Impel Machines P.Ltd, Chengannur V. DCIT, Thiruvalla

ITA 215/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64737 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 07-08-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 23-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VENI RAJ
• Keywords: Principle of natural justice
• Section: 263

Judgement Text

1 ITA NO.215/COCH/2010 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKARA N(AM) I.T.A NO. 215/COCH/2010 (ASSESSMENT YEAR 2005-06) IMPEL MACHINES PVT LTD VS DY.CIT, CIR.1 WARD NO.2, HOUSE NO.7 THIRUVALLA PUTHENKAVU PO, MULLAKUZHA VILLAGE CHENGANOOR 689 123 PAN : AABCJ2602J (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : MS VENI RAJ DATE OF HEARING : 07-08-2012 DATE OF PRONOUNCEMENT : 10-08-2012 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE ADMINISTRATIVE COMMISSIONER, KOTTAYAM DATED 24-11-2009 AND PERTAINS TO ASSESSMENT YEAR 2005-06. 2. NO ONE APPEARED FOR THE ASESSEE IN SPITE OF ISSU E OF NOTICE. THEREFORE, WE HEARD THE LD.DR AND PROCEEDED TO DISPOSE OF THE APP EAL ON MERIT. 2 ITA NO.215/COCH/2010 3. THE LD.DR SUBMITTED THAT THE ASSESSING OFFICER A LLOWED THE CLAIM OF THE ASSESSEE TOWARDS RESEARCH AND DEVELOPMENT EXPENDITU RE WITHOUT CONSIDERING THE PROVISIONS OF SECTION 35D OF THE ACT. THEREFOR E, THE ADMINISTRATIVE COMMISSIONER REVISED THE ORDER IN EXERCISE OF HIS P OWERS U/S 263 OF THE INCOME- TAX ACT. ACCORDING TO THE LD.DR, THE ASSESSMENT OR DER DOES NOT REFLECT THE APPLICATION OF MIND AND CONTAIN ANY REASON FOR ACCE PTING THE CLAIM OF THE ASSESSEE. THEREFORE, THE ADMINISTRATIVE COMMISSION ER HAS RIGHTLY REVISED THE ORDER OF THE ASSESSING OFFICER. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD.DR AND ALSO PERUSED THE RECORDS. FOR THE YEAR UNDER CONSIDERATION THE ASSE SSEE CLAIMED RS.15,37,740 TOWARDS DEFERRED RESEARCH AND DEVELOPMENT EXPENSES. THIS EXPENDITURE WAS ALLOWED BY THE ASSESSING OFFICER WITHOUT ANY DISCUS SION IN THE ASSESSMENT ORDER. THE ASSESSMENT ORDER DOES NOT REFLECT THE APPLICATI ON OF MIND WITH REGARD TO THIS EXPENDITURE CLAIMED BY THE ASSESSEE. THE ASSESSING OFFICER HAS NOT GIVEN ANY REASON IN THE ASSESSMENT ORDER. THE ASSESSMENT ORD ER BEING A QUASI JUDICIAL ORDER THE ASSESSING OFFICER IS BOUND TO GIVE REASON FOR HIS CONCLUSION. IN FACT, THE PUNJAB & HARYANA HIGH COURT HAD AN OCCASION TO EXAM INE THIS ISSUE IN COMMISSIONER OF INCOME-TAX VS SUNIL KUMAR GOEL (2005) 274 ITR 53 (P&H). THE PUNJAB & HARYANA HIGH COURT AFTER CONSIDERING THE J UDGMENT OF THE APEX COURT IN MUKHERJEE (S.N.) VS UOI (1990) AIR 1990 SC 1984 HAS OBSERVED AS FOLLOWS: IN S.N. MUKHERJEE V. UNION OF INDIA, AIR 1990 SC 1 984, A CONSTITUTION BENCH OF THE SUPREME COURT DISCUSSED T HE DEVELOPMENT OF LAW ON THIS SUBJECT IN INDIA, AUSTRA LIA, 