Order passed in violation of section 250 cannot be sustained

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI ‘E’ BENCH

BEFORE SHRI RAJPAL YADAV, JM & SHRI A.N. PAHUJA, AM

ITA No.1756/Del/2012

Assessment year:2007-08

Menlo Worldwide Forwarding

India Pvt . Ltd. , D-12/1, Okhla

Indl. Estate, Phase-I I ,

New Delhi-10

(Appeallant)

V/s.

Deputy CIT,

Ci rcle-6 (1),

New Delhi

[PAN: AAACE 2236 R]

 (Respondent)

Assessee by Shri S.K. Aggrawal , AR

Revenue by Shri Aroop Kr. Singh, DR

Date of hearing 30-10-2012

Date of pronouncement 30-10-2012

O R D E R

A.N.Pahuja:-

This appeal filed on 16th April, 2012 by the assessee against an order dated 23-02-2011 of the ld. CIT(A)-IX, New Delhi, raises the following grounds:

1. “That, on the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in rejecting the appeal filed by the appellant against the assessment order dated 23 December, 2009 by alleging non appearance of the appellant and assuming that the appellant is not interested in pursuing the appeal.

2. The Ld. CIT(A) has erred in rejecting the appeal without adjudicating the grounds of appeal on merits, without giving adequate opportunities of being heard, without application of mind and in complete violation of principles of natural justice. Hence, the order passed by the Ld. CIT(A) is wrong, bad in law, not sustainable in law and liable to be set aside. Without prejudice to the above:

3. That, on the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in facts and law in upholding the assessment order passed by the AO imposing an additional tax liability of Rs. `50,84,763.

4. That, on the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in facts and law in upholding the assessment order of AO in levying short term capital gains amounting `.6,843,884 on the sale of "Customer Contracts" and "Human Resources" on the following counts:

4.1 In considering that the customer contracts and Human resources are akin to goodwill/right to carry on the business and accordingly the cost of acquisition for the same can be considered as NIL under the provisions of sections 48, 49 and 55 of the Act.

4.2 In disregarding the principles laid down by the Supreme Court in the decision of CIT vs 8.C Srinivas Setty [128 ITR 294] regarding computation of cost of acquisition and date of acquisition for the purposes of computing capital gains in the case of self generated assets during the course of business.

4.3 In considering the above assets as short term capital assets.

5. That, on the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in facts and law in upholding the assessment order of Assessing Officer in taxing the income of the appellant on a gross basis, holding that the business of the appellant has discontinued during the year under consideraion and disallowing the following expenses:

5.1 Deduction in respect of expenditure amounting `.237,895 incurred by the assessee in the course of its business.

5.2 Deduction in respect of expenses claimed by the appellant in the return of income allowable u/s 43B on payment basis on account of leave encashment amounting `.117,688.

5.3 Deduction in respect of expenses amounting `.14,500,882 claimed by the appellant in the return of income allowable u/s 40(a)(ia) of the Act as the tax has been duly deducted and deposited in the relevant year as per the provisions of the said section ..

6. That, on the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in facts and law in upholding the assessment order of AO in not allowing set off and carry forward of Short Term Capital Loss amounting `.1,022,451 incurred by the appellant in the course of transfer of it's depreciable fixed assets u/s 50(2) of the Act, on the following counts:

6.1 In alleging that the sales consideration for such assets have been deliberately shown at a reduced value and thereby ignoring the valuation report and method of valuation applied by an independent professional valuer.

6.2 Based on his surmises and conjectures, the AO has erred in observing that the transaction between the two parties has not been made at arm's length price.

7. That, on the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in facts and law in upholding the assessment order of AO in levying additional interest u/s 234A and 234B of the Act amounting to `. 577,977 and `.1,106,935 respectively.

8. That the above grounds are without prejudice to and independent of one another.

9. That the appellant reserves its right to add, alter, amend and/or modify any ground of appeal before or at the time of hearing of this appeal.

2. Facts, in brief, as per relevant orders are that the return declaring income of ``1,51,04,384/- filed on 30.03.2009 by the assessee, after being processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’), was selected for scrutiny with the service of a notice u/s 143(2) of the Act, issued on 29th August, 2009 [incorrectly mentioned as 29th September, 2008]. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee discontinued its business operations w.e.f. 01.04.2006 and sold its assets to UPS (SCS) India Pvt. Ltd. In a note appended to return of income filed on 13.04.2009, at para 1 under the head “capital gains  on itemized sale of assets on transfer of business’, the assessee had given brief description of transfer of its supply chain solution business to UPS SCS India Pvt. Ltd. under an agreement effective from 1.4.2006. The assessee contended that UPS SCS India Pvt. Ltd. under this agreement acquired the fixed assets, human resources, customer contracts and liabilities directly connected to the employees for a net consideration of ``80,15,387/-. The AO was of the opinion that the assessee transferred its entire business to UPS SCS India Pvt. Ltd., but it has tried to avoid terming this transaction as slump sale and instead it has identified and assigned value to each asset and consideration thereof has been determined item-wise in the transfer agreement. The assessee worked out short term capital loss of ``10,22,764/- on sale of fixed depreciable assets as per the provisions of section 50(2) of the Act and demarcated a total of ``68,43,884/- towards ‘transfer of customer relationship and human resource’ out of the total net consideration, excluding liabilities, of ``80,15,887/- while claiming that the same is not chargeable to tax, there being no cost of acquisition and relied upon decision of Hon’ble Supreme Court in the case of CIT, Bangalore Vs. B.C. Srinivas Setty (1981) 128 ITR 294 (SC). However, the AO did not accept the submissions of the assessee and referring to relevant provision of section 48, 49, 55 and worked out capital gains of ``68,43,884/- and rejected the claim for deduction of expenses of ``10,37,895/-.

