High Court Of Madras
CIT vs. Gec Alsthom India Ltd.
Assessment Year : 1987-88
Section : 254, 32AB, 154
D. Murugesan And P.P.S. Janarthana Raja, JJ.
Tax Case (Appeal) No. 791 Of 2004
February 13, 2012
JUDGMENT
D. Murugesan, J. – This tax case appeal is at the instance of the Revenue questioning theorder passed by the Chennai “A” Bench, Chennai, in I. T. A. No. 1924/Mds/1993, dated February 18, 2004, for the assessment year 1987-88, on the following questions of law :
“1. Whether, in the facts and in the circumstances of the case, the Tribunal was right in holding that the Assessing Officer had in the guise of rectifying an arithmetical mistake sought to rectify a debatable question of law ?
2. Whether the recalculation of the eligible profit under section 32AB by deleting the expected return of customs duty, which was not included in the computation of income is an error rectifiable under section 154 of the Income-tax Act ?”
2. The assessee is engaged in the manufacture of electrical items. The relevant assessment year is 1987-88 and the corresponding accounting year ended on March 31, 1987. The original assessment was filed by the assessee declaring an income of Rs. 65,55,668 on August 27, 1987. Later a revised return was also filed on December 8, 1989, disclosing a total income of Rs. 1,11,78,051. The assessment was completed on the total income of Rs. 2,60,25,256 under section 143(3) of the Act. In both the original as well as the revised returns, the assessee disclosed the claim made for excise duty refund amounting to Rs. 1,51,00,000 and the said amount was credited to the profit and loss account as miscellaneous receipts as per the requirement of the Companies Act. However, the assessee claimed before the Assessing Officer that the amount was neither received nor accrued to the appellant-company in the relevant accounting year and, therefore, the same cannot be included in the total income for the assessment year 1987-88. As the said refund of excise duty was not included in the total income for the assessment year 1987-88, the Assessing Officer rectified the order dated October 20, 1992, and reduced the claim under section 32AB of the Act to Rs. 99,24,043 as against the original claim of deduction under section 32AB, which works out to 20 per cent of the book profits, which included such amount of excise duty. Aggrieved by the order of rectification, the assessee filed an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) confirmed the order of the Assessing Officer. Aggrieved by that order, the assessee filed an appeal before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal, after referring to the factual aspect in the grounds of appeal filed by the Revenue and the rival contentions, ultimately passed the following order :
“4. We have heard the rival submissions and considered the facts and the materials on record including the case law relied on by the learned Departmental representatives. Even though the learned Departmental representative was supporting the orders of the Revenue authorities by saying that it was an arithmetical mistake which was sought to be rectified, in our considered opinion, it was not an arithmetical mistake which is to be rectified and as rightly contended by the learned counsel for the assessee in the guise of rectifying an arithmetical mistake a debatable question of law was sought to be rectified by the Revenue authorities which was definitely not permissible under section 154 of the Act in view of the decision of the apex court in the case of T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50 (SC). Hence, we are inclined to allow the appeal of the assessee by setting aside the orders of the Revenue authorities. The appeal is allowed.”
3. Aggrieved by that order, the Revenue has filed the present appeal.
4. In order to consider the second substantial question of law raised in this appeal, we are inclined to consider as to whether the order of this kind passed by the Income-tax Appellate Tribunal can be justified on the ground that the Tribunal had considered the issue and applied its mind to the same for the purpose of dismissal of the appeal. The Appellate Tribunal being a final fact finding authority, is expected to give reasons supporting its finding. In the event, if there are no reasons to support the finding and the order displays a total non-application of mind, such order cannot be sustained in the eye of law and is liable to be set aside on that ground alone. This view is supported by a decision of the Bombay High Court reported in Shivsagar Veg. Restaurant v. Asstt. CIT [2009] 317 ITR 433/176 Taxman 260. As against the order of the Commissioner of Income-tax (Appeals), the assessee or the Revenue, as the case may be, preferred a further appeal to the Income-tax Appellate Tribunal under section 253 of the Income-tax Act. The Income-tax Appellate Tribunal is constituted under the provisions of section 252 of the Act and the Tribunal shall consist of as many judicial and accountant members. Sub-section (6) of section 255 reads as under :
“255. (6) The Appellate Tribunal shall, for the purpose of discharging its functions, have all the powers which are vested in the incometax authorities referred to in section 131, and any proceeding before the Appellate Tribunal shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 and for the purpose of section 196 of the Indian Penal Code (45 of 1860), and the Appellate Tribunal shall be deemed to be a civil court for all the purposes of section 195 and Chapter XXXV of the Code of Criminal Procedure, 1898.”
