Court Quashes Income Tax Order for Lack of Reasoning, Upholds Natural Justice

Case Name**: Universal Packaging & Ors. vs Commissioner of Income Tax

**Key Takeaways**:

1. Orders without proper reasoning can be set aside for violating principles of natural justice.

2. Authorities must provide speaking orders to show due application of mind.

3. The right to revision under Section 264 (of Income Tax Act, 1961) waives the right to appeal.

**Issue**: 

Did the Commissioner of Income Tax's order dated 26.03.2012 violate principles of natural justice by failing to provide adequate reasons for rejecting the petitioner's revision application?

**Facts**:

1. The petitioner, a partnership firm, filed an income tax return for the 2007-2008 assessment year. 

2. Due to an e-filing error, the taxable income was incorrectly declared as Rs. 13.27 lacs instead of Rs. 7.44 lacs. 

3. The Assistant Commissioner issued an intimation accepting the higher amount and raising a demand of Rs. 1.58 lacs. 

4. The petitioner filed for rectification, which was rejected. 

5. A revision application under Section 264 (of Income Tax Act, 1961) was filed with the Commissioner of Income Tax. 

6. The Commissioner rejected the revision application on 26.03.2012 without considering its merits. 

**Arguments**:

Petitioner's Argument:

- The Commissioner's order violated principles of natural justice by not considering the revision application on its merits.

- The order merely rejected the application on the ground that the petitioner had an option to file an appeal. 

Respondent's Argument:

- The respondent's counsel supported the Commissioner's order dated 26.03.2012. 

**Key Legal Precedents**:

1. The court referred to the "well settled position in law" regarding the principles of natural justice, which require authorities to pass speaking orders. 

2. The case of Goetz India (284 ITR 323) was mentioned in relation to the rejection of the rectification application. 

**Judgement**:

1. The court found that the Commissioner's order dated 26.03.2012 was a non-speaking order that did not consider the petitioner's case on merits. 

2. The court quashed and set aside the order for being bereft of reasons. 

3. The Commissioner of Income Tax was directed to dispose of the petitioner's revision application under Section 264 (of Income Tax Act, 1961) after giving the petitioner a personal hearing and considering all relevant contentions. 

**FAQs**:

1. Q: What is a "speaking order"?

  A: A speaking order is an order that clearly states the reasons for a decision, allowing the affected party to understand why their application was accepted or rejected.

2. Q: Why is giving reasons in an order important?

  A: Giving reasons ensures due application of mind to the facts by the authority concerned and is a basic principle of natural justice.

3. Q: Can a person file both a revision application and an appeal?

  A: No, when a person exercises their right to file a revision application under Section 264 (of Income Tax Act, 1961), they waive their right to file an appeal.

4. Q: What will happen next in this case?

  A: The Commissioner of Income Tax will have to reconsider the petitioner's revision application, give them a personal hearing, and consider all relevant contentions before making a new decision.

5. Q: Does this judgment set a precedent for other cases?

  A: Yes, this judgment reinforces the importance of providing reasoned orders in administrative decisions, particularly in tax matters.

1. Rule. By consent the Rule is made returnable forthwith and the writ Petition is heard finally.

2. By this petition under Article 226 of the Constitution of India, the Petitioner challenges the order of the Commissioner of Income Tax dated 26.03.2012 passed in Revision under Section 264 (of Income Tax Act, 1961) ('the Act') as being an order in breach of natural justice.

3. Briefly, the facts leading to this petition are as under :

a) The Petitioner is a partnership firm engaged in the business of manufacturing corrugated paper boxes, corrugated rolls and sleeves.

b) On 30.10.2007, the Petitioner filed its return of income declaring taxable income of Rs.7.44 lacs after claiming a deduction of Rs.5.83 lacs being the salary paid to its working partners for the period ending on 31.03.2007 (Assessment year 2007­2008)

c) For the first time, from the assessment year 2007­2008, the procedure of filing return of income was changed by the respondent from the manual to E­filing. Consequently, on 30.10.2007, the Petitioner's Chartered Accountant filed its return of income by E­filing the same on the Internet. However, by mistake the taxable income was declared in the return at Rs.13.27 lacs instead of Rs.7.44 lacs i.e. difference on account of remuneration paid to working partners, which is allowed as deduction not being reflected in the taxable income.

d) On 05.03.2009, the Assistant Commissioner of Income tax issued an intimation under Section 143(1) (of Income Tax Act, 1961), accepting the return income at Rs.13.27 lacs and raising a demand of Rs.1.58 lacs. On receipt of the above intimation, the Petitioner filed an application for rectification under Section 154 (of Income Tax Act, 1961) on 30.03.2009. However, the Assistant Commissioner of Income Tax by order dated 15.12.2011 rejected the rectification application on the ground that the claim cannot be entertained in the absence of revised return of income, as held by the Supreme Court in the mater of Goetz India reported in 284 ITR 323.

e) Therefore, on 23.01.2012, the Petitioner filed a Revision application under Section 264 (of Income Tax Act, 1961), with the Commissioner of Income Tax, in respect of order dated 15.12.2011.

f) On 26.03.2012, the Commissioner of Income Tax rejected the Petitioner's Revision Application by stating as under :

“4. I have considered the petition of the assessee under Section 264 (of Income Tax Act, 1961). The Assessing Officer has rejected the assessee's application for rectification under Section 154 (of Income Tax Act, 1961) vide his order dated 15.12.2011. As such, the assessee has the option for filing the appeal before the Commissioner of Income Tax (Appeals). Further, I also do not find any good reason to revise the order under Section 154 (of Income Tax Act, 1961) passed by the Assessing Officer. In view of the above, the assessee's petition under Section 264 (of Income Tax Act, 1961) is rejected.

4. Mr. Jitendra Jain, Counsel for the Petitioner submits that the order dated 26.03.2012 passed by the Commissioner of Income Tax is an order in breach of principle of natural justice inasmuch as it does not consider the petitioner's Revision application and merely rejects the same on the ground that the petitioner has a option of filing an appeal before the Commissioner of Income Tax (Appeals). It is his submission that when the Petitioner has exercised his right to invoke the jurisdiction of the Commissioner in revision under Section 264 (of Income Tax Act, 1961), he has necessarily waived his rights to prefer an appeal before the Commissioner of Income Tax (Appeals).

5. Mr. Tejveer Singh, Counsel for the respondent supports the order dated 26.03.2012 of the Commissioner of Income Tax.

6. We find the order dated 26.03.2012 passed by the Commissioner of Income Tax is a non speaking order inasmuch as, it does not consider the petitioner's case on merits and dismissed the same on the ground that the Petitioners have an alternative remedy of filing an appeal. It is well settled position in law that one of the basic principle of natural justice is that the Authority concerned must pass a speaking order, so as to enable a party to know the reasons, as to why his application is being either accepted or rejected. This giving of reasons also ensures due application of mind to the facts by the Authority concerned.

The order dated 26.03.2012 is bereft of reasons and therefore, quashed and set aside.

7. We direct the Commissioner of Income Tax to dispose of the petitioner's Revision application under Section 264 (of Income Tax Act, 1961), after giving the Petitioner a personal hearing and considering all the relevant contentions raised by the petitioner.

8. The Petition is disposed of in above terms. No order as to costs.

(M.S. SANKLECHA, J.) (S.J.VAZIFDAR, J.)