Bona fide belief and lack of proof of pre-construction agreements defeated sales tax penalty under Karnataka law.

Penalty under Section 12-A(1-A) of the Karnataka Sales Tax Act was held unsustainable where there was no material to show that agreements with prospective buyers had been executed before commencement of construction. The record before the assessing authority, first appellate authority and tribunal did not establish any such pre-construction agreements, and the legal position during the relevant assessment years was not clear. The omission to disclose turnover was treated as arising from a bona fide belief based on the then prevailing understanding of the law, so the penal provision could not be invoked. The penalty was quashed in favour of the assessee.

---

---

Issues: Whether penalty under Section 12-A(1-A) of the Karnataka Sales Tax Act, 1957 could be sustained when there was no material to show that agreements with prospective buyers were entered into before commencement of construction and the non-disclosure of turnover was claimed to be based on a bona fide belief arising from the then prevailing legal position.

Analysis: The finding that the petitioner had entered into agreements prior to commencement of work was unsupported by particulars or material on record. The record before the assessing authority, the first appellate authority, and the tribunal did not establish that any such pre-commencement agreements existed. In the relevant assessment years, the legal position was also not clear, and the omission to disclose turnover was attributable to a bona fide belief based on the prevailing understanding of the law. In such circumstances, the penal provision could not be invoked.

Conclusion: The levy of penalty under Section 12-A(1-A) was unsustainable and was quashed, in favour of the assessee.

---