• Jun
  • 30
  • 2013

HC expresses ‘Shock & Anguish’ at Mal-Administration by Tax Dept.

Much emphasis was laid by the learned counsel for the petitioner that during the course of the assessment proceedings, the proceeding for cancellation of registration under section 12A was also taken out by the Commissioner of Income Tax. The said proceeding have been dropped by the order dated 25.01 .2008. The said order makes an interesting reading. For the sake of convenience, the order is reproduced here in its entirety:-

“Sub: Show cause cancellation of registration u/s 12AA of the I.T. Act 1961- Reg.

Please refer to the subject mentioned above.

The proceedings u/s 12 AA (3) for cancellation of registration are hereby dropped.”

It is shocking to note that the Commissioner of Income Tax, Muzaffarnagar who passed the above order has dropped the proceedings for cancellation of registration without assigning any reason. The order being bereft of any reason cannot be treated an order in the eyes of law. One fails to understand what impelled him to do so. The order being bereft of any reason is no order in the eyes of law and is liable to be ignored being illegal and void. The petitioner’s counsel was put to notice to support the order. The only reply he could give is that in the present petition the order dated 25.1.2008 is not in issue. We are not at all impressed by the said argument. When there as a transaction of Rs.1,57,00,000/- a speaking order even dropping the proceeding at least was required. We, therefore, hold that the petitioner cannot derive any advantage from the aforesaid order.

The income tax authorities are required to administer the Act. The right to administer, cannot obviously include the right to mal-administer. Thus, we find no words to express anguish as what kind of governance it had been.

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Allahabad High Court)

WRIT TAX No. – 1629 of 2010

Petitioner :- M/S Fateh Chand Charitable Trust

Respondent :- Commissioner Of Inc0me Tax And Another

Petitioner Counsel :- Shubham Agrawal

Respondent Counsel :- C. S.C., R. K. U padhaya

Hon’ble Prakash Krishna,J.  Hon’ble Manoj Kumar Gupta,J.

(Delivered by Prakash Krishna, J)

By means of the present petition, the petitioner has challenged the legality and validity of notice issued under section 148 of the Income Tax Act as also sought a writ in the nature of certiorari for quashing the order dated 11th of November, 2010 whereby the objection against the aforesaid notice has been dismissed. A further writ of mandamus directing the Additional Commissioner of Income Tax Range-II, Muzaffarnagar to drop the reassessment proceedings against the petitioner for the Assessment Year 2006-2007 has been sought for.

The background facts may be noticed in brief. The petitioner claims that it is a charitable trust formed on 26th of October, 1980 and registered as public charitable trust with aim object to impart education in medical, dental, para medical sciences etc. by providing educational institutions, running of hospital for providing medical relief to the needy, to receive and give donation from/to any institution or individual for fulfilment of object of the trust.

The dispute relates to the Assessment Year 2006-2007, under the Income Tax Act. The petitioner is registered under section 12A of the Income Tax Act and Sections 11 and 12 of the Act are applicable to the income derived by it. For the Assessment Year 2006- 2007 it filed its return of income on 31st of October, 2006 disclosing the donations received as Rs.5,23,00,000/-. The taxable income was declared nil. Proceedings for assessment under section 143(3) of the Income Tax Act was initiated for the relevant Assessment Year. The petitioner alleges that as many as five show cause notices were issued by the Assessing Authority which were duly replied. Thereafter, the assessment was completed by the order dated 27th of March, 2008. During the course of the assessment proceedings, the petitioner revised its return of income. The further allegation is that the proceedings under section 12A for cancellation of registration of the petitioner as charitable trust was also undertaken by the Commissioner of Income Tax who subsequently by the order dated 25.1.2008 dropped it. Thereafter, the petitioner was served with the impugned notice dated 19th of April, 2010 along with the reasons for issuing notice under section 148 of the Act.

Challenging the same, the present writ petition has been filed.

