned Assessing Officer has erred in law and facts in making the addition of 8% of the total revenue from business on some baseless assumptions.

4. That the Learned Assessing Officer has erred in law and facts by all together ignoring the books of accounts filed by the assessee.

5. That the Learned Assessing Officer has erred in law and in facts in making an addition of Rs. 7,21,463/- on account of payments through credit card under section 37(1) of the Income Tax Act, 1961, inspite of making adhoc additions to the income declared by the assessee.

6. That the Learned Assessing Officer has erred in law in initiating the penalty proceeding on the basis of intangible additions to the returned income.

7. That the Learned Commissioner of Income Tax (Appeals) has erred in law in confirming the impugned order of Learned Assessing Officer without offering a reasonable opportunity of being heard.

8. That the assessee was not medically fit to represent his case and the medical certificate in this regard is enclosed for the kind perusal of your good self.

9. The case was decided ex-parte by the Learned Assessing Officer and Commissioner of Income Tax (Appeals) and the assessee was unable to substantiate his case before the Income Tax Authorities.

10. The levy of penalty in assessee case would be an undue hardship to the assessee "

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3. Facts of the case in brief are that the assessee was engaged in the business of electrical & labour contract and filed his return of income on 20.08.2008 declaring an income of Rs. 1,35,429/-. Later on, the case was selected for scrutiny. The AO framed the assessment ex parte u/s 144 of the Income Tax Act, 1961 (hereinafter referred to as the Act) by estimating the gross profit @ 8% of contract and hire receipts which came to Rs. 11,74,240/- as against the profit of Rs. 2,35,429/- shown by the assessee. Accordingly the addition of Rs. 9,38,811/- was made. The AO also made an addition of Rs. 7,21,463/- on account of payments made through credit card. He disallowed the deduction claimed under Chapter VI-A amounting to Rs. 1,00,000 and the same was also added to the income of the assessee.

4. Being aggrieved the assessee carried the matter to the ld. CIT(A) and claimed vide ground nos. 1, 2, 3 and 7 that proper opportunity of being heard was not given by the AO. The assessee also stated vide ground no. 3 that he was on bed rest due to some health problem from the month of November till the first week of January, 2011 and was not in a position to represent his case (copy of medical certificate regarding his ill health was also furnished). The said grounds were considered by the ld. CIT(A) as general in nature. The assessee also furnished a written 4 ITA No. 1882/Del/2012 Abdul Hakim Khan

submission which has been incorporated at page nos. 3 to 5 of the impugned order and read as under:

Appellant's Submission "It is to inform you that the Assessing Officers assessed the case on income of RS.1660270/- and created demand of Rs.624884/- vide assessment order under section 143 (3), 144 of the Income Tax Act, 1961.

1. That the ITO erred in facts & law in deciding the assessment.

2. As the AR of the assessee appeared time to time and submit documents which is required for assessment but surprisingly ITO on 28.07.2010 issued a show cause notice under section 271(1)(B) for 05.08.2010. As the Assessing Officer was on leave on 05.08.2010. The AR of the assessee submits reply of the show cause notice on 05.8.2010. In the ward photo copy of the same enclosed in which it is clearly mentioned that AR of the assessee sent his employee on 28.06.2010 for adjournment of the case. But the Assessing Officer refuse to adjourn the case in the month of June when the AO has sufficient time to complete the case. After the above mentioned reply of the show cause notice no notice was legally served upon the assessee.

3. That in the month of November due some Health Problem Assessee was on bed rest till first week of January 2011 and not in a position to represent his case copy of medical certificate regarding his ill health IS enclosed. After 05.08.2010 to December no notice was legally served upon the assessee which was sent in the month of December as per assessment order.

4. That the assessee IS engaged in the business of electrical and labour contract and filed income tax return regularly his 5 ITA No. 1882/Del/2012 Abdul Hakim Khan

percentage of net profit from the business known as M/s Honey Electrical works, is as follows :-

Asstt. Year 2006-07 1.50% (Already scrutinized) copy of enclosed.

Asstt Year 2007-08 1.53% Asstt Year 2008-09 1.60%

5. That as per audit report filed timely with return of income and case already scrutinized A.Y. 2006-07. On above mentioned table, so the estimation of profit @ 8% on total contract is illegal and unjustified.

