Giridhar Eye Institute, Ernakulam V. DCIT, Ernakulam

ITA 614/COCH/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1037 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 07-01-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 12-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VIVEK C GOVIND
• Keywords: Principle of natural justice
• Section: 263

Judgement Text

1 ITA NO.614/COCH/2011 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 614/COCH/2011 (ASSESSMENT YEAR 2007-08) M/S GIRIDHAR EYE INSTITUTE VS THE DY.CIT, CIR.2(1 ) PONNETH TEMPLE ROAD ERNAKULAM KADVANTHARA, KOCHI-20 PAN : AADFG3185H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIVEK C GOVIND RESPONDENT BY : SHRI M ANIL KUMAR, CIT SMT. S VIJAYAPRABHA DATE OF HEARING : 07-01-2013 DATE OF PRONOUNCEMENT : 11-01-2013 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE TAXPAYER IS DIRECTED AGAINST TH E ORDER OF THE ADMINISTRATIVE COMMISSIONER PASSED U/S 263 OF THE I NCOME-TAX ACT FOR THE ASSESSMENT YEAR 2007-08. 2 ITA NO.614/COCH/2011 2. SHRI VIVEK C GOVIND, THE LD.REPRESENTATIVE FOR T HE TAXPAYER SUBMITTED THAT THE ADMINISTRATIVE COMMISSIONER FOUND THAT WHI LE CALCULATING REMUNERATION TO PARTNERS, THE INTEREST INCOME WHICH WAS CLASSIFIED AS INCOME FROM OTHER SOURCES WAS NOT EXCLUDED. THE COMPUTATION MADE BY THE TAXPAYER WITHOUT EXCLUDING THE INCOME FROM OTH ER SOURCES FOR DEDUCTION U/S 40(B) WAS ACCEPTED BY THE ASSESSING O FFICER. HOWEVER, THE ADMINISTRATIVE COMMISSIONER FOUND THAT THE INCOME FROM OTHER SOURCES HAS TO BE EXCLUDED WHILE COMPUTING REMUNERATION TO PARTNERS. ACCORDINGLY, THE ADMINISTRATIVE COMMISSIONER DIRECT ED THE ASSESSING OFFICER TO REVISE THE ASSESSMENT BY WITHDRAWING THE EXCESS DEDUCTION OF RS.93,843 ALLOWED U/S 40(B) OF THE ACT. THE LD.REPRESENTATIV E FOR THE TAXPAYER PLACED HIS RELIANCE ON THE DECISION OF THE JAIPUR BENCH OF THIS TRIBUNAL IN S.P. EQUIPMENT & SERVICES VS A.C.I.T. (2010) 128 TTJ (JP ) 68, COPY OF WHICH IS AVAILABLE ON RECORD, AND SUBMITTED THAT THAT THE NE T PROFIT SHOWN IN THE PROFIT & LOSS ACCOUNT CANNOT BE CLASSIFIED AND ASSE SSED UNDER THE DIFFERENT HEADS OF INCOME U/S 14 OF THE ACT. THEREFORE, THE INTEREST INCOME IS NOT TO BE EXCLUDED FROM THE NET PROFIT DECLARED BY THE TAX PAYER FOR COMPUTING BOOK PROFIT FOR THE PURPOSE OF DETERMINING THE DEDU CTION ALLOWABLE U/S 40(B) OF THE ACT IN RESPECT REMUNERATION PAID TO TH E PARTNERS. IN VIEW OF 3 ITA NO.614/COCH/2011 THE DECISION OF THE JAIPUR BENCH OF THIS TRIBUNAL, ACCORDING TO THE LD.REPRESENTATIVE, THERE IS NO ERROR IN THE ORDER O F THE ASSESSING OFFICER AND THERE IS NO PREJUDICE CAUSED TO THE INTEREST OF THE REVENUE ALSO. ON A QUERY FROM THE BENCH WHETHER THE ASSESSING OFFICER HAS DI SCUSSED THIS ISSUE OF DEDUCTION U/S 40(B) IN THE ASSESSMENT ORDER, THE LD .REPRESENTATIVE VERY FAIRLY SUBMITTED THAT THIS ISSUE WAS NOT DISCUSSED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. 4. WE HEARD SHRI M ANIL KUMAR & SMT. S VIJAYAPRABHA, THE LD.DRS ALSO. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ADMI NISTRATIVE COMMISSIONER FOUND THAT THE ASSESSING OFFICER ALLOW ED EXCESS DEDUCTION U/S 40(B) OF THE ACT TO THE EXTENT OF RS. 93,843 AN D ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO REVISE THE ASSESSMENT BY WITHD RAWING THE EXCESS DEDUCTION GRANTED. THE FACT REMAINS IS THAT THE AS SESSING OFFICER HAS NOT APPLIED HIS MIND IN RESPECT OF DEDUCTION U/S 40(B) OF THE ACT. THE ASSESSMENT ORDER DOES NOT DISCLOSE THE APPLICATION OF MIND BY THE ASSESSING 4 ITA NO.614/COCH/2011 OFFICER. THEREFORE, THERE MAY BE JUSTIFICATION FOR THE ADMINISTRATIVE COMMISSIONER TO EXERCISE HIS REVISIONARY POWERS U/S 263 OF THE ACT. 6. WE FIND THAT THE PUNJAB & HARYANA HIGH COURT HAD AN OCCASION TO EXAMINE THIS ISSUE IN COMMISSIONER OF INCOME-TAX VS SUNIL KUMAR GOEL (2005) 274 ITR 53 (P&H) AND AFTER CONSIDERING THE JU DGMENT 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, AUSTRAL IA, 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 (PA GE 1995): THE DECISIONS OF THIS COURT REFERRED TO ABOVE IND ICATE THAT WITH REGARD TO THE REQUIREMENT TO RECORD REASO NS THE APPROACH OF THIS COURT IS MORE IN LINE WITH THAT OF THE AMERICAN COURTS. AN IMPORTANT CONSIDERATION WHICH HAS WEIGH ED WITH THE COURT FOR HOLDING THAT AN ADMINISTRATIVE AUTHOR ITY 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 CONSTITUTION AS WELL AS THE SUPERVISORY JURISDICTION OF THE HIGH COURTS UNDER ARTICLE 227 OF THE CONSTITUTION AND THAT THE REASON S, IF RECORDED, WOULD ENABLE THIS COURT OR THE HIGH COURT S TO EFFECTIVELY EXERCISE THE APPELLATE OR SUPERVISORY P OWER. BUT THIS IS NOT THE SOLE CONSIDERATION. THE OTHER CONS IDERATIONS WHICH HAVE ALSO WEIGHED WITH THE COURT IN TAKING TH IS VIEW ARE THAT THE REQUIREMENT OF RECORDING REASONS WOULD (I) GUARANTEE 5 ITA NO.614/COCH/2011 CONSIDERATION BY THE AUTHORITY; (II) INTRODUCE CLAR ITY IN THE DECISIONS; AND (III) MINIMIZE CHANCES OF ARBITRARIN ESS IN DECISION MAKING. IN THIS REGARD A DISTINCTION HAS BEEN DRAW N BETWEEN ORDINARY COURTS OF LAW AND TRIBUNALS AND AUTHORITIE S EXERCISING JUDICIAL FUNCTIONS ON THE GROUND THAT A JUDGE IS TRAI NED TO LOOK AT THINGS OBJECTIVELY UNINFLUENCED BY CONSIDERATIONS OF POLICY OR EXPEDIENCY WHEREAS AN EXECUTIVE OFFICER GENERALL Y LOOKS AT THINGS FROM THE STAND POINT OF POLICY AND EXPEDIENC Y. REASONS, WHEN RECORDED BY AN ADMINISTRATIVE AUTHOR ITY IN AN ORDER PASSED BY IT WHILE EXERCISING QUASI-JUDI CIAL FUNCTIONS, WOULD NO DOUBT FACILITATE THE EXERCISE O F ITS JURISDICTION BY THE APPELLATE OR SUPERVISORY AUTHORI TY. BUT THE OTHER CONSIDERATIONS, REFERRED TO ABOVE, WHICH HAVE ALSO WEIGHED WITH THIS COURT IN HOLDING THAT AN ADMINIST RATIVE AUTHORITY MUST RECORD REASONS FOR ITS DECISION, ARE OF NO LESS SIGNIFICANCE. THESE CONSIDERATIONS SHOW THAT THE R ECORDED OF REASONS BY AN ADMINISTRATIVE AUTHORITY SERVICES A S ALUTARY PURPOSE, NAMELY, IT EXCLUDES CHANCES OF ARBITRARINE SS AND ENSURES A DEGREE OF FAIRNESS IN THE PROCESS OF DECI SION-MAKING. THE SAID PURPOSE WOULD APPLY EQUALLY TO ALL DECISIO NS AND ITS APPLICATION CANNOT BE CONFINED TO DECISIONS