In the counter affidavit filed on behalf of the department, the action of initiation of reassessment proceeding has been justified by taking various legal and factual pleas. One of the pleas raised is that the petitioner has equally efficacious remedy of appeal, if any, assessment order is finally passed against it. On merits, the submission is that there is sufficient material in possession of the department to hold that the income of the petitioner has escaped the assessment. The assessment order was passed without taking into consideration the full facts. The Assessing Officer has failed to make the necessary inquiries with regard to the source of corpus receipt by the petitioner as donation. The donor trust M/s. Nav Jyoti Vikas Sansthan who is alleged to have given donation to the petitioner assessee has no financial capacity to make such a huge donation. This fact came into surface during the assessment proceedings of one M/s. Bankey Bihari Educational Trust. The Additional Commissioner of Income Tax, Ghaziabad noticed that M/s. Nov Jyoti Vikas Sansthan paid a sum of Rs.15 Lakhs as donation to M/s. Bankey Bihari Educational Trust. On inquiry, it was noticed that M/s. Nav Jyoti Vikas Sansthan has no financial capacity to make any donation. The transaction was in the nature of accommodation entries and the donation given by M/s. Nav Jyoti Vikas Sansthan is not genuine. After conducting a detailed inquiry, it was found that the income of the petitioner has escaped assessment. The reassessment proceedings against the petitioner was set to motion on the basis of the relevant material and the said material has a nexus to the escapement of the income of the petitioner.

Heard Sri Shubham Agrawal, learned counsel for the petitioner and Shri R.K. Upadhyay, learned counsel for the respondents.

Learned counsel for the petitioner strenuously submitted that in view of the fact that the proceedings for cancellation of registration granted under section 12A of the Act having been dropped and that the assessment was completed under section 143 (3) of the Act, there is no justification for serving the impugned notice under section 148 of the Act. Elaborating the argument, he submitted that before completing the assessment as many as five notices were served by the Assessing Authority which were duly replied. The submission is that Assessing Officer was apparently satisfied with the reply filed by the petitioner, there was no need to discuss them in the assessment order. These queries raised by the Assessing Authority related to the donation of Rs. 1,55,00,000/- received by the assessee from Nav Jyoti Vikas Sansthan (hereinafter referred to as NJVS). The donation was received through bank cheques and on the asking of the Assessing Officer, the office bearers of the said NJVS were also examined and they filed affidavits confirming the donations. The other limb of the argument is that in view of the proviso to section 147 of the Act, the proceeding is barred. Notice for reassessment could have been given within four years from the end of the Assessment Year 2006-2007. While it was given on 19th of April, 2010. The other limb of the argument is that the reassessment proceeding cannot be initiated on the mere change of opinion of the Assessing Authority.

In reply, the learned counsel for the department submitted that it is a case of total fraud. The department after conclusion of the assessment proceedings came in possession of the material to show that NJVS had no financial capacity to make such a huge donation. It was only a conduit pipe. The search took place at the premises of M/s. D.N. Cansal Securities Private Limited whose Director Sri Manoj Kumar s/o Sri Prahlad Saran Gupta has accepted for providing bogus entries and he offered his commission income in lieu of entry charges. At any rate, even the Assessing Authority of the petitioner did not examine the credit worthiness of NJVS. Besides the fact that the petitioner has an alternative remedy if the reassessment order is passed, by way of statutory remedy, sufficiency of material cannot be gone into in these proceedings, submitted the learned counsel for the respondents.

Considered the respective submissions of the learned counsel for the parties and perused the record.

The main thrust of the petitioner’s counsel is that all the facts relating to donation by NJVS were disclosed during the assessment proceedings. The donations were received through cheques, a fact which is not disputed even in the reasons recorded for issuing notice under section 148. The argument proceeds on the footing that nothing was concealed by the petitioner.

The Court was taken through the various notices issued by the Assessing Officer raising queries and their replies to impress upon the Court that the assessee filed the details of the corpus fund along with their complete names and addresses. The donations were received through bank transaction. Sri Madan Pal Giri, secretary of NJVS was produced to confirm the payment of donations. The affidavit on behalf of NJVS was also filed. The submission is that every thing was disclosed to the Assessing Authority.

