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 (appellant), has prayed for determination of the following questions of law:

“(i) Whether, on the facts and in the circumstances of the case, the honourable Income-tax Appellate Tribunal was right in law in confirming the order of the learned Commissioner of Income-tax (Appeals), who deleted the addition of Rs. 1,38,860 made on account of value of “bardana” used for storing “churi” and “korma”?

(ii) Whether, on the facts and in the circumstances of the case, the honourable Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals), who directed the Assessing Officer to exclude the sale of “churi korma” out of total turnover while working out the deduction under section 80HHC?”

2. For the assessment year 1988–89, the respondent filed a return on July 29, 1988, declaring a total income of Rs. 2,20,900. The Assessing Officer finalised the assessment under section 143(3) read with section 184(7) of the Act. He allowed deduction of Rs. 42,95,542 under section 80HHC of the Act. The appeal filed by the assessee was partly allowed by the Commissioner of Income-tax (Appeals), Rohtak (for short the “CIT(A)”). He referred to section 80HHC(1) of the Act and held:

“It will be clear from the reading of the said sub-section that where an eligible assessee was engaged in the business of export of allowable goods or merchandise, he was straightaway to be allowed a deduction of 4 per cent, of the net foreign exchange realisation and over and above this, 50 per cent, of the remaining profit derived by him from the export of such goods/merchandise was also admissible to him as deduction. (Ref. Board's circular No. 469 dated September 23, 1986 (see [1986] 162 ITR (St.) 21)). In order to arrive at the 50 per cent, of the profits, sub-section (3) of section 80HHC was to be resorted to. This section quantified the profits, (a) in the case of an assessee who was engaged in exclusive report, (b) in the case of an assessee who was doing export as well as other business in India.

It would, therefore, appear that the Assessing Officer was not justified in overlooking the provisions of sub-section (1) and straightaway resorting to sub-section (3)(b) of section 80HHC The Assessing Officer has himself mentioned in his order referred to in para. 7 that the deduction at the rate of 4 per cent, of the net foreign exchange, realisation of the appellant at Rs. 11,98,16,475 works out to Rs. 47,92,659. In view of this, he is directed to allow deduction of the said amount of Rs. 47,92,659 under clause (a) of sub-section (1) and rest of the deduction (exceeding Rs. 47,92,659) if any, eligible to the appellant under clause (b) of sub-section (1) read with sub-section (3)(b) of section 80HHC, subject to the creation of necessary reserve and ensuring that the overall deduction does not exceed the profit derived by the appellant from export. These directions are given with the finding that the total turnover of the appellant will also include the amount realised on sale of by-product(s), i.e, churi korma, for the purpose of sub-section (3)(b) of section 80HHC as these do represent the sale proceeds of the appellant.”

3. The appeal filed by the Revenue against the order of the Commissioner of Income-tax (Appeals) was dismissed by the Income-tax Appellate Tribunal (Delhi Bench “A” Delhi) (for short, “the Tribunal”), vide its order dated April 26, 1999. Paragraph 4.4 of that order reads as under:

“4.4 We have considered the rival submission and have gone through the relevant material available on record. We find that the Commissioner of Income-tax (Appeals) has discussed this issue at length. After considering the submissions of the assessee given in paragraph 7.1, we agree with his finding given on this issue and find no material to take a different view in the matter, as the matter is discussed in detail. As such this ground is also rejected.”

4. At the commencement of the hearing, Shri Rajesh Bindal made an oral request for permission to file amended memo of appeal after correcting the apparent mistakes in the body of the appeal as well as the frame of question No. (ii). The request made by Shri Rajesh Bindal is accepted because learned counsel for the respondent gave out that he does not have any objection. The amended memo of appeal filed by Shri Bindal is taken on record. Shri Rajesh Bindal also produced a fax message dated April 4, 2005, received from the Joint Commissioner of Income-tax, Bhiwani Range, Bhiwani, in which the officer concerned has stated that his office is not in a position to intimate the fate of the reference application filed in regard to the assessment year 1986–87.

5. Shri P.C Jain, learned counsel for the respondent, says that his client too does not have any information about the filing of the application by the Revenue under section 256(2) of the Act in relation to the assessment year 1986–87. Shri Jain also gave out that the Revenue did not challenge the order passed by the Tribunal in relation to the assessment year 1987–88 vide which both the questions, of which determination has been sought in this appeal, were decided in favour of the respondent.

6. We have heard learned counsel for the parties and perused the record.

7. Since the appellant did not challenge the order passed by the Tribunal in relation to the assessment year 1986–87 vide which it confirmed the order of the Commissioner of Income-tax (Appeals) deleting the addition made by the Assessing Officer on account of value of “bardana” used for storing “churi and korma”, it cannot challenge a similar order passed in relation to the assessment year 1988–89. Reference in this connection can appropriately be made to the judgment of the Supreme Court in Berger Paints India Ltd. v. CIT, [2004] 266 ITR 99.

8. As regards question No. (ii), we find that the Tribunal has neither considered the points raised by the appellant nor assigned any reason for approving the order passed by the Commissioner of Income-tax (Appeals). To put it differently, the order of the Tribunal is a non-speaking order and is thus vitiated due to violation of the rules of natural justice. 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 corner stones of our constitutional set up. The administrative authorities charged with the duty to act judicially cannot decide 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 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 a 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 a 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 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 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 communication thereof by every quasi-judicial authority—Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala, [1961] 31 Comp Cas 387 : AIR 1961 SC 1669; Madhya Pradesh Industries Ltd. v. Union of India, AIR 1966 SC 671; Bhagat Raja v. Union of India, AIR 1967 SC 1606; Mahabir Prasad Santosh Kumar v. State of U.P, (1970) 1 SCC 764 : AIR 1970 SC 1302; Travancore Rayons Ltd. v. Union of India, (1969) 3 SCC 868 : AIR 1971 SC 862; State of Punjab v. Bakhtawar Singh, (1972) 4 SCC 730 : AIR 1972 SC 2083; Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India, (1976) 2 SCC 981 : AIR 1976 SC 1785; Ajantha Industries v. CBDT, [1976] 102 ITR 281 (SC) and S.N Mukherjee v. Union Of India., (1990) 4 SCC 594 : AIR 1990 SC 1984.

9. In Testeels Ltd. v. N.M Desai, Conciliation Officer, AIR 1970 Guj 1 a Full Bench of the Gujarat High Court referred to American, British and Australian cases on the subject and laid down the following propositions (headnote):

“The neccessity 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 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.”

10. In the result, the appeal is partly allowed. Question No. (i) is answered against the Department. As regards question No. (ii), the case is remanded to the Tribunal with the direction that it should decide the appeal afresh by assigning cogent reasons.