6. That the ITO also disallowed deduction under Chapter VIA which is also illegal as the assessee filed his income tax return online there is no need to submit any documents with the return. After receiving the assessment order and filing the appeal in your good self the assessee point out regarding above motioned submission he AO accept the claim of the assessee and ordered that the claim of assessee found as correct. Thus the total income is therefore reduced by Rs. 1 00000/-

(1660270-100000) revised to 1560270/- copy of order under section 1961 enclosed for your kind perusal.

7. That no proper opportunity was afford to the assessee to represent his case properly.

That the assessee respectfully prays that illegal addition may be deleted penalty proceedings under section 271(1)(B), 271(1)( c) read with Income Tax Act, 1961 dropped, and the proper opportunities should be given to the assessee or already mentioned income @ 1.60 may be accepted."

5. Thereafter the ld. CIT(A) confirmed the additions made by the AO by observing as under:

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"I have gone through the assessment order and written submission of the appellant. During the assessment proceedings the Assessing Officer raised queries regarding payment of Rs. 7,21,463/- through credit card however, no explanation was given by the appellant in this regard. The Assessing Officer made an addition of the said amount paid through the credit card. The appellant has accepted the order and has not challenged the addition made.

During the course of assessment the appellant has not submitted full details as required by the Assessing Officer. He has also accepted the addition made for payments made through credit card. In view of the facts and circumstances of the case the Assessing Officer is justified in estimating the income of the appellant at the rate of 8% of the gross receipt. I sustain the order of the Assessing Officer on this issue, addition of Rs. 9,38,811/- is upheld. Appeal on these grounds is dismissed.

Ground No. 6 relates to disallowance under chapter-VIA. However, the Assessing Officer has already considered this issue and allowed relief to the appellant u/s 154 of IT Act, therefore, there is no need for further adjudication. Appeal on this ground is withdrawn and therefore, dismissed."

6. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the ld. CIT(A) had not given a due and proper opportunity of being heard and even consider the specific grounds raised before him as general in nature. It was further submitted that the order passed by the ld. CIT(A) is a non-speaking order.

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7. In her rival submissions the ld. DR strongly supported the order of the ld. CIT(A) and further submitted that the ld. CIT(A) after considering the submissions of the assessee adjudicated the issue and as the assessee could not give any explanation to the AO on account of payment through credit card the addition was rightly confirmed. Similarly, there was no explanation regarding the gross profit rate, therefore, the addition sustained by the ld. CIT(A) was fully justified.

8. We have considered both the partied and carefully gone through the material available on the record. In the present case it is noticed that the ld. CIT(A) although reproduced the submissions made by the assessee but had not given any reason while rejecting the same. It is also noticed that the assessee raised the specific ground nos. 1, 2, 3 and 7 relating to the proper opportunity which was claimed to be not afforded to the assessee, however, the ld. CIT(A) considered those grounds as general in nature. It is also noticed that the AO passed the assessment order ex parte which shows that the proper opportunity of being heard was not afforded to the assessee and the ld. CIT(A) without bringing any cogent material in support of his decision confirmed the addition made by the AO.

9. In our opinion the impugned order passed by the ld. CIT(A) is not a speaking order. It is well settled that the order/judgment unsupported by reason is not a judgment in the eyes of law. It is also true that the reasons are the link between the material on record and the conclusion 8 ITA No. 1882/Del/2012 Abdul Hakim Khan

thereafter by the Court/Appellate authority. In our view the Ld. CIT(A) should have properly considered the arguments of the assessee as well as findings given by the Assessing Officer and thereafter he should have made independent findings either in favour or against the assessee. Considering the entire facts, we are of the opinion that the Ld. CIT(A) had not passed a proper order in the eyes of law. At this stage, we may refer to the decision of ITAT Ahmadabad Bench in the case of Gujarat Themis Biosyn Ltd. Vs. J.C.I.T., (2000) 74 ITD 339 (Ahd). The ITAT Ahmadabad Bench, while interpreting the provisions of section 250(6) of the I.T. Act, 1961 held as under:

"The provisions of section 250(6) provides that the appellate orders of the Commissioner (Appeals) are to state the points arising in the appeal, the decision of the authority thereon and the reasons for such decision. The underlying rationale of the provisions is that such orders are subject to further appeal to the Tribunal. Speaking order would obviously enable a party to know precise points decided in his favour or against him. Absence of the formulation of the point for decision for want of clarity in a decision undoubtedly puts a party in quandary. Section 250(6) expressly embodies the principle of natural justice and such a provision is clearly mandatory in nature. The impugned order passed by the Commissioner (Appeals) in violation of the provisions of section 250(6) could not, therefore, be sustained."

