High Court Sets Aside Non-Speaking Tribunal Order in Tax Case

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Case Name:

India Trimmings P. Ltd. vs Assistant Commissioner of Income Tax (High Court of Madras)

T.C.(A).Nos.932 and 875 of 2014

Date: 16th December 2014

Key Takeaways:

1. The High Court emphasized the importance of tribunals addressing all issues raised by parties.

2. Non-speaking orders that fail to consider key arguments can be grounds for setting aside tribunal decisions.

3. Proper procedure under Section 144C (of Income Tax Act, 1961) is crucial in cases involving transfer pricing.

Issue:

Did the Income Tax Appellate Tribunal err in law by passing a non-speaking order without considering the key issues raised by both parties, particularly regarding compliance with Section 144C (of Income Tax Act, 1961)?

Facts:

1. India Trimmings P. Ltd., a wholly owned subsidiary of Conso International Corporation, USA, is engaged in manufacturing decorative trimmings.

2. For the assessment year 2007-08, the company filed a return admitting a total income of Rs.1,37,520/-.

3. The case was selected for scrutiny and referred to the Transfer Pricing Officer due to international transactions.

4. The Transfer Pricing Officer passed an order on 28.10.2010 under Section 92CA(3) (of Income Tax Act, 1961).

5. The Assessing Officer passed an assessment order on 30.12.2010 under Section 143(3) (of Income Tax Act, 1961).

6. The assessee challenged this order before the Commissioner of Income Tax (Appeals), arguing that a draft assessment order should have been issued as per Section 144C(1) (of Income Tax Act, 1961).

7. The CIT(A) set aside the Assessing Officer's order entirely on 30.08.2011.

8. The Department appealed to the Income Tax Appellate Tribunal.

9. The Tribunal initially passed an ex-parte order, which was later recalled.

10. The Department raised additional grounds, which the assessee objected to as belated.

Arguments:

1. Assessee's Arguments:

- The Assessing Officer failed to follow the procedure under Section 144C (of Income Tax Act, 1961) by not issuing a draft assessment order.

- The Tribunal should not admit the Department's belated additional grounds.

- The Tribunal's order was based on a misunderstanding that the assessee had conceded to a remand.

2. Department's Arguments:

- The CIT(A) erred in deleting the entire additions made in the assessment.

- Non-issuance of a draft order under Section 144C (of Income Tax Act, 1961) was merely a procedural irregularity.

Key Legal Precedents:

The judgment does not explicitly cite any legal precedents. However, it emphasizes the importance of following procedural requirements under Section 144C (of Income Tax Act, 1961).

Judgement:

1. The High Court set aside the Tribunal's orders, finding them to be non-speaking and failing to address key issues raised by both parties.

2. The court remanded the matter back to the Tribunal for fresh consideration on merits.

3. The High Court emphasized that the Tribunal should have considered the scope of the appeal, the additional grounds raised, and the objections of the assessee.

FAQs:

Q1. What is a "non-speaking order"?

A1. A non-speaking order is a decision that doesn't provide sufficient reasons or address the key arguments raised by the parties.

Q2. Why is Section 144C (of Income Tax Act, 1961) important in this case?

A2. Section 144C (of Income Tax Act, 1961) requires the Assessing Officer to issue a draft assessment order in certain cases involving transfer pricing, allowing the assessee to file objections before finalization.

Q3. What is the significance of this judgment for future tax cases?

A3. This judgment emphasizes the importance of tribunals addressing all issues raised by parties and following proper procedures, particularly in cases involving transfer pricing.

Q4. Can additional grounds be raised at any time during appeal proceedings?

A4. While additional grounds can be raised, they may be objected to if filed belatedly without proper justification, as seen in this case.

Q5. What happens now that the case has been remanded to the Tribunal?

A5. The Tribunal will have to reconsider the case afresh, addressing all the issues raised by both parties and providing a reasoned order.

1. These appeals are filed by the assessee challenging the order of the

Income Tax Appellate Tribunal 'A' Bench, Chennai, dated 02.05.2014 in

I.T.A.No.1865/Mds/2011 and the order dated 25.7.2014 made in

M.P.No.95/Mds/2014 for the assessment year 2007-08, raising the following

substantial questions of law:

T.C.(A)No.932 of 2014:

(i) Whether the Income Tax Appellate Tribunal is correct

in law in setting aside the assessment framed by the

respondent which assessment order was framed

without adhering to the prescriptions of section 144C (of Income Tax Act, 1961)

of the Act, thereby proving and establishing the lapse

committed was fatal and not curable?

(ii) Whether the Appellate Tribunal was correct in law in

expanding the scope of the appeal of the Revenue

before them for considering and for passing the order

setting aside the assessment framed by the

respondent for adhering to the prescriptions of the

section 144C (of Income Tax Act, 1961) in spite of the non

consideration of the arguments of both sides on the

plea for admission of the additional grounds of appeal

filed which proved perversity in the order passed by

them?

