Decisions in quasi judicial capacity to be speaking orders. - Income Tax - 1592/CBDT

INSTRUCTION NO. 1592/CBDT Dated: January 7, 1985 In the case of Siemens Engineering and manufacturing Co. of India Ltd. Vs. Union of India the Supreme Court observed:- "It is now settled law that where an authority makes an order in exercise of a quasi-judicial function, it must record its reasons in support of the order it makes. Every quasi-judicial order must be supported by reasons. The rule requiring reasons to be given in support of an order is like the principle of audi-alteran partem a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law." Orders which are made without recording the reasons in support of the decision taken do not inspire confidence in the objectivity and fairness of the authority in regard to the order. Such orders passed by have been quashed by High Courts as violative of a basic principle of natural justice. The Allahabad High Court in their judgement in Paras Bhan Sadh Vs.CIT, Agra (1978) (114 ITR 834 at pages 837-838) held: "It is incontrovertible that where an authority makes an order in exercise of a quasi-judicial function it must record reasons in support of the order. If an authority is needed for the said proposition reference may be made to the cases of the Supreme Court in Express Newspapers P. Ltd. v. Union of India, AIR 1976 SC 1785. In these two cases the Supreme Court has clearly laid down that every quasi-judicial order must be supported by reasons and, therefore, it is now settled that such an order must be a speaking order. The requirement of giving reasons for an order derives its authority from the principle that justice should not only be done but it also should seem to have been done. Moreover, the duty to act judicially excludes the possibility of arbitrary exercise of the power. If reasons are required to be given for an order the same would be an effective restraint or a potent weapon to check the abuse of power as it excludes from considerations extraneous or irrelevant matters. As observed by Subba Rao.J as he then was, in Madhya Pradesh Industries Ltd., v. Union of India, that a speaking order will at its best be a reasonable and at its worst at least a plausible one." The insistence for giving reasons in an order introduce clarity and prohibits an authority from taking into consideration irrelevant and illegal matters while deciding a case before it. It further creates confidence in the public mind. Another ground which is often advanced in taking the view for giving reasons is based on the power of judicial review conferred by the Constitution on the High Court under Article 226 of the Constitution and the Supreme Court under Article 32. Dealing with its aspect the Supreme Court observed in TRAVANCORE RAYONS Ltd . v. Union of India AIR 1971 sc 862 at page 866 thus" "The court insists upon disclosure of reasons in support of the order on 2 grounds one, that the party aggrieved in a proceeding before the High Court or this court has the opportunity to demonstrate that the reasons which persuaded the authority to reject his case erroneous, the other that the obligation to record reasons operates as a deterrent against possible arbitrary action by the executive authority invested with the judicial power." In this connection reference may also be made to the decision of the Supreme Court in Siemens Engineering and manufacturing Co. of India AIR 1976 SC 1785 in which the Supreme Court observed at page 1789 thus: The rule requiring reasons to be given in support of an order is like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law. In the case of Naresh Kumar Gupta Vs.CIT, Meerut 144 ITR 556 the Allahabad High Court followed the above decision and quashed CIT's order passed u/s.273 A. The High court observed that the proceedings u/s.273A were quasi-judicial in nature and reasons had to be recorded for passing the final order. The Punjab Harayana High Court in Commissioner of Income-tax Vs. R.K.Metal words(1978) 112 ITR 445(447) confirmed Tribunal's order setting aside the order passed by the commissioner u/s.263 of the Income-tax Act, 1961 observing as under: "It was necessary for the Commissioner to state in what manner he considered that the order of the I.T.O. was erroneous and prejudicial to the interests of the revenue and what the basis was for such a conclusion. The Delhi High Court in Bhara Nidhi Ltd. Vs.Union of India(92 ITR 1) quashed Board's order refusing exemption to the assessee from payment of surtax inter alia on the ground that the order did not give any reasons in support of its finding and did not show that the Board had applied its mind to the question at issue. In view of what is stated above, the Departmental Authorities while exercising their authority and giving decisions in a quasi-judicial capacity must issue speaking orders.