“Bonafide Mistake” in filing returns does not call for penalty u/s 271(1)(c)

CLR Editorial Note: In this case, the assessee had filed a return of income in which two mistakes were committed (i) The assesssee claimed depreciation of Rs.1.70 crores instead of Rs. 1.05 crores due to a calculation mistake, (ii) the assessee had sold its garment manufacturing machine and had suffered a loss of Rs.21.68 lakhs thereon. Instead of claiming the loss was on capital account, it was claimed as a revenue deduction. While the assessment proceedings were on, the assessee had realised the mistake and withdrew the claims for excess depreciation and losses.

The Assessing Office on noting this, then levied a penalty under section 271(1)(c) on both the above mistakes and this was subsequently confirmed by the CIT (Appeals). The Tribunal, however, held that both the mistakes had occurred due to an incorrect advise given by the assessee’s Chartered Accountant and that this was a case of a bona fide mistake.

The CIT (A) also held that the bonafide of the assessee is established from the fact that the assessee accepted the mistake and did not prefer any appeal against the order of the AO. The Department, appeal against this decision in the High Court. The Hon’ble High Court, dismissed the appeal and held:

The grievance of the revenue is that penalty is justifed in view of the fact that the assessee had not filed a revised return of income. However, the Tribunal noted that the time to file revised return had expired. In any event, even the revenue does not dispute that it was a bonafiide mistake on the part of the assessee. In the above view, imposition of penalty upon the assessee is not warranted.


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