At this place, it is appropriate to reproduce the assessment order which is a very short document and shows the total non application of mind by the Assessing Authority. The assessment order though has been passed under section 143(3) of the Act, but it contains hardly any discussion on the relevant issues. It does not deal with any relevant issue, such as from whom the donor (NJVS) received such a huge donation. It reads as follows:-

The return declaring nil income is filed on 31-10-2006. The assessee is a registered society under the Society Act and the society is also registered under section 12AA vide letter C.No. 40(2)/Nibandan/M.Nagar/CIB/92-93/12020 dated 30-10-1992 issued by the Commissioner of Income Tax, Meerut. In compliance to notice under section 143(2)/142(1) Sh. Rajeev Sin ghal, CA is attended and the case is discussed.

During assessment proceedings the assessee is filed a revised computation of income claiming exemption of Rs. 117507559/- against total income of Rs.59121584/-. The claim of carrying forward of losses is not allowable to the assessee as there is no provision to carry forward the losses.

After discussion the income is computed at nil. Issue notice and demand and challan.”

It is a shocking to note that as a matter of fact, the said assessment order is no assessment order in the eyes of law. There is not even a whisper with regard to the receipt of donation from NJVS amounting to Rs.1,57,00,000/-. It is really not understandable under what circumstances the said assessment order came into existence. The assessment order is bereft of any discussion with regard to the genuineness of the donation given by NJVS or the creditworthiness of NJVS to part with such a huge amount as donation. It is no assessment order in the eyes of law. It lacks any discussion with regard to the material facts and issues which were required to be addressed by the Assessing Authority. The Assessing Authority having failed to express any opinion accepting the genuineness of the donations it is difficult to accept the submission of the petitioner that the reassessment notice has been given on the basis of the change of opinion.

“Unlike the Civil Court which is neutral to give decision on the basis of evidence produced before it, an Assessing Officer is not only an adjudicator but is also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke inquiry.”

We may notice that the present writ petition has been filed at the initial stage that is against the issuance of notice of reassessment. In a petition under Article 226 of the Constitution of India, the petitioner may challenge the validity of notice under section 147 on a very limited ground.

The only limited issue which can be raised in writ petition is that the Assessing Authority could not form belief that the income has escaped the assessment. On a perusal, the reasons for issuing notice would show that during the assessment proceedings of one M/s. Bankey Bihari Educational Trust, the Additional Commissioner of Income Tax, Ghaziabad noticed that the said Trust shown to have received an amount of Rs.15 Lakhs as donation from NJVS and no confirmation for the donation was received by the Assessing Authority. He conducted the inquiries and found that the NJVS is having no capacity to pay the donation of Rs.15,00,000/- and the amount of donation given to the assessee is not genuine. The relevant part of the reasons to believe is reproduced below:-
3. “During assessment proceeding of M/s Bankey Bihari Educational Trust before the Shri Radhey Shyam, the Addl. Commissioner of Income Tax, Ghaziabad, it was noticed that the said trust shown to have received an amount of Rs. 15 Lakhs as donation from M/s Nav Jyoti Vikas Sansthan and no confirmation for the donation is received by the Addl. CTT, Ghaziabad. Accordingly the Addl. CTT, Ghaziabad conducted enquiries and noticed that the M/s. Nav Jyoti Vikas Sansthan has also shown to have provide the donation of Rs. 1,57,00,000/- to the assessee. After conducting the necessary enquiries it is concluded that M/s. Nav Jyoti Vikas Sansthan is having no capacity to pay the donation and the amount of donation given to the assessee is not genuine. This information is received through the Commissioner of Income Tax, Ghaziabad.
4. The details of the enquiries conducted by the Addl. Commissioner of Income Tax is summarized as under

i Nav Jyoti Vikas Sansthan is having it’s Bank account in Nainital Bank, Ghaziabad. The account is introduced by Shri Vineet Kumar, holding his account in the name of Varun Trade Center. The account of Sri Vineet Kumar is introduced by Shri Sunil the prop. of Sharma Associate.

ii           The bank account lying with Nainital Bank shows various cheques credited are issued Mahamedha Co-operative Bank Ltd. Ghaziabad. The enquiries shows that the maximum cheques have been issued from two accounts one is the account of Vinod Kumar Gupta prop. Varun Trade centre, 48, Prahalad Gari, GT Road, Ghaziabad and other is related to Vineet Kumar prop. Sharma Associates, SH-280A, Shastri Nagar, GZB. Both the accounts have been operated by Vineet Kumar. The whereabouts of Shri Vineet Kumar is not ascertained and there is no existence on the given address.

