Income Tax

No penalty under section 271(1) (c) in case of concealment of income due to “bonafide mistake” by an assessee

The Assessing Office cannot levy a penalty under section 271(1) (c) due to a bonafide mistake on the part of an assessee.

This was subsequently confirmed by the Hon’ble ITAT, Pune in Amruta Organics pvt ltd vs. DCIT being ITA no. 1121 / PN / 2011 by a judgment dated 22.3.2013.

Where the details supplied by the assessee in its return are not observed found to be false, there is no question of imposing penalty under section 271(1) (c) if the failure to furnish details of income is for the reason of a “bonafide mistake” of the assessee.

Only submitting a claim incorrect in law does not amount to giving false particulars of the income of the assessee, but the claim made by the assessee requires being bona fide.

What happens if the mistake is not a bonafide one?

If the claim which is incorrect in law is found to be “mala fide”, penalty under section 271(1) (c) of the Income Tax Act would be attracted and would be a disadvantage for the assessee. In other words, the act would be liable to penalty under section 271(1) (c) of the Act for being malafide with the intention to evade tax.

Consequences of a bonafide mistake:

If such a case where concealment is due to a “bonafide mistake” is picked up for scrutiny, the assessee can get away only by paying the tax which was payable by him under normal circumstances.

The case:

In the aforesaid case there was no concealment of any fact or any false details of income was not furnished by the assessee.

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The mistakes had occurred on account of incorrect advice given by the Chartered Accountant of the assessee and it was a case of a “bonafide mistake” by the assessee. The Hon’ble ITAT held that “the bonafide act” of the assessee is established from the fact that the assessee accepted the mistake and did not actively conceal anything from the department.

The revenue did not dispute that it was a “bonafide mistake” by the assessee. Thus the imposition of penalty upon the assessee is not justified in law.

The assessee argued that there was no concealing of income of the assessee or of furnishing any false particulars. But the assessee failed to notice the error.

The Hon’ble ITAT was of the opinion that the decisions of Hon’ble Supreme Court in the cases of Reliance Petro products Pvt. Ltd. and Price Water House Coopers Pvt. Ltd. would be applicable. In view of the above, the orders of the CIT were set aside and the penalty levied under Section 271(1) (c) of the Act was cancelled. As a result, the appeal of the assessee was allowed.

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