10. The ratio laid down by the ITAT Ahmadabad Bench in the aforesaid referred to case is squarely applicable to the facts of the present case.

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11. The Hon'ble Punjab & Haryana High Court in the case of CIT V Palwal Cooperative Sugar Mills Ltd. (2006) 284 ITR 153 has held as under:

"Every judicial/quasi judicial body / authority must pass a reasoned order which should reflect the application of mind of the concerned authority to the issues / points raised before it. The requirement of recording reasons is an important safeguard to ensure observance of the rule of law. It introduces clarify, checks the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision making process. Another reason which makes it imperative for quasi judicial authorities to give reasons is that their orders are not only subject to the fight of the aggrieved persons to challenge them by filing statutory appeal and revision but also by filing writ petition under article 226 of the Constitution. Such decisions can also be challenged by way of appeal under article 136 of the Constitution of India. The High Courts have the power to issue writs of certiorari to quash the orders passed by quasi judicial authorities / Tribunals. Likewise in appeal the Supreme Court can nullify such order / decision. The power of judicial review can be effectively exercised by the superior courts only if the order under challenge contains reasons. If such order is cryptic and devoid of reasons, the courts cannot effectively exercise the power of judicial review."

12. The Hon'ble Supreme Court in the case of Mangalore Ganesh Beedi Works Vs. CIT and another (2005) 273 ITR 56 has held as under:

"Though in an order of affirmation in an appeal u/s 260A of Income Tax Act, 1961 repetition of the reasons elaborately may not be necessary, the arguments advanced / points urged have to be dealt with. Reasons for affirmation have to be indicated, though in appropriate cases they may be brief."

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It has further been held :

"Recording of reasons is a part of fair procedure. Reasons are the harbinger between the mind of the maker of the decision in the controversy and the decision or conclusion arrived at. They substitute subjectivity with objectivity. Failure to give reasons amounts to denial of justice."

13. As we have already pointed out that in the present case, the ld. CIT(A) has not recorded any reason in support of his decision, therefore, the failure to give reasons amounts to denial of justice as per the ratio laid down by the Hon'ble Supreme Court in the aforesaid case and the present case requires re-adjudication at the level of Ld. CIT(A).

14. The Hon'ble Punjab & Haryana High Court in the case of CIT Vs Vikas Chemi Gum India (2005) 276 ITR 32 has held as under:

"The requirement of recording of reasons and communication thereof has been read as an integral part of the concept of fair procedure. The necessity of giving reasons flows from the concept of rule of law which constitutes one of the corner stones of our constitutional set up. The administrative authorities changed with the duty to act judicially cannot decide the matters on considerations of policy or expediency. The requirement of recording of reasons by such authorities is an important safeguard to ensure observance of the rule of law. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision making process. Another reason which makes it imperative for the quasi judicial authorities to give reasons is that their orders are not only subject to the right of the aggrieved persons to challenge the same by filing statutory appeal and revision but also by filing writ petition under articles 226 of the Constitution. Such decisions can also be 11 ITA No. 1882/Del/2012 Abdul Hakim Khan

challenged by way of appeal under article 136 of the Constitution of India. The High Courts have the power to issue writ of certiorari to quash the orders passed by a quasi judicial authority/Tribunal. Likewise in appeal the Supreme Court can nullify such order/decision. These powers can be effectively exercised by the superior courts only if the order under challenge contains reasons."

15. As pointed out earlier that the impugned order passed by the Ld. CIT(A) is without any reasoning, therefore keeping in view the ratio laid down in the aforesaid referred to Judicial pronouncement, it deserves to be remanded back for fresh adjudication at the level of the AO. In the present case as we have already noted, the order passed by the Ld. CIT(A) is a non speaking order and devoid of reasons so, it is a cryptic order in the eyes of law and not sustainable. Therefore, we set aside the impugned order passed by the ld. CIT(A) and remand the case back to the file of the AO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.

16. In the result, the appeal of the assessee is allowed for statistical purposes.

(Order Pronounced in the Court on 09/01/2015)

Sd/- Sd/-

(George George K.) (N. K. Saini) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 09/01/2015 *Subodh*