2014 (1) TMI 1544 - AT - Income Tax

Revision u/s 263 of the Act made - Disallowance of expenses u/c 36(1)(ii) of the Act Deduction claimed u/s 10B of the Act Held that - The decision in Commissioner of Income-tax vs Sunil Kumar Goel 2005 (1) TMI 34 - PUNJAB AND HARYANA High Court and in Appropriate Authority, Ahmedabad, And Another Versus Hindumal Balmukund Investment Company Private Limited. And Others 2001 (7) TMI 6 - SUPREME Court followed - a speaking order must speak for itself and a reference to show cause notice is called for - It is also well settled principles of law that judicial order shall speak for itself and the reason for the conclusion reached in the judicial order shall contain in the order itself - Reason for a decision cannot be substituted or supplemented by way of an affidavit or otherwise - the assessing officer has not applied his mind to the claim made by the assessee towards payment of commission to managing director, whole time director and vice president (marketing) - application of mind does not reflect in the assessment order there was no infirmity in the exercise of revisional jurisdiction u/s 263 of the Act by the Administrative Commissioner - the assessing officer shall independently examine the claim made by the assessee towards commission to managing director, whole time director and vice president (marketing) without being influenced by any of the observations made by the Commissioner Decided against Assessee.

Issues Involved:
1. Validity of the Administrative Commissioner's exercise of revisional jurisdiction under Section 263 of the Income-tax Act.
2. Assessing Officer's omission to disallow expenses claimed under Section 36(1)(ii) towards commission payments.
3. Requirement for the Assessing Officer to provide a reasoned and speaking order.

Detailed Analysis:

1. Validity of the Administrative Commissioner's Exercise of Revisional Jurisdiction under Section 263 of the Income-tax Act:

The appeal was directed against the order of the Administrative Commissioner dated 26-03-2013 under Section 263 of the Income-tax Act for the assessment year 2008-09. The Administrative Commissioner, in exercising his revisional jurisdiction, found that the assessing officer had omitted to disallow expenses claimed under Section 36(1)(ii) towards commission payments to the managing director, whole-time director, and vice president (marketing). The Tribunal noted that the omission by the assessing officer to consider these claims constituted an error prejudicial to the interest of the revenue. The Tribunal upheld the exercise of revisional jurisdiction by the Administrative Commissioner, stating that the assessing officer's failure to apply his mind to the claim made by the assessee warranted revision under Section 263.

2. Assessing Officer's Omission to Disallow Expenses Claimed under Section 36(1)(ii) Towards Commission Payments:

The assessing officer had completed the assessment under Section 143(3) of the Act by an order dated 30-12-2010. However, the assessment order did not reference the commission payments claimed by the assessee. The Tribunal emphasized that the assessing officer, as a quasi-judicial authority, is expected to consider all claims made by the assessee and express his opinion in the assessment order. The omission to discuss the claim for commission payments indicated a failure to apply his mind, which the Tribunal deemed an error prejudicial to the revenue's interests.

3. Requirement for the Assessing Officer to Provide a Reasoned and Speaking Order:

The Tribunal referred to several judicial precedents emphasizing the need for a reasoned and speaking order. The Punjab & Haryana High Court in Commissioner of Income-tax vs. Sunil Kumar Goel and the Supreme Court in S.N. Mukherjee vs. Union of India highlighted that administrative authorities exercising quasi-judicial functions must record reasons for their decisions. This requirement ensures clarity, minimizes arbitrariness, and facilitates appellate or supervisory jurisdiction. The Tribunal also cited the Supreme Court's judgment in Toyota Motor Corporation vs. Commissioner of Income-tax, which underscored the necessity for the assessing officer to pass a reasoned order when disposing of proceedings.

The Tribunal further referenced the Allahabad High Court's judgment expressing shock and anguish over the manner in which assessment orders and revisional orders were being passed without recording reasons. The Court emphasized that reasons are the heartbeat of every conclusion and are essential for ensuring fairness and transparency in decision-making.

Conclusion:

The Tribunal confirmed the order of the Administrative Commissioner, emphasizing that the assessing officer must independently examine the claim for commission payments without being influenced by the observations made by the Commissioner or the Tribunal. The assessing officer is required to decide the matter in accordance with the law, providing a reasonable opportunity of hearing to the assessee.

Order Pronouncement:

The order was pronounced in the open court on 16th August 2013.

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