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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL     APPEAL     NO.      6924      2012   [Arising out of S.L.P.(C)  No.10700 of 2009]

Price Waterhouse Coopers Pvt. Ltd.         …..Appellant  

Versus Commissioner of Income Tax, Kolkata-I  ....Respondents  and Anr.

J     U     D     G     M     E     N     T      

Madan     B.     Lokur,     J.   

1. Leave granted.

2. The assessee is aggrieved by a judgment and order  

dated 18.12.2008 passed by the High Court of Calcutta in ITA  

No.120 of 2006. By the impugned judgment, a penalty imposed  

on the assessee under Section 271(1)(c) of the Income Tax Act,  

1961 was upheld, though the quantum was reduced. We are of  

the view that on the facts of the case the imposition was not  

justified.  

3. We are concerned with the assessment year 2000-2001.  

The assessee provides multi-disciplinary management  

consultancy services and has a worldwide reputation. It filed its  

return of income on 30.11.2000 under Section 139(6) read with  

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Section 139(6A) of the Income Tax Act (for short, ‘the Act’).  As  

statutorily required by Section 139(6A) of the Act, the assessee  

also filed its tax audit report under Section 44AB of the Act.  The  

Statement of Particulars filed by the assessee was in Form 3CD  

as required by Rule 6G(2) of the Income Tax Rules, 1962 and is,  

in a sense, an integral part of the return.

4. In Column 17(i) of the Statement, it was stated as follows: -

17. Amounts debited to the  profit and loss account  being:-  

(a) xx       xx           xx xx       xx           xx (b) xx       xx           xx xx       xx           xx (c) xx       xx           xx xx       xx           xx (d) xx       xx           xx xx       xx           xx (e) xx       xx           xx xx       xx           xx (f) xx       xx           xx xx       xx           xx (g) xx       xx           xx xx       xx           xx (h) xx       xx           xx xx       xx           xx (i) provision for payment of  

gratuity not allowable  under section 40A(7);

Rs.23,70,306/-  (Liability provided  for payment of  gratuity)

5. Even though the Statement indicated that the provision  

towards payment of gratuity was not allowable, the assessee  

claimed a deduction thereon in its return of income. On the basis  

of the return and the Statement, an assessment order was passed  

under Section 143(3) of the Act on 26.03.2003.  According to the  

assessee, the claim for deduction was inadvertent and it also  

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seems to have been overlooked by the Assessing Officer.  

6. Much later, the Assessing Officer issued a notice to the  

assessee under Section 148 of the Act on 22.01.2004 for  

reopening the assessment.  The notice did not indicate any  

reason why it was issued except to state that income for the  

assessment year 2000-2001 had escaped assessment.

7. In response to the notice, the assessee filed its return  

under protest on 16.02.2004 and also requested for the grounds  

for reopening the assessment.

8. By a letter dated 16.12.2004, the assessee was  

furnished the reasons for reopening the assessment, which read  

as under:-

“A.  Reasons     for-opening     u/s     147     relevant     to     A.Y.     2000-01   

In this case, regular assessment was  completed under Section 143(3) on 26.03.03 at a  total income of Rs.24,42,91,550/-.

On perusal of the assessment records, it  is seen from Clause 17(i) of the Tax Audit Report  that Rs.23,70,306/- being liabilities provided for  payment of gratuity, was provided for during the  year.  This provision is not allowable u/s 40A(7)  and was required to be added back.  However,  the same has not been added by the assessee in  its computation, thereby leading to  underassessment of income by Rs.23,70,306/-.”

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9. Soon after the assessee was communicated the reasons  

for re-opening the assessment, it realized that a mistake had been  

committed and accordingly by a letter dated 20.01.2005 the  

Assessing Officer was informed that there was no willful  

suppression of facts by the assessee but that a genuine mistake  

or omission had been committed which also appears to have been  

overlooked by the Assessing Officer before whom the Tax Audit  

Report was placed. Accordingly, the assessee filed a revised  

return on the same day. A re-assessment was passed on the same  

day and the assessee then paid the tax due as well as the interest  

thereon.

