PLR Textiles Ltd., CHENNAI V. ACIT, CHENNAI

ITA 626/CHNY/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9852 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 09-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: K RAGHU
• Keywords: Principle of natural justice; Bad and doubtful debts; Tax effect
• Section: 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.626/MDS/2013 ' (' / ASSESSMENT YEAR : 2006-07 M/S PLR TEXTILES LTD., 8-K, CENTURY PLAZA, 560-562, MOUNT ROAD, CHENNAI - 600 018. PAN : AAACP 6536 D V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(2), CHENNAI - 600 034. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SHRI K. RAGHU, CA ,-*+ . / / RESPONDENT BY : DR. S. MOHARANA, CIT 0 . 1$ / DATE OF HEARING : 20.04.02015 2!( . 1$ / DATE OF PRONOUNCEMENT : 08.05.2015 / 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-III, CHENNAI, DATED 07.02.2013. 2 I.T.A. NO. 626/MDS/2013 2. SHRI K. RAGHU, THE LD. REPRESENTATIVE FOR THE AS SESSEE, 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 T HE LD. REPRESENTATIVE, THE ASSESSEE HAS FILED THE APPEAL A GAINST THE ORDER OF THE ASSESSING OFFICER BEFORE THE CIT(APPEALS) AN D THE CIT(APPEALS) DISPOSED OF THE SAME BY AN ORDER DATED 30.08.2011. SINCE THE ORDER OF THE ASSESSING OFFICER IS THE SUB JECT 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 TH E 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 E XPENDITURE OF ` 60 LAKHS. THEREFORE, ACCORDING TO THE LD. REPRESENTAT IVE, THE ADMINISTRATIVE COMMISSIONER REVISED THE ORDER WITHO UT 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 TH AT SINCE THE SALE CONSIDERATION OF THE LAND WAS OFFERED UNDER TH E 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 D EBTS COME UNDER THE HEAD INCOME FROM BUSINESS. THE LD. REP RESENTATIVE FURTHER SUBMITTED THAT THE ASSESSEE CONVERTED THE C APITAL ASSET INTO BUSINESS ASSET, THEREFORE, THE LOSS SUFFERED BY THE ASSESSEE HAS TO BE ALLOWED. 3. ON THE CONTRARY, DR. S. MOHARANA, THE LD. DEPART MENTAL REPRESENTATIVE, SUBMITTED THAT THOUGH THE ASSESSEE CLAIMED THAT THE BUSINESS ASSET WAS DISPOSED OF, THE ASSESSEE CL AIMED DEDUCTION UNDER THE HEAD CAPITAL GAINS. HOWEVER, THE ASSESSING OFFICER HAS NOT DISCUSSED THE SAME IN THE ASSESSMEN T 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-T IME 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 EITH ER 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 COMMISSIONE R CANNOT EXERCISE HIS POWER UNDER SECTION 263 OF THE ACT. W E 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 O N THE GROUND THAT THE SAME WAS NOT PRESSED. IN FACT, PARA 2.2 O F THE ORDER OF THE CIT(APPEALS) READS AS FOLLOWS:- 2.2 DURING THE COURSE OF HEARING, THE APPELLANT CON TENDED THAT M/S SUNDARAM FINANCE LTD. HAD SEIZED THE MACHI NERY AND THE APPELLANT HAD BEEN PUT TO LOSS TO THE EXTENT OF ` 1.08 CRORE. APPELLANT EXPLAINED THAT THE APPELLANT IS NOT HAVIN G INCOME UNDER THE HEAD BUSINESS IN THE SUBSEQUENT ASSESSMEN T YEARS DUE TO CLOSURE AND HENCE THE ISSUE UNDER APPEAL IS ACADEMIC. THEREFORE, CONSIDERING THE OVERALL IMPACT, WHICH DO ES NOT HAVE ANY TAX EFFECT EITHER IN THE PRESENT ASSESSMENT YEA R 2006-07 OR IS LIKELY TO HAVE ANY IMPACT IN THE SUBSEQUENT ASSE SSMENT YEARS, THE APPEAL IS NOT PRESSED WITH A VIEW TO PUT AN END TO THE LITIGATION. IN VIEW OF THE ABOVE FACTS, ALL THE GR OUNDS OF APPEAL ARE DISMISSED. IN VIEW OF THE ABOVE, THE CIT(APPEALS) HAS NOT DECI DED THE ISSUE WHICH ARISES OUT OF THE ORDER OF THE ASSESSING OFFI CER. 