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): 3 ITA NO.215/COCH/2010 THE DECISIONS OF THIS COURT REFERRED TO ABOVE IND ICATE THAT WITH REGARD TO THE REQUIREMENT TO RECORD REASONS TH E APPROACH OF THIS COURT IS MORE IN LINE WITH THAT OF THE AMERICA N 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 O F THIS COURT UNDER ARTICLE 136 OF THE CONSTITUTION AS WELL AS THE SUPE RVISORY JURISDICTION OF THE HIGH COURTS UNDER ARTICLE 227 OF THE CONSTIT UTION AND THAT THE REASONS, IF RECORDED, WOULD ENABLE THIS COURT OR TH E HIGH COURTS TO EFFECTIVELY EXERCISE THE APPELLATE OR SUPERVISORY P OWER. BUT THIS IS NOT THE SOLE CONSIDERATION. THE OTHER CONSIDERATIO NS WHICH HAVE ALSO WEIGHED WITH THE COURT IN TAKING THIS VIEW ARE THAT THE REQUIREMENT OF RECORDING REASONS WOULD (I) GUARANTE E CONSIDERATION BY THE AUTHORITY; (II) INTRODUCE CLARITY IN THE DEC ISIONS; AND (III) MINIMIZE CHANCES OF ARBITRARINESS IN DECISION MAKING . IN THIS REGARD A DISTINCTION HAS BEEN DRAWN BETWEEN ORDINARY COURT S OF LAW AND TRIBUNALS AND AUTHORITIES EXERCISING JUDICIAL FUNCT IONS ON THE GROUND THAT A JUDGE IS TRAINED TO LOOK AT THINGS OBJECTIVEL Y UNINFLUENCED BY CONSIDERATIONS OF POLICY OR EXPEDIENCY WHEREAS AN E XECUTIVE OFFICER GENERALLY LOOKS AT THINGS FROM THE STAND POINT OF PO LICY AND EXPEDIENCY. REASONS, WHEN RECORDED BY AN ADMINISTRATIVE AUTHOR ITY IN AN ORDER PASSED BY IT WHILE EXERCISING QUASI-JUDICIAL FUNCTIONS, WOULD NO DOUBT FACILITATE THE EXERCISE OF ITS JURISDICTIO N BY THE APPELLATE OR SUPERVISORY AUTHORITY. BUT THE OTHER CONSIDERATION S, REFERRED TO ABOVE, WHICH HAVE ALSO WEIGHED WITH THIS COURT IN H OLDING THAT AN ADMINISTRATIVE AUTHORITY MUST RECORD REASONS FOR IT S DECISION, ARE OF NO LESS SIGNIFICANCE. THESE CONSIDERATIONS SHOW TH AT THE RECORDED OF REASONS BY AN ADMINISTRATIVE AUTHORITY SERVICES A SALUTARY PURPOSE, NAMELY, IT EXCLUDES CHANCES OF ARBITRARINE SS AND ENSURES A DEGREE OF FAIRNESS IN THE PROCESS OF DECISION-MAKING. THE SAID PURPOSE WOULD APPLY EQUALLY TO ALL DECISIONS AND IT S APPLICATION CANNOT BE CONFINED TO DECISIONS WHICH ARE SUBJECT T O APPEAL, REVISION OR JUDICIAL REVIEW. IN OUR OPINION, THERE FORE, THE REQUIREMENT THAT REASONS BE RECORDED SHOULD GOVERN THE DECISIONS OF AN ADMINISTRATIVE AUTHORITY EXERCISING QUASI-JUD ICIAL FUNCTIONS IRRESPECTIVE OF THE FACT WHETHER THE DECISION IS SU BJECT TO APPEAL, REVISION OR JUDICIAL REVIEW. IT MAY, HOWEVER, BE A DDED THAT IT IS NOT 4 ITA NO.215/COCH/2010 REQUIRED THAT THE REASONS SHOULD BE AS ELABORATE AS IN THE DECISION OF A COURT OF LAW. THE EXTENT AND NATURE OF THE RE ASONS WOULD DEPEND ON PARTICULAR FACTS AND CIRCUMSTANCES. WHAT IS NECESSARY IS THAT THE REASONS ARE CLEAR AND EXPLICIT SO AS TO IN DICATE THAT THE AUTHORITY HAS GIVEN DUE CONSIDERATION TO THE POINTS IN CONTROVERSY. THE NEED