Polyhose India Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2157/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96324 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: S SRIDHAR
• Keywords: Principle of natural justice
• Section: 143(3); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI ... , ! ', $ %& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ ITA NO.2157/MDS/2014 ( )( / ASSESSMENT YEAR : 2009-10 M/S POLYHOSE INDIA PVT. LTD., C/O SH. B. SIVARAMAN & ASSOCIATES, CHARTERED ACCOUNTANTS, 10, E BLOCK, KARTHIK APARTMENTS 46, VIJAYARAGAVA ROAD, CHENNAI - 600 017 PAN : AAACP 6469 R V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V (2), CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE -.+, / 0 / RESPONDENT BY : SH. PATHLAVATH PEERYA, CIT 1 / 2$ / DATE OF HEARING : 01.09.2015 34) / 2$ / DATE OF PRONOUNCEMENT : 12.11.2015 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE 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'). 2 I.T.A. NO.2157/MDS/14 2. 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 ASSE SSEE WITH REGARD TO DIRECTORS REMUNERATION AND KEY MAN INSURANCE. H OWEVER, 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 ADMIN ISTRATIVE COMMISSIONER FOUND THE EXPENSES INCURRED BY THE ASS ESSEE TOWARDS DIRECTORS REMUNERATION AND KEY MAN INSURANC E HAVE TO BE APPORTIONED IN PROPORTION TO THE TURNOVER OF EACH U NIT. THE COMMISSIONER DIRECTED THE ASSESSING OFFICER TO MODI FY THE ASSESSMENT ORDER BY INCREASING THE EXPENSES OF EOU FROM ` 12 LAKHS TO ` 51,54,394/- AND REDUCING THE EXPENSES OF DTA UNIT F ROM ` 48,81,920/- TO ` 9,27,526/-. THE DIRECTION OF THE COMMISSIONER RESULTED IN INCREASE IN INCOME OF THE DTA UNIT TO T HE EXTENT OF ` 39,54,394/-. ON QUERY FROM THE BENCH WHETHER THE A SSESSING OFFICER HAS DISCUSSED ABOUT THE EXPENSES INCURRED W ITH REGARD TO DIRECTORS REMUNERATION AND KEY MAY INSURANCE, THE L D.COUNSEL CLARIFIED THAT THERE IS NO DISCUSSION IN THE ASSESS MENT ORDER. HOWEVER, ALL THE DETAILS WERE FILED BEFORE THE ASSE SSING OFFICER. 3 I.T.A. NO.2157/MDS/14 THEREFORE, ACCORDING TO THE LD. COUNSEL, THE COMMIS SIONER CANNOT REVISE THE ORDER OF THE ASSESSING OFFICER. 3. ON THE CONTRARY, SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASS ESSING OFFICER WITHOUT ANY DISCUSSION AND APPLICATION OF MIND, ALL OWED THE CLAIM OF THE ASSESSEE TOWARDS DIRECTORS REMUNERATION AND KEY MAN INSURANCE WITHOUT APPORTIONING THE SAME IN PROPORTI ON TO THE TURNOVER OF EACH UNIT. THEREFORE, THE COMMISSIONER HAS RIGHTLY FOUND THAT THE EXPENSES HAVE TO BE APPORTIONED AMON G THE TWO UNITS IN PROPORTION TO THE TURNOVER OF EACH UNIT. SINCE THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND TO THE MATERIAL AV AILABLE ON RECORD, ACCORDING TO THE LD. D.R., THE COMMISSIONER HAS RIG HTLY REVISED THE ORDER OF THE ASSESSING OFFICER, IN EXERCISE OF HIS POWER UNDER SECTION 263 OF THE ACT. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE PROCE EDING 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, 4 I.T.A. NO.2157/MDS/14 THE RESPONSIBILITY OF THE ASSESSING OFFICER IS MUCH MORE IN ADJUDICATING THE TAX DISPUTE UNDER THE SCHEME OF TH E INCOME-TAX ACT. THE ASSESSING OFFICER IS EXPECTED TO APPLY HI S MIND TO THE MATERIAL AVAILABLE ON RECORD TO RECORD HIS OWN REAS ONS 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 AN Y DISCUSSION IN THE ASSESSMENT ORDER ALLOWED THE CLAIM OF THE ASSES SEE. