Bona fide belief in registration prevents penalty under Section 271(1)(c); deletion upheld where claim was debatable.

Deletion of penalty under Section 271(1)(c) was upheld where the assessee applied for registration under Section 12A/12AA, pursued rectification, and acted under a bona fide belief that registration would be granted; the assessee disclosed the position in returns and treated disputed interest as a liability. The court endorsed the Tribunal's view that where a claim is bona fide or debatable and rectification proceedings are pending, penalty may not be attracted, and found the Tribunal's conclusion not perverse.

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Issues: Whether the deletion of penalty under Section 271(1)(c) of the Income-tax Act, 1961 was justified where the assessee asserted a bona fide belief that registration under Section 12AA/12A would be allowed and had sought rectification.

Analysis: The Tribunal found that the assessee had applied for registration under Section 12A/12AA and, because the application and subsequent rectification were pending and thereafter registration was granted with effect from a later year, the assessee acted under a bona fide belief that registration would be allowed; the assessee disclosed the position in returns and treated contested interest as liability rather than income. The Court examined the record including the order rejecting rectification under Section 154 and noted authorities recognising that where a claim is bona fide or a question is debatable, penalty under Section 271(1)(c) may not be attracted. The Court concluded that the Tribunal's view that penalty was not leviable was a possible view on the facts and not perverse.

Conclusion: The deletion of penalty under Section 271(1)(c) is upheld in favour of the assessee.

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