Assessment Order Set Aside: Validity of an order cannot be justified on the basis of additional reasons given in the counter.

Summary in Key Points:

Issue: Was the assessment order valid, given the contradictory findings, lack of proper consideration of the assessee’s reply and supporting documents, and the absence of reasons for rejecting the assessee’s defense?
Facts: The assessee received a notice to explain unsecured loans. They submitted a reply with supporting documents, including confirmation letters and bank statements. However, the assessment order contained contradictory statements about the reply and dismissed the supporting documents without providing reasons.
Decision: The court emphasized that an order’s validity depends on the reasons provided within it, not on additional reasons given later. The court found merit in the assessee’s argument that their reply and documents were not properly considered, and there was no application of mind to the evidence. The assessment order was set aside, and the matter was remanded for fresh consideration, directing the authority to re-hear the assessee and provide a reasoned decision.

Important Note: This decision highlights the importance of reasoned decision-making and proper consideration of evidence in tax assessments. The court stressed that authorities cannot simply dismiss an assessee’s submissions without providing valid reasons. The contradictory findings and lack of explanation in the assessment order indicated a lack of due diligence and fairness. This ruling protects taxpayers from arbitrary assessments and ensures that decisions are based on a thorough examination of the evidence and reasoned justification.

HIGH COURT OF TELANGANA

Vessela Greens

Union of India

Sujoy Paul and Dr. G. Radha Rani, JJ.

WRIT PETITION No. 15037 of 2024

DECEMBER 5, 2024

Polkampally Pavan Kumar Rao for the Petitioner. Gadi Praveen Kumar, Dy. Solicitor Gen. of India for the Respondent.

ORDER

Sujoy Paul, J. – Heard Sri P.Soma Shekar Reddy and Ms.P.Meghana Sarma, counsel representing on behalf of Sri Polkampally Pavan Kumar Rao, learned counsel for the petitioner and Sri P.Murali Krishna, learned Senior Standing Counsel for Income Tax for respondent Nos. 2 to 4.

2. This petition filed under Article 226 of the Constitution takes exception to the assessment order dated 19.03.2024.

3. Briefly stated, the facts are that the petitioner was served with a show cause notice dated 29.02.2024. The petitioner filed reply on 14.03.2024 along with certain documents. The documents filed with I.A.No.2 of 2024 were duly loaded in the portal of the Department which is evident from the photocopy of the said portal.

4. Learned counsel for the petitioner, by taking this Court to the findings given in the assessment order, submits that the findings are self-contradictory. On the one hand, the authority held that no reply has been furnished by the petitioner and on the next breath, considered the reply dated 14.03.2024 in a cryptic manner. No justifiable reasons were assigned to discard the defence of the petitioner. Learned counsel further submits that in relation to M/s.Yashoda Nookaratnam, the petitioner filed certain documents including confirmation letter and bank statements, but without assigning any reason, the assessment order was passed ignoring the relevant documents.

5. Learned Senior Standing Counsel for Income Tax, on the other hand, supported the impugned order and submits that the reply of the petitioner was considered and a speaking order is passed. As per the counter filed in this matter, it is clear that the petitioner was required to file his reply to show cause notice on or before 11.00 am till 14.03.2024. The assessee filed reply after that time. The petitioner has a statutory remedy of appeal, which may be availed.

6. The parties confined their arguments to the extent indicated above.

7. The relevant portion of the petitioner’s reply reads thus:

“3. Unsecured Loan from M. Ananth Reddy Rs.3,30,00,000/-. In Your Letter you mentioned that his income is only Rs.11,80,120/- so credit worthiness is not proved. There was no connection between Income shown in that year and the Investment made. Also Mentioned money was routed. I am sorry to say this “Routed” word to use in this context. Without the Credits in his account, how he will invest/ Give Loan to anybody, Credit in the accounts mean it Was Routing?. You can ask for source of Credit, but don’t blame as it was routed money. Any way Mr.Anant Reddy Taken Loan from Sri Krishna Uppaluri, His Confirmation Letter, Bank Statement and IT Copy Enclosed for your information.

4. Mrs. Yashoda Nooka ratnam. Given Rs.25,00,000/-Her Confirmation Letter & Bank Statement was enclosed in My Earlier Reply. However once again I am attaching the same.

5. G.Muralidhar Reddy has given Rs.1,56,35,500/- as Unsecured Loan. In Your Letter You Mentioned that his Income is Only Rs.8,86,160/- so creditworthiness not proved. There was no connection between Income Shown In that Year and Investments made In This Year. He is having Agricultural Land and he does Mining and received Royalties in earlier Years, and he is a Partner in Kanishka Builders, moreover he is filing Income tax Returns from Last 14 Years and he sold Agricultural Lands in earlier Years. So yourselves used the word “Routing” is not correct.

6. In The case of Raghava Reddy Chirumani also Yourselves Mentioned the bank statement was illegible, so creditworthiness and genuineness of the transaction not proved. You are also Mentioned his Income is Only Rs.25,80,670/-. We cannot see this Year Income v. Investment Ratio. We Enclosed Bank Statement once again.

