Panasonic Consumer India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 5301/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65522 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 23-07-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 26-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S R DINODIA
• Keywords: Transfer pricing; International transaction; Non passing of speaking order
• Section: 92C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.5301/DEL/2010 ASSESSMENT YEAR : 2006-07 PANASONIC CONSUMER INDIA ACIT, PVT. LTD., K-39, CONNAUGHT PLACE, CIRCLE-14 (1), NEW DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAACN AAACN AAACN AAACN- -- -1498 1498 1498 1498- -- -G GG G APPELLANT BY : SHRI S.R. DINODIA, ADVOCATE. RESPONDENT BY : SMT. VEENA JOSHIU, SR. DR. SMT. ANUSHA KHURANA, SR. DR. & SHRI PIYUSH JAIN, SR. DR ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF DRP DATED 30.9.2010. THE GROUNDS RAISED BY THE ASSESSEE ARE A S UNDER:- 1.0 THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICE R UNDER SECTION 143 (3) READ WITH SECTION 144C ON THE DIRECTIONS GIVEN BY THE DRP IS BAD IN LAW. 2.0 THAT THE DRP HAS GROSSLY ERRED IN DISMISSING VARIOU S OBJECTIONS FILED BY THE APPELLANT IN A SUMMARY MANNER AND WITHOUT PROPER APPLICATION OF MIND ON THE VARIOUS ISSU ES RAISED BEFORE IT. ITA NO5301/DEL/2010 2 3.0 THAT THE DRP'S ORDER IS AGAINST THE JUDICIAL PRIN CIPLES REQUIRED JUDICIAL ORDERS TO BE SPEAKING ORDER. 4.0 THAT THE DRP / ASSESSING OFFICER/ TPO HAVE GROSSLY E RRED IN LAW AND ON FACTS IN THE CIRCUMSTANCES OF THE APPELLANT 'S CASE IN MAKING ADDITIONS OF RS. 11,77,310/- ON ACCOUNT OF WAR RANTING PROVISION, RS.I ,75,94,836/- ON ACCOUNT OF PROVISION FOR SALE PROMOTION AND RS.6,23.30,710/- ON ACCOUNT OF TRANSFER PRICING ADDITIONS. THE ADDITIONS MADE ARE WHOLLY ILLEGAL, UNT ENABLE, AND ON ERRONEOUS GROUNDS. THE ENTIRE ADDITION OF RS. 8, 11 ,02,856/- IS PRAYED TO BE DELETED. 5.0 THAT THE ORDER OF ASSESSMENT INCLUDING THAT OF THE TPO IS BAD IN LAW. 6.0 THAT THE ADDITIONS OF RS.6,23,30,7I0/- MADE BY THE ASSESSING OFFICER/ TPO UNDER PROVISION OF 92CA OF THE I NCOME TAX ACT. IS BAD IN LAW. 7.0 THAT THE A.O. /TPO HAVE GROSSLY ERRED IN MAKING ADDITIONS AMOUNTING TO RS,6,23,30,710, BASED ON HIS ERRONEOUS CALCULATIONS TO ARRIVE AT THE ARM'S LENGTH PRICE OF T HE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. 