2012 (9) TMI 198 - HC - Income Tax

Validity of revisionary order passed u/s 264 - dispute regarding remuneration paid to working partners - non-speaking order - Held that - It is well settled position in law that one of the basic principle of natural justice is that the Authority concerned must pass a speaking order, so as to enable a party to know the reasons, as to why his application is being either accepted or rejected. This giving of reasons also ensures due application of mind to the facts by the Authority concerned. The impugned order is bereft of reasons and therefore, quashed and set aside. CIT directed to dispose of the petitioner s Revision application u/s 264 - Decided in favor of assessee.

Summary

Issues:
Challenge to order of Commissioner of Income Tax under Section 264 of the Income Tax Act, 1961 for breach of natural justice.

Analysis:
1. Facts Leading to the Petition:
The petitioner, a partnership firm engaged in manufacturing, filed a return of income for the assessment year 2007-2008, declaring taxable income after claiming a deduction for salary paid to working partners. Due to a mistake in e-filing, the taxable income was incorrectly declared, leading to a demand raised by the Assistant Commissioner of Income Tax.

2. Rectification Application and Revision Application:
Following the intimation, the petitioner filed a rectification application under Section 154 of the Act, which was rejected by the Assistant Commissioner citing the need for a revised return of income. Subsequently, a revision application under Section 264 was filed with the Commissioner of Income Tax challenging the rejection.

3. Order of the Commissioner of Income Tax:
The Commissioner rejected the petitioner's revision application, stating that the petitioner could file an appeal before the Commissioner of Income Tax (Appeals) and found no reason to revise the earlier order. The petitioner contended that this rejection was a breach of natural justice as the Commissioner did not consider the revision application on its merits.

4. Judgment and Analysis:
The Court found the Commissioner's order to be a non-speaking order, lacking reasons for the rejection, which is essential for due application of mind and enabling parties to understand the decision-making process. As per the principles of natural justice, authorities must pass speaking orders to provide transparency and clarity. Consequently, the Court quashed the order and directed the Commissioner to reconsider the revision application after giving the petitioner a personal hearing and considering all relevant contentions.

5. Disposition:
The Court disposed of the petition in favor of the petitioner, setting aside the Commissioner's order and instructing a reevaluation of the revision application with due consideration to be given to the petitioner's submissions. No costs were awarded in this matter.