FOR RECORDING OF REASONS IS GREATER IN A C ASE WHERE THE ORDER IS PASSED AT THE ORIGINAL STAGE. THE APPELLA TE OR REVISIONAL AUTHORITY, IF IT AFFIRMS SUCH AN ORDER, NEED NOT GI VE SEPARATE REASONS IF THE APPELLATE OR REVISIONAL AUTHORITY AGREES WIT H 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 E XTREMELY LUCID ENUNCIATION OF LAW ON THE SUBJECT AND WE CAN DO NO BETTER THAN TO EXTRACT SOME OF THE OBSERVATIONS MADE IN THE DECISI ON. THE SAME ARE (HEADNOTE OF AIR 1970 (GUJ)): THE NECESSITY OF GIVING REASONS FLOWS AS A NECESS ARY COROLLARY FROM THE RULE OF LAW WHICH CONSTITUTES ON E 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 MU ST 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 J UDICIALLY. IT INTRODUCES CLARITY, CHECKS THE INTRODUCTION OF EXTRA NEOUS OR IRRELEVANT CONSIDERATIONS AND EXCLUDES OR, AT ANY R ATE, MINIMIZES ARBITRARINESS IN THE DECISION-MAKING PROCESS. ANOTHER REASON WHICH COMPELS MAKING OF SUCH AN ORDE R IS BASED ON THE POWER OF JUDICIAL REVIEW WHICH IS POSS ESSED BY THE HIGH COURT UNDER ARTICLE 226 AND THE SUPREME COURT UNDER ARTICLE 32 OF THE CONSTITUTION. THESE COURTS HAVE THE POWE R 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 COURT S CANNOT EXAMINE THE CORRECTNESS OF THE ORDER UNDER REVIEW. THE HIG H COURT AND THE 5 ITA NO.215/COCH/2010 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 STULT IFIED AND NO REDRESS BEING AVAILABLE TO THE CITIZEN, THERE WOULD BE INSIDIOUS ENCOURAGEMENT TO ARBITRARINESS AND CAPRICE. IF THI S REQUIREMENT IS INSISTED UPON, THEN, THEY WILL BE SUBJECT TO JUDICI AL SCRUTINY AND CORRECTION. IF THE ORDER PASSED BY THE TRIBUNAL IS SCRUTINIZED 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 USE D BY THE TRIBUNAL TO JUSTIFY ITS ACCEPTANCE OF THE RESPONDENTS PLEA THAT HE DID NOT KNOW THE LAW DOES NOT WARRANT OUR AFFIRMATION. IN O UR OPINION, THE TRIBUNAL WAS DUTY BOUND TO RECORD TANGIBLE AND COGE NT REASONS FOR UPSETTING WELL REASONED ORDERS PASSED BY THE ASSESS ING OFFICER AND THE COMMISSIONER OF INCOME-TAX (APPEALS). IT SHOULD HAVE DIRECTED ITS ATTENTION TO THE LANGUAGE OF SECTION 271D AND 2 71E OF THE ACT IN CONJUNCTION WITH OTHER PROVISIONS OF THE SAME FAMIL Y AND THEN DECIDED BY A REASONED ORDER WHETHER THE RESPONDENT HAD BEEN ABLE TO MAKE OUT A CASE FOR DELETING THE PENALTY. T HE ORDER PASSED BY THE TRIBUNAL SHOULD HAVE CLEARLY REFLECTED THE A PPLICATION OF MIND BY THE LEARNED MEMBERS. 