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THE COMMISSIONER OF INCOME TAXAHMEDABAD Versus PREMKUMAR B. RATHI

2015 (7) TMI 951 - GUJARAT HIGH COURT

Unexplained purchases - ITAT directing the estimate of addition as made by the CIT(A) be further reduced to 10% of the alleged purchases - Held that:- It is non speaking and non reasoned order and as such no reasons have assigned while restricting the disallowance to 10% of the unexplained purchases. Therefore, as such the matter is required to be remanded.

However, instead of remanding the matter to the learned ITAT considering the request made by the learned counsel for the respect .....

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this Court in the case of Simit P Sheth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) where this Court confirmed the final order passed by the learned ITAT restricting the disallowance to 10% of the unexplained purchases, though not approving the method and manner in which the learned Tribunal has decided the appeal, however on merits and in the peculiar facts and circumstances narrated herein above, we confirm the ultimate final order passing by the ITAT. Consequently, present Tax Appeal is dismiss .....

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19992000, by which, the learned Tribunal has partly allowed the said appeal reducing the disallowance to the extent of 10% of unexplained purchases instead of 20% as disallowed by the CIT(A), the Revenue has preferred present Tax Appeal arising the following substantial question of law. Whether the Appellate Tribunal was right in law and on facts in substituting the order passed by the CIT(A) and directing the estimate of addition as made by the CIT(A) be further reduced to 10% of the alleged p .....

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hers. That the statement of Manager Shri Rajesh Mohta was recorded. Subsequent to survey proceedings, the said Manager was asked to produce above parties. However, he replied the aforesaid parties from whom the assessee is alleged to have purchased the edible oil are not willing to appear before the Assessing Officer and or hesitating in attending the proceedings before the Assessing Officer. That the aforesaid Manager Shri Rajesh Mohta offered additional income of ₹ 7 lakhs in AY 19992000 .....

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,000/for AY 19992000. That the assessee filed detailed reply on 26.3.2002 in the course of assessment proceedings. The AO further held that the assessee failed to discharge its onus of proving genuineness of the aforesaid purchases observing in para 10 as under: 10. It is pertinent to mention here the findings given by the honorable ITAT in the case of Vijay Proteins Ltd. vs. ACIT in ITA No.5989/AHD/1994 dated 18.1.199655 ITJ(AHD) 76. In the said case, the issue of such fictitious purchases was .....

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he suppliers and produce them, the same requires to be deducted before making addition in this regard. An amount of ₹ 53,57,040/being 25% of the said purchases of ₹ 2,48,28,174/as reduced by ₹ 8,50,000/( ₹ 62,07,040/) minus ₹ 8,50,000/is therefore, added to the assessee's total income. Since the assessee has provided inaccurate particulars leading to concealment of income penalty and tried to evade tax willfully, proceedings u/s 271(10(c) of the act are being in .....

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the report dated 17.11.2003. The AO remand report was furnished to the assessee to which, the assessee vide letter dated 23.12.2003 commented on the same. That by giving cogent reasons in para 3.2, learned CIT(A) partly allowed the said appeal and reduced the addition to 20% the aforesaid purchases. By reducing the addition and / or disallowance at 20% of such unverifiable purchases of ₹ 2,48,28,174/from 25% has been made by the AO, learned CIT(A) allowed the said appeal partly and confirm .....

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ed ITAT and relying upon the decision of the learned ITAT in the case of M/s. Vijay Proteins Ltd vs. ACIT in Appeal ITA No.5998/AHD/1994 delivered on 18.1.1996, the learned ITAT has partly allowed the said appeal and further reduced the disallowance to 10% of the alleged purchases. 2.4. Feeling aggrieved and dissatisfied with the the impugned judgment and order passed by the learned ITAT in further reducing the disallowance to 10% of the alleged purchases, the Revenue has preferred present Tax A .....

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ecorded by the learned CIT(A) and / or without observing anything that the learned CIT(A) has committed an error in in restricting the disallowance to 20% of the unexplained purchases, the learned Tribunal has reduced / restricted the disallowances to 10% of the unexplained purchases without passing any further reasoned order. 3.2. It is further submitted by the Shri Manish Bhatt, learned counsel for the Revenue that the learned Tribunal has restricted to 10% of the unexplained purchase solely r .....

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ibunal in the case of Vijay Proteins Ltd (supra)came to be considered by the learned CIT(A) and only thereafter and considering the distinguishing facts in the case of Vijay Proteins Ltd (supra) only thereafter the learned CIT(A) reduced/ restricted the disallowance to 20% of the unexplained purchased. It is submitted that therefore, the learned Tribunal has materially erred in mechanically applying the decision of the Appellate Tribunal in the case of Vijay Proteins Ltd (supra). 3.3. It is subm .....

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y be permissible. It is submitted that however such discretion is required to be exercised judiciously and must be supported by some cogent reasons. It is submitted that otherwise the disallowance on the unexplained purchases on the basis of such estimation without supporting the reasons would tantamount to give arbitrary exercise of power which is not permissible. 3.4. In support of his above submissions, Shri Bhatt, learned counsel for the Revenue has relied upon the following decisions. (1) O .....

