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Friday, September 28, 2012

Supreme Court says, No Penalty u/s. 271 (1) (c) be levied in case of bonafide, inadvertent & human error

In the case of  Price Waterhouse Coopers vs.Commissioner of Income-tax, Kolkata - I, the levy of penalty u/s. 271 (1) (c) was upheld by The Commissioner of Income Tax-(Appeals), the Hon'ble Income Tax Appellate Tribunal and High Court on the ground that, since the assessee was a well known and reputed Chartered Accountant firm and a tax consultant, it was not expected to make such a mistake and that there had been a failure to discharge the strict liability to furnish true and correct particulars of income.

Facts:The assessee had filed the Return of Income along with the Tax Audit Report (TAR). 

In the TAR, an amount of Rs. 23 lakhs towards provision for gratuity was disclosed which was not allowable u/s 40A(7). However, in the computation of income, the said amount was not disallowed. The Assessing officer overlooked the item and had overlooked to make a disallowance. 

Subsequently, the case was re-opened and assessment u/s 147 was made and accordingly assessing officer disallowed the expenditure and levied penalty u/s 271(1)(c). 

Commissioner of Income Tax (Appeals), ITAT, High Court affirmed and upheld the levy of Penalty u/s. 271 (1) (c).

Supreme Court held as here under:-

"Having heard learned counsel for the parties, we are of the view that the facts of the case are rather peculiar and somewhat unique. The assessee is undoubtedly a reputed firm and has great expertise available with it. Notwithstanding this, it is possible that even the assessee could make a "silly" mistake and indeed this has been acknowledged both by the Tribunal as well as by the High Court.

The fact that the Tax Audit Report was filed along with the return and that it unequivocally stated that the provision for payment was not allowable under Section 40A(7) of the Act indicates that the assessee made a computation error in its return of income. Apart from the fact that the assessee did not notice the error, it was not even noticed even by the Assessing Officer who framed the assessment order. In that sense, even the Assessing Officer seems to have made a mistake in overlooking the contents of the Tax Audit Report.

The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It appears to us that all that has happened in the present case is that through a bonafide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The caliber and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present, does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income.

We are of the opinion, given the peculiar facts of this case, that the imposition of penalty on the assessee is not justified. We are satisfied that the assessee had committed an inadvertent and bonafide error and had not intended to or attempted to either conceal its income or furnish inaccurate particulars.

Under these circumstances, the appeal is allowed and the order passed by the Calcutta High Court is set aside."

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