10. Unfortunately for the assessee, the Assessing Officer  

thereafter initiated penalty proceedings under Section 271(1)(c) of  

the Act.

11. After obtaining a response from the assessee, the  

Assessing Officer saddled the assessee with penalty at 300% on  

the tax sought to be evaded by the assessee by furnishing  

inaccurate particulars. The quantum of the penalty was  

determined at Rs.27,37,689/-.

12. Feeling aggrieved, the assessee preferred an appeal, but  

the Commissioner of Income Tax (Appeals) rejected the appeal  

and upheld the penalty imposed on the assessee. In a further  

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appeal, the Income Tax Appellate Tribunal (for short the Tribunal)  

upheld the imposition. Significantly, the Tribunal mentions that  

the assessee had made a mistake, which could be described as a  

silly mistake, but since the assessee is a high-calibre and  

competent organization, it was not expected to make such a  

mistake. Accordingly, the Tribunal reduced the penalty to 100%.

13. Against the order of the Tribunal, the assessee  

approached the Calcutta High Court which dismissed its appeal  

filed under Section 260-A of the Act by the impugned order. The  

only reason given by the High Court for dismissing the appeal  

reads as under:-

“After analysing the facts of this case,  considering the submissions made by the  learned Advocates for the parties and the  materials placed before us, we cannot  brush aside the fact that the assessee  company is a well known and reputed  Chartered Accountant firm and a tax  consultant. We also do not find any  substance in the submissions made by Dr.  Pal; on the contrary, in our considered  opinion, we find that Section 271(1)(c) of  the Act has specifically stated about the  concealment of the particulars of income or  furnishing of inaccurate particulars of such  income which has to be read “either” – “or”  and on the given facts of this case would  automatically come within the four corners  of Section 271(1)(c) of the Act and we come  to the conclusion that the appellant have  failed to discharge their strict liability to  furnish their true and correct particulars of  

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accounts while filing the return. We are  also of the opinion that the penalty under  that provision is a civil liability and wilful  concealment is not an essential ingredient  for attracting civil liability as in the matter  of prosecution under section 276C, as has  been held by the Hon'ble Supreme Court.  We also find that the mens rea is not an  essential element for imposing penalty for  breach of civil obligations or liabilities. We,  therefore, accept the contention of Mr.  Shome and dismiss the appeal answering  the questions in the negative.”  

14. During the course of hearing this appeal against the  

judgment and order of the Calcutta High Court, we had required  

the assessee to explain to us how and why the mistake was  

committed.

15. The assessee has filed an affidavit dated 14th September,  

2012 in which it is stated that the assessee is engaged in  

Multidisciplinary Management Consulting Services and in the  

relevant year it employed around 1000 employees. It has a  

separate accounts department which maintains day to day  

accounts, pay rolls etc. It is stated in the affidavit that perhaps  

there was some confusion because the person preparing the  

return was unaware of the fact that the services of some  

employees had been taken over upon acquisition of a business,  

but they were not members of an approved gratuity fund unlike  

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other employees of the assessee. Under these circumstances, the  

tax return was finalized and filled in by a named person who was  

not a Chartered Accountant and was a common resource.

16. It is further stated in the affidavit that the return was  

signed by a director of the assessee who proceeded on the basis  

that the return was correctly drawn up and so did not notice the  

discrepancy between the Tax Audit Report and the return of  

income.

17. 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.

18. 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  

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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.   

19. 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 bona fide 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  

calibre 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.  

20. We are of the opinion, given the peculiar facts of this  

case, that the imposition of penalty on the assessee is not  

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justified. We are satisfied that the assessee had committed an  

inadvertent and bona fide error and had not intended to or  

attempted to either conceal its income or furnish inaccurate  

particulars.

21. Under these circumstances, the appeal is allowed and  

the order passed by the Calcutta High Court is set aside. No  

costs.  

.………………………….CJI.         (S.H. KAPADIA)

                                                                                …….……………………..J.

        (MADAN B. LOKUR)  New Delhi; September 25, 2012  

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