Note: If Have a House For Rs.1,00,00,000 and you will Get Only 1,80,000/- as Rent, so we cannot compare simply Income of that year v. Investment. The source for Purchase of House will have Many Ways like, Loan, Gifted by Parents, Accumulated Earlier years Income or Ancestral Property or in Family Partition it can come. Etc., this cannot be called as “Routing”

Kindly consider the above facts and Drop the Additions under Sec.68 of The Income Tax Act as “Unexplained Income” and oblige.”

8. The copy taken from portal and filed with I.A. shows that along with the reply to show cause notice, the petitioner filed relevant documents including Yashoda Nookaratnam’s bank statement, but there is no iota of discussion as to why the said documents are not trustworthy. The petitioner’s reply was not discarded on the ground that it was not filed in time. This additional defence taken in the counter cannot improve the reason given in the impugned order.

9. The validity of an order of a statutory authority is to be seen on the basis of reasons assigned therein and it cannot be justified on the basis of additional reasons given in the counter. Curtains are drawn on this aspect by Constitution Bench of the Supreme Court way back in Mohinder Singh Gill v. Chief Election Commr., New Delhi (1978) 1 SCC 405 and the relevant portion reads as under:

“8. The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. We may here draw attention to the observations of Bose,J. in Commr. of Police, Bombay v. Gordhandas Bhanji, 1951 SCC 1088:

“Public orders, publicly made, in exercise of a statutory authority cannot be construed in the light of explanations subsequently given by the officer making the order of what he meant, or of what was in his mind, or what he intended to, do. Public orders made by public authorities are meant to have public effect and are intended to affect the actings and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself.”

Orders are not like old wine becoming better as they grow older:”

10. In the assessment order, following findings are given.

“Show cause notice was issued on 29/02/2024 for 14/03/2024, but assessee has failed to comply the same and did not furnish any reply thereafter.

Since, the assessee has not furnished any reply to various opportunities that were provided to her during the assessment proceedings, it is evident that the assessee has nothing to furnish regarding the alleged additions proposed in the Show Cause Notice.

On 14/03/2024 assessee filed reply and submit confirmation letter of Yasoda Nookaratnam, bank statement but failed to provide ITR of Yasoda Nookaratnam. Assessee provided Sri Krishna Uppaluri confirmation letter but failed to provide but failed to prove their creditworthiness.”

11. A careful reading of the highlighted portion shows that on the one hand, the proper officer opined that no reply has been furnished and on the other hand, considered the reply. The consideration is also cryptic. We find substance in the argument of the learned counsel for the petitioner that the reply and the documents filed therewith were not considered in proper perspective. There is no application of mind on the bank’s confirmation letter and bank statement of Yashoda Nookaratnam. Thus, reasons have not been given for not accepting the defence of the petitioner. The reasons are held to be heartbeat of conclusions. In M/s.Kranthi Associates (P) Ltd. v. Masood Ahmed Khan (2010) 9 SCC 496, the Supreme Court has emphasized the need of assigning reasons in administrative, quasi-judicial and judicial orders and held as under:

“47. Summarising the above discussion, this Court holds:

(a)

In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially.

(b)

A quasi-judicial authority must record reasons in support of its conclusions.

(c)

Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well.

(d)

Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power.

(e)

Reasons reassure that discretion has been exercised by the decision-maker on relevant grounds and by disregarding extraneous considerations.

(f)

Reasons have virtually become as indispensable a component of a decision-making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies.

(g)

Reasons facilitate the process of judicial review by superior courts.

(h)

The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the lifeblood of judicial decision-making justifying the principle that reason is the soul of justice.

(i)

Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants’ faith in the justice delivery system.

(j)

Insistence on reason is a requirement for both judicial accountability and transparency.

(k)

If a judge or a quasi-judicial authority is not candid enough about his/her decision-making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism.

(l)

Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or “rubber-stamp reasons” is not to be equated with a valid decision-making process.

(m)

It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision-making not only makes the judges and decision-makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor [(1987) 100 Harvard Law Review 731-37] .)

(n)

Since the requirement to record reasons emanates from the broad doctrine of fairness in decision-making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See Ruiz Torija v. Spain [(1994) 19 EHRR 553] EHRR, at 562 para 29 and Anya v. University of Oxford [2001 EWCA Civ 405 (CA)], wherein the Court referred to Article 6 of the European Convention of Human Rights which requires,

“adequate and intelligent reasons must be given for judicial decisions”.

(o)

In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of “due process”.”

12. In view of glaring illegality, we are not inclined to relegate the petitioner to avail alternative remedy. The assessment order is set aside. The competent authority shall re-hear the petitioner and decide the matter afresh in accordance with law. It is made clear that this Court has not expressed any opinion on merits.

13. In the result, the Writ Petition is disposed of with the above direction. No order as to costs. As a sequel, miscellaneous applications pending in this petition, if any shall stand closed.