The order of the Bench was delivered by
N.R.S. Ganesan, Judicial Member - This appeal of the assessee is directed against the order of the Administrative Commissioner, dated March 11, 2014, exercising his jurisdiction under section 263 of the Act for the assessment year 2009-10.
2. Shri T. M. Sreedharan, learned senior counsel for the assessee submitted that the assessee developed a plot of land admeasuring 117.5 cents. The Assessing Officer, after calling for the details from the assessee allowed the claim of the assessee under section 80-IB of the Act. However, the Administrative Commissioner found that out of the total area of the land is 117.5 cents out of which nearly 46.93 cents of the land in re-survey No. 623/1 and 622/8 was set apart for the second phase of the development. Accordingly, the Administrative Commissioner found that the project of the assessee was in an area of 70.57 cents of land, therefore, the condition prescribed for claiming deduction under section 80-IB(10) of the Income-tax Act which requires a minimum of one acre land, was not satisfied. Referring to the judgment of the Bombay High Court in CIT v. Vandana Properties [2013] 353 ITR 36/206 Taxman 584/19 taxmann.com 316 (Bom.), learned senior counsel submitted that section 80-IB(10) allows deduction to a housing project constructed on a plot of land having minimum area of one acre and it is immaterial that whether there exists other housing projects or not. Therefore, according to learned senior counsel, even though a part of the land was set apart for second phase of the development, the assessee is entitled for deduction under section 80-IB(10) of the Act. On a query from the Bench, the Assessing Officer has not discussed anything about the area of the land on which construction was carried out, learned senior counsel submitted that the Assessing Officer has called for all the details from the assessee and thereafter allowed the claim of the assessee. According to learned senior counsel, the Administrative Commissioner has recorded a finding that the assessee has not developed the project in one acre of land as required by section 80-IB(10), therefore, the Assessing Officer may not travel beyond the observations made by the Administrative Commissioner.
3. We heard Shri K. K. John, the learned Departmental representative also. The learned Departmental representative submitted that the assessee admittedly claimed deduction under section 80-IB(10) of the Act and the Assessing Officer allowed the same without any discussion. Though the assessee claims that the Assessing Officer called for details regarding the claim of deduction under section 80-IB(10), the Assessing Officer has not discussed anything in the assessment order. The assessment order being a judicial proceeding under section 136 of the Income-tax Act, the application of mind shall be reflected in the order itself. Irrespective of whether an order is a judicial order or administrative order, the impugned order shall speak for itself especially when such an order is subject matter of appeal/ revision before the higher authorities. The reasons for a conclusion reached in the order shall contain in the order itself and the same cannot be substituted by way of an additional document or affidavit in the appellate or revisional proceedings.
4. In fact the Punjab and Haryana High Court had an occasion to examine this issue in CIT v. Sunil Kumar Goel [2005] 274 ITR 53/144 Taxman 697 (Punj. & Har.) and after considering the judgment of the apex court in S.N. Mukherjee v. Union of India AIR 1990 SC 1984 has observed as follows (page 56) :
"In S.N. Mukherjee v. Union of India 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 consideration 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 the Tribunals and authorities exercising judicial functions on the ground that a judge is trained to look at things objectively 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 authority must record reasons for its decision, are of no less significance. These considerations show that the recording of reasons by an administrative 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 decisions 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, revision 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 reasons 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.'
In Testeels Ltd. v. N.M. Desai [1970] 37 FJR 7 (Guj) (FB); 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 the 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 setA-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.'
If the order passed by the Tribunal is scrutinised in the light of the aforementioned 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 affirmation. 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."
5. The apex court also had an occasion to consider this issue in Toyota Motor Corporation v. CIT [2008] 306 ITR 52/173 Taxman 458 (SC). The apex court has observed as follows at page 53 of the ITR :
"We are not inclined to interfere with the impugned order of the High Court. The High Court has held that the Assessing Officer had disposed of the proceedings stating the penalty proceedings initiated in this case under section 271C read with section 274 of the Income-tax Act, 1961 are hereby dropped. Accordingly to the High Court, there was no basis indicated for dropping the proceedings. The Tribunal referred to certain aspects and held that the initiation of proceedings under section 263 of the Income-tax Act, 1961 (in short, 'the I.T. Act') was impermissible when considered in the background of the materials purportedly placed by the assessee before the Assessing Officer. What the High Court has done is to require the Assessing Officer to pass a reasoned order. The High Court was of the view that the Tribunal could not have substituted its own reasonings which were required to be recorded by the Assessing Officer. According to the assessee, all relevant aspects were placed for consideration and if the officer did not record reasons, the assessee cannot be faulted.