T.C.(A)No.875 of 2014:

(i) Whether the Appellate Tribunal is correct in law in

not entertaining the plea for recall of the original

order passed within the scope of section 254(2) (of Income Tax Act, 1961) of the

Act in spite of the mistake apparent from the

record/order in not adjudicating the plea relating to

the admission of additional grounds of appeal for

expanding the scope of the appeal before them?

(ii) Whether the Appellate Tribunal is correct in law in

setting aside the assessment framed by the

respondent which assessment order was framed

without adhering to the prescriptions of section 144C (of Income Tax Act, 1961)

of the Act, thereby proving and establishing the lapse

committed was fatal and not curable?

(iii)Whether the Appellate Tribunal was correct in law in

expanding the scope of the appeal of the Revenue

before them for considering and for passing the order

setting aside the assessment framed by the

respondent for adhering to the prescriptions of section

144C of the Act in spite of the non consideration of

the arguments of both sides on the plea for admission

of the additional grounds of appeal filed which proved

perversity in the order passed by them?"

2. The following facts as found in the assessment order will be

relevant in disposing the above appeals.

The appellant/assessee is a wholly owned subsidiary of Conso

International Corporation, USA and is engaged in the manufacture of

Decorative Trimming, such as, Tie Backs, Tassels, Trimmings etc. and is a

100% Export Oriented Unit. The assessee company has filed their return of

income for the assessment year 2007-08 on 31.10.2007 admitting a total

income of Rs.1,37,520/- and value of fringe benefits of Rs.16,16,630/-. The

book profit under Section 115JB (of Income Tax Act, 1961), as returned by the assessee, worked out to

Rs.1,50,066/-. After processing the return under Section 143(1) (of Income Tax Act, 1961), as the case

was selected for scrutiny through CASS, notice under Section 143(2) (of Income Tax Act, 1961) was

issued to the assessee.

3. As international transactions were involved in this case, the case

was referred to the Transfer Pricing Officer, Chennai in order to compute the Arms Length Price with the approval of the Commissioner of Income Tax-II, Coimbatore. It appears that the Transfer Pricing Officer has passed an order on 28.10.2010 in terms of Section 92CA(3) (of Income Tax Act, 1961), which is recorded in the Assessment order, reads as follows:

"8. Vide her order in F.No.1510/TPO-IV/AY 2007-08 dt:

28-10-2010, the Transfer Pricing Officer -IV, Chennai, has

directed the Assessing Officer to adjust upwardly the total

income of the assessee by Rs.1,77,80,447/- (Rs.1,05,80,652

+ Rs.71,99,795) on account of determination of Arms Length

Price of transaction relating to payment carriage outward costs

and volume discount at Nil."

4. Thereafter, the Assessing Officer proceeded to pass an order under

Section 143(3) (of Income Tax Act, 1961) and accordingly passed the

assessment order on 30.12.2010, which includes the regular assessment and

the order of the Transfer Pricing Officer after affording opportunity to the

Authorised Representative of the assessee. The assessment order came to be

challenged by the assessee before the Commissioner of Income Tax

(Appeals) contending that the order of the Transfer Pricing Officer should

have culminated into a draft assessment order in terms of Section 144C(1) (of Income Tax Act, 1961) of

the Income Tax Act and since the Assessing Officer has not passed the

assessment order on the basis of the draft assessment order, the

proceedings under Section 143(3) (of Income Tax Act, 1961) passed by the Assessing Officer dated

30.12.2010 was bad.

5. The Commissioner of Income Tax (Appeals), by order dated

30.08.2011, set aside the order of the Assessing Officer in entirety holding

as follows:

"6. As per the provisions of section 144 (of Income Tax Act, 1961) C, the Assessing

Officer shall "notwithstanding anything to the contrary contained

in this Act, in the first instance, forward a draft of the proposed

order of assessment order (hereafter in this section referred to

as the draft order) to the eligible assessee if he proposes to

make, on or after the first day of October, 2009 in variation in

the income or loss returned which is prejudicial to the interest of

such assessee, the other sub-sections of section 144 (of Income Tax Act, 1961) C mention

about the further procedure of completion of assessment and

the reference to the Dispute Resolution Panel. As seen from the

assessment order, it was passed on 30.12.2010 without giving a

draft of the proposed order of assessment to the assessee, since

there was a variation in the income which is prejudicial to the

interest of the assessee. The Assessing Officer has directly

passed the Order u/s 143(3) (of Income Tax Act, 1961) thereby denying an opportunity to

the appellant to file his objections before the Dispute Resolution

Panel and also the Assessing Officer. Since the Assessing

Officer has not followed the provisions of section 144 (of Income Tax Act, 1961) C thereby

denying the opportunity to the appellant to approach the

Dispute Resolution Panel, the order u/s 143(3) (of Income Tax Act, 1961) is bad in law. In

view of this, the grounds of appeal as per additional grounds are

allowed."

