PRICEWATERHOUSECOOPERS PVT.LTD. Vs C.I.T-KOLKATA-I
Bench: S.H. KAPADIA,MADAN B. LOKUR
Case number: C.A. No.-006924-006924 / 2012
Diary number: 70892 / 2009
Advocates: B. VIJAYALAKSHMI MENON Vs
B. V. BALARAM DAS
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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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