2014 (3) TMI 849 - HC - Income Tax

Court quashes ITAT orders for lack of reasoning, orders re-examination within 6 months.

Commissioner of Income Tax Versus Ram Singh

The court quashed the ITAT's orders due to lack of detailed reasoning and directed a re-examination of the issues with reasoned orders within six months. ... Validity of Tribunal’s order - Liquor contractors – Rejection of books of accounts - Whether the Tribunal and the Commissioner (Appeals) were justified in deleting the additions exorbitantly without stating any logic reason or arguments despite the fact that the application of Section 145(2) of the Act was not disputed – Held that:- The Tribunal has not recorded any finding of fact and no reasons are assigned as to why the Tribunal does not agree with the finding recorded by the AO or CIT (Appeals) as the case may be - In an order of affirmation, repetition of the reasons elaborately may not be necessary but even then the arguments advanced/points urged deserves to be dealt with. Reasons for affirmation have to be indicated, though in appropriate cases they may be briefly stated - Recording of reasons is part of fair procedure and reasons are harbinger between the mind of the maker of the decision in the controversy and the decision or conclusion arrived at and they always substitute subjectivity with objectivity - the judgment of the ITAT being the stereo typed, nonspeaking, unreasoned, arbitrary and whimsical, and there is no option except to remand the matter back to the ITAT to re-visit the issue afresh de-novo - All the orders passed by the ITAT, wherein appeals (Schedule-A) have been filed either by the revenue or by the assessees cannot be sustained in the eyes of law and are set aside to be decided afresh and de-novo in accordance with law – Decided in favour of Revenue. Issues Involved:1. Justification of deletion of additions by appellate tribunal and CIT(A).2. Validity of restricting additions without assigning reasons.3. Necessity of making additions upon rejection of accounts under Section 145(2) of the IT Act.4. Justification of trading additions without supporting material.Issue-Wise Detailed Analysis:1. Justification of Deletion of Additions by Appellate Tribunal and CIT(A):The court examined whether the appellate tribunal and CIT(A) were justified in deleting the additions made by the AO without providing sufficient reasoning. The AO had rejected the books of accounts under Section 145(3) of the IT Act due to non-maintenance of sale vouchers, considering it a major defect. The CIT(A) upheld the rejection but reduced the trading additions. The ITAT, while agreeing with the rejection of books, further reduced the additions without detailed discussion. The court noted that the ITAT's orders lacked detailed reasoning and were perfunctory, failing to address the factual foundation and submissions adequately.2. Validity of Restricting Additions Without Assigning Reasons:The court scrutinized the ITAT's approach of reducing the additions without assigning any reasons. It was observed that the ITAT made reductions in a summary manner, without discussing the facts or arguments presented. The court emphasized that the ITAT, being a final fact-finding authority, must provide a reasoned order, especially when modifying findings of the AO or CIT(A). The lack of detailed reasoning and failure to address the arguments advanced by the parties rendered the ITAT's orders unsustainable.3. Necessity of Making Additions Upon Rejection of Accounts Under Section 145(2) of the IT Act:The court examined whether it was implicit under Section 145(2) to necessarily make additions upon rejection of accounts when there was no material to support higher income. The AO had made additions based on estimated gross profit rates, net profit rates, or ad-hoc estimations after rejecting the books of accounts. The court reiterated that while best judgment assessments involve a degree of guesswork, they must be honest and fair estimates supported by justification. The ITAT's failure to provide a reasoned basis for its modifications indicated a lack of adherence to this principle.4. Justification of Trading Additions Without Supporting Material:The court addressed whether the trading additions made by the AO were justified without supporting material. The AO had based the additions on the rejection of books due to non-maintenance of sale vouchers, assuming the assessees could charge any amount due to their monopoly. The ITAT reduced these additions without discussing the basis for such reductions. The court highlighted that the ITAT must provide a reasoned basis for its decisions, especially when rejecting or modifying the AO's findings. The absence of detailed reasoning and reliance on unsupported estimations led to the conclusion that the ITAT's orders were arbitrary and unsustainable.Conclusion:The court quashed and set aside the ITAT's orders, directing the ITAT to re-examine the issues de novo and provide reasoned orders in accordance with the guidelines and principles outlined. The ITAT was instructed to decide the matters expeditiously, within six months, and independently on merits, without being influenced by the court's observations. The parties were directed to appear before the ITAT on a specified date.