6. Aggrieved by the order of the Commissioner of Income Tax

(Appeals), the Department filed an appeal on 18.11.2011 before the Income

Tax Appellate Tribunal raising the following grounds:

"1. The order of the learned Commissioner of

Income-tax (Appeals) is against facts and circumstances of

the case.

2. The learned Commissioner of Income-tax

(Appeals) erred in deleting the entire additions made in the

assessment on the ground that the order was not passed

in pursuance of the directions of DRP u/s 144C (of Income Tax Act, 1961).

3. The learned CIT(A) ought to have deleted the

addition made by the Transfer Pricing Officer rather than

deleting all the additions including additions made by the

Assessing Officer."

7. The Tribunal, by order dated 24.4.2012, disposed of the appeal

exparte by way of remand. However, at the behest of the assessee, who

filed an application to recall the exparte order on account of the non-

appearance, the Tribunal was inclined to accept the plea and the order dated

24.4.2012 was recalled and the appeal was restored to file. At that juncture, the Department has raised additional grounds raising a new plea, which was vehemently opposed by the appellant/assessee stating that it was belated. The said additional grounds and the objections of the assessee are as follows:

“During the course of the hearing the revenue filed the

additional grounds of appeal which was served on the

Respondent on 01.04.2014 after lapse of more than 2 years

(appeal filed on 18.11.2011) and admittedly there was no

petition for condoning the delay in filing the said additional

grounds of appeal.

The Respondent vehemently had objected to the

admission of the additional grounds of appeal especially to

change their stand totally in the present appeal proceedings.

For sake of easy reference, the said additional grounds of

appeal filed by the revenue is re-produced below:

“2. The learned Commissioner of Income Tax (Appeals)

erred in cancelling the assessment, since the provisions of

sec.144C (of Income Tax Act, 1961) was not followed.

3. The learned Commissioner of Income Tax (Appeals)

ought to have observed that non issue of draft order u/s. 144C (of Income Tax Act, 1961)

of the Act was on a procedural irregularity.”

On a plain reading of the said grounds of appeal it is crystal

clear that the revenue has put up a different case without

explaining bona fide reasons for belated change of their stand

and on the contrary revenue relied on two decisions to press

their plea for adjudication of the revised grounds of appeal so

as to get another round of proceedings for the Assessing

Officer.”

8. In effect, when the appeal was originally filed, the objection of the

Department was that the Commissioner of Income Tax (Appeals), while

passing the order dated 30.8.2011 ought not to have deleted the entire

addition on the premise that the procedure prescribed under Section 144C (of Income Tax Act, 1961)

was not followed. It is the contention of the appellant/assessee that the

grounds of appeal by the Department is that the jurisdiction of the

Commissioner of Income Tax (Appeals) to set aside the assessment order

passed under Section 143(3) (of Income Tax Act, 1961) dated 30.12.2010 should be limited to the issue

with regard to the order of the Transfer Pricing Officer and not otherwise.

Nevertheless, it is also the contention of the appellant that they are entitled to object the appeal filed by the Department on the ground of violation of the procedure and requirement under Section 144C (of Income Tax Act, 1961).

9. This issue that was canvassed vehemently by the appellant was

brushed aside by the Tribunal and we find that the first order of the Tribunal dated 02.05.2014 is merely proceeded on the basis that there was a

concession by the Authorised Representative of the assessee and

magnanimously agreed by the Department Representative in remanding the

matter and therefore, the Tribunal passed the following order:

“4. At the time of hearing the Ld. A.R., conceded for

remitting the case back to the file of Ld. Assessing Officer for

hearing the case afresh. The Ld. D.R. magnanimously agreed

for the same.

5. Considering the facts and circumstances of the case,

and in accordance with the request of both the parties, we

hereby remit back the matter to the file of Ld. Assessing Officer

for denovo consideration. We also make it clear that the

assessee shall co-operate with the Revenue in their proceedings

promptly without seeking unnecessary adjournments in order to

expedite the orders of the Revenue.

6. In the result, the appeal of the Revenue is allowed for

statistical purposes.”

10. Aggrieved by this order of the Tribunal the assessee filed an appeal

before this Court in T.C.(A)No.932 of 2014 raising the above-mentioned

substantial questions of law.

11. Thereafter, an application was filed before the Tribunal under

Section 254(2) (of Income Tax Act, 1961) by the assessee seriously contending that there was no

concession at any point of time and the matter was persuaded vehemently.