8.0 THAT THE A.O/TPO HAVE GROSSLY ERRED IN LAW FOR N OT GIVING BENEFIT ON ACCOUNT OF SAME HARBOUR RULE UNDER SECTIO N 92C OF THE INCOME TAX ACT. 1961 WHICH ALLOWS ADJUSTMENT (+) PLUS, (-) MINUS 5% TO THE ARM'S LENGTH PRICE DETERMINED BY THE TPO AND THAT PRICE ON WHICH THE TRANSACTIONS HAVE ACTUALLY BE EN MADE. ITA NO5301/DEL/2010 3 9.0 THAT THE LD. A.O./TPO HAVE GROSSLY ERRED IN LAW AND ON FACTS AND IN CIRCUMSTANCES OF THE APPELLANT'S CASE IN MA KING ADJUSTMENTS IN THE ARM'S LENGTH PRICE OF THE ASSESSEE BY H OLDING THAT THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY TH E APPELLANT AND IT'S A.E ARE NOT ON ARM'S LENGTH BY APPLYING THE WRONG PRINCIPLES OF TRANSFER PRICING. 10.0 THAT THE TPO HAS GROSSLY ERRED IN LAW IN NOT I DENTIFYING THE INTERNATIONAL TRANSACTIONS WHICH ACCORDING TO HIM WERE NOT ON THE PRINCIPLES OF ARM'S LENGTH PRINCIPLE. THE LAW REQUIRES A TRANSACTION WISE ANALYSIS OF THE ARM'S LENGTH NATURE OF THE INTERNATIONAL TRANSACTION. 11.0 THAT THE A.O /TPO HAS GROSSLY ERRED IN TREATING THE REIMBURSEMENT RECEIVED BY THE APPELLANT ON ACCOUNT O F ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES AS A NON OPERATING INCOME FOR COMPUTING THE PLL OF THE ASSESSEE AND ADJUSTING THE ALP OF THE INTERNATIONAL TRANSACTIONS AN D THEREBY EXCLUDING IT FROM THE PREVIEW OF HIS ANALYSIS OF TRANSF ER PRICING UNDER THE TNMM METHOD. 12.0 THAT THE A.O./TPO HAS GROSSLY ERRED IN LAW IN EXC LUDING THE RECEIPTS OF ADVERTISEMENT SUPPORT BY TREATING THE SAME AS NON- OPERATING INCOME. WITHOUT PREJUDICE OR ALTERNATIVEL Y HE SHOULD HAVE REDUCED THE ADVERTISEMENT EXPENSES BY SUCH AMOUNT OF ADVERTISEMENT SUPPORT RECEIVED BY THE ASSESSEE. 13.0 THAT THE TREATMENT GIVEN BY THE TPO TO THE SUBSI DY/SUPPORT RECEIVED TOWARDS ITS ADVERTISEMENT COST IS ONE-SIDED AND FAULTY. THE ASSESSEE HAS TREATED THE SUBSIDY RECEIVED AS ITS INCOME IN ITA NO5301/DEL/2010 4 ITS BOOKS OF ACCOUNT AND IN THE TRANSFER PRICING ANALY SIS REPORT ALSO IT WAS TREATED AS SUCH. HOWEVER, THE TPO DISAGREED WITH THIS TREATMENT AND HELD THAT THE SUBSIDY RECEIVED BY THE ASSESSEE WAS NOT OPERATING REVENUE RECEIPT AND THUS EXCLUDED I T FROM THE INCOME AND THUS DISTORTING THE PLI OF THE ASSESSEE IN CO MPARISON TO THE COMPARABLE CASES. 14.0 THE TPO FAILED TO APPRECIATE THAT THE RECEIPT OF SUBSIDY / ADVERTISEMENT SUPPORT FROM THE AE WAS VERY MUCH IMPLI EDLY A RECEIPT ON REVENUE ACCOUNT AND IT SHOULD NOT HAVE BE EN EXCLUDED FROM THE INCOME. 15.0 WITHOUT PREJUDICE AS AN ALTERNATIVE THE TPO OUG HT TO REDUCE THE EXPENSES ON ADVERTISEMENT AND SALES PROMOTION BY THE AMOUNT OF SUBSIDY / ADVERTISEMENT SUPPORT AGAINST THE SA ID EXPENDITURE ON ADVERTISEMENT AND SALES PROMOTION. 