LUCKY BISCUIT COMPANEY V. COMMISSIONER OF INCOME TAX II

MA/158/2011

AI Insights

The case involves Lucky Biscuit Companey appealing against the orders of the Commissioner of Income Tax-II, Patna, concerning additions made to their income on account of low yield percentage and disallowance of certain expenses. The Assessing Officer had added Rs. 3,24,231 for low yield and disallowed Rs. 10,53,506 invoking Section 40A(2) of the Income Tax Act. The CIT(A) found that the Assessing Officer had not properly considered the assessee's replies, and the Tribunal's affirmation of the Assessing Officer's decision was deemed insufficient as it lacked a detailed discussion on the merits of the case. The High Court criticized the lack of reasoning and proper consideration at all levels of the decision-making process, leading to the remand of the case to the Tribunal.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 685863 (HC-PATNA)
• Appeal Type: Others
• Pronouncement Date: 05-02-2013
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: HARSHWARDHAN PRASAD; ARCHANA SINHA
• Assessee Lawyers: KRISHANANDAN PRASAD; KISHUN KUMAR SINHA
• Keywords: Disallowance; Remand; Error in decision making process; Low percentage of yield; Reasoned and speaking order
• Section: 40A(2)

Judgement Text

"IN THE HIGH COURT OF JUDICATURE AT PATNA Miscellaneous Appeal No.158 of 2011 ====================================================== Lucky Biscuit Companey .... .... Appellant/s Versus Commissioner Of Income Tax-II, Patna & Ors. .... .... Respondent/s ====================================================== Appearance : For the Appellant/s : Mr. Krishanandan Prasad, Adv. Mr. Kishun Chand Kumar Sinha, Adv. For the Respondent/s : Mr. Harshwardhan Prasad, Adv. Mrs. Archana Sinha, Adv. ====================================================== CORAM: HONOURABLE MR. JUSTICE NAVIN SINHA and HONOURABLE MR. JUSTICE SHIVAJI PANDEY ORAL ORDER (Per: HONOURABLE MR. JUSTICE NAVIN SINHA) 4 05-02-2013 Heard counsel for the appellant and the respondent. We are satisfied that the order of the Tribunal suffers from illegality with regard to error in the decision making process vitiating the final decision. No useful purpose shall be served by admitting the Appeal as ultimately it would have to be remanded to the Tribunal. We therefore proceed to remand at this stage itself. Learned counsel for the appellant submitted that the order of the Assessing Officer adding Rs. 3,24,231/- on account of low percentage of yield was challenged before the CIT(A). The latter held that the reply submitted by the assessee on 7.12.2006 was not considered properly on merits by the Assessing Officer and was rejected simply stating that it was not satisfactory. This did not amount to consideration in accordance with law rightly so held by the CIT(A). It was next Patna High Court MA No.158 of 2011 (4) dt.05-02-2013 2 / 4 2 submitted that similarly the CIT(A) did not concur with the conclusion of the Assessing Officer refusing disallowance for Rs. 10,53,506/- invoking the provisions of Section 40A(2) of the Act. The CIT(A) likewise held that there had been no proper consideration on merits of the reply filed before the Assessing Officer with a consequent that the expenditure claimed was excessive or unreasonable beyond legitimate business need, an essential ingredient for invoking the provisions of Section 40A(2) of the Act. Counsel for the respondent opposed the application and submitted that even if this Court is of the opinion that there has not been proper consideration by the Assessing Officer, the defect stood remedied when the Tribunal has considered all aspects of the matter and has arrived at its satisfaction on an overall assessment that the order of the Assessing Officer requires no interference. Any prejudice that may have been caused to the assessee stands remedied when full consideration has been done by the Tribunal. In this Appeal we are not concerned with the merits of the amount adding as low yield or disallowance of any amount. The primary question for our consideration is if there is any error in the decision making process. The Assessing Officer had the jurisdiction to reject any explanation that the assessee may have given under both items. This power however was not absolute but was regulated by law. Merely stating that the explanation by the assessee was not Patna High Court MA No.158 of 2011 (4) dt.05-02-2013 3 / 4 3 satisfactory shall not suffice and meet the requirement of the law. No prejudice to the order of any person can be passed without reasons. It has repeatedly been held that the reasons are the heart and soul of an order and a control on arbitrariness. It ensures that the decision making authority understands and appreciates his power and acts within the same. An order which does not consider the defence furnished by the assessee, and rejects it without reasons suffers from arbitrariness. What shall happen if the Assessing Officer was unable to meet the defence furnished by the assessee. He shall then very conveniently and simply state that it was not satisfactory or to his satisfaction without giving reasons in support of the same. If the Assessing Officer did not comply with this rudimentary principle of law, it was an error fundamental at the very inception of the proceedings. This infirmity could not and cannot be remedied at any appellate stage much less before the Tribunal, when the CIT(A) to our mind has passed a reasoned and speaking order explaining why the order of the Assessing Authority did not meet the requirement of the law. Curiously, the Tribunal while confirming the order of the Assessing Officer has failed to discuss by disclosing its application of mind why the reasons given by the CIT(A) were erroneous and not acceptable. To our mind the infirmity that was committed by the Assessing Officer has been reiterated by the Tribunal. Patna High Court MA No.158 of 2011 (4) dt.05-02-2013 4 / 4 4 The order dated 4.10.2010 of the Income Tax Appellate Tribunal, Patna Bench in I.T.A. No. 97/PAT/2008 is set aside to the extent presently discussed. The matter is remanded to the Tribunal for passing a fresh, reasoned and speaking order to that extent only in light of the present discussion. We consider it appropriate to reiterate that these observations have no co-relation to the merits of the matter. The Appeal is allowed. P. Kumar/- (Navin Sinha, J) (Shivaji Pandey, J) "