Penalty u/s 271(1)(c) not applicable in case of bonafide mistake on account of change in law – Supreme Court

CIT v Chittorgarh Kendriya Sahakari Bank Ltd (SLP – CC No(s). 8127/2014 dated 02.07.2014)

Supreme Court dismissed the SLP filed by Tax Authorities against the Rajasthan High Court ruling in the case of Chittorgarh Kendriya Sahakari Bank Ltd [2014] 41 11 wherein it was held penalty under section 271(1)(c) levied upon the assessee on incorrect claim for deduction was not justifiable as the same was on account of change of law and therefore, a matter of bona fide mistake.

Gist of the said ruling is as under:

  • The assessee is a co-operative society, engaged in the business of banking and providing credit facilities. The assessee had earlier been claiming, and was being allowed, deduction under Section 80P(2) of the Act for being eligible therefor. The assessee also claimed the similar deduction for the AY 2007-08, which has not been allowed by the AO due to change in law, whereby the assessee was rendered ineligible for this deduction.
  • In the original return, the assessee claimed deduction of Rs.50,000 under Section 80P(2)(c)(ii) of the Act and in the revised return dated 13.12.2007, besides the above, the assessee also claimed deduction of Rs.3,07,37,988 under Section 80P(2)(d) of the Act. However, with the amendment in Section 80P and insertion of Sub-section (4) from 01.04.2007, assessee was, admittedly, not entitled to such deductions.
  • During the assessment proceedings, penalty notice was also issued with reference to such claims of deduction, requiring the assessee to show cause as to why penalty under Section 271(1)(c) should not be imposed on it for alleged concealment of particulars of income/furnishing of inaccurate particulars of income.
  • The assessee submitted that in essence, it was a technical error, which occurred due to amendment of the provisions of Section 80P of the Act; and the mistake was sought to be rectified in the re-revised return
  • The Appellate authorities – CIT(A) and ITAT held that due to sudden change in law, this claim was not allowed and the assessee also corrected its mistake by filing a revised return, it is not a case of wilful wrong claim. Reliance was placed on the Supreme Court ruling in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322.
  • High Court held that the claim for this deduction in the assessment year 2007-08 had been a matter of bona fide mistake and could not have been taken to be a case of concealment of particulars of income or furnishing of inaccurate particulars of income. 
It is pertinent to note that recently Mumbai ITAT in the case of Deloitte Consulting India Pvt. Ltd vs. ACIT held that “The giving up of a bogus claim for deduction to eschew inquiry by AO/ TPO is not voluntary & bona fide & attracts levy of penalty.” The principle laid down by Supreme Court ruling could be considered in such cases where the assessee is able to prove that if the mistake is bonafide and the claim is given up during the course of assessment proceedings suo motu, penalty cannot be levied.

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