We do not think it necessary to interfere at this stage. It goes without saying that when the matter be taken up by the Assessing Officer on remand, it shall be his duty to take into account all the relevant aspects including the materials, if any, already placed by the assessee, and pass a reasoned order."
6. We also find that the Allahabad High Court in a recent unreported judgment expressed its shock and anguish the way in which the assessment orders and the revisional orders are being passed. In fact, the assessee, M/s. Fateh Chand Charitable Trust in Writ Tax No. 1629 of 2010 (judgment dated May 27, 2013 (since reported in Fateh Chand Charitable Trust v. CIT [2013] 357 ITR 604/219 Taxman 172/36 taxmann.com 67 (All)) before the Allahabad High Court received donation of Rs. 5.23 crores. The Assessing Officer accepted the same without any enquiry and reasoning in the assessment order. The Commissioner of Income-tax initiated proceedings to cancel the registration under section 12A of the Act. However, it was dropped without recording any reason. Subsequently, the case was reopened and notice was issued under section 147 of the Act. The assessee challenged the notice issued for reopening the assessment by way of writ petition. While considering the writ petition, the Allahabad High Court expressed its shock and anguish on the way in which the orders are being passed by the income-tax authorities. In fact, the Allahabad High Court has observed as follows (page 617) :
"The income-tax authorities are required to administer the Act. The right to administer, cannot obviously include the right to maladminister. Thus, we find no words to express anguish as what kind of governance it had been.
There is another reason for ignoring the aforesaid order, dropping the cancellation proceeding of registration. The said order does not contain any reason. Reasons introduce clarity in an order. Reason is the heart beat of every conclusion and without the same it becomes lifeless. (See Raj Kishore Jha v. State of Bihar AIR 2003 SC 4664).
Even in respect of administrative orders Lord Denning M. R. in Breen v. Amalgamated Engineering Union [1971] All ER 1148 (CA) observed : 'The giving of reasons is one of the fundamentals of good administration'.
Failure to give reasons amounts to denial of justice. Reasons are live links between the mind of the decision-taker to the controversy in question and the decision or conclusion arrived at. Reasons substitute subjectivity by objectivity. The emphasis on recording reasons is that if the decision reveals the 'inscrutable face of the sphinx, it can, by its silence, render it virtually impossible for the courts to perform their appellate function or exercise the power of judicial review on adjudging the validity of the decision. Right to reason is an indispensable part of a sound judicial system ; reasons at least sufficient to indicate an application of mind to the matter before court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary requirements of natural justice is spelling out reasons for the order made ; in other words, a speaking-out. The "inscrutable face of the sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance'.
A feeble argument was advanced that the Commissioner of Income-tax being higher in hierarchy than the Additional Commissioner of Income-tax, the initiation of the proceedings at the instance of the Additional Commissioner of Income-tax is bad.
In view of our above conclusion that the order dropping the proceeding under section 12A was not a valid action on the part of the Commissioner of Income-tax, the said argument is rejected.
Having regard to what has been said above. We find that it is a case where the then Assessing Officer (Shri Bhopal Singh), the Additional Commissioner of Income-tax, Range-II, Muzaffarnagar and Shri Kundan Misra, the then Commissioner of Income-tax, Muzaffarnagar, who passed the order dated January 25, 2008, have abdicated their duties. The court in the exercise of supervisory jurisdiction under articles 226 and 227 of the Constitution of India cannot be a mute spectator. Such actions on the part of the Department not only bring disrepute to the Department but also encourage the dishonest assessees and promotes the nefarious activities which not only causes loss to revenue but also promotes dishonesty. An honest taxpayer feels cheated. Let the matter be examined by the Chief Commissioner of Income-tax and appropriate Departmental proceedings may be taken out against the erring officials. A copy of this judgment may also be sent to the Chairman of the Central Board of Direct Taxes for an appropriate action."
7. In view of the above, this Tribunal is of the considered opinion that the Assessing Officer shall re-examine the matter and record reason for the conclusion reach either allowing or disallowing the claim of the assessee under section 80-IB(10) of the Act. While re-examining the matter, the Assessing Officer shall also take into consideration the judgment of the Bombay High Court in Vandana Properties (supra) and any other material that may be brought to his notice by the assessee. The Assessing Officer shall reconsider the matter afresh and thereafter decide the same without being influenced by any of the observations made by the Administrative Commissioner in the impugned or this Tribunal in this order in accordance with law after giving reasonable opportunity of hearing to the assessee.
8. With the above observations, the appeal of the assessee stands dismissed.
The order pronounced in the open court on 1 August, 2014.