5. For the purpose of exercise of power, the Appellate Tribunal shall be deemed to be a civil court for all the purposes under section 195 of Chapter XXXV of the Code of Criminal Procedure, 1898. It has been conferred with such power under section 131 of the Income-tax Act. That provision empowers the Appellate Tribunal to have the same powers that are vested in a court under the Code of Civil Procedure, 1908, when trying a suit in respect of the following matters, namely :—
“(a) discovery and inspection ;
(b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath ;
(c) compelling the production of books of account and other documents ; and
(d) issuing commissions.”
6. As per sub-section (4) of section 255, in the event the members of the Bench differs in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority, but if the members are equally divided, they shall state the point or points on which they differ, and the case shall be referred to the President of the Appellate Tribunal for hearing on such point or points by one or more of the other members of the Appellate Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it.
7. A combined reading of sub-sections (4) and (6) of section 255 of the Act shows that the proceedings before the Income-tax Appellate Tribunal is judicial proceedings, as the Tribunal has the powers of a civil court in terms of section 131 of the Income-tax Act and it has the powers of a criminal court in terms of sections 193 and 228 of the Indian Penal Code and section 195 of Code of Criminal Procedure.
8. In this context, we may also refer to the Income-tax Appellate Tribunal Rules, 1963. The Appellate Tribunal Rules are comprehensive enough to include the procedure for filing, date of presentation of appeal, contents of memorandum of appeal, documents to accompany the memorandum of appeal and filing of affidavits. By these rules, the assessee or the Revenue, as the case may be, are bound to comply with the above provisions by filing necessary documents for the purpose of the Tribunal to consider. The compliance with the rule is not a mere formality inasmuch as the Tribunal, by ignoring those documents, cannot give a finding either in favour of the Revenue or in favour of the assessee. In fact, rules 29, 30 and 31 of the Income-tax Rules empower the Tribunal to record additional evidence. These are all certain provisions which are referred only to show that an appeal cannot be disposed of without application of mind to the various materials which are placed before the Tribunal. In these circumstances, the law requires the Tribunal to record the findings supported by reasons to sustain the order.
9. In the judgment reported in Jawahar Lal Singh v. Naresh Singh [1987] 2 SCC 222, the apex court referred to the judgment of Lord Denning M. R. v. Amalgamated Engineering Union [1971] 1 All ER 1148 (CA) wherein the court observed : “The giving of reasons is one of the fundamentals of good administration”. In Swamiji of Admar Mutt v. Commissioner, Hindu Religious & Charitable Endowments Departments, AIR 1980 SC 1, the apex court also quoted with approval the legal maxim cessante ratione legis cessat ipsa lex, which means reason is the soul of law and when reason of any particular law ceases, so does the law. In State of West Bengal v. Atul Krishna Shaw, AIR 1990 SC 2205, the apex court reiterated that giving of reasons is an essential element of administration of justice. A right to reason is, therefore, an indispensable part of sound system of judicial review. Reasoned decision is not only for the purpose of showing that the citizen is receiving justice, but also a valid discipline for the Tribunal itself. Therefore, statement of reasons is one of the essentials of justice. Judicial discipline to abide by declaration of law by this court, cannot be forsaken.