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Ltd vs. Assistant Commissioner of Income Tax reported in 2002(257) ITR 297 (Guj). (7) Rajesh Babubhai Damania vs. Commissioner of Income Tax reported in 2001(251) ITR 541 (Guj). (8) Mangalore Ganesh Beedi Works vs. Commissioner of Income Tax and Another reported in 2005(273) ITR 56(SC). (9). Gautam Harilal Gotecha vs. Deputy Commissioner of Income Tax (Investigation) reported in 2006(281) ITR 283(Guj). (10) S.J. And S.P. Family Trust vs. Deputy Commissioner of Income Tax (Assessment) reported i .....

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ve and in favour of the Revenue and against the assessee. 4.0. Shri S.N. Soparkar, learned Senior Advocate has appeared on behalf of the assesee. He has submitted that there cannot be any dispute that while exercising the appellate powers by the learned ITAT, the Tribunal is bound to consider the legality and validity of the order passed by the learned CIT(A) and has to give elaborate reasons why the Tribunal is not in agreement with the view taken by the learned CIT(A) and that the learned Trib .....

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However, has submitted that in the facts and circumstances of the case, the impugned judgment and order passed by the learned ITAT reducing / restricting the disallowance to 10% of the unexplained purchase may not be interfered with by this Court. He has submitted it is true that the learned ITAT while reducing / restricting the disallowance to 10% of the unexplained purchase has solely relied upon the decision of the Appellate Tribunal in the case of Vijay Proteins Ltd (supra) and no independen .....

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at GP disclosed at the rate of 1.11% by the assessee was found to satisfactory as compared to AY 200001 where the GP was of 0.98% and department by order under Section 143(3) of the Act accepted the said GP. It is submitted that therefore, in the aforesaid peculiar facts and circumstances of the case, learned Tribunal has not committed any error in sustaining the addition to the extent of 10%. In support of his above submissions, Shri Soparkar, learned Senior Advocate for the assessee has relied .....

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arned advocates for the respective parties at length. At the outset, it is required to be noted that AO restricted the disallowance to 25% of the unexplained purchases made from 5 different parties which were not produced before the AO though ample opportunity was given to the assessee. That the learned CIT(A) on appeal restricted the disallowance to 20% of the unexplained purchase by a speaking and reasoned order and even distinguishing the decision of the Appellate Tribunal in the case of Vija .....

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hing as to how the learned CIT(A) has committed an error in confirming the disallowance to the extent of 20% of the unexplained purchase. It also appears that learned ITAT has not made any observations how the decision in the case of Vijay Proteins Ltd (supra) would be applicable to the facts of the case on hand. At this juncture, it is required to be noted that as such the learned CIT(A) did consider the decision of the Appellate Tribunal in the case of Vijay Proteins Ltd (supra) and had observ .....

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ed order. At this stage, it is required to be noted that as such the learned ITAT was exercising the appellate jurisdiction or considering legality and validity of the order passed by the learned CIT(A). 6.0. In the case of Omar Salay Mohamed Sait (supra) as far as back in the year 1959, the Hon'ble Supreme Court had an occasion to consider the judgment of the Tribunal - Appellate Tribunal. In the aforesaid decision, the Hon'ble Supreme Court has specifically observed and held as under: .....

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regard to each one of them and what were was the reached on the evidence on record before it. The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on .....

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se of Omar Salay Mohamed Sait (supra), in the said decision the Division Bench has further observed and held that while deciding the appeal it is necessary, that every fact for and against the assessee must have been considered with due care by the Tribunal and it must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were was the reached on the evidenc .....

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error in exercise of its jurisdiction by not drawing its attention to the reasoning given by the Commissioner of Income Tax against whose order the appeal was preferred by the revenue for its consideration. 6.3. In the case of Rajesh Babubhai Damania (Supra), the Division Bench has observed that it is the duty of the Tribunal to ascertain the reasons given by the Commissioner of Income Tax (Appeals) in whose order the order of the Assessing Officer had merged. 6.4. In the case of Gautam Harilal .....

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e a frivolous order. In the said decision, even the Division Bench of this Court had shown in its strong disapproval of passing such order by the learned Appellate Tribunal. In the said decision, the Division Bench had also observed that Court can only hope that the Tribunal applies its mind and take care in future to ensure that the approach of the Tribunal undergoes a change and it may regain its past glory. While remanding learned Tribunal to apply its mind the Division Bench was constrained .....

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ench again emphasised the duty of the Appellate Tribunal to give reasons for its decision. In the said decision, it is once again observed that the procedure required to be adopted by the Tribunal so as to ensure that the order is an appealable order, must be one which reflects not only its conclusion, but the decision making process also. It is further observed that the reasons however brief are the soul and backbone of an order and in the absence of such reasons, which must be reflected on a r .....