WHICH A RE SUBJECT TO APPEAL, REVISION OR JUDICIAL REVIEW. IN OUR OPIN ION, THEREFORE, THE REQUIREMENT THAT REASONS BE RECORDED SHOULD GOV ERN 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. I T MAY, HOWEVER, BE ADDED THAT IT IS NOT REQUIRED THAT THE REASONS SHOULD BE AS ELABORATE AS IN THE DECISION OF A COUR T OF LAW. THE EXTENT AND NATURE OF THE REASONS WOULD DEPEND ON PA RTICULAR FACTS AND CIRCUMSTANCES. WHAT IS NECESSARY IS THAT THE REASONS ARE CLEAR AND EXPLICIT SO AS TO INDICATE THAT THE A UTHORITY HAS GIVEN DUE CONSIDERATION TO THE POINTS IN CONTROVERS Y. THE NEED FOR RECORDING OF REASONS IS GREATER IN A CASE WHERE THE ORDER IS PASSED AT THE ORIGINAL STAGE. THE APPELLATE OR REV ISIONAL AUTHORITY, IF IT AFFIRMS SUCH AN ORDER, NEED NOT GI VE SEPARATE 6 ITA NO.614/COCH/2011 REASONS IF THE APPELLATE OR REVISIONAL AUTHORITY AG REES 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 MAD E AN EXTREMELY LUCID ENUNCIATION OF LAW ON THE SUBJECT AN D WE CAN DO NO BETTER THAN TO EXTRACT SOME OF THE OBSERVATIO NS MADE IN THE DECISION. 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-U P. THE ADMINISTRATIVE AUTHORITIES HAVING A DUTY TO ACT JUDI CIALLY CANNOT THEREFORE DECIDE ON CONSIDERATIONS OF POLICY OR EXP EDIENCY. 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 NECESSI TY OF GIVING REASONS IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVA NCE OF THE DUTY TO ACT JUDICIALLY. IT INTRODUCES CLARITY, CHEC KS THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERAT IONS AND EXCLUDES OR, AT ANY RATE, MINIMIZES ARBITRARINESS I N THE DECISION-MAKING PROCESS. ANOTHER REASON WHICH COMPELS MAKING OF SUCH AN ORD ER IS BASED ON THE POWER OF JUDICIAL REVIEW WHICH IS PO SSESSED BY THE HIGH COURT UNDER ARTICLE 226 AND THE SUPREME CO URT 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 PO WER OF REVIEW CAN BE EFFECTIVELY EXERCISED ONLY IF THE ORD ER IS A SPEAKING ORDER. IN THE ABSENCE OF ANY REASONS IN S UPPORT OF THE ORDER, THE SAID COURTS CANNOT EXAMINE THE CORRE CTNESS OF THE ORDER UNDER REVIEW. THE HIGH COURT AND THE SUP REME 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 7 ITA NO.614/COCH/2011 AND NO REDRESS BEING AVAILABLE TO THE CITIZEN, THER E WOULD BE INSIDIOUS ENCOURAGEMENT TO ARBITRARINESS AND CAPRIC E. 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 SCRUTINIZED IN THE LIGHT OF THE AFOREMENTIONED PROPOSITION OF LAW, WE DO NOT FIND ANY DIFFICULTY IN SETTING ASIDE THE SAME ON THE GRO UND OF VIOLATION OF THE RULES OF NATURAL JUSTICE. THE FLOW ERY LANGUAGE USED BY THE TRIBUNAL TO JUSTIFY ITS ACCEPTANCE OF TH E RESPONDENTS PLEA THAT HE DID NOT KNOW THE LAW DOES NOT WARRANT OUR AFFIRMATION. IN OUR OPINION, THE TRIBU NAL WAS DUTY BOUND TO RECORD TANGIBLE AND COGENT REASONS FOR UPS ETTING WELL REASONED ORDERS PASSED BY THE ASSESSING OFFICER AND THE COMMISSIONER OF INCOME-TAX (APPEALS). IT SHOULD HA VE DIRECTED ITS ATTENTION TO THE LANGUAGE OF SECTION 2 71D AND 271E OF THE ACT IN CONJUNCTION WITH OTHER PROVISIONS OF THE SAME FAMILY AND THEN DECIDED BY A REASONED ORDER WH ETHER THE RESPONDENT HAD BEEN ABLE TO MAKE OUT A CASE FOR DELETING THE PENALTY. THE ORDER PASSED BY THE TRIBUNAL SHOU LD HAVE CLEARLY REFLECTED THE APPLICATION OF MIND BY THE LE ARNED MEMBERS. 