3. On appeal, the assessee went on seeking adjournments on one pretext or the other and did not file any submissions before the ld. CIT(A). Accordingly, the ld. CIT(A) concluded as under:-

““4.0 From the appellate folder, it is seen that a notice dated 14.9.2010 fixing the case for hearing on 23.9.2010 was issued but nobody attended the proceedings. Again on 28.9.2010 a notice was issued fixing the case for hearing on 26.10.2010. On 26.10.2010 an application for adjournment was received and the case was adjourned to 9.11.2010. On 9.11 .2010 again application for adjournment was received and the case was adjourned to 18.11.2010 but none attended on this date.

4.1 On 13.12.2010, Shri Alok Kr. Sinha, CA attended and filed Power of Attorney and requested for adjournment and the case was adjourned to  20.12.2010. On 20.12.2010 nobody appeared. Further, on 24.1.2011, Shri Alok Kumar Sinha, CA attended and requested for adjournment and the case was adjourned to 27.1.2011. On 27.1.2011 again Shri Alok Kumar Sinha, CA appeared and case was adjourned to 3.2.2011 on his request. On 3.2.2011, Shri Alok Kumar Sinha, CA appeared and requested for adjournment and the case was adjourned to 7.2.2011. But on 7.2.2011 nobody attended the proceedings.

4.2 On 11.2.2011, Shri Sanjay Paul, CA appeared and requested for adjournment for the last time till 18.2.2011 with the condition that failing the compliance, the case shall be decided ex parte on the basis of material on record. On 18.2.2011 nobody attended the office nor any application for adjournment was received.

4.3 The above position is summarized in the tabular form as under:-

4.4 The above facts are a pointer towards the fact that the appellant is not interested in pursuing the appeal. Under the circumstances, I have no other option except to decide the appeal on the basis of the material on record. The appellant has not substantiated the grounds of appeal and nothing is available on record to support the said grounds of appeal. The only material available on record is the assessment order, the statement of facts filed by the appellant along with the appeal. Hence, I have to decide the appeal on the basis of the same.

5.0 In the case of Estate of Late Tukojirao Holkar v CWT 223 ITR 480 (MP), while dismissing the reference made at the instance of the assessee in default, their Lordship made the following observation in their order :-

If the party, as whose instance, the reference is made, fails to appear at the hearing or fails in taking steps for preparation of the paper book so as to enable hearing of the reference, the Court is not bound to answer the reference.

In the above referred case the Hon'ble High Court of Madhya Pradesh has dismissed the reference made by the appellant in default.

5.1 In the case of ClT v B. N. Bhattachargee & another reported in 118 ITR 461 (P/477), their Lordship have held as under:-

"The appeal does not mean merely filing of the appeal but effectively pursuing.

5.2 Similar view was taken by the jurisdictional I.T.A.T. in a number of cases as mentioned below:-

• Sanjeev Sikka v ITA Ward 41(4) in ITA No. 01/0D/2010 dated 3.3.10.

*M/s Shebawheels P Ltd. V. ITA Ward 8(2) in ITA No. 919-9201oe112010 dated 6.3.10.

*M/s Silver Streaks Trading P. Ltd. v ITA Wd.8(4) in ITA N0.1137/D/2007 dated 26.3. 10.

• Multiplan India 38 ITD 320 (Del).

6.0 Under these circumstances, the fact that the appellant is not interested in pursuing the appeal is a clear indicator that the appellant does not have any material evidence in its possession to challenge the decision of the AO as per the assessment order. Since, there is nothing on record to substantiate the grounds of appeal even the statement of facts does not substantiate such grounds of appeal and does not throw much light on the same, I reject the appeal filed by the appellant against the impugned assessment order and uphold the additions amounting to `.68,43,884/- made by the Id. AO.”

4. The assessee is now in appeal before us against the aforesaid findings of the ld.CIT (A). At the outset, both the parties agreed that the matter is required to be restored to the file of the ld. CIT(A),the impugned order being non-speaking one.