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sons for its decisions. Mere mention of Supreme Court or High Court cases without specifying how they are applicable to the case is not sufficient. In the said decision, it is again reiterated and emphasized that the Tribunal is the final fact finding authority, hence the order of the Tribunal should reflect findings of fact as well as the reasons for arriving at its conclusion on the basis of the findings recorded by it. 6.07. In the case of Surat Beverages Limited (supra), once again the Divis .....

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ion Bench has observed and held as under: [5.0] While taking up tax appeals, we have come across similar nonspeaking and nonreasoned orders passed by the ITAT and passing the order on estimate basis by deleting and/or making addition by observing that to meet with the ends of justice. It cannot be disputed that ITAT, while deciding the appeals, is required to pass the order judiciously and it should reflect that the Tribunal has applied the mind on a particular issue. ITAT is a judicial authorit .....

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pass such orders as it thinks fit, but that does not mean that the tribunal is not required to assign any reasons and/or the Tribunal is not required to pass a speaking order. In the case of Ravi Yashwant Bhoir vs. Collector reported in (2012)4 SCC 407, the Honble Supreme Court had an occasion to consider the rationale behind the requirement of recording reasons in order. In the said decision, it is observed and held by the Honble Supreme Court that requirement of recording reasons is one of the .....

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t not only administrative but also judicial orders must be supported by reasons recorded in it. Thus, while deciding an issue, the court is bound to give reasons for its conclusion. It is the duty and obligation on the part of the Court to record reasons while disposing of the case. The hallmark of order and exercise of judicial power by a judicial forum is for the forum to disclose its reasons by itself and giving of reasons has always been insisted upon as one of the fundamentals of sound admi .....

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ed its mind.* The reason is the heartbeat of every conclusion. It introduces clarity in an order and without the same, the order becomes lifeless. Reasons substitute subjectivity with objectivity. The absence of reasons renders an order indefensible/unsustainable particularly when the order is subject to further challenge before a higher forum. Recording of reasons is the principle of natural justice and every judicial order must be supported by reasons recorded in writing. It ensures transparen .....

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reasons at least sufficient to indicate an application of mind of the authority before the 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 quasijudicial performance. In the case of Board of Trustees of Martyrs Memorial Trust vs. Union of I .....

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judication must be avoided. Each and every matter that comes to the court must be examined with the seriousness it deserves. In the case of Real Estate Agencies vs. State of Goa reported in (2012)12 SCC 170 while emphasizing the necessity of giving reasons by the Courts/Tribunals/Judiciary, it is held that, manner of reaching a decision and reasons for reaching such decisions are sacrosanct to judicial process. While emphasizing the need to pass a reasoned order, the Honble Supreme Court in the .....

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ssed by the ITAT, the impugned judgment and order cannot be sustained. No reasons at all have been assigned by the learned Tribunal while dismissing the appeal preferred by the Revenue and partly allowing the appeal preferred by the assessee and sustaining the addition of ₹ 30 lac. The impugned order passed by the learned Tribunal is absolutely on estimate basis without assigning any reasons and as such no reasons have been assigned at all while dismissing the appeal preferred by the Reven .....

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ourt will have to deal with point urged before it and the reasons for affirmation are required to be given though not elaborately. In the said decision, it is observed by the Hon'ble Supreme Court that recording of reason is a part of fair procedure. The reasons are the harbinger between the mind of the maker of the decision in the controversy and the decision on conclusion arrived at. They substitute subjectivity with objectivity. Failure to give reasons amounts to denial of justice. 7.0. D .....

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n and / or addition, it appears that massage has not reached to the Appellate Tribunal. Despite the above decisions and even the hope and trust by the Division Bench that in future the Appellate Tribunal to take care and pass speaking and reasoned order, the Appellate Tribunal had continued to pass such non speaking and non reasoned order. The Appellate Tribunal is bound to obey the decision of the Hon'ble Supreme Court as well as High Court. They cannot ignore the observations and the decis .....

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urt as well as High Court and the same cannot be permitted to be continued and same deserves serious consideration. Even in the case of estimation, though permissible, if the learned Commissioner of Income Tax has passed an order by giving cogent reasons, the Tribunal on an appeal either by the Revenue and / or assessee is required to apply its mind and consider the reasons given by the learned CIT(A) and is required opine where the learned CIT(A) had committed an error and whether the order pas .....

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sions referred to herein above are reiterated and all the Income Tax Appellate Tribunal are hereby directed to consider the observations made in catena of decisions of the Hon'ble Supreme Court as well as Division Bench of this Court referred to herein above as well as observations made in the present order while deciding the appeals against the order passed by the learned Commissioner of Income Tax (Appeals), in its true spirit, failing which the matter shall be viewed very seriously and it .....

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y generates unwarranted litigation, apart from putting the parties to unwarranted hardship, harassment and cost for no fault of their and despite the reminder to the Appellate Tribunal with a hope that the Tribunal applies its mind and take care in future to ensure that the approach of the Tribunal undergoes a change and it may regain its past glory, the things have not much improved and the Appellate Tribunals have continued to pass such non speaking and non reasoned order and has continued to .....

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