(2012) 348 ITR 306 (SC)
Penalty for under-reporting and misreporting; penalty for concealment and other failures
No. Where the error is inadvertent and the correct position is apparent from the audited accounts and the tax audit report filed with the return, the mistake is bona fide and penalty is not warranted.
Does a genuine clerical oversight in preparing the return, apparent from the accompanying documents, attract penalty for furnishing inaccurate particulars?
The assessee, a firm of chartered accountants, claimed a deduction for a provision for leave encashment in computing its income. The tax audit report filed with the return correctly recorded that the provision was not allowable, and the audited accounts disclosed the provision clearly. Through an oversight in preparing the computation, the amount was not added back. The Assessing Officer disallowed the provision and levied penalty, observing pointedly that the assessee was a firm of accountants from whom such an error was not to be expected.
The penalty was upheld by the appellate authorities and the Calcutta High Court, which laid weight on the professional standing of the assessee. The assessee appealed to the Supreme Court.
For the assessee
The tax audit report accompanying the return itself stated that the provision was not allowable. No attempt was made to conceal anything; had there been an intention to claim the deduction improperly, the accompanying report would not have disclosed the contrary position. The error was a human oversight in transcription and was bona fide.
For the Revenue
A firm of chartered accountants is expected to know that a provision of this kind is not deductible. Claiming it in the return furnished inaccurate particulars, and the professional standing of the assessee makes the error less excusable rather than more.
The Court held that the assessee had committed an inadvertent and bona fide error rather than furnished inaccurate particulars in the sense the provision requires. It laid decisive weight on the fact that the tax audit report filed along with the return itself stated that the provision was not allowable: an assessee intending to make a false claim would hardly file, with the very same return, a document contradicting it. That circumstance demonstrated that there was no intention to conceal and that the mistake was one of transcription in preparing the computation. The Court declined to treat the assessee's professional standing as an aggravating factor, observing that the assessee is a large company and that such an error can occur in any organisation notwithstanding its expertise; the calibre of the taxpayer does not convert an inadvertent mistake into a deliberate one. It held that the imposition of penalty was not justified and deleted it, while making clear that the conclusion rested on the particular facts and the disclosure made in the accompanying documents.
Under Sections 439 and 440 of the IT Act 2025 the distinction between under-reporting and misreporting makes the character of the error decisive, since misreporting attracts a materially higher penalty. This remains the leading authority for resisting penalty on a genuine computational oversight, and it underscores a practical point: the tax audit report and accompanying schedules are the evidence on which the bona fide defence is built.