16.0 THAT THE A.O. / TPO HAS GROSSLY ERRED IN CONCLUDI NG THAT EVEN THE LOCAL TRANSACTION ARE COVERED IN TRANSFER PR ICING ALTHOUGH THE SAME ARE NEITHER WITH ASSOCIATED ENTERPRI SES NOR ARE THEY INTERNATIONAL TRANSACTIONS WITHIN THE MEANI NG AND CONTEXT OF SECTION 92CA OF THE INCOME TAX ACT, 1961. 17.0 THAT THE TPO SHOULD NOT HAVE BROUGHT THE SALES OF THE CPO- LOCAL INTO THE TP NET AND THEREBY ADVISED AN ADJUSTME NT OF 7.41% OF THESE SALES. THE TP ADJUSTMENT OF RS.5,82,42,97 3/- (I.E. 7.41% OF RS.78,73,54,562/-) THE INTERNATIONAL PURCHA SES FROM THE AE'S IS GLARINGLY BAD, WITHOUT ANY JUST CAUSE AND OUTSID E THE SCOPE OF THE PROVISIONS OF TRANSFER PRICING, AS THERE AR E NO SUCH PURCHASES OR INTERNATIONAL TRANSACTIONS IN THE CPO-LOC AL ITA NO5301/DEL/2010 5 SEGMENT. THUS THE OPERATING REVENUE OF THE CPDLOCAL DIVISION SHOULD NOT BE SUBJECT TO ANY ADJUSTMENT ON ACCOUNT OF ANY ALLEGED ARM'S LENGTH PRICE. 18.0 THE AO/TPO GROSSLY ERRED IN LAW IN SUGGESTING A MA RK UP ON THE LOCAL TRANSACTIONS WHICH AGAINST THE ACCEPTED HI STORY OF THE ASSESSEE'S CASE. THAT THE MARK UP ON THE CPO-LOCAL SEGMENT IS TOTALLY ERRONEOUS AND OUTSIDE THE PURVIEW OF TRANSFER PRICING PROVISIONS ESPECIALLY WHEN THE SAME HAS BEEN ACCEPTED IN A Y 2002-03, A Y 2003-04 AND A Y 2004-05 IN THE ASSESSEE'S O WN CASE AND NO APPEAL HAS BEEN FILED IN A Y 2004-05 ON T HIS ISSUE BY THE REVENUE AUTHORITIES. 19.0 THE TPO HAS GROSSLY ERRED IN REJECTING THE SEGMENT WISE ANALYSIS DONE BY THE ASSESSEE AND THE COMPUTATION OF THE SEGMENT WISE OPERATING PROFIT AND PLI, IN VIEW OF PAST ACCEPTED HISTORY OF THE CASE. 20.0 THE TPO FAILED TO APPRECIATE THAT SUCH SEGMENTAL ACCOUNTS WERE DRAWN AT THE INSTANCE OF TPO HIMSELF AND ALLOCAT ION OF ADVERTISEMENT AND SALES PROMOTION SUBSIDY TO CPO-LOCAL WAS INCIDENTAL IN TURNOVER RATIO. 21.0 THE TPO FAILED TO APPRECIATE THAT ONLY THE OPE RATING PROFIT MARGIN / PLI OF THE IMPORTED SEGMENTS I.E. CPO - IMPO RTED AND SPO - IMPORTED, HAD INTERNATIONAL TRANSACTIONS AND TH US ONLY THEIR PLI'S SHOULD BE COMPARED FOR THE ARM'S LENGTH P RICE COMPARISON WITH THAT OF THE COMPARABLE COMPANIES. 22.0 THAT THE TPO HAS FAILED TO APPRECIATE THAT THE CPO-LOCAL SEGMENT OF THE ASSESSEE'S BUSINESS HAS NO INTERNATIONAL ITA NO5301/DEL/2010 6 TRANSACTIONS WHATSOEVER, AND HAS PROCEEDED TO INCLUDE THE CPO- LOCAL SEGMENT IN THE TRANSFER PRICING ANALYSIS DONE BY HIM. 23.0 THAT THE REASONS GIVEN BY THE TPO FOR INCLUDING THE CPO- LOCAL WITHIN THE NET OF TP PROVISIONS ARE BAD IN LAW AND ON FACTS, AS WELL AS FULL OF CONTRADICTIONS. 