2025 (7) TMI 603 - HC - Income Tax

Assessment order set aside for rejecting assessee's claim without reasons after Section 263 revision proceeding

The HC set aside an assessment order where the AO rejected the assessee's claim without providing reasons after a revision proceeding under Section 263. ... Revision u/s 263 - Principal Commissioner initiated a suo motu revision proceeding of the said assessment order and remitted the matter upon formulating the points for reconsideration by the AO - HELD THAT:- We do not find any impediment in this regard. In absence of any express embargo enshrined under Section 263 of the Income Tax Act, the authority can take recourse to the said provision, and make limited remand or open remand. We do not intent to express our final opinion on the above aspect. We noticed from the order impugned in the instant writ petition that the AO while completing the assessment on limited points in terms of the order of the Principal Commissioner, Bhubaneswar-Opposite Party No. 4 surreptitiously rejected the claim of the assessee without assigning any reasons in support thereof. It is imperative on his part to record reasons. From the nine points, on which the matter was remitted to the AO, two of them were found favourable to the writ petitioner, but the explanation with respect to remaining seven points have been discarded by the Revenue as such explanation or the material produced is not convincing. The importance of providing the reason has always been highlighted by the Courts of the country as a right inhered in every assessee to know the reason for disallowing the claim by the AO. It achieves twin purposes, firstly the assessee is made aware that for such reasons the claim is disallowed, so that the steps for the further course of action can be taken; secondly, the said order if challenged before the higher forum, the said higher authority would know the reasons which marked the foundation of the decision and proceed to decide the case both on fact and law; in other words, it becomes easier to the higher forum to understand the basic foundation of denial of the claims by the assessee so as to uphold or interfere on the well-recognized parameters of law. By passage of time, the concept of passing reasoned order has gained momentum and has expanded its horizon not only from a judicial system but to any quasi-judicial system or in any adjudicatory process which decides the fate of claim made by a person. The order which is bereft of reasons cannot be regarded as an order in eye of law. The reasons not only inheres fairness, transparency but also propagates the decision making process and reflects the minds of an adjudicator with precision and clarity. There is complete lack of the reasons in rejecting the claim or in other words deciding the seven points for which the matter was remitted to the AO and, therefore, cannot be accepted as a valid order in the eye of law. The order impugned is thus set aside and the matter is remanded to the Assessing Officer to decide the aforesaid seven points afresh after giving an opportunity of hearing to the Petitioner, if necessary, an endeavour should be shown to complete the entire exercise within three months. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this matter are:Whether the order passed by the Assessing Officer after remand qualifies as a speaking order, particularly in relation to the rejection of the petitioner's claims on limited points remitted for reconsideration;Whether the authority exercising revisionary powers under Section 263 of the Income Tax Act is constrained to remit the entire assessment for reconsideration or may remit only limited points;The legal requirement and significance of providing reasons in orders passed by quasi-judicial authorities, especially in tax assessment proceedings;The applicability of established judicial principles regarding the necessity of reasoned orders to the present facts and the consequences of failure to provide such reasons.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Limited Remand under Section 263 of the Income Tax ActRelevant legal framework and precedents: Section 263 of the Income Tax Act empowers the Principal Commissioner or Commissioner to revise an order if it is erroneous in so far as it is prejudicial to the interests of the revenue. The statute does not expressly restrict the scope of remand to either limited or complete reconsideration.Court's interpretation and reasoning: The Court observed that in the absence of any express embargo in the statute, the revisional authority may remit the matter either on limited points or for the entire assessment. The Court refrained from expressing a final opinion on whether limited remand is preferable or not but found no legal impediment to such a limited remand.Application of law to facts: The Principal Commissioner initiated suo motu revision and remitted the matter on nine specific points for reconsideration. The Court found this approach permissible under the law.Treatment of competing arguments: The petitioner argued that the entire assessment should have been remitted, but the Court rejected this contention, holding that partial remand is legally sustainable.Conclusion: The revisional authority's limited remand of the assessment order was legally valid.Issue 2: Requirement of Reasoned Orders by the Assessing OfficerRelevant legal framework and precedents: The principle that administrative and quasi-judicial orders must be reasoned