10. The principles of natural justice has twin ingredients ; firstly, the person who is likely to be adversely affected by the action of the authorities can be given notice to show cause thereof and granted an opportunity of hearing and, secondly, the orders so passed by the authorities should give reason for arriving at any conclusion showing proper application of mind. Violation of either of them could, in the given facts and circumstances of the case, vitiate the order itself. In fact, the above principle has been applied by the apex court in respect of the order passed by an administrative or quasijudicial authority in the judgment reported in Siemens Engineering & Mfg. Co. of India Ltd. v. Union of India AIR 1976 SC 1785, wherein it has been held as follows :
“6. If courts of law are to be replaced by administrative authorities and tribunals, as indeed, in some kinds of cases, with the proliferation of administrative law, they may have to be so replaced, it is essential that administrative authorities and tribunals should accord fair and proper hearing to the persons sought to be affected by their orders and give sufficiently clear and explicit reasons in support of the orders made by them. Then alone administrative authorities and tribunals exercising quasi-judicial function will be able to justify their existence and carry credibility with the people by inspiring confidence in the adjudicatory process. The rule requiring reasons to be given in support of an order is, like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law.”
11. The distinction between passing of an order by an administrative or quasi-judicial authority has practically extinguished and both are required to pass reasoned orders. The requirement of recording reason is applicable with greater rigor to the judicial proceedings as the orders of the court also must reflect what weighed with the court in declining the relief. In the book of H. W. R. Wade’s Administrative Law, 7th Edition, it was stated as follows :
“. . . A right to reasons is, therefore, an indispensable part of a sound system of judicial review. Natural justice may provide the best rubric for it, since the giving of reasons is required by the ordinary man ‘s sense of justice . . . Reasoned decisions are not only vital for the purposes of showing the citizen that he is receiving justice : they are also a valuable discipline for the tribunal itself . . .”
12. Recently, the apex court in the judgment reported in Kranti Associates (P.) Ltd. v. Masood Ahmed Khan [2010] 9 Scale 199, reiterated the same law and in paragraph 51 it was held as follows :
51. Summarising the above discussion, this court holds :
(a) In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially.
(b) A quasi-judicial authority must record reasons in support of its conclusions.
(c) Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well.
(d) Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power.
(e) Reasons reassure that discretion has been exercised by the decision-maker on relevant grounds and by disregarding extraneous considerations.
(f)Reasons have virtually become as indispensable a component of a decision-making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies.
(g) Reasons facilitate the process of judicial review by superior courts.
(h) The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the lifeblood of judicial decision-making justifying the principle that reason is the soul of justice.
(i) Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants’ faith in the justice delivery system.
(j) Insistence on reason is a requirement for both judicial accountability and transparency.
(k) If a judge or a quasi-judicial authority is not candid enough about his/her decision-making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism.
(l) Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or ‘rubber-stamp reasons’ is not to be equated with a valid decision-making process.
(m) It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision-making not only makes the judges and decision-makers less prone to errors but also makes them subject to broader scrutiny (see David Shapiro in Defence of Judicial Candor).
(n) Since the requirement to record reasons emanates from the broad doctrine of fairness in decision-making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See Ruiz Torija v. Spain [1995] 19 EHRR 553 at 562 para. 29 and Anya v. University of Oxford [2001] EWCA Civ 405, wherein the court referred to article 6 of the European Convention of Human Rights which requires, adequate and intelligent reasons must be given for judicial decisions.
(o) In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of ‘due process’.”
13. Keeping the above in mind, the judgment of the Tribunal should be considered, more particularly, paragraph 4 of the order of the Tribunal which we have referred to in the earlier portion of the order, wherein except referring to the objections raised by the Departmental representatives in support of the orders of the Revenue authorities and holding the assessee’s contention that it is not an arithmetic mistake which can be rectified, there is no other reason. In our opinion, the Appellate Tribunal should have considered the materials placed on either side and, after independently applying its mind, should have come to its own conclusion as to whether any mistake had crept in the order of the assessing authority, which requires rectification or it is a debatable question. In the absence of such discussion, the impugned order suffers from non-application of mind. Accordingly, the order of the Tribunal is set aside and the matter is remitted back to the Income-tax Appellate Tribunal to decide the issue as expeditiously as possible and in any case not exceeding a period of six months. The tax case appeal is allowed. No costs.
[Citation : 361 ITR 304]