iii          The bank account, from which the cheques have been issued further shows that the cash have been introduced just before issuing the cheques in favour of Nav Jyoti  Vikas Sansthan, and the existence of Vinod Kumar Vineet Kumar as well as Sunil Sharma  was found bogus.

iv          There is no income of the trust M/s Nav Jyoti trust.

v           As stated above that the accounts from where M/s Nav Jyoti Vikas Sansthan
has received maximum amounts, namely M/s. Varun Trade Centre, M/s Sharma Associates, which are the accounts from where amounts were received by M/s D.N. Kansal Securities Pvt. Ltd. and other to the tune of more than 78 crores and total these two accounts transaction comes to Rs. 78 crore and more. There are other entries taken from M/s. Varun Trade Centre. M/s Sharma Associates and M/s Sunil Associates which are directly or indirectly related with Mr. Mahender Gupta. The search action took place at the premise of M/s D.N. Kansal Securities Pvt. Ltd. Whose director is Sh. Manoj Kumar Gupta  S/o Sh. Prahlad Saran Gupta by investigation wing Ghaziabad. SH. Manoj Kumar Gupta  accepted in his statement for providing bogus entries and he offered his commission  income in lieu of entry charges. This fact also proves that all the above banking channels  were used as tool for introducing black money.

vi          It is concluded that the following bank account holder were utilized their bank
account for depositing cash and issuing cheques to the different companies, trust & societies to evade its tax liabilities.

Sl. No. Name and persons/account holder Amount Financial Year Period
1 M/s Nav Jyoti VikasSansthan, HIG, J-3A,

Sanjay Nagar, Ghaziabad

Through the secretary Sh.

Madan Giri

Rs.1,81,05,000/- 2006-07 21.02.2006to

16.09.2009

2 Vinod Kumar Gupta prop.Varun Trade Centre, 48,

Prahlad Gari, G.T. Road, Ghaziabad Introducer M/s.

Nav Jyoti Vikas Sansthan

Rs.6,82,43,230/- 2005-06&

2006-07

25.03.2005to

28.01 .2007

3 Sh. Vineet Sharma Prop.M/S Sharma Associates,

SH-280A, Shastri Nagar, GZB

(Introducer of M/s. Nav

Jyoti Vikas Sansthan)

Rs.35,58,74,067/- 2003-04to

2005-06

25.03.2003to

31.03.2005

4 Sunil Associates, Prop.Nagar, GZB (Introducer of M/s Sharma Associates) Rs.33,94,02,791/- 2003-04To 2006-07 01.04.2003To

15.05.2005

vi          It is thus noticed that aforesaid bank account have been utilized to have
accommodation entries.

vii Shri Devender Singh s/o Shri Dal Singh r/o/ J-3A Sanjay Nagar Ghaziabad is one of the member of the Nav Jyoti trust and it is gathered from him that the activities of the trust is closed            “

Time and again, it has been laid down that the existence of belief can be challenged by the assessee but not sufficiency of reasons for belief. In S. Narayanappa and others Versus CIT, (1967) 63 ITR 219 (SC), and Ganga Saran and Sons Private Limited Versus ITO (1981) 130 ITR 1 SC, it has been laid down that in considering all questions of existence of material for the belief of the Assessing Officer that the income had escaped the assessment, the Court can go into the question whether the material are relevant or irrelevant. In the case on hand, the financial capacity of NJVS to donate a sum of Rs. 1,55,00,000/- to the petitioner is material and relevant. Noticeably, the said issue was not taken into consideration by the Assessing Officer while framing the assessment order. It appears that the Assessing Officer had made superficial or cosmetic inquiry by deputing an inspector to find out the bank transaction. No attempt was made by the Assessing Officer to make inquiry with regard to the financial soundness of NJVS. Nor the NJVS was asked to produce the account books or the documents in support of its financial capacity to give donations in question. The department on making inquiries got material on the above issue against the assessee. It cannot be said that the material received by the department on the basis of inquiry has no nexus or is not relevant to the dispute as to whether the income of the petitioner has escaped the assessment or not.