The appellant relied on the gist of arguments dated 05.04.2014 filed during

the course of argument on 08.04.2014, which has been taken note of by the

Tribunal The assessee has also raised an objection on the ground that

various legal facets of the case has not been considered by the Tribunal as

has been pointed out earlier.

12. The Tribunal taking note of the said objection came to hold that

the Tribunal had misunderstood the submissions and the gesture of the

Authorised Representative, which made them to pass such an order.

However, the Tribunal chose to rectify the order by passing a revised order

on 25.7.2014, which reads as follows:

"5. We have heard both the sides and perused the

materials on record. It appears that the Bench had

misunderstood the submissions and gesture of the Ld. A.R at

the time of hearing the appeal and had therefore observed in

the order that the Ld. A.R had conceded for remitting the case

back to the file of Ld. Assessing Officer for fresh hearing.

Therefore paras-4 & 5 of the order of the Tribunal in ITA

No.1865/Mds./2011 is accordingly modified and shall be

henceforth read as follows:-

"Para - 4 Ld. D.R taking cue from the

observations of the Bench magnanimously conceded

for remitting the case back to the file of the Ld.

Assessing Officer for hearing the case afresh. Ld.

A.R. on the other hand, stoutly opposed for

remitting back the matter and relied on the order of

Ld. CIT(A).

Para - 5 Considering the facts and

circumstances of the case, we hereby remit back

the matter to the file of Ld. Assessing Officer for

denovo consideration (since the Ld. Assessing

Officer had not followed the provisions of Sec.144C (of Income Tax Act, 1961)

of the Act). We also make it clear that the assessee

shall co-operate with the Revenue in their

proceedings promptly without seeking unnecessary

adjustment in order to expedite the order of the

Revenue."

6. In the result, the Miscellaneous Petition of the assessee is

allowed to the extent indicated herein above."

13. Aggrieved by this Miscellaneous order, the assessee filed an appeal

before this Court T.C.(A)No.875 of 2014 raising the above-mentioned

substantial questions of law.

14. Heard Mr.S.Sridhar, learned counsel appearing for the appellant

and Mr.T.R.Senthilkumar, learned Standing Counsel appearing for the

Revenue and perused the materials placed before this Court.

15. At the outset we have to point out that there is totally non-

application of mind by the Tribunal. The core issue raised in the appeal, the objections of the appellant and the non-consideration of the issue raised in appeal clearly makes the order of the Tribunal a non-speaking order.

16. We find from the arguments advanced by the appellant and the

respondent that there is no scope for passing such a non-speaking order of

remand, for which we record our reasons as under:

i) the order of assessment under Section 143(3) (of Income Tax Act, 1961) of the

Income Tax Act dated 30.10.2010 is also in relation to the order

passed by the Transfer Pricing Officer dated 28.10.2010 under

Section 92CA(3) (of Income Tax Act, 1961) and that was challenged

before the Commissioner of Income Tax (Appeals), which was

allowed in favour of the assessee. Against which, the

Department filed an appeal to the Tribunal, the scope of which

we have recorded earlier is limited to that portion of the order of

the Commissioner of Income Tax (Appeals) interfering with the

entire order passed under Section 143(3) (of Income Tax Act, 1961); in other words, it

should be limited only to the order relatable to the order of the

Transfer Pricing Officer dated 28.10.2010. That matter was

pending before the Tribunal for more than two years.

Thereafter, additional grounds have been raised, which was

objected to by the assessee saying that new plea was sought to

be raised and that issue has not been addressed by the Tribunal;

ii) the core issue raised by the assessee is with regard to

the order passed by the Assessing Officer under Section 143(3) (of Income Tax Act, 1961)

read with Section 92CA(3) (of Income Tax Act, 1961); the contention

of the assessee is that the requirement under Section 144C(1) (of Income Tax Act, 1961)

of the Income Tax Act has not been followed and the

Commissioner of Income Tax (Appeals) has accepted such a

stand and it is for the Tribunal to consider the objection of the

assessee in the light of the objection filed in relation to the non-

compliance of Section 144C (of Income Tax Act, 1961). That aspect

has not been considered by the Tribunal and therefore the

question of law which is raised by the assessee ought to have

considered by the Tribunal and there was no scope for passing a

non-speaking remand order; and

iii) The Tribunal ought to have considered the scope of

such appeal, the additional grounds raised and the objections of

the assessee and should have given a ruling on the same.

17. We, therefore, have no hesitation to hold, for the reasons stated

above, that the order of the Tribunal is a non-speaking order and the

Tribunal has not considered the issue raised and objected by either side.

Hence, we set aside the the order of the Tribunal and remand the matter to

the Tribunal for passing fresh orders on merits.

18. In the result, both the appeals are allowed by way of remand. No

costs.

R.SUDHAKAR,J.

and

R.KARUPPIAH,J.