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THERE IS AN ERROR WHICH IS PREJUDICIAL TO THE INTERESTS OF REVE NUE. WE FIND THAT THE PUNJAB &HARYANA HIGH COURT HAD AN OCCASION TO E XAMINE 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.MUKHE RJEE 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 TH E 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 CULL ED OUT THE FOLLOWING PROPOSITIONS (PAGE 1995) : 'THE DECISIONS OF THIS COURT REFERRED TO ABOVE INDI CATE THAT WITH REGARD TO THE REQUIREMENT TO RECORD REASONS TH E APPROACH OF THIS COURT IS MORE IN LINE WITH THAT OF THE AMER ICAN COURTS. AN IMPORTANT CONSIDERATION WHICH HAS WEIGHED WITH T HE COURT 5 I.T.A. NO.2157/MDS/14 FOR HOLDING THAT AN ADMINISTRATIVE AUTHORITY EXERCIS ING QUASI- JUDICIAL FUNCTIONS MUST RECORD THE REASONS FOR ITS DECISION, IS THAT SUCH A DECISION IS SUBJECT TO THE APPELLATE JU RISDICTION OF THIS COURT UNDER ARTICLE 136 OF THE CONSTITUTION AS W ELL AS THE SUPERVISORY JURISDICTION OF THE HIGH COURTS UNDER A RTICLE 227 OF THE CONSTITUTION AND THAT THE REASONS, IF RECORDED, WOULD ENABLE THIS COURT OR THE HIGH COURTS TO EFFECTIVELY EXERCIS E 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 REQ UIREMENT OF RECORDING REASONS WOULD (I) GUARANTEE CONSIDERATION BY THE AUTHORITY; (II) INTRODUCE CLARITY IN THE DECISIONS; AND (III) MINIMISE CHANCES OF ARBITRARINESS IN DECISION MAKIN G. IN THIS REGARD A DISTINCTION HAS BEEN DRAWN BETWEEN ORDINAR Y COURTS OF LAW AND TRIBUNALS AND AUTHORITIES EXERCISING JUDICIA L FUNCTIONS ON THE GROUND THAT A JUDGE IS TRAINED TO LOOK AT THING S OBJECTIVELY UNINFLUENCED BY CONSIDERATIONS OF POLICY OR EXPEDIEN CY WHEREAS AN EXECUTIVE OFFICER GENERALLY LOOKS AT THINGS FROM THE STAND POINT OF POLICY AND EXPEDIENCY. REASONS, WHEN RECORDED BY AN ADMINISTRATIVE AUTHORI TY IN AN ORDER PASSED BY IT WHILE EXERCISING QUASI-JUDICIAL F UNCTIONS, WOULD NO DOUBT FACILITATE THE EXERCISE OF ITS JURISD ICTION BY THE APPELLATE OR SUPERVISORY AUTHORITY. BUT THE OTHER CO NSIDERATIONS, REFERRED TO ABOVE, WHICH HAVE ALSO WEIGHED WITH THI S COURT IN HOLDING THAT AN ADMINISTRATIVE AUTHORITY MUST RECOR D REASONS FOR ITS DECISION, ARE OF NO LESS SIGNIFICANCE. THES E CONSIDERATIONS SHOW THAT THE RECORDING OF REASONS B Y AN ADMINISTRATIVE AUTHORITY SERVES A SALUTARY PURPOSE, NAMELY, IT EXCLUDES CHANCES OF ARBITRARINESS AND ENSURES A DEGR EE OF FAIRNESS IN THE PROCESS OF DECISION-MAKING. THE SAI D PURPOSE WOULD APPLY EQUALLY TO ALL DECISIONS AND ITS APPLIC ATION CANNOT BE CONFINED TO DECISIONS WHICH ARE SUBJECT TO APPEAL, REVISION OR JUDICIAL REVIEW. IN OUR OPINION, THEREFORE, THE REQ UIREMENT THAT REASONS BE RECORDED SHOULD GOVERN THE DECISIONS OF AN ADMINISTRATIVE AUTHORITY EXERCISING QUASI-JUDICIAL F UNCTIONS IRRESPECTIVE OF THE FACT WHETHER THE DECISION IS SU BJECT TO APPEAL, REVISION OR JUDICIAL REVIEW. IT MAY, HOWEVE R, 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 6 I.T.A. NO.2157/MDS/14 THE REASONS WOULD DEPEND ON PARTICULAR FACTS AND CI RCUMSTANCES. WHAT IS NECESSARY IS THAT THE REASONS ARE CLEAR AND EXPLICIT SO AS TO INDICATE THAT THE AUTHORITY HAS GIVEN DUE CON SIDERATION TO THE POINTS IN CONTROVERSY. THE NEED FOR RECORDING O F 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 APPELL ATE OR REVISIONAL AUTHORITY AGREES WITH THE REASONS CONTAI NED 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 DECISI ON. THE SAME ARE (HEADNOTE OF AIR 1970 (GUJ): 'THE NECESSITY OF GIVING REASONS FLOWS AS A NECESSA RY COROLLARY FROM THE RULE OF LAW WHICH CONSTITUTES