Income tax officer’s quasi-judicial assessment cannot be branded misconduct absent mala fide: Rajasthan HC

Jodhpur: The Rajasthan High Court has ruled that disciplinary action cannot be taken against an Income Tax Officer for a quasi-judicial assessment order unless the Department proves mala fide intent, undue favour or conscious violation of law. A division bench of Dr. Justice Pushpendra Singh Bhati and Justice Sandeep Shah delivered the verdict on 13 May 2026 while dismissing a writ petition filed by the Union of India.

The dispute concerned Income Tax Officer N.P. Arora. As Assessing Officer at Income Tax-I, Jodhpur, he passed an order on 24 December 2009 in the case of M/s Kwal Pro Exports for assessment year 2007-08. He allowed the firm’s claim for exemption under Section 10B of the Income Tax Act, 1961 — a provision that lets manufacturer-exporters claim deduction on profits from goods produced for export.

Mr. Arora’s decision went against the Department’s earlier stand. For assessment years 2001-02 to 2006-07, the Department had consistently rejected Kwal Pro’s Section 10B claim. The Income Tax Appellate Tribunal, however, had reversed those rejections by a common order dated 29 May 2009. The ITAT had held that the firm was engaged in manufacture or production of articles and was entitled to the exemption. The Department’s appeals against that ITAT order are pending before the High Court.

Within weeks of Mr. Arora’s assessment order, the Commissioner of Income Tax-I directed remedial action. A chargesheet was issued against him on 27 October 2010 under Rule 16 of the CCS (Conduct) Rules, 1965 — the rule that prescribes the procedure for imposing minor penalty. He was charged with violating Rule 3(1)(i) and 3(1)(ii), which require government servants to maintain absolute integrity and devotion to duty. On 10 December 2010, the Department imposed a penalty: his pay was cut by one stage in the time scale for three years from 1 January 2011, with no annual increment during that period.

Mr. Arora challenged the chargesheet and the penalty before the Central Administrative Tribunal, Jodhpur. The litigation went up and down between the Tribunal and the High Court for nearly seven years. On 21 September 2017, the Tribunal allowed his application. It held that he had functioned in a quasi-judicial capacity and that disciplinary proceedings against him were not justified. The Union of India then approached the High Court through the present writ petition.

Counsel for the Union of India, Advocate Sunil Bhandari, submitted that the Tribunal’s order was contrary to law and the review that led to it did not satisfy the parameters of Order XLVII Rule 1 of the Code of Civil Procedure. He argued that Mr. Arora had failed to protect the revenue interest of the State. He had granted exemption despite the Department’s consistent contrary stand and despite knowing that appeals against the ITAT order were pending. The chargesheet, counsel said, also flagged discrepancies in the order sheets of the assessment order.

The Department relied on Union of India vs K.K. Dhawan (1993) 2 SCC 56 and Union of India vs Duli Chand (2006) 5 SCC 680. Counsel contended that Arihant Tiles and Marbles Pvt. Ltd — the Supreme Court ruling cited by Mr. Arora — did not apply because the facts involved different articles and a different manufacturing process.

Counsel for Mr. Arora, Advocate J.K. Kaushik, submitted that the chargesheet and penalty order could not stand. The assessment order had been passed after applying mind to the facts and to binding decisions of the ITAT and the Supreme Court. The respondent had pointed out a substantial change in facts: the firm had invested in plant and machinery, and the finished export product was different from the raw material purchased.

Counsel argued that the officer was acting in a quasi-judicial capacity, bound to follow the ITAT’s ruling that the firm was a manufacturing unit. Crucially, the very assessment order under disciplinary scrutiny was later restored by the ITAT on 27 August 2012 — the Tribunal held that Mr. Arora had applied his mind and passed a well-reasoned order.

The division bench began by examining what counts as “misconduct” — a term not defined in the CCS Rules. The Court walked through State of Punjab vs Ex-Constable Ram Singh (1992) 4 SCC 54 and Union of India vs J Ahmed (1979) 2 SCC 286. Both authorities draw a sharp line: a wrongful intention or recklessness amounts to misconduct, but a mere error of judgment or simple negligence does not.

The bench then applied the most recent Supreme Court ruling on the point — Nirbhay Singh Suliya vs State of Madhya Pradesh (2026) 3 SCC 325. That judgment held that “inference of misconduct or about extraneous considerations having actuated, the decision cannot be drawn merely from a hypothesis that a decision is erroneous.” A wrong decision, the Supreme Court said, “can yet be a bona fide error of judgment”. What matters is the officer’s conduct, not the correctness of the verdict.

Turning to the chargesheet, the High Court found a fatal gap. The bench observed: “There was no allegation whatsoever that the order had been passed due to lack of devotion to duty or on account of lack of integrity.” The chargesheet cited Rule 3(1)(i) and (ii) of the CCS Rules in the heading, but the actual charges only complained that the assessment was faulty and deviated from the Department’s stand. That, the Court held, is not the same as alleging dishonesty.

The bench then assessed whether the order itself was so unreasonable as to suggest dishonesty. It said the view Mr. Arora took was “a plausible view and cannot be said to be a view taken in abstract without any supporting material”. He had relied on the ITAT’s 29 May 2009 ruling and on the Supreme Court’s decision in Arihant Tiles and Marbles. The order showed bona fide application of mind supported by cogent reasons.

One fact clinched the matter for the bench. The very assessment order being branded misconduct had been upheld by the ITAT on 27 August 2012. The Court held: “Affirmation from the appellate tribunal represents a plausible legal view.” An order endorsed by the appellate forum could not, after the fact, be recast as proof of misconduct against the officer who passed it.

Summarising the rule, the bench laid it out plainly. Disciplinary action against quasi-judicial orders is permissible “only where decision is followed by mala fide intent with the view to grant undue benefit or where there is conscious violation and disregard to the provisions of law”. The Department, the Court found, had produced no evidence of ill intention, personal gain, or undue advantage given by Mr. Arora.

The High Court dismissed the writ petition as bereft of merit. The Tribunal’s order quashing the chargesheet and the penalty against Mr. Arora was left intact. No order was made as to costs and all pending applications were disposed of.

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