has been firmly established by the Supreme Court and other courts. Key precedents cited include:CCT v. Shukla & Bros. (2010) 4 SCC 785, which emphasized that reasons are the link between materials and conclusions;Gurdial Singh Fijji v. State of Punjab (1979) 2 SCC 368, which held that mere conclusions without reasons are insufficient;Steel Authority of India Ltd. v. Sales Tax Officer (2008) 9 SCC 407, which described reason as the 'heartbeat' of every conclusion and stressed that failure to give reasons amounts to denial of justice;Authoritative observations from English law, such as Lord Denning's dictum in Breen v. Amalgamated Engineering Union and the decision in Alexander Machinery (Dudley) Ltd. v. Crabtree, which reinforce the fundamental nature of providing reasons in administrative decisions.Court's interpretation and reasoning: The Court reiterated that the right to reasons is inherent in every assessee to understand why claims are disallowed, enabling effective exercise of appellate rights and ensuring transparency and fairness. The Court noted that orders without reasons are 'orders without heart and soul' and cannot be regarded as valid in the eye of law.Key evidence and findings: The Assessing Officer, while completing the assessment on the remanded points, rejected seven out of nine points without assigning any reasons. Two points were found favorable to the petitioner with explanations, but the rest were discarded without any rationale.Application of law to facts: The absence of any reasons for rejecting the claims on seven points was a clear violation of the principle of reasoned orders. The Court found the order to be non-speaking and thus invalid.Treatment of competing arguments: The Revenue did not provide any justification for the lack of reasons. The Court emphasized that such an omission undermines the adjudicatory process and the rights of the assessee.Conclusion: The impugned order was set aside on the ground that it lacked the essential element of reasoned decision-making.Issue 3: Consequences of Non-speaking Orders and Directions for ReassessmentRelevant legal framework and precedents: The Supreme Court has consistently held that non-speaking orders are liable to be quashed and remanded for fresh consideration with reasons. The principle is grounded in natural justice and the right to fair hearing.Court's interpretation and reasoning: The Court held that the absence of reasons renders the order legally untenable and necessitates remand for fresh adjudication. The Court directed the Assessing Officer to reconsider the seven points afresh after providing the petitioner an opportunity of hearing.Application of law to facts: The Court ordered that the reassessment on the remanded points be completed preferably within three months, ensuring procedural fairness and adherence to statutory mandates.Conclusion: The matter was remanded for fresh decision with reasons, and the writ petition was disposed of accordingly.3. SIGNIFICANT HOLDINGSThe Court's crucial legal reasoning is encapsulated in the following verbatim excerpts:'The importance of providing the reason has always been highlighted by the Courts of the country as a right inhered in every assessee to know the reason for disallowing the claim by the Assessing Officer. It achieves twin purposes, firstly the assessee is made aware that for such reasons the claim is disallowed, so that the steps for the further course of action can be taken; secondly, the said order if challenged before the higher forum, the said higher authority would know the reasons which marked the foundation of the decision and proceed to decide the case both on fact and law.''The order which is bereft of reasons cannot be regarded as an order in eye of law. The reasons not only inheres fairness, transparency but also propagates the decision making process and reflects the minds of an adjudicator with precision and clarity.''Reason is the heartbeat of every conclusion. It introduces clarity in an order and without the same it becomes lifeless.''Failure to give reasons amounts to denial of justice. Reasons are live links between the mind of the decision taker to the controversy in question and the decision or conclusion arrived at.''One of the salutary requirements of natural justice is spelling out reasons for the order made, in other words, a speaking-out. The 'inscrutable face of the sphinx' is ordinarily incongruous with a judicial or quasi-judicial performance.'Core principles established include:The authority under Section 263 of the Income Tax Act may remit assessment orders either on limited points or in entirety, subject to statutory provisions;Every quasi-judicial or administrative order affecting rights or claims must be reasoned, i.e., a speaking order is mandatory;Non-speaking orders are legally invalid and constitute denial of justice;Reasoned orders ensure transparency, fairness, and facilitate effective judicial review and appellate scrutiny;Failure to provide reasons necessitates remand to the authority for fresh consideration with reasons and opportunity of hearing.Final determinations on each issue are:The limited remand by the revisional authority was valid;The impugned order passed by the Assessing Officer was non-speaking and hence invalid;The order was set aside and the matter remanded for fresh adjudication on the remanded points after giving the assessee an opportunity of hearing;The reassessment was directed to be completed within a reasonable time frame.