2012 (9) TMI 775 - SC - Income Tax

Penalty u/s 271(1)(c) - assessee providing multi-disciplinary management consultancy services and having worldwide reputation - claimed deduction of provision towards payment of gratuity in its return of income, when the same was not allowable as provision towards payment of gratuity was not allowable as per Statement of Particulars filed by the assessee in Form 3CD - assessee contended it to be genuine mistake - Held that - 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 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. Absence of due care, in a case such as the present does not mean that the assessed is guilty of either furnishing inaccurate particulars or attempting to conceal its income. Imposition of penalty on the assessee is not justified - Decided in favor of assessee

Summary

Issues:
Assessment of penalty under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2000-01.

Analysis:
The case involves the imposition of a penalty under section 271(1)(c) of the Income-tax Act, 1961. The assessee, a firm providing management consultancy services, filed its return of income for the assessment year 2000-01, including a provision for gratuity in its Statement of Particulars. However, the provision was not added to the total income, leading to underassessment. The Assessing Officer issued a notice for reopening the assessment, alleging income escapement due to the unadded provision. The assessee rectified the error by filing a revised return and paying the due tax and interest. Despite this, penalty proceedings were initiated, resulting in a 300% penalty on the tax sought to be evaded. The penalty was upheld by lower authorities, albeit reduced to 100% by the Tribunal.

The High Court upheld the penalty, emphasizing the strict liability of furnishing accurate particulars under section 271(1)(c). However, the Supreme Court found the case peculiar, acknowledging the inadvertent error made by the assessee. The Court noted that the Tax Audit Report clearly indicated the provision for gratuity was not allowable, suggesting no intent to conceal income or furnish inaccurate particulars. The Court highlighted the human error made by the assessee and the oversight by the Assessing Officer. Considering the circumstances, the Court concluded that the imposition of the penalty was unjustified. The appeal was allowed, setting aside the High Court's order.

In conclusion, the Supreme Court's judgment focused on the inadvertent nature of the error, the absence of intent to conceal income, and the peculiar circumstances of the case. The Court emphasized the bona fide mistake made by the assessee, leading to the decision that the penalty imposition was unwarranted.