2015 (1) TMI 111 - HC - Income Tax

High Court overturns ITAT order for lack of reasoning, remands for fresh consideration on merits.

The High Court set aside the Income Tax Appellate Tribunal's order due to it being non-speaking and lacking consideration of core issues and objections. ... Non-speaking order passed by Tribunal - Validity of action of Tribunal in set aside the assessment - prescriptions of section 144C not adhered - Recall u/s 254(2) rejected by Tribunal – Held that:- There is totally non-application of mind by the Tribunal - The core issue raised in the appeal, the objections of the appellant and the non-consideration of the issue raised in appeal clearly makes the order of the Tribunal a non-speaking order – assessee rightly contended that there was no scope for passing such a non-speaking order of remand, for which the reasons are well recorded - the order of assessment u/s 143(3) of the Income Tax Act dated 30.10.2010 is also in relation to the order passed by the Transfer Pricing Officer dated 28.10.2010 u/s 92CA(3) and that was challenged before the CIT(A), which was allowed in favour of the assessee - against which, the Department filed an appeal to the Tribunal, the scope of which is limited to that portion of the order of the CIT(A) interfering with the entire order passed u/s 143(3) - it should be limited only to the order relatable to the order of the Transfer Pricing Officer dated 28.10.2010 - That matter was pending before the Tribunal for more than two years - Thereafter, additional grounds have been raised, which was objected to by the assessee saying that new plea was sought to be raised and that issue has not been addressed by the Tribunal. The core issue raised by the assessee is with regard to the order passed by the AO u/s 143(3) r.w. Section 92CA(3) – assessee contended that the requirement u/s 144C(1) has not been followed and the CIT(A) has accepted such a stand and it is for the Tribunal to consider the objection of the assessee in the light of the objection filed in relation to the non-compliance of Section 144C of the Income Tax Act - that aspect has not been considered by the Tribunal and therefore the question of law which is raised by the assessee ought to have considered by the Tribunal and there was no scope for passing a non-speaking remand order; and the Tribunal ought to have considered the scope of such appeal, the additional grounds raised and the objections of the assessee and should have given a ruling on the same – thus, the order of the Tribunal is a non-speaking order and the Tribunal has not considered the issue raised and objected by either side the order of the Tribunal is set aside and the matter is remitted back to the Tribunal for fresh consideration – Decided in favour of assessee. Issues Involved:1. Whether the Income Tax Appellate Tribunal (ITAT) correctly set aside the assessment framed by the respondent without adhering to Section 144C of the Income Tax Act.2. Whether the ITAT correctly expanded the scope of the appeal of the Revenue.3. Whether the ITAT correctly handled the plea for recall of the original order under Section 254(2) of the Income Tax Act.Detailed Analysis:Issue 1: Adherence to Section 144C of the Income Tax ActThe core issue revolves around whether the assessment order was framed correctly without adhering to the prescriptions of Section 144C of the Income Tax Act. The appellant/assessee argued that the Transfer Pricing Officer's order should have resulted in a draft assessment order as per Section 144C(1). The Assessing Officer directly passed the assessment order under Section 143(3) without issuing a draft order, denying the assessee an opportunity to object before the Dispute Resolution Panel. The Commissioner of Income Tax (Appeals) set aside the assessment order for this procedural lapse, deeming it 'bad in law.'Issue 2: Expansion of Appeal ScopeThe ITAT's decision to expand the scope of the Revenue's appeal was also under scrutiny. Initially, the Department's appeal focused on the Commissioner of Income Tax (Appeals)'s decision to delete the entire addition due to non-compliance with Section 144C. However, the Department later raised additional grounds, arguing that the non-issuance of a draft order was merely a procedural irregularity. The assessee objected to these additional grounds as belated and without bona fide reasons. The ITAT brushed aside these objections and remanded the matter, which was contested by the assessee for not addressing the core issues.Issue 3: Recall of Original Order under Section 254(2)The assessee filed an application under Section 254(2) to recall the ITAT's ex-parte order, contending there was no concession for remand and that the matter was argued vehemently. The ITAT acknowledged a misunderstanding in their initial order and rectified it, stating that the remand was due to procedural non-compliance by the Assessing Officer. The assessee, however, argued that the ITAT did not consider various legal facets and objections raised during the hearing.Judgment Analysis:The High Court found the ITAT's order to be a non-speaking one, lacking consideration of the core issues and objections raised by both parties. The High Court noted the following:1. The ITAT failed to address the procedural lapse under Section 144C adequately.2. The ITAT did not consider the objections to the additional grounds raised by the Department.3. The ITAT's remand order did not provide a proper ruling on the issues, making it a non-speaking order.The High Court set aside the ITAT's order and remanded the matter back to the ITAT for fresh consideration on merits, emphasizing the need for a detailed and reasoned judgment that addresses all raised issues and objections.Conclusion:The appeals were allowed by way of remand, with instructions for the ITAT to pass fresh orders on merits, ensuring a comprehensive consideration of all issues and objections.