2013 (12) TMI 1674 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction u/s 263 by CIT.
2. Conduct of CIT (DR) during proceedings.
3. Merits of the penalty order u/s 271(1)(c).

Summary:

1. Jurisdiction u/s 263 by CIT:
The assessee challenged the CIT's assumption of jurisdiction u/s 263, arguing that the penalty order dated 29-05-2009 was neither erroneous nor prejudicial to the interest of revenue. The CIT had set aside the penalty proceedings, which the assessee contended was unjustified. The ITAT noted that the assessee's claim of depreciation at 40% was based on a bona fide belief, supported by the ITAT's own order for A.Y. 2005-06, which had deleted the penalty on similar grounds. The ITAT held that the penalty order dropping proceedings u/s 271(1)(c) was not erroneous or prejudicial to the revenue, and thus, quashed the CIT's order u/s 263.

2. Conduct of CIT (DR) during proceedings:
The ITAT expressed strong disapproval of the conduct of CIT (DR) Shri D.K. Mishra, who was absent at the beginning of the hearing and unprepared when he arrived. His behavior was deemed contemptuous and obstructive to the judicial process. The ITAT imposed a cost of Rs. 1,000 on Shri Mishra, to be deducted from his salary, and directed the Registry to forward copies of the order to relevant authorities for appropriate action. The ITAT also noted that any case laws filed by Shri Mishra after the hearing would not be considered.

3. Merits of the penalty order u/s 271(1)(c):
The ITAT examined the merits of the penalty order, noting that the assessee had claimed depreciation at 40% based on a bona fide belief that the C.T. scan machine was eligible for such depreciation. The ITAT found that the assessee's belief was upheld in the preceding year by the ITAT, and thus, the same belief in the subsequent year could not be penalized. The ITAT concluded that the penalty proceedings were dropped after due consideration of the assessee's explanation and relevant case laws, including Dharamendra Textile Processors. The ITAT held that a cryptic order by the AO, in this context, did not render it erroneous or prejudicial to the revenue.

Conclusion:
The ITAT allowed the assessee's appeal, quashing the CIT's order u/s 263 and upholding the AO's decision to drop the penalty proceedings u/s 271(1)(c). The conduct of CIT (DR) Shri D.K. Mishra was condemned, and appropriate actions were directed against him.