2015 (11) TMI 1432 - AT - Income Tax

Revision u/sec. 263 - contention of the assessee is that the CIT has not applied his mind and the show cause notice was prepared only by the ITO and the basic details as required are not available in the show cause notice - Held that - Sec 263 allows CIT to call for and examine the records of any proceedings under the Income-tax Act, 1961, if he considers that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue, he may, after giving an opportunity to the assessee and after making such enquiry as he deems necessary, pass an order enhancing or modifying the assessment or cancelling the assessment. Therefore, what is required u/s 263 is an opportunity of being heard. Sec. 263 does not require the CIT to issue any show cause notice. Therefore, this Tribunal is of the considered opinion that even if there was any defect in the show cause notice that will not affect the consequential order passed by the CIT. This view of ours is fortified by the judgment of the Apex Court in CIT vs Electro House 1971 (9) TMI 10 - SUPREME Court .- Decided against assessee Claim of depreciation in respect of machinery purchased from Germany - CIT(A) directed AO to allow 50% claim - Held that - As from the material available on record, it appears that the machinery was installed and put to use on 25.9.2010. The Customs Authorities inspected the usage and running of the machinery on 4.10.2010. When the Customs authorities inspected the machinery on 4.10.2010, it is obvious that the machinery should have been installed and ready for use before 4.10.2010. Therefore, this Tribunal is of the considered opinion that the machinery was in fact installed on 25.9.2010 and it is ready for use. Therefore, machinery was put to use for more than 180 days and the assessee is entitled for full depreciation. Hence, the CIT is not justified in directing the Assessing Officer to allow only 50% depreciation. Accordingly, the order of the CIT is set aside and the Assessing Officer is directed to allow full depreciation in respect of the machinery purchased from Germany.- Decided in favour of assessee CIT to initiate penalty proceedings u/s 271(1)(c) - Held that - The authorities under the Income-tax Act are empowered to perform judicial function. In other words, the authority concerned has to take an independent decision in respect of the case whether to initiate penalty u/s 271(1)(c) of the Act or not? Though the Assessing Officer is established under the provisions of the Income-tax Act, he is discharging a judicial function while initiating proceedings for levy of penalty. Therefore, no authority can direct the Assessing Officer to initiate penalty proceedings u/s 271(1)(c) of the Act. The Assessing Officer is expected to take an independent decision. In the course of any proceedings before the CIT, he may initiate penalty proceedings and decide the same on his own. However, the CIT has no authority to direct the Assessing Officer to initiate penalty proceedings. The direction of the Administrative Commissioner to initiate penalty proceedings would amount to interference with judicial function of the Assessing Officer. Therefore, this Tribunal is of the considered opinion that the CIT has exceeded his jurisdiction in directing the Assessing Officer to initiate penalty proceedings u/s 271(1)(c) of the Act. Accordingly, the order of the CIT is set aside and direction issued by the CIT to initiate penalty proceedings is quashed.- Decided in favour of assessee

Summary

Issues Involved:
1. Depreciation claim on machinery purchased from Germany
2. Variation in turnover and closing stock
3. Direction to initiate penalty proceedings u/s 271(1)(c) of the Act

Depreciation Claim on Machinery Purchased from Germany:
The appeal concerned the depreciation claim on machinery purchased by the assessee from Germany. The Administrative Commissioner found that the machinery was put to use for less than 180 days, thus limiting the depreciation claim. The assessee argued that the machinery was installed and put to use on 25.9.2010 and was inspected by the Customs Department on 4.10.2010, justifying full depreciation. The Tribunal agreed that the machinery was ready for use before 4.10.2010 and had been in operation for more than 180 days, entitling the assessee to full depreciation. Consequently, the CIT's directive to allow only 50% depreciation was set aside, and the Assessing Officer was instructed to grant full depreciation.

Variation in Turnover and Closing Stock:
Another issue raised was the variation in turnover and closing stock. The Assessing Officer had made no additions while implementing the CIT's order, rendering the issue moot for further adjudication before the Tribunal. Both the counsel and the Departmental Representative acknowledged this fact, leading to the conclusion that no further action was required by the Tribunal on this matter.

Direction to Initiate Penalty Proceedings u/s 271(1)(c) of the Act:
The final issue pertained to the CIT's direction to initiate penalty proceedings under section 271(1)(c) of the Act. The assessee had withdrawn a claim for additional depreciation, citing inadvertent error. However, the CIT directed the Assessing Officer to initiate penalty proceedings, which the assessee contended was beyond the CIT's jurisdiction. The Tribunal held that the CIT's directive exceeded his authority as penalty proceedings under section 271(1)(c) could only be initiated by the Assessing Officer or the CIT during proceedings. The Tribunal ruled that the CIT's interference with the Assessing Officer's judicial function was unwarranted, and thus set aside the CIT's order to initiate penalty proceedings.

In conclusion, the Tribunal partly allowed the appeal, setting aside the CIT's directives on depreciation and penalty proceedings while dismissing the stay petition. The judgment emphasized adherence to statutory provisions and the independent decision-making authority of the Assessing Officer in tax matters.