7. THE APEX COURT ALSO HAD AN OCCASION TO CONSIDER THIS ISSUE IN TOYOTA MOTOR CORPORATION VS COMMISSIONER OF INCOME-TAX (20 08) 306 ITR 52 (SC). THE APEX COURT HAS OBSERVED AS FOLLOWS AT PAGE 53 O F THE ITR: WE ARE NOT INCLINED TO INTERFERE WITH THE IMPUGNE D ORDER OF THE HIGH COURT. THE HIGH COURT HAS HELD T HAT THE ASSESSING OFFICER HAD DISPOSED OF THE PROCEEDINGS S TATING THE PENALTY PROCEEDINGS INITIATED IN THIS CASE UNDER SE CTION 271C READ WITH SECTION 274 OF THE INCOME-TAX ACT, 1961 A RE HEREBY DROPPED. ACCORDINGLY TO THE HIGH COURT, THERE WAS NO BASIS INDICATED FOR DROPPING THE PROCEEDINGS. THE TRIBUN AL REFERRED TO CERTAIN ASPECTS AND HELD THAT THE INITIATION OF PROCEEDINGS 8 ITA NO.614/COCH/2011 UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 (IN S HORT, THE I.T. ACT) WAS IMPERMISSIBLE WHEN CONSIDERED IN THE BACKGROUND OF THE MATERIALS PURPORTEDLY PLACED BY T HE ASSESSEE BEFORE THE ASSESSING OFFICER. WHAT THE HI GH 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 REQUIRED TO BE RECORDED BY THE ASSESSING OFFICER. ACCORDING TO THE ASSESSEE, ALL RELEVANT ASPECTS WERE PLACED FOR CONS IDERATION AND IF THE OFFICER DID NOT RECORD REASONS, THE ASSE SSEE CANNOT BE FAULTED. WE DO NOT THINK IT NECESSARY TO INTERFERE AT THIS STAGE. IT GOES WITHOUT SAYING THAT WHEN THE MATTER BE TAKEN U P 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. 8. IN VIEW OF THIS, THE ASSESSMENT ORDER SHALL CONT AIN THE REASONS FOR A PARTICULAR DECISION AND IT SHALL ALSO REFLECT THE A PPLICATION OF MIND BY THE ASSESSING OFFICER. IF THE ASSESSMENT ORDER DOES NO T REFLECT THE APPLICATION OF MIND AND REASON FOR DECISION, THE APPELLATE / RE VISIONAL AUTHORITIES CANNOT BE ABLE TO EXERCISE THEIR STATUTORY POWERS I N APPEAL / REVISION. THEREFORE, THE ADMINISTRATIVE COMMISSIONER HAS RIGH TLY EXERCISED HIS POWERS U/S 263 OF THE ACT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE DECISION OF THE JAIPUR BENCH OF THIS TRIBUNAL I N THE CASE OF S.P. EQUIPMENT & SERVICES (SUPRA) ALSO NEEDS TO BE TAKEN INTO CONSIDERATION 9 ITA NO.614/COCH/2011 WHILE DECIDING THE CASE ON MERIT BY THE ASSESSING O FFICER. ACCORDINGLY, WHILE CONFIRMING THE ORDER OF THE ADMINISTRATIVE CO MMISSIONER PASSED U/S 263 OF THE INCOME-TAX ACT, THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE JA IPUR BENCH IN THE CASE OF S.P. EQUIPMENT & SERVICES (SUPRA) AND THEREAFTER DE CIDE THE SAME IN ACCORDANCE WITH LAW WITHOUT BEING INFLUENCED BY ANY OF THE OBSERVATIONS MADE BY THE ADMINISTRATIVE COMMISSIONER. THE ORDER OF THE ADMINISTRATIVE COMMISSIONER IS MODIFIED ACCORDINGLY. 9. IN THE RESULT, THE APPEAL OF THE TAXPAYER IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH JANUARY, 2013. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 11 TH JANUARY, 2013 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