24.0 THE TPO FAILED TO APPRECIATE THAT HE HAS IN FAC T EXCLUDED THE SUBSIDY RECEIVED FROM THE OPERATING PROFIT ANALYSI S DONE BY HIM, WHEREAS IT WAS ON THIS BASIS OF ADVERTISEMENT SUBSID Y RECEIVED ALLOCATED TO THE CPO-LOCAL DIVISION THAT HE HAD BROUGHT THE CPO - LOCAL SEGMENT WITHIN THE TP NET. 25.0 THAT THE TPO FAILED TO APPRECIATE THAT MODI HO OVER IS NOT A COMPARABLE COMPANY OF THE ASSESSEE, AND HAS INCLUDED THE SAME IN HIS TRANSFER PRICING ANALYSIS. 26.0 THE TPO FAILED TO APPRECIATE THAT THE PLI OF T HE CPO-LOCAL SEGMENT IS AN INTERNAL CUP FOR THE PLI OF THE CPO-IMP ORTED SEGMENT. 27.0 THAT THE A.O. / TPO HAS GROSSLY ERRED IN LAW FOR NOT GIVING THE BENEFIT ON ACCOUNT OF THE PROVISO TO SECTION 92C( 2) OF THE INCOME TAX ACT, 1961, WHICH ALLOWS AN ADJUSTMENT OF + /- 5% TO THE ARM'S LENGTH PRICE DETERMINED BY THE TPO AND THA T PRICE AT WHICH THE TRANSACTIONS HAVE ACTUALLY BEEN UNDERTAKEN. 28.0 THAT THE APPROACH OF THE TPO IS COMPLETELY AT V ARIANCE AND INCONSISTENT WITH THE APPROACH OF THE CIT (A), WHO HA S ADJUDICATED IN FAVOUR OF THE ASSESSEE IN A Y 2004-05, O N EXACTLY ITA NO5301/DEL/2010 7 THE SAME POINT OF CONTROVERSY. THIS IS AGAINST JUDICIAL CONSISTENCY AND DISCIPLINE ESPECIALLY WHEN THE DEPARTMENT HAS ACCE PTED THE VERDICT OF THE CIT (A) BY NOT GOING IN APPEAL TO TH E HON'BLE ITAT ON THIS ISSUE. 29.0 THE TPO HAS FAILED TO APPRECIATE THAT THERE HAS BEEN NO CHANGE EITHER IN LAW OR IN FACTS OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION TO WARRANT A DIAMETRICAL SHIFT OF THE POSITION FROM THE EARLIER YEARS. 30.0 THAT THE TPO FAILED TO APPRECIATE THE FACT THA T THE ASSESSEE WAS NOT INTO THE BUSINESS OF PROVIDING 'ADVERTISEMENT SER VICES' TO ITS AES. HE ALSO OVERLOOKED THE FAT THAT ALL EXPENSE S INCURRED ON ADVERTISEMENT ARE BOOKED AS 'OPERATING EXPENSES' UND ER THE HEAD SALES, ADVERTISEMENT AND PRODUCT PROMOTION EXPEN SES. THE RECEIPT BY THE ASSESSEE WAS NOTHING BUT A PARTIAL COMPEN SATION OR REIMBURSEMENT OF PART OF THE COST OF ADVERTISEMENT MET BY ITS AE, WHOSE PRODUCTS THE ASSESSEE WAS SELLING. 31.0 THE TPO FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE WAS NOT THE 'BRAND OWNER', THEREFORE BY INCURRING EXPEN DITURE ON ADVERTISEMENTS, THE BRAND IMAGE GENERATED BELONGED TO THE AE OR PARENT COMPANY OF THE ASSESSEE FOR WHICH THE ASSESSEE W AS BEING COMPENSATED BY ITS AE. 32.0 THAT THE PROPOSED ADJUSTMENT OF RS.6,23,30,71 0/ - BY THE AO / TPO IN ORDERS ARE ILLEGAL, BAD IN LAW FOR DETER MINATION OF ALP ON THE INTERNATIONAL TRANSACTION AND MAY PLEASE NOT B E CONFIRMED. ITA NO5301/DEL/2010 8 33.0 THAT THE A.O. FAILED TO APPRECIATE THE APPELLA NT'S PLEAS AGAINST THE ORDER OF THE TPO AND REQUESTED NOT TO PR OPOSE ADJUSTMENTS AS SUGGESTED BY TPO. IT WAS URGED UPON THE A .O. TO MAKE AN INDEPENDENT CASE FOR ANY SUCH ADJUSTMENT. 