Commissioner Of Income-Tax v. Sunil Kumar Goel

G.S Singhvi, J.:— In this appeal filed under section 260A of the Income-tax Act, 1961 (for short, “the Act”), the Commissioner of Income-tax, Rohtak, has prayed for determination of the following question of law:

“Whether, on the facts and in the circumstances of the case, the hon'ble Income-tax Appellate Tribunal was justified in deleting the penalties imposed under sections 271D and 271E of the Income-tax Act, 1961, amounting to Rs. 1,45,000 and Rs. 95,000 respectively, by holding that the assessee has made transactions of cash bona fide and under ignorance of the provisions of the Income-tax law, ignoring the fact that ignorantia legis non-excusat (ignorance of law is no excuse)?”

2. The respondent (hereinafter described as “the assessee”) filed a return for the assessment year 1991–92 on July 23, 1992, declaring an income of Rs. 23,880. The Assessing Officer finalised the assessment under section 143(3) of the Act at a total income of Rs. 73,590. During the course of the assessment proceedings, it was noticed that the assessee had received cash deposits amounting to Rs. 1,45,000 from Shri Rajesh Goel, proprietor of M/s. Rajesh Enterprises, between April 26, 1990, and September 12, 1990. It was also noticed that the assessee had repaid loans of Rs. 95,000 to one Shri Rajesh Kumar Goel on different dates. These transactions were treated to be violative of sections 269S and 269T of the Act. Therefore, penalty proceedings were initiated by the Assessing Officer and vide two separate orders passed on October 11, 1993, he imposed penalty of Rs. 1,45,000 and Rs. 95,000 under sections 271D and 271E, respectively. The Commissioner of Income-tax (Appeals), Faridabad (for short “the CIT(A)”), dismissed the appeals filed by the assessee and confirmed the penalty. However, in further appeal, the Income-tax Appellate Tribunal, Delhi Bench “C”, New Delhi (for short, “the Tribunal”), accepted the plea of the assessee and directed the Assessing Officer to delete the penalties by making the following observations:

“We have considered the facts and circumstances of the case presented before us. We have also perused the decision of the Tribunal rendered in the case of Vir Sales Corporation. The decision is direct on the point. No contrary decision was brought before us. In the instant case, a transaction was between the sister concerns. It was with a view to meet the business exigencies. It was under the bona fide belief and under the ignorance of relevant provision of law. We hope that it constitutes a valid excuse and reasonable cause within the meaning of section 273B read with sections 271D, 271E of the Income-tax Act, 1961. Accordingly, we direct the Assessing Officer to delete the penalties.”

3. We have heard Shri Rajesh Bindal, learned counsel for the Revenue, and Shri Rakesh Kumar Jain, learned counsel for the assessee, and perused the record. In our opinion, in addition to the question of law of which deter-mination has been sought by the Revenue, the following substantial ques-tion of law calls for determination by this court:

“Whether the order dated January 2, 1998, passed by the Tribunal in I.T.A Nos. 3294 and 3295.Delhi of 1995 is vitiated due to violation of the rules of natural justice inasmuch as the same is totally bereft of reasons?”

4. The principles of natural justice are multi-dimensional and the courts have applied different facets of these principles in different cases. In the recent past, a new dimension has been added to the principles of natural justice, namely, that every quasi-judicial authority/Tribunal must not only record reasons in support of the order they make, but such reasons should also be communicated to the affected party. The requirement of recording of reasons and communication thereof has been read as an integral part of the concept of fair procedure.