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 P AYMENT OF LEASE RENTAL TO M/S SUNDARAM FINANCE LTD. IN THE ASSESSM ENT ORDER, THE ASSESSING OFFICER PROCEEDED ON THE FOOTING THAT THI S PAYMENT OF ` 60 LAKHS IS TOWARDS ONE-TIME SETTLEMENT FOR ACQUISITIO N 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 EXTE NT OF ` 40 LAKHS, THE ASSESSING OFFICER HAS NOT DISCUSSED THE SAME IN THE ASSESSMENT ORDER. THE APPLICATION OF THE MIND OF T HE ASSESSING OFFICER DOES NOT REFLECT IN THE ASSESSMENT ORDER. THE COMMISSIONER, HOWEVER, DIRECTED THE ASSESSING OFFIC ER 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 H AS NOT APPLIED HIS MIND AND THE ASSESSMENT ORDER IS SILENT ABOUT A N ISSUE RAISED BY THE ASSESSEE, CAN THE COMMISSIONER EXERCISE OF H IS POWER UNDER SECTION 263 OF THE ACT? THIS TRIBUNAL FOUND THAT THE PUNJAB & HARYANA HIGH COURT IN CIT V. SUNIL KUMAR GOEL (20 05) 274 ITR 53 HAD AN OCCASION TO CONSIDER THE ISSUE. THE PUNJ AB & 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 199 0 SC 1984, A CONSTITUTION BENCH OF THE SUPREME COURT DISCUSSED THE DEVELOPMEN T OF LAW ON THIS SUBJECT IN INDIA, AUSTRALIA, CANADA, ENGLAND AND TH E UNITED STATES OF AMERICA AND AFTER MAKING REFERENCE TO A LARGE NUMBE R OF JUDICIAL PRECEDENTS, THEIR LORDSHIPS CULLED OUT THE FOLLOWIN G PROPOSITIONS (PAGE 1995) : 6 I.T.A. NO. 626/MDS/2013 THE DECISIONS OF THIS COURT REFERRED TO ABOVE IND ICATE THAT WITH REGARD TO THE REQUIREMENT TO RECORD REASONS THE APP ROACH OF THIS COURT IS MORE IN LINE WITH THAT OF THE AMERICAN COU RTS. 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 A RTICLE 136 OF THE CON STITUTION AS WELL AS THE SUPERVISORY JURISDICTION O F THE HIGH COURTS UNDER ARTICLE 227 OF THE CONSTITUTION AND THAT THE REASONS, IF RECORDED, WOULD ENABLE THIS COURT OR THE HIGH COURT S TO EFFECTIVELY EXERCISE THE APPELLATE OR SUPERVISORY POWER. BUT TH IS 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 (II I) 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 CONSIDE RATIONS OF POLICY OR EXPEDIENCY WHEREAS AN EXECUTIVE OFFICER GENERALLY L OOKS AT THINGS FROM THE STAND POINT OF POLICY AND EXPEDIENCY. REASONS, WHEN RECORDED BY AN ADMINISTRATIVE AUTHOR ITY IN AN ORDER PASSED BY IT WHILE EXERCISING QUASI-JUDICIAL FUNCTI ONS, 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 H OLDING THAT AN ADMINISTRATIVE AUTHO RITY MUST RECORD REASONS FOR I TS DECISION, ARE OF NO LESS SIGNIFICANCE. THESE CONSIDERATIONS SHOW THA T THE RECORDING OF REASONS BY AN ADMI NISTRATIVE AUTHORITY SERVES A SA LUTARY PURPOSE, NAMELY, IT EXCLUDES CHANCES OF ARBITRARINESS AND EN SURES A DEGREE OF FAIRNESS IN THE PROCESS OF DECISION-MAKING. THE SAI D 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 REA SONS BE RECORDED SHOULD GOVERN THE DECISIONS OF AN ADMINISTRATIVE AU THORITY EXERCISING QUASI-JUDICIAL FUNCTIONS IRRESPECTIVE OF THE FACT W HETHER THE DECISION IS SUBJECT TO APPEAL, REVISION OR JUDICIAL REVIEW. IT MAY, HOWEVER, BE ADDED THAT IT IS NOT REQUIRED THAT THE REASONS SHOU LD BE AS ELABORATE AS IN THE DECISION OF A COURT OF LAW. THE EXTENT AN D NATURE OF THE REASONS WOULD DEPEND ON PARTICULAR FACTS AND CIRCUM STANCES. WHAT IS NECESSARY IS THAT THE REA SONS ARE CLEAR AND EXPLIC IT SO AS TO INDICATE THAT THE AUTHORITY HAS GIVEN DUE CONSIDERATION TO T HE POINTS IN CONTROVERSY. THE NEED FOR RECORDING OF REASONS IS G REATER IN A CASE WHERE THE ORDER IS PASSED AT THE ORIGINAL STAGE. TH E APPELLATE OR REVISIONAL AUTHORITY, IF