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Commissioner Of Income-Tax v. Vikas Chemi Gum India
Structured Summary of the Opinion (G.S. Singhvi, J.)
Factual and Procedural Background
This appeal under section 260A of the Income-tax Act, 1961 was filed by the Commissioner of Income-tax, Rohtak (the appellant). The appeal raises two questions of law concerning the assessment year 1988–89: (i) whether the Income-tax Appellate Tribunal was correct in confirming the deletion of an addition of Rs. 1,38,860 made on account of the value of "bardana" used for storing "churi" and "korma"; and (ii) whether the Tribunal was right in confirming the Commissioner of Income-tax (Appeals)'s direction to exclude sale of "churi korma" from total turnover while computing deduction under section 80HHC.
For assessment year 1988–89 the respondent filed a return on 29 July 1988, declaring total income of Rs. 2,20,900. The Assessing Officer finalised the assessment under section 143(3) read with section 184(7) and allowed a deduction of Rs. 42,95,542 under section 80HHC. The Commissioner of Income-tax (Appeals) partly allowed the assessee's appeal, directing that a deduction of 4% of net foreign exchange realisation (Rs. 47,92,659) be allowed under clause (a) of sub-section (1) of section 80HHC and that the remainder be dealt with under clause (b) of sub-section (1) read with sub-section (3)(b), subject to conditions; the CIT(A) also treated sale proceeds of by-products (churi korma) as part of total turnover for sub-section (3)(b).
The Revenue's appeal to the Income-tax Appellate Tribunal (Delhi Bench “A”) was dismissed by order dated 26 April 1999, the Tribunal stating that it agreed with the CIT(A)'s discussion. The Commissioner of Income-tax then filed the present appeal under section 260A.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals) who deleted the addition of Rs. 1,38,860 made on account of the value of "bardana" used for storing "churi" and "korma"?
- Whether, on the facts and in the circumstances of the case, the 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?
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Berger Paints India Ltd. v. CIT, [2004] 266 ITR 99 | Support for the proposition that where the Revenue did not challenge an earlier Tribunal order in relation to an earlier assessment year, it cannot challenge a similar order in a later year. | The Court relied on this authority in determining that the appellant, having not challenged the Tribunal's order relating to assessment year 1986–87 (which confirmed deletion of the bardana addition), could not challenge a similar order for assessment year 1988–89; Question No. (i) was answered against the Department accordingly. |
| Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala, [1961] 31 Comp Cas 387 : AIR 1961 SC 1669 | Principle that quasi-judicial authorities must record and communicate reasons for their decisions as an integral part of fair procedure and the rule of law. | Cited as part of a line of authorities establishing the necessity of speaking orders; used to support the conclusion that the Tribunal's non-speaking order on Question No. (ii) was vitiated for lack of reasons. |
| Madhya Pradesh Industries Ltd. v. Union of India, AIR 1966 SC 671 | Support for the duty of administrative/quasi-judicial authorities to record reasons and adhere to fair procedure. | Relied upon in the Court's exposition of the necessity for recording reasons; contributed to the finding that the Tribunal's order was non-speaking and insufficient. |
| Bhagat Raja v. Union of India, AIR 1967 SC 1606 | Authority for the requirement of reasons by administrative/quasi-judicial authorities to ensure rule of law and judicial review. | Used among other precedents to support the holding that the Tribunal's order without reasons was legally infirm. |
| Mahabir Prasad Santosh Kumar v. State of U.P., (1970) 1 SCC 764 : AIR 1970 SC 1302 | Reinforces the principle that reasons are required in administrative/quasi-judicial decision-making to prevent arbitrariness. | Relied on in the Court's reasoning about the necessity of a speaking order for effective judicial review. |
| Travancore Rayons Ltd. v. Union of India, (1969) 3 SCC 868 : AIR 1971 SC 862 | Authority regarding the requirement of reasoned decisions by authorities exercising judicial/quasi-judicial functions. | Cited to demonstrate established jurisprudence requiring recording of reasons; supported remand on Question No. (ii). |
| State of Punjab v. Bakhtawar Singh, (1972) 4 SCC 730 : AIR 1972 SC 2083 | Case law supporting the need for reasons in administrative/quasi-judicial orders to enable judicial review. | Used as part of the consistent line of authority cited to invalidate non-speaking orders of tribunals/administrative authorities. |
| Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India, (1976) 2 SCC 981 : AIR 1976 SC 1785 | Authority on the requirement for administrative/quasi-judicial authorities to furnish reasons for decisions. | Relied upon to support the conclusion that the Tribunal's order was cryptic and devoid of reasons, impairing judicial review. |
| Ajantha Industries v. CBDT, [1976] 102 ITR 281 (SC) | Case supporting the necessity for reasoned orders by authorities exercising discretionary/quasi-judicial powers. | Referred to among other precedents to establish the well-settled requirement that reasons be recorded and communicated. |
| S.N. Mukherjee v. Union of India, (1990) 4 SCC 594 : AIR 1990 SC 1984 | Reiterates the significance of speaking orders and recording of reasons to enable effective judicial scrutiny. | Cited as part of the modern jurisprudential line emphasizing the indispensability of reasons; supported remand of Question No. (ii). |
| Testeels Ltd. v. N.M. Desai (Conciliation Officer), AIR 1970 Guj 1 (Full Bench) | Headnote: The necessity of giving reasons flows from the rule of law; reasons are required to prevent extraneous considerations, arbitrariness and to enable judicial review under articles 226 and 32. | The Court quoted and relied on the Full Bench headnote to articulate why non-speaking orders frustrate judicial review and to support the conclusion that the Tribunal's decision on Question No. (ii) was legally unsatisfactory and required re-consideration with reasons. |
Court's Reasoning and Analysis
The Court addressed the two questions separately and applied established principles as follows:
- Question No. (i) (deletion of addition for value of "bardana"): The Court observed that the appellant had not challenged an earlier Tribunal order relating to assessment year 1986–87 which had confirmed the deletion of the addition made on account of bardana used for storing churi and korma. Citing Berger Paints India Ltd. v. CIT, the Court concluded that the appellant cannot challenge a similar order in relation to the assessment year 1988–89. On that basis the Court answered Question No. (i) against the Department.
- Question No. (ii) (treatment of sale of churi korma for section 80HHC): The Court examined the Tribunal's order and found that it "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)." The Court characterized the Tribunal's order as a non-speaking order, vitiated by violation of the rules of natural justice because it lacked recorded and communicated reasons.
To support the requirement for reasoned decisions, the Court discussed the legal and constitutional importance of recording reasons: it is integral to fair procedure, stems from the rule of law, prevents extraneous or irrelevant considerations, minimizes arbitrariness, and is necessary so that superior courts can effectively exercise judicial review (including writ jurisdiction under article 226 and appeals to the Supreme Court under article 136). The Court cited a series of authorities and quoted the Full Bench of the Gujarat High Court in Testeels Ltd. v. N.M. Desai to elaborate the propositions that speaking orders are indispensable for meaningful judicial scrutiny.
Because the Tribunal's order on Question No. (ii) lacked reasons and did not address the points raised by the appellant, the Court concluded that the order was legally infirm and required reconsideration. The matter was therefore remanded to the Tribunal with directions to decide afresh and to assign cogent reasons.
Holding and Implications
PARTLY ALLOWED
Holding (core rulings):
- Question No. (i) — Answered against the Department: the appellant cannot challenge in the present appeal a similar Tribunal order for assessment year 1988–89 when it had not challenged the Tribunal's earlier order in relation to assessment year 1986–87 (reference: Berger Paints India Ltd. v. CIT).
- Question No. (ii) — The appeal as regards this question is remanded to the Tribunal: the Tribunal's earlier order was non-speaking (devoid of reasons) and therefore vitiated; the Tribunal is directed to decide the appeal afresh and to assign cogent reasons.
Implications:
- Direct effect on the parties: The Department loses on Question No. (i). On Question No. (ii) the matter is sent back to the Tribunal for fresh adjudication with the explicit requirement that reasons be recorded and communicated.
- The decision enforces established law requiring speaking orders from quasi-judicial authorities to permit effective judicial review; the Court applied existing precedents to reach this result rather than announcing a new legal principle.
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.
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