Silly Mistake by Leading Tax Consulting Firm - Supreme Court Sets Aside Penalty

Silly Mistake by Leading Tax Consulting Firm - Supreme Court Sets Aside Penalty

THE assessee is one of the Big Four. It made a silly mistake in taking an ineligible deduction in Income Tax. The Assessing Officer after re-assessment imposed a 300% penalty, which was confirmed by the CIT (Appeals). The ITAT noted 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%. The High Court dismissed the appeal by the high calibre assessee.

They are now before the Supreme Court.

The Supreme Court asked the assessee to explain as to how and why the mistake was committed.

The assessee submitted that it 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 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. 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.

The Supreme Court observed,

"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.

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 ."

2012-TIOL-84-SC-IT + Story
Price Waterhouse Coopers Pvt Ltd Vs CIT Vs CIT
Income Tax - Sections 40A(7), 44AB, 139(6) & (6A), 143(3), 148, 271(1)(C), Rule 6G(2) - "inadvertent error", "human error", "silly mistake", "bona fide error" - Whether when it comes to filing of tax return, a high-calibre accounting firm is not expected to commit a silly mistake - Whether high-calibre and expertise provide any immunity to the assessee from making human error - Whether when a high-calibre accounting firm makes an inadvertent error in claiming deduction, which was also overlooked by the AO at the first instance, it warrants imposition of concealment penalty. - Assessee's appeal allowed : SUPREME COURT OF INDIA