No penalty awarded for a bona fide error


Allowing an appeal in Price Waterhouse Coopers Pvt Ltd v Commissioner of Income Tax, Kolkata-I & Anr, the Supreme Court set aside an order of Calcutta High Court upholding a decision by the tax authorities to impose a penalty on Price Waterhouse Coopers (PWC) following what the apex court held was an “an inadvertent and bona fide error”.

Satisfying itself that PWC “had not intended to or attempted to either conceal its income or furnish inaccurate particulars”, the court held that the order to penalize PWC, under section 271(1)(c) of the Income Tax Act, 1961, was not justified.

Error_pencil_eraserThe dispute between PWC and the tax authorities centred on a return of income PWC had filed in 2000 along with a tax audit report. PWC had claimed a deduction in its return of income and an assessment order had been passed under section 143(3) of the act in March 2003. A year later the tax authorities had issued a notice to PWC under section 148 of the act to reopen the assessment and subsequently when an underassessment was detected, it had levied a penalty on PWC.

PWC had explained the underassessment as a genuine mistake. However, on appeal both the Commissioner of Income Tax (Appeals) and Calcutta High Court had affirmed the levy of penalty.

The Supreme Court held that despite the fact that PWC was a reputed firm, it was possible that it could make a “silly” mistake.

The facts of the case indicated that PWC had made a computation error in its return of income and even the assessment officer who framed the original assessment order had made a mistake in overlooking it. Given the peculiar facts of this case, the court held that the imposition of penalty on PWC was not justified.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at or Readers should not act on the basis of this information without seeking professional legal advice.