2023 (7) TMI 368 - AT - Income Tax

Tribunal Overturns Non-Speaking Order, Emphasizes Need for Thorough Adjudication

M/s Torrent Roofing Systems, C/o Sachin K Malhotra (Adv.) Versus Income Tax Officer, Ward-4, Hoshiarpur

The Tribunal found in favor of the appellant, emphasizing the importance of passing a speaking order and addressing all grounds of appeal. It held that ... Royalty expenses - Allowable capital expenditure or revenue expenditure - 100% of Royalty paid should be considered as Revenue Expenses or 25% should be disallowed as done by AO - HELD THAT:- Admittedly, the CIT(A) has dismissed the appeal of the assessee in cryptic and summary manner without even reiterating the ground of appeal raised by the appellant before him. Grievance of the assessee has been pertaining to its claim of royalty as revenue expense but the Ld. CIT(A) has not even touched the word of royalty and thus, the issue of royalty claimed as a revenue expenditure, the peculiar fact of the instant case remain unaddressed by CIT(A). It is noted that the CIT(A) has merely stated in its judgment that hence, both the limbs of Malabar Industrial Co. [2000 (2) TMI 10 - SUPREME COURT] are satisfied. Hence, the AO is justified in making addition on the basis of judgment of Hon’ble Supreme Court in the case of Southern Switch Gear [1997 (12) TMI 105 - SC ORDER] CIT(A) is liable to pass a speaking order on merits by rebutting the contention raised by the appellant before him and distinguishing the citations relied upon in support thereof. In our view, such a cryptic and non-speaking order of the CIT(A) is against the principles of natural justice and bad in law. We consider it deem fit to restore back the matter to the file of the Ld. CIT(A) to adjudicate the appeal afresh on the issue of claim of royalty expense after considering the written submission and evidences filed on record and may be filed before him during the fresh proceedings after granting sufficient opportunity of being heard to the assessee Issues Involved:1. Failure to pass a speaking order by the Assessing Officer and CIT(A).2. Disallowance of 25% of royalty expenses as capital expenditure.3. Validity of reassessment under Section 143(3) read with Section 263 of the Income Tax Act.4. Disallowance of Rs. 67,60,50/-.5. Permission to alter, add, or amend grounds of appeal.Summary:Issue 1: Failure to Pass a Speaking OrderThe appellant argued that both the Assessing Officer and CIT(A) failed to pass a speaking order, which is against the provisions of law. The Tribunal observed that the CIT(A) dismissed the appeal in a cryptic and summary manner without addressing the grounds of appeal, specifically the issue of royalty claimed as a revenue expense. The Tribunal held that such a non-speaking order is against the principles of natural justice and bad in law.Issue 2: Disallowance of 25% of Royalty ExpensesThe Assessing Officer disallowed 25% of the royalty expenses, treating it as capital expenditure, based on the judgment in the case of Southern Switch Gear Ltd. The appellant contended that the royalty was paid for the use of a trademark and not for acquiring any technical know-how, distinguishing it from the Southern Switch Gear case. The Tribunal noted that the CIT(A) did not properly address this issue and failed to consider relevant case laws submitted by the appellant, which supported the treatment of royalty as a revenue expense.Issue 3: Validity of Reassessment under Section 143(3) read with Section 263The appellant argued that the reassessment under Section 143(3) read with Section 263 was bad in law as there was no new material available and all facts were duly verified during the original assessment. The Tribunal observed that the CIT(A) did not provide a detailed examination of this issue and merely relied on the judgment in Malabar Industrial Co. Vs. CIT. The Tribunal emphasized that an order is not erroneous if it is passed after making due inquiry and application of mind, and the provisions of Section 263 cannot be invoked merely because another view is possible.Issue 4: Disallowance of Rs. 67,60,50/-The appellant contended that the disallowance of Rs. 67,60,50/- was against the provisions of law. The Tribunal did not specifically address this amount but focused on the general failure of the CIT(A) to pass a speaking order and properly address the grounds of appeal.Issue 5: Permission to Alter, Add, or Amend Grounds of AppealThe Tribunal did not specifically address this issue but allowed the appeal for statistical purposes, implying that the appellant may raise additional grounds during the fresh proceedings.Conclusion:The Tribunal restored the matter to the file of the CIT(A) to adjudicate the appeal afresh on the issue of the claim of royalty expense, considering the written submissions and evidences filed by the appellant. The CIT(A) is directed to pass a speaking order after granting sufficient opportunity of being heard to the assessee. The appeal was allowed for statistical purposes.