The superficial nature of inquiry conducted by the Assessing Officer is writ large which can be established by referring one instance. The statement of Madan Pal Giri, secretary of NJVS was recorded. He was asked to explain the source of donations received by NJVS under question no.6. The reply given by the assessee is as evasive and as general as it could be. He replied that there are big iron merchants of Nav Jyoti Market, Ghaziabad who have given donations. He further states that he could not give the particulars of the doners and will give the reply only after consulting the income tax advocate. Even a man of ordinary prudence on such kind of statement will conclude that the genuineness of the transaction is not established by NJVS who in turn donated the amount to the petitioner. The case of the department that the real story, as a matter of fact, is that NJVS has not donated any amount to the petitioner and it was accommodation entries provided by Manoj Kumar Gupta who has so stated in his deposition, on 10% commission. However, at this stage of proceedings, it is not necessary for us to dwell upon any further and it shall be open to the petitioner to establish that the donations were genuine by producing cogent and relevant material.

At this stage, we may refer the judgement of the Apex Court in the case of Assistant Commissioner of Income Tax Versus Rajesh Jhaveri Stock Brokers Pvt. Limited, (2007) 291 ITR 500.

The Apex Court has noted the difference in between the pre-existing section 147 prior to 1st of April, 1989 and its substitution thereafter. It has also considered that at the stage of notice as the case here is what is required is “reason to believe” but not the established fact of escapement of income. At this stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether the materials would conclusively prove the escapement is not concerned at that stage. This is so because the formation of the belief by the Assessing Officer is in the realm of subjective satisfaction. The Apex Court has made reference of its earlier judgments in the case of RTO Vs. Selected Dalurband Coal Pvt. Ltd., (1996) 217 ITR 597, and Raymond Woolen Mills Limited Vs. ITO (1999) 236 ITR 34. It also compared the existing section 147 after amendment with the old section 147 and has held that under old section 147 (a) two conditions were required to be satisfied; firstly the Assessing Officer must have reason to believe that the income, profit or gains, chargeable income tax have escaped assessment; secondly, he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose full or all the material facts necessary for that assessment year. Thereafter, the Apex Court with regard to section 147 as it exists now, has held;

“But under the substituted section 147 existence of only first condition is suffice. In other words, if the Assessing Officer for whatever reason has reason to believe that the income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of proviso to section 147 of the Act. The case at hand is covered by the main provision and not by the proviso. So long the ingredients of section 147 are fulfilled the Assessing Officer is free to initiate the proceedings under section 147   “

In view of the above pronouncement by the Apex Court, the existence of reason to believe that the income of the assessee has escaped the assessment is sufficient. In the case on hand, the Assessing Authority has recorded the reasons in great detail and portion of the reasons have already been reproduced above. It cannot be said even for a moment that the satisfaction recorded by the Assessing Authority that the income has escaped the assessment in any manner is not in accordance with law.

It was then contended that the case on hand was within the proviso to section 147 of the Act and as the proceedings were initiated according to the petitioner after a period of four years from the end of the Assessment Year 2006-2007, the proceeding is bad as the assessee had disclosed all the material facts during the course of the assessment proceedings. The said argument is misconceived and proceeds on the wrong footing that four years period from the end of the Assessment Year 2006-2007 will come to an end on 31st of March, 2010. The phrase used in the proviso is – after the expiry of four years from the end of the relevant Assessment Year”. Clearly, it postulates the starting up of four years period will be from the end of the Assessment Year i.e. for the Assessment Year 2006-2007, the Assessment Year will expire on 31st of March, 2007 and four years period from that date expires on 31st of March, 2011. Admittedly, the impugned notice is dated 19th of April, 2010 and it is within the period of four years from the end of the Assessment Year 2006-2007 and is clearly within time. Therefore, we are not burdening this judgment by referring the judgments relied upon the learned counsel for the petitioner delivered with reference to the proviso to section 147. The said proviso on the facts of the present case is not at all attracted.

Now, we may discuss the decisions relied upon by the learned counsel for the petitioner in support of his contention that it is a case of change of opinion and therefore, the provision of section 147 is not available to the department. Reference was made to (1) Asian Paints Limited Vs. Deputy Commissioner of Income Tax, (2009) 223 CTR 141. In this case, the action of the Assessing Officer to reopen the assessment on the ground that some material which was available on record while the assessment was made was inadvertently excluded from the consideration. It was held that it amounts to reopening of assessment merely on the basis of the change of opinion which is not permissible under law.

