To avoid penalty u/s 271(1)(c), “bonafides” have to be shown and cannot be assumed.

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To avoid penalty u/s 271(1)(c), “bonafides” have to be shown and cannot be assumed.

Conclusions:

(i) Absurd or illogical interpretations cannot be pleaded and become pretence and excuses to escape penalty. “Bonafides” have to be shown and cannot be assumed. Penalty u/s 271(1) confirmed.

(iii) Whether or not the assessee had acted malafidely is not the relevant question to be asked and answered. The relevant question to be asked and answered is whether the assessee has discharged the onus and satisfied the conditions mentioned in Explanation 1 to Section 271(1)(c) of the Act.

(ii) Where assessee claimed exemption of its income under section 11(1) of the Act without any registration under section 12AA(1), mens rea proved and penalty u/s 271(1)(c) to be levied.

Summary of the Decision:
The claim of exemption of income under section 11(1) is allowed only when the assessee is registered under section 12AA(1) of the Act . In view of the no registration, the claim of exemption under section 11 is a patently bogus claim made by the assessee.

It is evident that the assessee failed to give any bonafide explanation in respect of the bogus claim made in all the three assessment years and thus Explanation -1 below the section 271(1)(C) of the Act is conspicuously attracted in the case of the assessee. For levying penalty under section 271(1)(C) of the Act, mensrea of having intention of evading tax is not important. What is important is whether the assessee has substantiated the explanation given and able to prove that the explanation is bonafide. If the assessee failed in doing so , it is liable to attract penalty under section 271(1)(C)of the Act .

It was held by the Delhi High Court that penalty provisions are not criminal and do not require culpable mensrea. Whether or not the assessee had acted malafidely is not the relevant question to be asked and answered. The relevant question to be asked and answered is whether the assessee has discharged the onus and satisfied the conditions mentioned in Explanation 1 to Section 271(1)(c) of the Act.

Absurd or illogical interpretations cannot be pleaded and become pretence and excuses to escape penalty. “Bonafides” have to be shown and cannot be assumed. Penalty confirmed.

Case Name: PETROLEUM SPORTS PROMOTION BOARD vs. ITO

Date of Decision: 6th December 2018

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