High Court Of Punjab & Haryana
CIT vs. Palwal Co-Operative Sugar Mills Ltd.
Section 250(6), 254(1)
Asst. Year 1990-91
G.S. Singhvi & Jasbir Singh, JJ.
IT Appeal No. 245 of 2003
13th January, 2005
Counsel Appeared :
D.S. Patwalia, for the Appellant : Ramesh Chahal, for the Respondent
JUDGMENT
G.S. Singhvi, J. :
In this appeal, the appellant has prayed for determination of the following questions of law :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in considering the production incentive as a claim under s. 43B of the IT Act, 1961, when the assessee has consistently been claiming it as an allowable deduction under s. 37(1) of the 1961 Act before the AO and the CIT(A) ?
(2) Whether, on the facts and in the circumstances of the case, production incentive is an allowable expenditure under s. 37(1) of the IT Act, 1961, when in the instant case the liability pertains to the previous assessment year ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in treating the production incentive as allowable expenditure under s. 43B of the IT Act, 1961, even when the same is not statutory liability and the assessee has also claimed bonus of Rs. 15,74,735 separately ?”
2. The respondent filed return for the asst. yr. 1990-91 declaring a loss of Rs. 1,03,93,204. While finalising the assessment under s. 143(3) of the IT Act, 1961 (for short, ‘the Act’), Dy. CIT (Special Range), Faridabad (hereinafter referred to as ‘the AO’), disallowed the deduction of Rs. 5,69,322 claimed by the respondent under s. 43B of the Act on account of production incentive. On appeal, Commissioner of Income-tax (A), Faridabad (for short, ‘CIT(A)’), accepted the respondent’s plea and deleted the addition of Rs. 5,69,322. Further appeal filed by the appellant was dismissed by the Income-tax Appellate Tribunal, Delhi Bench, New Delhi (for short, ‘the Tribunal’).
3. We have heard Shri D.S. Patwalia, counsel for the appellant, and Shri Ramesh Chahal, counsel for the respondent, and perused the record. In our opinion, in addition to the two questions framed at the time of admission of the appeal, the following substantial question of law would require consideration by this Court :
“Whether the orders passed by the CIT(A) and the Tribunal fulfil the requirement of a speaking order ?”
4. A perusal of order dt. 29th July, 1994, shows that after making a cursory reference to the order passed by the AO on the issue of the appellant’s claim for deduction under s. 43B and noticing the submission made in the appeal, the CIT(A), without assigning any reason whatsoever, granted relief to the assessee to the extent of Rs. 5,69,322 by recording one line observation in the following words : “In view of the explanation of the assessee, the production incentive is allowable in the present assessment year. Therefore, the assessee gets relief of Rs. 5,69,322.” The Tribunal dismissed the appeal filed by the appellant by making the following observations : “Undisputedly the amount was due to workers for asst. yr. 1989-90, but paid in the year under consideration and as per provisions of s. 43B of the Act the amount could be claimed in the year when payment is actually made. All factual position makes the order of CIT(A) as justified in which no interference is called for. Ground fails.” In our opinion, the orders passed by the CIT(A) and the Tribunal are cryptic to the core and are grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order which should reflect application of mind by the concerned authority to the issues/points raised before it and, therefore, the same are liable to be set aside.
The requirement of recording of reasons and communication thereof has been read as an integral part of the concept of fair procedure. The necessity of giving reasons flows from the concept of rule of law which constitutes one of the cornerstones of our constitutional set up. The administrative authorities charted with the duty to act judicially cannot decide the matters on considerations of policy or expediency. The requirement of recording of reasons by such authorities is an important safeguard to ensure observance of the rule of law. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and minimises arbitrariness in the decisionmaking process. Another reason which makes it imperative for the quasi-judicial authorities to give reasons is that their orders are not only subject to the right of the aggrieved persons to challenge the same by filing statutory appeal and revision but also by filing writ petition under Art. 226 of the Constitution. Such decisions can also be challenged by way of appeal under Art. 136 of the Constitution of India. The High Courts have the power to issue writ of certiorari to quash the orders passed by a quasi-judicial authority/Tribunal. Likewise, in appeal, the apex Court can nullify such order/decision. This power of judicial review can be effectively exercised by the superior Courts only if the order under challenge contains reasons. If such order, is cryptic and devoid of reasons, the Courts cannot effectively exercise the power of judicial review and we cannot countenance a situation in which the administrative authorities vested with the power to decide the rights of the parties may stultify the powers of the Court simply by not recording reasons in support of their decisions or by refraining from communicating such reasons to the affected person. This is the reason why the Courts have insisted on rigorous compliance of the requirement of recording of reasons and communication thereof by every quasi-judicial authority. Some of the judicial precedents, which can appropriately be cited to support the abovementioned proposition, are : 1. Harinagar Sugar Mills Ltd. vs. Shyam Sunder Jhunjhunwala AIR 1961 SC 1669 Bhagat Raja vs. Union of India & Ors. AIR 1967 SC 1606 Travancore Rayon Ltd. vs. Union of India AIR 1971 SC 862 Mahabir Prasad Santosh Kumar vs. State of UP AIR 1970 SC 1302 Woolcombers of India Ltd. vs. Woolcombers Workers Union AIR 1973 SC 2758 Ajantha Industries & Ors. vs. CBDT & Ors. 1976 CTR (SC) 79 : AIR 1976 SC 437 Siemens Engineering & Manufacturing Co. of India Ltd. vs. Union of India AIR 1976 SC 1785 S.N. Mukherjee vs. Union of India AIR 1990 SC 1984 Shanti Prasad Agarwalla vs. Union of India AIR 1991 SC 814 Krishna Swami vs. Union of India AIR 1993 SC 1407; and M.L. Jaggi vs. Mahanagar Telephones Nigam Ltd. AIR 1996 SC 2476.
7. In Testeels Ltd. vs. N.M. Desai, Conciliation Officer & Anr. AIR 1970 Guj 1, a Full Bench of the Gujarat High Court has made an extremely 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 : “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 administrative authorities having a duty to act judicially cannot, therefore, decide on considerations of policy or expediency. 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 necessity of giving reasons is an important safeguard to ensure observance of the duty to act judicially. It introduces clarity, checks the introduction of extraneous 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 Art. 226 and the Supreme Court under Art. 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 power of review can be effectively exercised only if the order is a speaking order. In the absence of any reasons in support of the order, the said Courts cannot examine the correctness of the order under 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 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 insisted upon, then, they will be subject to judicial scrutiny and correction.” By applying the law laid down in the aforementioned decisions to the facts of this case, we hold that orders dt. 29th July, 1994 and 26th June, 2002, passed by the CIT(A) and the Tribunal are legally unsustainable and are liable to be set aside because the same do not satisfy the requirement of a speaking order. In view of the above conclusion, we do not consider it necessary to deal with and decide other questions of law raised by the appellant. In the result, the appeal is allowed. Orders dt. 29th July, 1994 and 26th June, 2002, passed by the CIT(A) and the Tribunal are set aside and the case is remanded to the CIT(A) for fresh adjudication of the appeal filed by the respondent against the order of the AO.
[Citation : 284 ITR 153]