IT AFFIRMS SUCH AN ORDER, NEED NOT GIVE SEPARATE REASONS IF THE APPELLATE OR REVISIONAL AUT HORITY AGREES WITH THE REASONS CONTAINED IN THE ORDER UNDER CHALLENGE. ' IN TESTEELS LTD. V. N. M. DESAI [1970] 37 FJR 7 ; A IR 1970 GUJ 1, A FULL BENCH OF THE GUJARAT HIGH COURT HAS MADE AN EXTREME LY 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 (H EADNOTE 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 BASIC PRINCIPLES OF THE 7 I.T.A. NO. 626/MDS/2013 INDIAN CONSTITUTIONAL SET-UP. THE ADMINISTRATIVE AU THORITIES HAVING A DUTY TO ACT JUDICIALLY CANNOT THEREFORE DECIDE ON C ONSIDERATIONS OF POLICY OR EXPEDIENCY. THEY MUST DECIDE THE MATTER S OLELY ON THE FACTS OF THE PARTICULAR CASE, SOLELY ON THE MATERIAL BEFO RE THEM AND APART FROM ANY EXTRANEOUS CONSIDERATIONS BY APPLYING PRE- EXISTING LEGAL NORMS TO FACTUAL SITUATIONS. NOW THE NECESSITY OF G IVING REASONS IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE DUT Y TO ACT JUDICIALLY. IT INTRODUCES CLARITY, CHECKS THE INTRO DUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND EXCLUDES OR, AT AN Y RATE, MINIMISES ARBI TRARINESS 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 ARTIC LE 32 OF THE CON STITUTION. THESE COURTS HAVE THE POWER UNDER THE SA ID 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 AN Y REASONS IN SUPPORT OF THE ORDER, THE SAID COURTS CANNOT EXAMIN E THE CORRECTNESS OF THE ORDER UNDER REVIEW. THE HIGH COURT AND THE S UPREME COURT WOULD BE POWERLESS TO INTERFERE SO AS TO KEEP THE A DMINISTRATIVE OFFICER WITHIN THE LIMITS OF THE LAW. THE RESULT WO ULD 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 I NSISTED UPON, THEN, THEY WILL BE SUBJECT TO JUDICIAL SCRUTINY AND CORRE CTION.' 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 DI D 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 HAV E 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 OR DER PASSED BY THE TRIBUNAL SHOULD HAVE CLEARLY REFLECTED THE APPLICAT ION OF MIND BY THE LEARNED MEMBERS. IN VIEW OF THE ABOVE, IT IS NECESSARY FOR THE ASSES SING OFFICER TO PASS A REASONED ORDER. THE REASON FOR ALLOWING OR DISALLOWING A CLAIM SHALL BE REFLECTED IN THE ASSESSMENT ORDER IT SELF SO THAT THE APPELLATE / REVISIONAL AUTHORITY MAY APPRECIATE THE REASONS FOR THE CONCLUSION REACHED BY THE ASSESSING OFFICER. IN OT HER 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 CA NNOT BE SUBSTITUTED BY FILING AN AFFIDAVIT OR OTHER DOCUMEN TS 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 CO NSIDERED 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 INT ERESTS OF REVENUE. MOREOVER, WITH REGARD TO ALLOWING OF ` 60 LAKHS IN VIEW OF THE CONFLICTING FACT AS CLAIMED BY THE ASSESSEE AND ALL OWED BY THE ASSESSING OFFICER, THIS TRIBUNAL IS OF THE CONSIDER ED OPINION THAT THE ASSESSING OFFICER HAS TO CONSIDER THE SAME. ACCORD INGLY, THE ORDER OF THE ADMINISTRATIVE COMMISSIONER IS CONFIRMED. H OWEVER, IT IS MADE CLEAR THAT THE ASSESSING OFFICER SHALL RECONSI DER THE ISSUE INDEPENDENTLY WITHOUT BEING INFLUENCED BY ANY OF TH E OBSERVATION MADE BY THE COMMISSIONER IN THE IMPUGNED ORDER. 8. WITH THE ABOVE OBSERVATION, THE APPEAL OF THE AS SESSEE STANDS DISMISSED. 9 I.T.A. NO. 626/MDS/2013 ORDER PRONOUNCED ON 8 TH OF MAY, 2015 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) (. !' ) ( . . . ) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 8 TH MAY, 2015. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 /CIT-III, CHENNAI 4. 69 ,1 /DR 5. :' ; /GF.