5 We have heard both the parties and gone through the facts of the case. As is apparent from the aforesaid facts of the case, the assessee went on seeking adjournments on one pretext or the other and did not pursue their appeal seriously. In any case, the ld. CIT(A) dismissed the appeal without even analyzing the issues or recording his specific findings on the said issues raised in the grounds of appeal before him . This approach of the ld. CIT(A) is not in accordance with law. A mere glance at the impugned order reveals that the order passed by the ld. CIT(A) is crypt ic and grossly violat ive of one of the facets of the rules of natural justice, namely, that every judicial/quasi - judicial body/author ity must pass reasoned order, which should ref lect applicat ion of mind by the concerned authori ty to the issues/points raised before it . The applicat ion of mind to the material facts and the arguments should manifest itself in the order. Sect ion 250(6) of the Act mandates that the order of the CIT(A) whi le disposing of the appeal shall bein wr it  ing and shal l state the points for determinat ion, the decision thereon and the reasons for the decision. The requi rement of recording of reasons and communication thereof by the quasi - judicial authori t ies has been read as an integral part of the concept of fair procedure and is an important safeguard to ensure observance of the rule of law. I t introduces clarity, checks the introduct ion of ext raneous or i r relevant considerat ions and minimizes arbit rariness in the decision-making process. We may reiterate that a ‘decision’ does not merely mean the ‘conclusion’. I t embraces within its fold the reasons forming basis for the conclusion. [Mukht iar Singh Vs. State of Punjab,(1995)1SCC 760(SC)] . It is well settled that reasons are the links between the material on record and the conclusion arrived at by the court and the appellate authority being a quasi judicial authority, the order passed by him should show that he has applied his mind and taken into consideration the basic requirements germane to the issue [V.N. Purushothaman vs. Ag.ITO (1984) 149 ITR 120 (Ker.)].

5.1 A Co-ordinate Branch in the case of Gujarat Themis Biosyn Ltd. vs. Jt. CIT 74 ITD 339 (Ahd) ,in identical circumstances, observed as under:

“3.We have carefully considered the facts and circumstances of the case as well as submissions made before us. The impugned order passed by the CIT(A) is clearly violative of the express provisions of s. 250(6), which provides that the appellate orders of the CIT(A) are to state the points arising in the appeal, the decision of the authority thereon and the reasons for such decision. The underlying rationale of the provision is that such orders are subject to further appeal to the Tribunal. Speaking order would obviously enable a party to know precise points decided in his favour or against him. Absence of the formulation of the point for decision for want of clarity in a decision undoubtedly puts a party in quandary. Sec. 250(6) expressly embodies the principles of natural justice and such a provision is clearly mandatory in nature. The impugned order passed by the CIT(A) in violation of the provisions of s. 250(6) cannot, therefore, be sustained. Regarding the decisions of the Delhi Bench of the Tribunal in Multiplan India Ltd. (supra) cited by the learned CIT(A), we find that the said decision is clearly distinguishable. Sec 254 referring to the orders of the Tribunal confers plenary jurisdiction on the Tribunal in the matter of passing orders under s. 254(1). There is no such express stipulation in s. 254 as contained under the provisions of s. 250(6) relating to the orders of  first appellate authority. Therefore, reliance placed by the CIT(A) on Multiplan India Ltd. (supra) is entirely misplaced. Similarly, the case of Late Tukojirao Holkar (supra) cited by the learned CIT(A) is distinguishable and does not support the view taken by the CIT(A).

For the reasons indicated above, we hereby set aside the impugned order of the CIT(A) and direct the CIT(A) to dispose of the appeal of the assessee afresh after allowing proper opportunity in accordance with law.”

6. In view of the foregoing, especially when the ld. CIT(A) has not passed a speaking order on various issues raised before him ,we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the issues in the grounds raised before him by the assessee, afresh in accordance with law, af ter al lowing suf f icient opportunity to both the parties. Needless to say that while redeciding the appeal, the ld. CIT(A) shal l pass a speaking order, keeping in mind, inter al ia, the mandate of provisions of sec. 250(6) of the Act . The assessee shall suo motu approach the ld. CIT(A)  within three months of the receipt of this order for expeditious disposal of appeal and shall not seek any adjournment without valid reasons.

7.. Ground no.8 in the appeal being general in nature, does not require any separate adjudication while no additional ground having been raised before us in term of residuary ground no.9 in the appeal, accordingly, both these grounds are dismissed.

8. No other plea or argument was raised before us.

9. In the result, appeal is allowed but for statistical purposes.

Order pronounced in open Court

Sd/- Sd/-

(RAJPAL YADAV) (A.N. PAHUJA)

(Judicial Member) (Accountant Member)

NS

Copy of the Order forwarded to:-

1. Assessee

2. Deputy CIT,Ci rcle-6 (1) ,New Delhi

3. CIT Concerned.

4. CIT(A)-IX, New Delhi

5. DR, ITAT,’E’ Bench, New Delhi

6. Guard File.

BY ORDER,

Deputy/Asstt.Registrar

ITAT, Delhi