5. THE APEX COURT ALSO HAD AN OCCASION TO CONSIDER THIS ISSUE IN TOYOTA MOTOR CORPORATION VS COMMISSIONER OF INCOME-TAX (2008) 30 6 ITR 52 (SC). THE APEX COURT HAS OBSERVED AS FOLLOWS AT PAGE 53 OF THE ITR : WE ARE NOT INCLINED TO INTERFERE WITH THE IMPUGNE D ORDER OF THE HIGH COURT. THE HIGH COURT HAS HELD THAT THE A SSESSING OFFICER HAD DISPOSED OF THE PROCEEDINGS STATING THE PENALTY PROCEEDINGS INITIATED IN THIS CASE UNDER SECTION 271C READ WITH SECTION 274 OF THE INCOME-TAX ACT, 1961 ARE HEREBY DROPPED. ACCORD INGLY TO THE HIGH COURT, THERE WAS NO BASIS INDICATED FOR DROPPI NG THE PROCEEDINGS. THE TRIBUNAL REFERRED TO CERTAIN ASPE CTS AND HELD THAT THE INITIATION OF PROCEEDINGS UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 (IN SHORT, THE I.T. ACT) WAS IMPERMISSI BLE WHEN CONSIDERED IN THE BACKGROUND OF THE MATERIALS PURPOR TEDLY PLACED 6 ITA NO.215/COCH/2010 BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. WHAT THE HIGH COURT HAS DONE IS TO REQUIRE THE ASSESSING OFFICER TO PAS S A REASONED ORDER. THE HIGH COURT WAS OF THE VIEW THAT THE TRI BUNAL COULD NOT HAVE SUBSTITUTED ITS OWN REASONINGS WHICH WERE REQU IRED TO BE RECORDED BY THE ASSESSING OFFICER. ACCORDING TO TH E ASSESSEE, ALL RELEVANT ASPECTS WERE PLACED FOR CONSIDERATION AND IF THE OFFICER DID NOT RECORD REASONS, THE ASSESSEE CANNOT BE FAULTED. WE DO NOT THINK IT NECESSARY TO INTERFERE AT THIS STAGE. IT GOES WITHOUT SAYING THAT WHEN THE MATTER BE TAKEN UP BY THE ASSESSING OFFICER ON REMAND, IT SHALL BE HIS DUTY T O TAKE INTO ACCOUNT ALL THE RELEVANT ASPECTS INCLUDING THE MATE RIALS, IF ANY, ALREADY PLACED BY THE ASSESSEE, AND PASS A REASONED ORDER. 6. IN VIEW OF THE ABOVE IT IS INCUMBENT UPON THE AS SESSING OFFICER TO RECORD HIS REASON ON THE BASIS OF THE MATERIAL AVAILABLE O N RECORD. SINCE SUCH AN EXERCISE WAS NOT DONE, THIS TRIBUNAL IS OF THE CONSIDERED OP INION THAT THE ASSESSING OFFICER HAS RIGHTLY EXERCISED HIS JURISDICTION U/S 263 OF T HE ACT. 7. IN THIS CASE, THE ADMINISTRATIVE COMMISSIONER HA S NOT GIVEN ANY OPPORTUNITY TO THE ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE ASSESSEE. ADMITTEDLY, THE ASSESSING OFFICER HAS NOT EXAMINED THE CLAIM OF THE ASSESSEE. THE ADMINISTRATIVE COMMISSIONER HAS DIRECTED THE AS SESSING OFFICER TO COMPUTE THE INCOME AFTER DISALLOWING THE EXPENSES OF RS. 15 ,38,372. THIS TRIBUNAL IS OF THE OPINION THAT THE ASSESSING OFFICER HAS NOT EXAM INED THIS ISSUE INITIALLY, THEREFORE, AN OPPORTUNITY SHOULD BE GIVEN TO THE AS SESSING OFFICER TO EXAMINE THE SAME AFTER CONSIDERING THE OBJECTION OF THE ASSESSE E. ACCORDINGLY, THE ORDER OF THE ADMINISTRATIVE COMMISSIONER IS MODIFIED AND THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE CLAIM OF RS. 15,38,372 TOWARDS THE D EFERRED RESEARCH AND DEVELOPMENT EXPENSES AFTER GIVING REASONABLE OPPORT UNITY OF HEARING TO THE ASSESSEE AND THEREAFTER DECIDE THE SAME IN ACCORDAN CE WITH LAW. 7 ITA NO.215/COCH/2010 IN THE RESULT, APPEAL OF THE ASSESSEE STANDS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF AUGUST, 2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 10 TH AUGUST, 2012 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH