Plr Textiles Ltd., Chennai vs Assessee

This appeal of the assessee is directed against the order of

the Commissioner of Income Tax-III, Chennai, dated 07.02.2013. 2 I.T.A. No. 626/Mds/2013

2. Shri K. Raghu, the Ld. representative for the assessee,

submitted that the Commissioner, in exercise of his power under

Section 263 of the Income-tax Act, 1961 (in short 'the Act'), revised

the order of the Assessing Officer. According to the Ld.

representative, the assessee has filed the appeal against the order

of the Assessing Officer before the CIT(Appeals) and the

CIT(Appeals) disposed of the same by an order dated 30.08.2011.

Since the order of the Assessing Officer is the subject matter of

appeal before the CIT(Appeals), according to the Ld. representative,

the Administrative Commissioner cannot exercise his power under

Section 263 of the Act.

2. The Ld. representative further submitted that the Assessing

Officer found that a sum of `1,09,00,714/- was included as income

under Section 28(iv) of the Act after allowing an expenditure of `60

lakhs. Therefore, according to the Ld. representative, the

Administrative Commissioner revised the order without application

of mind. The Ld. representative further submitted that the assessee

claimed deduction for bad debts to the extent of `40 lakhs on

account of sale of land. The Commissioner found that since the

sale consideration of the land was offered under the head 'Capital

gains', deduction for bad debts cannot be allowed. The 3 I.T.A. No. 626/Mds/2013

Commissioner further found that deduction for bad debts come

under the head 'income from business'. The Ld. representative

further submitted that the assessee converted the capital asset into

business asset, therefore, the loss suffered by the assessee has to

be allowed.

3. On the contrary, Dr. S. Moharana, the Ld. Departmental

Representative, submitted that though the assessee claimed that

the business asset was disposed of, the assessee claimed

deduction under the head 'capital gains'. However, the Assessing

Officer has not discussed the same in the assessment order. In

respect of the claim of `60 lakhs, according to the Ld. D.R., the

assessee claimed the same as payment made for one-time

settlement to M/s Sundaram Finance Ltd. Therefore, according to

the Ld. D.R., the Commissioner has rightly revised the order of the

Assessing Officer.

4. We have considered the rival submissions on either side and

perused the relevant material on record. The first contention of the

assessee is that it filed appeal against the order of the Assessing

Officer. Therefore, the Administrative Commissioner cannot

exercise his power under Section 263 of the Act. We have carefully

gone through the order of the CIT(Appeals) dated 30.08.2011. The 4 I.T.A. No. 626/Mds/2013

CIT(Appeals) dismissed the appeal of the assessee on the ground

that the same was not pressed. In fact, para 2.2 of the order of the

CIT(Appeals) reads as follows:-

"2.2 During the course of hearing, the appellant contended that M/s Sundaram Finance Ltd. had seized the machinery and the appellant had been put to loss to the extent of `1.08 Crore. Appellant explained that the appellant is not having income under the head business in the subsequent assessment years due to closure and hence the issue under appeal is academic. Therefore, considering the overall impact, which does not have any tax effect either in the present assessment year 2006-07 or is likely to have any impact in the subsequent assessment years, the appeal is not pressed with a view to put an end to the litigation. In view of the above facts, all the grounds of appeal are dismissed."

In view of the above, the CIT(Appeals) has not decided the issue

which arises out of the order of the Assessing Officer. Therefore, it

cannot be said that the CIT(Appeals) considered the issue raised by

the assessee in the appellate proceedings.

5. Now coming to the disallowance of `60 lakhs, the main

contention of the assessee is that an amount of `1,09,00,714/- was

included as income after allowing a sum of `60 lakhs towards

expenditure. The assessee claims that this was a payment of lease

rental to M/s Sundaram Finance Ltd. In the assessment order, the

Assessing Officer proceeded on the footing that this payment of `60

lakhs is towards one-time settlement for acquisition of Auto Cone 5 I.T.A. No. 626/Mds/2013

Machine. Therefore, there was a factual error with regard to nature

of the payment.

6. Now coming to the claim of bad debts to the extent of `40

lakhs, the Assessing Officer has not discussed the same in the

assessment order. The application of the mind of the Assessing

Officer does not reflect in the assessment order. The

Commissioner, however, directed the Assessing Officer to revise

the assessment on the ground that non-disallowance of the claim of

bad debts is an error in the assessment order. The question arises

for consideration is - when the Assessing Officer has not applied

his mind and the assessment order is silent about an issue raised

by the assessee, can the Commissioner exercise of his power

under Section 263 of the Act? This Tribunal found that the Punjab

& Haryana High Court in CIT v. Sunil Kumar Goel (2005) 274 ITR

53 had an occasion to consider the issue. The Punjab & Haryana

High Court, after considering the judgment of 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) :

6 I.T.A. No. 626/Mds/2013 "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 con sideration 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 Con stitution 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 func tions on the ground that a judge is trained to look at things objec tively 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 autho rity must record reasons for its decision, are of no less significance. These considerations show that the recording of reasons by an admi nistrative 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 deci sions 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 rea sons 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 7 I.T.A. No. 626/Mds/2013

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 arbi trariness 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 Con stitution. 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, it is necessary for the Assessing Officer to

pass a reasoned order. The reason for allowing or disallowing a

claim shall be reflected in the assessment order itself so that the

appellate / revisional authority may appreciate the reasons for the

conclusion reached by the Assessing Officer. In other words, the 8 I.T.A. No. 626/Mds/2013

application of mind by the Assessing Officer should be reflected in

the assessment order. The reason for conclusion cannot be

substituted by filing an affidavit or other documents before the

revisional/appellate authority. A similar view was taken by the Apex

Court in CIT v. Toyoto Motor Corporation (2008) 306 ITR 52.

7. In view of the above, this Tribunal is of the considered

opinion that non-consideration of the issue raised by the assessee

with regard to deduction of bad debts to the extent of `40 lakhs,

amounts to an error which is prejudicial to the interests of Revenue.

Moreover, with regard to allowing of `60 lakhs in view of the

conflicting fact as claimed by the assessee and allowed by the

Assessing Officer, this Tribunal is of the considered opinion that the

Assessing Officer has to consider the same. Accordingly, the order

of the Administrative Commissioner is confirmed. However, it is

made clear that the Assessing Officer shall reconsider the issue

independently without being influenced by any of the observation

made by the Commissioner in the impugned order.

8. With the above observation, the appeal of the assessee

stands dismissed.

9 I.T.A. No. 626/Mds/2013

Order pronounced on 8th of May, 2015 at Chennai.

Sd/- sd/- (A.Mohan Alankamony) (N.R.S. Ganesan) (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) लेखा सद य/Accountant Member या यक सद य/Judicial Member

चे नई/Chennai, th 4दनांक/Dated, the 8 May, 2015.

Kri.

आदे श क. , त5ल6प अ7े6षत/Copy to: 1. अपीलाथ+/Appellant 2. ,-यथ+/Respondent 3. आयकर आयु8त/CIT-III, Chennai 4. 6वभागीय , त न ध/DR 5. गाड' फाईल/GF.