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Issues: Whether, for the purpose of section 271(3)(b) of the Income-tax Act, 1961, the relevant test is the income as bona fide believed by the assessee to be taxable, rather than the income finally assessed.
Analysis: The provision applies where a person who has failed to comply with a notice under section 139(2) or section 148 proves that he had no income liable to tax. The Court accepted the line of authority holding that the expression refers to the income honestly believed by the assessee to be taxable, and not necessarily the income ultimately assessed by the department. The Tribunal had found, on the facts, that the assessee returned income below the taxable limit under a bona fide belief and that the difference from the assessed income arose from debatable disallowances. That finding was based on proper considerations and cogent reasons, and no interference was called for. The additional contention regarding set-off of an earlier loss was stated to be unnecessary for deciding the reference.
Conclusion: The assessee's bona fide belief that it had no income liable to tax attracted section 271(3)(b), and the maximum penalty was limited accordingly. The question was answered in the affirmative and in favour of the assessee.
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