(2) CIT Versus CFIL Stock Broking Limited, 233 CTR 69. Delhi High Court in this case has held that as there is no material to show that the Assessing Officer has applied his mind to the formation and independently arrived at a belief on the basis of the material before him that the income had escaped assessment, is no ground to reopen the assessment.

In (3) Pardeshi Developers and Infrastructure Private Limited Versus CIT, 258 ITR 411, the action of the Assessing Officer after making assessment on the information that bogus companies are engaged in providing accommodation entries to the assessee was held unjustified and the notice under section 147 was held to be bad.

We have given careful consideration to the aforesaid relied upon judgments by the petitioner.

In the case of Asian Paints (supra) the finding was that the company had made a full and true disclosure of the material facts for computation of the income. In this case a decision of Full Bench of Delhi High Court has been relied upon wherein it has been held that if the Assessing Officer has failed to apply his mind to the relevant material in making the assessment order, he cannot take advantage of his own wrong and reopen the assessment by taking recourse to the provisions of section 147. A bare perusal of this judgment would show that the binding precedents of the Apex Court were not brought to the notice of the High Court. The Apex Court in the case of Rajesh Jhaveri Stock Brokers Private Limited (supra) has held that at the initial stage i.e. at the stage of notice, the only thing which is required to be seen is ‘reason to believe’, but not the established facts of escapement of income. In the case on hand, the assessment order as noticed herein above is stereotype order lacks material discussion on relevant issues. As a matter of fact, the assessment order is no order in the eyes of law. When the amount of taxable income and of tax payable thereon were not ascertained at all by the Assessing Officer, then, obviously it cannot be said that the Assessing Officer has formed any opinion with regard to the taxable income and of the tax payable and consequently, there would not arise any question of mere change of opinion. For the same reasons, the other decisions relied upon by the learned counsel for the petitioner are distinguishable on facts and are not applicable to the facts of the present case.

In the case of CIT Vs. CFL Stock Broker Private Limited (supra) the decision was rendered on the peculiar facts of that case. It was found that the Assessing Authority there had not applied his mind to the opinion nor independently arrived at a belief that on the basis of the material which he had before him that the income had escaped assessment. In the case on hand, on inquiry made by the Additional Commissioner of Income Tax, Ghaziabad, it was unearthed that prima facie the donation given by the NJVS to the petitioner is in the nature of accommodation entries and fictitious. Thereafter, the petitioner’s Assessing Officer has recorded his satisfaction that the income of the assessee has escaped assessment. By no stretch of imagination, the said inquiry can be said to have no nexus with the escapement of the petitioner’s income.

In the case of Pardeshi Developpers and Infrastructure Limited (supra), the finding of fact was recorded by the High Court that the opinion on the basis of which reassessment proceeding was sought to be initiated was already available with the Assessing Officer which is not so in the case on hand.

Besides the above, we find that in none of the decisions, the decisions of the Apex Court on the point was brought to the notice of the High Court therein. The relied upon judgments by the learned counsel for the petitioner should be read and understood subject to the judgment of the Apex Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Limited (supra) and other judgments including Phool Chand Bajrang Lal Vs. ITO, (1993) 203 ITR 456, Raymond Woolen Mills Limited Vs. ITO , (1999) 236 ITR 34 and ITO Vs. Selected Balurband Company Pvt. Ltd. (1996), 217 ITR 597.

Much emphasis was laid by the learned counsel for the petitioner that during the course of the assessment proceedings, the proceeding for cancellation of registration under section 12A was also taken out by the Commissioner of Income Tax. The said proceeding have been dropped by the order dated 25.01 .2008. The said order makes an interesting reading. For the sake of convenience, the order is reproduced here in its entirety:-

“Sub: Show cause cancellation of registration u/s 12AA of the I.T. Act 1961- Reg.

Please refer to the subject mentioned above.

The proceedings u/s 12 AA (3) for cancellation of registration are hereby dropped.”

