2014 (1) TMI 1129 - AT - Income Tax

ITAT Quashes CIT's Order, Upholds AO's Penalty Decision

M/s Lala Harbhagwan Das Versus Commissioner of Income-tax

The ITAT allowed the assessee's appeal, quashing the CIT's order under Section 263. The Tribunal found that the AO's order dropping the penalty ... Validity of order passed by CIT u/s 263 - Held that:- In assessee's own case for A.Y. 2005-06 - The tribunal has held that no penalty is leviable in relation to claim for deduction of excess depreciation and interest on amount borrowed for building which was incomplete - Keeping in view the same order the Tribunal for the current year also deleted the penalty - The bona fide belief of the assessee has been upheld by the ITAT. A cryptic order per se cannot be held to be erroneous - Ld. CIT has erroneously assumed that bonafide belief was not considered by assessing officer - Once the assessee has filed the written reply and attended the proceedings it cannot be held that necessary inquiries were not carried out - Assessee cannot be visited with penalty u/s 271(1)(c) - The penalty order dropping penalty proceedings u/s 271(1)(c), merely because it is cryptic order cannot be held to be erroneous or prejudicial to the interest of revenue - It amounts to multiplicity of proceedings on hyper technical issues - Decided in favour of assessee. Issues Involved:1. Jurisdiction under Section 263 of the Income Tax Act.2. Conduct of CIT (DR) during the proceedings.3. Evaluation of the penalty order under Section 271(1)(c).4. Application of the principle of bona fide belief.5. Cryptic nature of the Assessing Officer's order.Detailed Analysis:1. Jurisdiction under Section 263 of the Income Tax Act:The main issue was whether the Commissioner of Income-tax (CIT) had correctly assumed jurisdiction under Section 263 by holding that the penalty order dated 29-05-2009 was erroneous and prejudicial to the interest of revenue. The CIT invoked Section 263, arguing that the Assessing Officer (AO) passed a cryptic order dropping penalty proceedings under Section 271(1)(c), which was erroneous and prejudicial to the interests of revenue. The ITAT found that the AO had followed the statutory process, considered the assessee's explanation, and passed a plausible and reasonable order. Thus, the ITAT quashed the CIT's order under Section 263.2. Conduct of CIT (DR) during the proceedings:The Tribunal noted the unbecoming conduct of the CIT (DR), Shri D.K. Mishra, who was absent at the beginning of the hearing and later made contemptuous remarks against the Bench. The Tribunal imposed a cost of Rs. 1,000 on Shri Mishra and directed that the amount be deducted from his salary. The Registry was instructed to forward copies of the order to relevant authorities for appropriate action, including placing observations in his service record. Separate contempt proceedings were also proposed against Shri Mishra.3. Evaluation of the penalty order under Section 271(1)(c):The AO had dropped the penalty proceedings for the assessment year 2006-07, following the ITAT's earlier order for A.Y. 2005-06, which deleted the penalty on the same set of facts. The ITAT held that the AO's order was neither erroneous nor prejudicial to the interests of revenue, as it was based on a bona fide belief and consistent with the ITAT's previous decision. The ITAT emphasized that mere erroneous claims, in the absence of concealment or furnishing of inaccurate particulars, do not justify the imposition of penalties.4. Application of the principle of bona fide belief:The assessee claimed 40% depreciation on a C.T. scan machine under a bona fide belief that it qualified as a magnetic resonance imaging system. This belief was upheld by the ITAT in the preceding year (A.Y. 2005-06). The ITAT reiterated that the bona fide belief of the assessee in claiming depreciation was a final finding of fact and must be respected. The Tribunal found no reason to deviate from this finding for A.Y. 2006-07, as the assessee followed the same practice.5. Cryptic nature of the Assessing Officer's order:The CIT argued that the AO's order was cryptic and lacked detailed reasoning. However, the ITAT held that a cryptic order does not automatically render it erroneous or prejudicial to the interests of revenue. The Tribunal noted that the AO had issued a penalty notice, received a detailed reply from the assessee, and considered relevant case laws, including Dharmendra Textile Processors. The ITAT concluded that the AO had carried out necessary inquiries and that the cryptic nature of the order did not justify invoking Section 263.Conclusion:The ITAT allowed the assessee's appeal, quashing the CIT's order under Section 263. The Tribunal found that the AO's order dropping the penalty proceedings was justified, based on a bona fide belief and consistent with the ITAT's previous decision. The Tribunal also addressed the contemptuous conduct of the CIT (DR), imposing costs and proposing separate contempt proceedings.