2015 (5) TMI 1252 - AT - Income Tax

Revision u/s 263 - Non application of mind to the material available on record by AO - Commissioner found that the assessee claimed Duty Drawback from income payment of sales commission payment of cash exceeding 20, 000/- VAT returns charity and donation job work charges as expenses in the return of income but AO has not made any reference in the assessment order about all its genuineness or allowability of the claim - HELD THAT - The assessment proceeding before the AO is a judicial proceeding u/s 136. Therefore AO is bound to pass a speaking order. Reason for conclusion reached shall be reflected in the assessment order itself. AO is expected to dispose the issues raised by the assessee and record his own reasoning for allowing or disallowing the claim of the assessee in accordance with law. The order of the AO is subject to further appeal/revision before the higher authorities. In this case admittedly the AO has not discussed anything in the assessment order regarding issues raised by the Commissioner. Hence it shows non- application of mind by the Assessing Officer. Therefore recording of the reasons is all the more mandatory for the appellate/revisional authorities to appreciate the reasons for the conclusions reached by the AO in his order. It is a well settled principle of law that the reasons for conclusion reached in a judicial order shall contain in the impugned order itself. In other words reason for the conclusion arrived in a judicial/administrative order cannot be substituted by way of filing additional document or affidavit before the higher forums. Appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Validity of the Commissioner's exercise of power under Section 263 of the Income-tax Act.
2. Adequacy of the Assessing Officer's (AO) investigation and application of mind.
3. Specific items of expenditure and income not adequately examined by the AO.

Detailed Analysis:

1. Validity of the Commissioner's Exercise of Power under Section 263:
The appeal was directed against the order of the Commissioner of Income Tax (CIT) who exercised his power under Section 263 of the Income-tax Act, 1961. The CIT found the AO's order to be erroneous and prejudicial to the interests of Revenue. The CIT observed that the assessment order was completed without necessary investigation and application of mind to relevant material. The Tribunal upheld the CIT's exercise of power under Section 263, confirming that the AO's order was indeed erroneous and prejudicial to the interests of Revenue.

2. Adequacy of the Assessing Officer's Investigation and Application of Mind:
The representative for the assessee argued that the AO had called for and received various details such as bank statements, details of commission paid, TDS, audit reports, and confirmation letters from creditors. However, the AO did not refer to these documents in the assessment order. The Tribunal emphasized that the assessment proceeding is a judicial proceeding under Section 136 of the Act, requiring the AO to pass a speaking order. The Tribunal noted that the AO's failure to discuss the issues raised by the CIT in the assessment order indicated non-application of mind. Citing the Supreme Court's decision in Toyota Motor Corporation v. CIT, the Tribunal reiterated that reasons for conclusions must be recorded in the order itself.

3. Specific Items of Expenditure and Income Not Adequately Examined by the AO:
The CIT identified several items that were not adequately examined by the AO:
- Duty Drawback: The assessee did not include Duty Drawback to the extent of Rs. 3,50,04,823/- in the income.
- Sundry Creditors: The AO did not examine the material received from creditors like Shri A.G. Naser Ahmed and M/s Naser Tanning Company.
- Sales Commission: The AO did not conduct an enquiry regarding the local agency commission and TDS details were not available on record.
- Payments in Violation of Section 40A(3): The assessee made cash payments exceeding Rs. 20,000/- in contravention of Section 40A(3), which the AO did not investigate.
- Other Expenses: VAT returns, charity and donation, and job work charges were claimed as expenses without proper examination by the AO.

The Tribunal found that the AO's order was silent on these issues, confirming the CIT's observation of non-application of mind. The Tribunal cited various judicial precedents, including CIT v. Sunil Kumar Goel and S.N. Mukherjee v. Union of India, to emphasize the necessity of recording reasons in administrative orders to ensure fairness and transparency.

Conclusion:
The Tribunal concluded that the AO's failure to record reasons and reflect the application of mind in the assessment order rendered it erroneous and prejudicial to the interests of Revenue. The Tribunal confirmed the CIT's order under Section 263 and dismissed the appeal of the assessee. The order was pronounced on 29th May 2015 at Chennai.