It is shocking to note that the Commissioner of Income Tax, Muzaffarnagar who passed the above order has dropped the proceedings for cancellation of registration without assigning any reason. The order being bereft of any reason cannot be treated an order in the eyes of law. One fails to understand what impelled him to do so. The order being bereft of any reason is no order in the eyes of law and is liable to be ignored being illegal and void. The petitioner’s counsel was put to notice to support the order. The only reply he could give is that in the present petition the order dated 25.1.2008 is not in issue. We are not at all impressed by the said argument. When there as a transaction of Rs.1,57,00,000/- a speaking order even dropping the proceeding at least was required. We, therefore, hold that the petitioner cannot derive any advantage from the aforesaid order.

The income tax authorities are required to administer the Act. The right to administer, cannot obviously include the right to mal-administer. Thus, we find no words to express anguish as what kind of governance it had been.

There is another reason for ignoring the aforesaid order, dropping the cancellation proceeding of registration. The said order does not contain any reason. Reasons introduce clarity in an order. Reason is the heart beat of every conclusion and without the same it becomes lifeless. (See Raj Kishore Jha Versus State of Bihar and others, AIR 2003 SC 4664).

Even in respect of administrative orders Lord Denning M.R. in Breen Vs. Amalgamated Engineering Union, (1971(1) All. E.R. 1148) observed: “The giving of reasons is one of the fundamentals of good administration.”

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. Reasons substitute subjectivity by objectivity. The emphasis on recording reasons is that if the decision reveals the ” inscrutable face of the sphinx, it can, by its silence, render it virtually impossible for the courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. Right to reason is an indispensable part of a sound judicial system; reasons at least sufficient to indicate an application of mind to the matter before Court. Another rationale is that the affected party can know why the decision has gone against him. 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.”

A feeble argument was advanced that the Commissioner of Income Tax being higher in hierarchy than Additional Commissioner of Income Tax, the initiation of the proceedings at the instance of Additional Commissioner of Income Tax is bad.

In view of our above conclusion that the order dropping the proceeding under section 12A was not a valid action on the part of the Commissioner of Income Tax, the said argument is rejected.

Having regard to what has been said above, we find that it is a case where the then Assessing Officer (Shri Bhopal Singh), the Additional Commissioner of Income Tax, Range-II Muzaffarnagar and Shri Kundan Misra, the then Commissioner of Income Tax, Muzaffarnagar who passed the order dated 25.1.2008 have abdicated their duties. The Court in the exercise of supervisory jurisdiction under Articles 226 and 227 of the Constitution of India cannot be a mute spectator. Such actions on the part of the department not only bring disrepute to the department but also encourages the dishonest assessees and promotes the nefarious activities which not only causes loss to revenue but also promotes dishonestly. An honest tax payer feels cheated. Let the matter be examined by the Chief Commissioner of Income Tax and appropriate departmental proceedings may be taken out against the erring officials. A copy of this judgment may also be sent to the Chairman of the Central Board of Direct Taxes for an appropriate action.

Since in earlier part of the judgment, we have held that the order of Commissioner dropping proceeding under section 12AA (3), being bereft of reasons, is no order in the eyes of law and therefore it is liable to be ignored. The Commissioner of Income Tax is directed to pass fresh reasoned order after hearing the petitioner. The petitioner is directed to appear along with a certified copy of this order before the Commissioner of Income Tax, Muzaffarnagar within a period of one month before the Commissioner of Income Tax who will fix a date for further proceeding in the matter and will pass a speaking order giving reasons in accordance with law.

Having regard to what has been said above, we do not find any merit in the writ petition. The writ petition is dismissed. The stay order is vacated. The petitioner is directed to appear before the Assessing Authority within a period of one month along with the certified copy of this judgment and shall co-operate with the Assessing Officer to complete the reassessment proceedings without any further delay.

The period of limitation for completing the reassessment proceedings will begin only when the petitioner appears as directed above before the Assessing Authority.

Subject to the directions given above, the writ petition is dismissed with cost of Rs.10,000/- payable by the petitioner within a period of one month.

Sri R.K. Upadhyay, learned standing counsel for respondents shall communicate a copy of this judgment to Chief Commissioner of Income Tax (CCIT) and to the Central Board of Direct Taxes.

(M.K. Gupta, J) (Prakash Krishna, J)

Order Date :- 27.5.2013

Sandeep Kanoi

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