34.0 THAT THE AO HAS MECHANICALLY MADE THE ADDITION IN THE INCOME OF THE APPELLANT FOR EXACTLY THE SAME AMOUNT AS WAS ADVISED BY TPO. SUCH AN APPROACH BY THE A.O. IS CONTR ARY TO THE DECISION OF JURISDICTIONAL HIGH COURT IN SONY INDIA P VT. LTD. 35.0 THAT THE ADDITION PROPOSED ON ACCOUNT OF PROVISI ON FOR WARRANTY CHARGES FOR RS.LL,77 ,310/- IS WRONGLY MADE B Y THE AO AND IS BAD IN LAW. 36.0 THE AO HAS FAILED TO APPRECIATE THAT THE WARRAN TY PROVISIONS IS A BUSINESS LIABILITY INCURRED DURING THE YEAR WHICH IS TO BE DISCHARGED IN FUTURE, AND HENCE ALLOWABLE. THE ADDIT ION MADE IS ILLEGAL AND UNTENABLE IN LAW. 37.0 THAT THE A.O HAS GROSSLY ERRED IN PROPOSING TO MAK E A DISALLOWANCE ON ACCOUNT OF PROVISION FOR SALES PROMOTI ON EXPENSES FOR RS.1,75,94,836/-, WHICH IS BAD IN LAW AND UNTENABLE. 38.0 THE PROPOSED ADDITIONS OF RS.I,87,72,146/- ON A CCOUNT OF NON-TRANSFER PRICING PROVISION OF THE IT ACT, ARE PRA YED NOT TO BE MADE / CONFIRMED. 39.0 THAT THE AFORESAID GROUNDS ARE WITHOUT PREJUDIC E TO ONE ANOTHER. ITA NO5301/DEL/2010 9 40.0 THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER , CHANGE, VARY OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OR RAISE AN ADDITIONAL GROUND IF IT BECOMES NECESSARY TO DO SO IN I NTEREST OF JUSTICE. 2. AT THE OUTSET, THE LD AR STATED THAT DRP HAS NOT PA SSED A SPEAKING ORDER AND HAS ISSUED ONLY ONE PAGE ORDER WHERE AS THE ASSESSEE HAD FILED ITS OBJECTIONS AGAINST THE DRAFT ORDER OF THE LD ASSESSING OFFICER RUNNING INTO 426 PAGES. HE FURTHER STAT ED THAT THE DRP HAS NOT CONSIDERED EVEN A SINGLE ARGUMENT/DOCUMENT SUBMITTED BY THE ASSESSEE. MOREOVER, HE STATED THAT THIS ISSUE IS A LREADY COVERED BY THE ORDER OF HON'BLE ITAT IN THE CASE OF ASSESSEE FOR ASSESSMENT YEAR 2002-03 WHEREIN IT HAS BEEN HELD THAT TH E MARKETING SUPPORT SUBSIDY RECEIVED BY THE ASSESSEE IS OPERATING IN NATURE AND THIS JUDGMENT OF HON'BLE ITAT IS FINAL AS THE DEPARTME NT HAS NOT FILED ANY APPEAL U/S 260 OF THE ACT BEFORE THE HON'BLE HIG H COURT. THEREFORE, IN VIEW OF THE ABOVE, HE ARGUED THAT MATTER MAY BE SET ASIDE TO THE OFFICE OF DRP FOR FRESH ADJUDICATION IN VIEW OF ITAT S ORDER FOR ASSESSMENT YEAR 2002-03 AND IN VIEW OF VARIOUS OBJECTION S AND DOCUMENTS FILED BY THE ASSESSEE. 3. THE LD DR WAS UNABLE TO CONTROVERT THE CONTENTION OF LD COUNSEL. 4. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORD CAREFULLY. IT IS IMPERATIVE UPON US TO TAK E NOTE OF THE ORDER PASSED BY LD DRP. IT READ AS UNDER:- DIRECTIONS U/S 144C(5) OF THE INCOME TAX ACT, 1961 DIRECTIONS U/S 144C(5) OF THE INCOME TAX ACT, 1961 DIRECTIONS U/S 144C(5) OF THE INCOME TAX ACT, 1961 DIRECTIONS U/S 144C(5) OF THE INCOME TAX ACT, 1961 ITA NO5301/DEL/2010 10 THE ABOVE ASSESSEE HAS FILED OBJECTIONS U/S 144C(2)(B) OF THE INCOME TAX ACT, 1961 (THE ACT) ON 28.01.2010 IN RE SPECT OF THE DRAFT ASSESSMENT ORDERS SERVED ON THE ASSESSEE ON 02.01.2010 PROPOSED BY THE ACIT, CIRCLE-14 (1), NEW DELHI. WE HAVE GONE THROUGH THE DRAFT ASSESSMENT ORDER. WE HA VE ALSO HEARD THE AUTHORIZED REPRESENTATIVE (AR) AND HAVE CO NSIDERED THE OBJECTIONS OF THE ASSESSEE CAREFULLY. AFTER CONSIDERI NG THE SAME, WE ARE OF THE OPINION THAT THE DRAFT ASSESSMENT OR DER PROPOSED BY THE ASSESSING OFFICER IS TO BE APPROVED. DIRECTIONS DIRECTIONS DIRECTIONS DIRECTIONS THE ASSESSING OFFICER IS DIRECTED TO COMPLETE THE ASSESSMENT ORDER AS PROPOSED IN THE DRAFT ASSESSMENT ORDER. SD/- SD/- SD/- (S.G. JOSHI) (HARI KRISHAN) (VIREND RA SINGH) MEMBER MEMBER MEMBER. FROM THE PERUSAL OF THIS ORDER IT NOWHERE SUGGEST THAT LD DRP HAS CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, NATU RE OF DISPUTE AND WHAT IS THE DEFENCE. THE ORDER IS RUNNING INTO FEW LINES AND DOES NOT DISCLOSE THE MIND APPLIED BY THE LD ADJUDICATORS. THUS IT CAN SAFELY BE SAID THAT IT IS TOTALLY A NON SPEAKING ORDER. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ROAD MASTE R INDUSTRIES OF INDIA V. INSPECTING ASSISTANT COMMISSIONER OF INCOME-TAX REPORTED IN 303 ITR 138 HAS CONSIDERED THE NECESSITY OF ASSIGNING REA SON IN SUPPORT OF AN ORDER ADJUDICATING THE CONTROVERSY BETW EEN THE PARTIES. THE HON'BLE COURT HAS MADE REFERENCE TO A LARGE NUMB ER OF DECISIONS OF HON'BLE SUPREME COURT AS WELL AS HON'BLE HIGH COUR TS IN ORDER TO DEMONSTRATE THAT IN THE PAST HON'BLE SUPREME COURT H AS EMPHASIZED ITA NO5301/DEL/2010 11 TIME AND AGAIN THAT ADJUDICATING AUTHORITY SHOULD GI VE REASON FOR DISPOSING OFF THE RIGHTS OF THE PARTIES. FOR THE SAKE OF FACILITY OF REFERENCE WE TAKE NOTE OF THE FOLLOWING FINDINGS FRO M THE HIGH COURTS ORDER:- IN TRAVANCORE RAYONS LTD. V. UNION OF INDIA, AIR 19 71 SC 862, THE HON'BLE SUPREME COURT OBSERVED (PAGE 866) : THE COURT INSISTS UPON DISCLOSURE OF REASONS IN SUPPORT O F THE ORDER ON TWO GROUNDS : ONE, THAT THE PARTY AGGRI EVED IN A PROCEEDING BEFORE THE HIGH COURT OR THIS COURT HAS TH E OPPORTUNITY TO DEMONSTRATE THAT THE REASONS WHICH PERSU ADED THE AUTHORITY TO REJECT HIS CASE WERE ERRONEOUS : THE OTHER, THAT THE OBLIGATION TO