ONE OF THE B ASIC PRINCIPLES OF THE INDIAN CONSTITUTIONAL SET-UP. THE ADMINISTRA TIVE AUTHORITIES HAVING A DUTY TO ACT JUDICIALLY CANNOT THEREFORE DE CIDE ON CONSIDERATIONS OF POLICY OR EXPEDIENCY. THEY MUST D ECIDE 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 RA TE, MINIMISES 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 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 COURT S CANNOT EXAMINE THE CORRECTNESS OF THE ORDER UNDER REVIEW. T HE HIGH COURT AND THE SUPREME COURT WOULD BE POWERLESS TO I NTERFERE SO AS TO KEEP THE ADMINISTRATIVE OFFICER WITHIN THE LIMIT S OF THE LAW. THE 7 I.T.A. NO.2157/MDS/14 RESULT WOULD BE THAT THE POWER OF JUDICIAL REVIEW W OULD BE STULTIFIED AND NO REDRESS BEING AVAILABLE TO THE CI TIZEN, THERE WOULD BE INSIDIOUS ENCOURAGEMENT TO ARBITRARINESS AND CAP RICE. IF THIS REQUIREMENT IS INSISTED UPON, THEN, THEY WILL BE SU BJECT 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 A NY DIFFICULTY IN SETTING ASIDE THE SAME ON THE GROUND OF VIOLATION O F THE RULES OF NATURAL JUSTICE. THE FLOWERY LANGUAGE USED BY THE T RIBUNAL TO JUSTIFY ITS ACCEPTANCE OF THE RESPONDENT'S PLEA THAT HE DID NOT KNOW THE LAW DOES NOT WARRANT OUR AFFIRMATION. IN OUR OPINION, T HE TRIBUNAL WAS DUTY BOUND TO RECORD TANGIBLE AND COGENT REASONS FO R 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 FAMIL Y AND THEN DECIDED BY A REASONED ORDER WHETHER THE RESPONDENT HAD BEEN ABLE TO MAKE OUT A CASE FOR DELETING THE PENALTY. THE ORDER PASS ED BY THE TRIBUNAL SHOULD HAVE CLEARLY REFLECTED THE APPLICATION OF MI ND BY THE LEARNED MEMBERS. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CONSI DERED 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 MI ND OF THE DECISION MAKER. IN THE ABSENCE OF ANY REASONS RECORDED IN T HE ASSESSMENT ORDER, THIS TRIBUNAL IS OF THE CONSIDERED OPINION T HAT 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 8 I.T.A. NO.2157/MDS/14 EXPENSES OF EOU FROM ` 12,00,000/- TO ` 51,54,394/- AND BY REDUCING THE EXPENSES OF THE DTA UNIT FROM ` 48,81,920/- TO ` 9,27,526/-. THIS TRIBUNAL IS OF THE CONSIDERED OPI NION THAT THE COMMISSIONER OUGHT TO HAVE REMITTED BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE MATTER AFTER G IVING AN OPPORTUNITY TO THE ASSESSEE. SUCH AN OPPORTUNITY W AS NOT GIVEN TO THE ASSESSING OFFICER AND THE ASSESSING OFFICER HAS ALSO FAILED TO EXAMINE THE CLAIM OF THE ASSESSEE. THIS TRIBUNAL I S OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS T O EXAMINE THE EXPENSES INCURRED BY THE ASSESSEE WITH REGARD TO DI RECTORS REMUNERATION AND KAY MAN INSURANCE INDEPENDENTLY WI THOUT BEING INFLUENCED BY ANY OF THE OBSERVATION MADE BY THE CO MMISSIONER IN THE IMPUGNED ORDER OR BY THIS TRIBUNAL IN THIS ORDE R. ACCORDINGLY, WHILE CONFIRMING THE ORDER OF THE COMMISSIONER, THI S TRIBUNAL DIRECTS THE ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE A SSESSEE TOWARDS DIRECTORS REMUNERATION AND KEY MAN INSURANCE INDEPE NDENTLY AND THEREAFTER DECIDE THE SAME, IN ACCORDANCE WITH LAW, WITHOUT BEING INFLUENCED BY ANY OF THE OBSERVATION MADE BY THE CO MMISSIONER. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. 9 I.T.A. NO.2157/MDS/14 ORDER PRONOUNCED ON 12 TH NOVEMBER, 2015 AT CHENNAI. SD/- SD/- ( ! ' ) ( ... ) (CHANDRA POOJARI) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 6 /DATED, THE 12 TH NOVEMBER, 2015. KRI. / -278 98)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 :2 /CIT-V, CHENNAI-34 5. 8; -2 /DR 6. <( = /GF.