5. The necessity of giving reasons flows from the concept of rule of law which constitutes one of the corner stones of our constitutional set up. The administrative authorities charged 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 intro-duces clarity, checks the introduction of extraneous or irrelevant consi-derations and minimises arbitrariness in the decision making 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 article 226 of the Constitution. Such decisions can also be challenged by way of appeal under article 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. These powers 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 autho-rities 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 and/or by refraining from communicating such reasons to the affected person. This is the reason why the courts have insisted on rigorous compliance with the requirement of recording of reasons and communi-cation thereof by every quasi-judicial authority. Some of the judicial pre-cedents which can appropriately be cited to support the above mentioned propositions are:

(1) Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala, [1961] 31 Comp Cas 387 (SC);

(2) Bhagat Raja v. Union of India, [1967] AIR 1967 SC 1606;

(3) Travancore Rayons Ltd. v. Union of India, (1969) 3 SCC 868 : AIR 1971 SC 862;

(4) Mahabir Prasad Santosh Kumar v. State of U.P, (1970) 1 SCC 764 : AIR 1970 SC 1302;

(5) Woolcombers of India Ltd. v. Woolcombers Workers' Union, (1974) 3 SCC 318 : AIR 1973 SC 2758;

(6) Ajantha Industries v. Central Board of Direct Taxes, [1976] 102 ITR 281 (SC);

(7) Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India, (1976) 2 SCC 981 : AIR 1976 SC 1785;

(8) S.N Mukherjee v. Union Of India., (1990) 4 SCC 594 : AIR 1990 SC 1984;

(9) Shanti Prasad Agarwalla v. Union of India, 1991 Supp (2) SCC 296 : AIR 1991 SC 814;

(10) Krishna Swami v. Union of India, (1992) 4 SCC 605 : AIR 1993 SC 1407;

(11) M.L Jaggi v. Mahanagar Telephones Nigam Ltd., (1996) 3 SCC 119 : AIR 1996 SC 2476.

6. In S.N Mukherjee v. Union Of India., (1990) 4 SCC 594 : AIR 1990 SC 1984, a Constitution Bench of the Supreme Court discussed the development of law on this subject in India, Australia, 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 (page 1995):

“The decisions of this court referred to above indicate that with regard to the requirement to record reasons the approach of this court is more in line with that of the American Courts. 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 article 136 of the Constitution as well as the supervisory jurisdiction of the High Courts under article 227 of the Constitution and that the reasons, if recorded, would enable this court or the High Courts to effectively exercise the appellate or supervisory power. But this is not the sole consideration. The other considerations which have also weighed with the court in taking this view are that the requirement of recording reasons would (i) guarantee consideration by the authority; (ii) introduce clarity in the decisions; and (iii) 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 considerations of policy or expediency whereas an executive officer generally looks at things from the stand point of policy and expediency.

Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, 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 holding that an administrative autho-rity must record reasons for its decision, are of no less significance. These considerations show that the recording of reasons by an admi-nistrative authority serves a salutary purpose, namely, it excludes chances of arbitrariness and ensures a degree of fairness in the process of decision-making. The said 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 reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact whether the decision is subject to appeal, revi-sion or judicial review. It may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the rea-sons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge.”

7. In Testeels Ltd. v. N.M Desai, [1970] 37 FJR 7 : 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 (headnote of AIR 1970 (Guj)):

“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 arbi-trariness 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 article 226 and the Supreme Court 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 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.”

8. If the order passed by the Tribunal is scrutinised in the light of the afore-mentioned proposition of law, we do not find any difficulty in setting aside the same on the ground of violation of the rules of natural justice. The flowery language used by the Tribunal to justify its acceptance of the respondent's plea that he did not know the law does not warrant our affir-mation. In our opinion, the Tribunal was duty bound to record tangible and cogent reasons for upsetting well reasoned orders passed by the Assessing Officer and the Commissioner of Income-tax (Appeals). It should have directed its attention to the language of sections 271D and 271E of the Act in conjunction with other provisions of the same family and then decided by a reasoned order whether the respondent had been able to make out a case for deleting the penalty. The order passed by the Tribunal should have clearly reflected the application of mind by the learned members.

9. In view of the above conclusion, we do not consider it necessary to deal with and decide the question framed by the appellant.

10. For the reasons stated above, the appeal is allowed. Order dated January 2, 1998, passed by the Tribunal in I.T.A Nos. 3294 and 3295.Delhi of 1995 is set aside and the case is remanded to it for fresh adjudication of the appeals, filed by the respondent. The parties are directed to appear before the Tribunal on February 14, 2005. The Tribunal is expected to decide the appeals of the respondent afresh within a period of next three months.