RECORD REASONS OPERATES AS A DETERREN T AGAINST POSSIBLE ARBITRARY ACTION BY THE EXECUTIVE AUTHORITY INVESTED WITH THE JUDICIAL POWER. IN MAHABIR PRASAD SANTOSH KUMAR V. STATE OF U. P., A IR 1970 SC 1302, THE HON'BLE SUPREME COURT WHILE QUASHI NG THE CANCELLATION OF THE PETITIONER'S LICENCE BY THE DISTR ICT MAGISTRATE, OBSERVED (PAGE 1304) : RECORDING OF REASONS IN SUPPORT OF A DECISION ON A DISPUTED CLAIM BY A QUASI-JUDICIAL AUTHORITY ENSURES T HAT THE DECISION IS REACHED ACCORDING TO LAW AND IS NOT THE RE SULT OF CAPRICE, WHIM OR FANCY OR REACHED ON GROUNDS OF POLI CY OR EXPEDIENCY. A PARTY TO THE DISPUTE IS ORDINARILY ENTI TLED TO KNOW THE GROUNDS ON WHICH THE AUTHORITY HAS REJECTED HIS C LAIM. IF THE ORDER IS SUBJECT TO APPEAL, THE NECESSITY TO RECORD RE ASONS IS GREATER, FOR WITHOUT RECORDED REASONS THE APPELLATE A UTHORITY HAS ITA NO5301/DEL/2010 12 NO MATERIAL ON WHICH IT MAY DETERMINE WHETHER THE F ACTS WERE PROPERLY ASCERTAINED, THE RELEVANT LAW WAS CORRECTLY APPLIED AND THE DECISION WAS JUST. IN WOOLCOMBERS OF INDIA LTD. V. WOOLCOMBERS WORKERS' UNION, AIR 1973 SC 2758, THE HON'BLE SUPREME COURT QUASHED THE AWARD PASSED BY THE INDUSTRIAL TRIBUNAL ON THE GR OUND THAT IT WAS NOT SUPPORTED BY REASONS AND OBSERVED (PAGE 2761): THE GIVING OF REASONS IN SUPPORT OF THEIR CONCLUSION S BY JUDICIAL AND QUASI-JUDICIAL AUTHORITIES WHEN EXERCISIN G INITIAL JURISDICTION IS ESSENTIAL FOR VARIOUS REASONS. FIRST, IT IS CALCULATED TO PREVENT UNCONSCIOUS, UNFAIRNESS OR ARBITRARINESS IN REACHING THE CONCLUSIONS. THE VERY SEARCH FOR REASONS WILL PUT TH E AUTHORITY ON THE ALERT AND MINIMISE THE CHANCES OF UN CONSCIOUS INFILTRATION OF PERSONAL BIAS OR UNFAIRNESS IN THE CON CLUSION. THE AUTHORITY WILL ADDUCE REASONS WHICH WILL BE REGARDED AS FAIR AND LEGITIMATE BY A REASONABLE MAN AND WILL DISCARD IRREL EVANT OR EXTRANEOUS CONSIDERATIONS. SECOND, IT IS A WELL-KNOWN P RINCIPLE THAT JUSTICE SHOULD NOT ONLY BE DONE BUT SHOULD ALSO A PPEAR TO BE DONE. UNREASONED CONCLUSIONS MAY BE JUST BUT THEY MAY N OT APPEAR TO BE JUST TO THOSE WHO READ THEM. REASONED CON CLUSIONS, ON THE OTHER HAND, WILL HAVE ALSO THE APPEARANCE OF JUSTICE. THIRD, IT SHOULD BE REMEMBERED THAT AN APPEAL GENERA LLY LIES FROM THE DECISION OF JUDICIAL AND QUASI-JUDICIAL AUTH ORITIES TO THIS COURT BY SPECIAL LEAVE GRANTED UNDER ARTICLE 136. A JUDGMENT WHICH DOES NOT DISCLOSE THE REASONS WILL BE OF LITTLE ASSI STANCE TO THE COURT. THE SAME VIEW WAS REITERATED IN AJANTHA INDUSTRIES V. ITA NO5301/DEL/2010 13 CENTRAL BOARD OF DIRECT TAXES [1976] 102 ITR 281 (SC ) ; AIR 1976 SC 437 AND SIEMENS ENGINEERING AND MANUFACTURING CO. OF INDIA LTD. V. UNION OF INDIA, AIR 1976 SC 1785. IN TESTEELS LTD. V. N. M. DESAI CONCILIATION OFFICER, AIR 1970 GUJ 1, A FULL BENCH OF THE GUJARAT HIGH COURT SPEAK ING THROUGH P. N. BHAGWATI, C.J. (AS HIS LORDSHIP THEN WAS) MADE A LUC ID ENUNCIATION OF LAW ON THE SUBJECT IN THE FOLLOWING W ORDS (HEADNOTE) : 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 AD MINISTRATIVE AUTHORITIES HAVING A DUTY TO ACT JUDICIALLY CANNOT T HEREFORE DECIDE ON CONSIDERATIONS OF POLICY OR EXPEDIENCY. THEY MUST D ECIDE THE MATTER SOLELY ON THE FACTS OF THE PARTICULAR CASE, SOLE LY ON THE MATERIAL BEFORE THEM AND APART FROM ANY EXTRANEOUS CONSIDERATIONS BY APPLYING PREEXISTING LEGAL NORMS TO F ACTUAL SITUATIONS. NOW, THE NECESSITY OF GIVING REASONS IS AN I MPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE DUTY TO ACT JUD ICIALLY. IT INTRODUCES CLARITY, CHECKS THE INTRODUCTION OF EXTRAN EOUS 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-JUDI CIAL ORDER MADE BY AN ADMINISTRATIVE OFFICER AND THIS POWER OF R EVIEW CAN ITA NO5301/DEL/2010 14 BE EFFECTIVELY EXERCISED ONLY IF THE ORDER IS A SPEAKI NG ORDER. IN THE ABSENCE OF ANY REASONS IN SUPPORT OF THE ORDER, THE SAID COURTS CANNOT EXAMINE THE CORRECTNESS OF THE ORDER UND ER 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 THA T THE POWER OF JUDICIAL REVIEW WOULD BE STULTIFIED AND NO REDRESS BE ING AVAILABLE TO THE CITIZEN, THERE WOULD BE INSIDIOUS ENCOURAGEMEN T TO ARBITRARINESS AND CAPRICE. IF THIS REQUIREMENT IS INSISTE D UPON, THEN THEY WILL BE SUBJECT TO JUDICIAL SCRUTINY AND CO RRECTION. IF WE LOOK THE ORDER OF LD DRP EXTRACTED (SUPRA) IN THE LIGHT OF ABOVE PROPOSITION, IT WILL REVEAL THAT DRP HAS NOT APPLIED ITS MIND. THE ASSESSEE HAS FILED OBJECTIONS RUNNING INTO MORE THAN 400 PAGES NOT A SINGLE OBJECTION HAS BEEN CONSIDERED BY THE LD DRP. THEREFORE, WE SET ASIDE THE ORDER OF LD DRP AND REMIT THE ISSUE BACK TO THE FILE OF LD DRP FOR RE-ADJUDICATION. 5. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE ASSE SSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DAY OF SEPTEMBER, 2012. SD/- SD/- (RAJPAL YADAV) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 21.9.2012. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. ITA NO5301/DEL/2010 15 TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 23.7.2012 DATE OF DICTATION 18.9.2012 DATE OF TYPING 19.9.2012 DATE OF ORDER SIGNED BY 21.9.2012 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 21.9.2012 & SENT TO THE BENCH CONCERNED.