You forgot to add back something your own audit report flagged. Is that concealment?
No. It is a bona fide and inadvertent human error — a computation mistake, not concealment or inaccurate particulars. The audit report disclosed the item, so nothing was hidden, and the penalty was deleted.
Decided by the Supreme Court (S.H. Kapadia CJ and Madan B. Lokur J) on 2012-09-25, reported as [2012] 348 ITR 306 (SC); [2012] 253 CTR 1 (SC); [2012] 211 Taxman 40 (SC); [2012] 25 taxmann.com 400 (SC); Civil Appeal No. 6924 of 2012 (arising out of SLP (C) No. 10700 of 2009). It bears on section 271(1)(c), section 40A(7), section 44AB, section 148 of the Income Tax Act 1961, in Penalty matters.
It is the answer to the most human of penalty cases: the figure was in the audit report, everyone could see it, and nobody carried it across. Disclosure, not intention, is what saves you.
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For assessment year 2000-01 the assessee, a multi-disciplinary management consultancy, filed its return on 30 November 2000 together with the tax audit report under s.44AB. Column 17(i) of the Statement of Particulars in Form 3CD stated that a provision of Rs 23,70,306 for payment of gratuity was not allowable under s.40A(7), but the assessee nonetheless claimed the deduction in its computation, and the assessment under s.143(3) was completed on 26 March 2003 without the Assessing Officer noticing it either. A notice under s.148 was issued on 22 January 2004; on being given the reasons on 16 December 2004 the assessee wrote on 20 January 2005 saying a genuine mistake had been made, filed a revised return the same day, and paid the tax and interest. The Assessing Officer then levied penalty under s.271(1)(c) at 300 per cent of the tax sought to be evaded, quantified at Rs 27,37,689. The Commissioner (Appeals) upheld it; the Tribunal upheld the imposition but, describing the error as a silly mistake by a high-calibre organisation that should not have made it, reduced the penalty to 100 per cent; and the Calcutta High Court dismissed the appeal on 18 December 2008 in ITA No. 120 of 2006 (paras 2 to 13). On an affidavit filed at the Court's direction the assessee explained that the return was prepared by a person who was not a Chartered Accountant and who was unaware that some employees taken over on an acquisition were not members of an approved gratuity fund, and was signed by a director who did not notice the discrepancy (paras 14 to 16).
The appeal was allowed and the order of the Calcutta High Court was set aside (para 21). On the peculiar facts, imposition of penalty was not justified: the assessee had committed an inadvertent and bona fide error and had not intended to or attempted either to conceal its income or to furnish inaccurate particulars (para 20). Because the tax audit report filed with the return unequivocally stated the provision was not allowable under s.40A(7), what occurred was a computation error in the return, not concealment or inaccurate particulars (paras 18, 19).
The Court treated the facts as peculiar and somewhat unique, noting that even a reputed firm with great expertise could make a silly mistake, which both the Tribunal and the High Court had themselves acknowledged (para 17). Because the tax audit report was filed with the return and stated in terms that the provision for gratuity was not allowable under s.40A(7), the failure to add it back was a computation error; the assessee had not noticed it, and neither had the Assessing Officer who framed the assessment, so in that sense the Assessing Officer had made the same mistake in overlooking the report (para 18). The contents of the report meant there could be no question of concealment or of furnishing inaccurate particulars; the error was a human one, and the calibre and expertise of the assessee had little or nothing to do with an inadvertent error. Absence of due care in such a case does not make an assessee guilty under s.271(1)(c), even though the assessee should have been careful (para 19). The High Court had gone the other way on the footing that s.271(1)(c) imposes a strict civil liability for which wilful concealment and mens rea are not essential (para 13); the Supreme Court did not disturb that general proposition but held it did not fit these facts.
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.
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Handle my notice → Ask a CA on WhatsAppNo. It is a bona fide and inadvertent human error — a computation mistake, not concealment or inaccurate particulars. The audit report disclosed the item, so nothing was hidden, and the penalty was deleted. This was decided by the Supreme Court (S.H. Kapadia CJ and Madan B. Lokur J) and bears on section 271(1)(c), section 40A(7), section 44AB, section 148 of the Income Tax Act 1961. It is reported as [2012] 348 ITR 306 (SC); [2012] 253 CTR 1 (SC); [2012] 211 Taxman 40 (SC); [2012] 25 taxmann.com 400 (SC); Civil Appeal No. 6924 of 2012 (arising out of SLP (C) No. 10700 of 2009). It is the answer to the most human of penalty cases: the figure was in the audit report, everyone could see it, and nobody carried it across. Disclosure, not intention, is what saves you. If it applies to you, the first step is this: Show where the item was disclosed — audit report, notes to accounts, schedules — even if the computation missed it.
For assessment year 2000-01 the assessee, a multi-disciplinary management consultancy, filed its return on 30 November 2000 together with the tax audit report under s.44AB. Column 17(i) of the Statement of Particulars in Form 3CD stated that a provision of Rs 23,70,306 for payment of gratuity was not allowable under s.40A(7), but the assessee nonetheless claimed the deduction in its computation, and the assessment under s.143(3) was completed on 26 March 2003 without the Assessing Officer noticing it either. A notice under s.148 was issued on 22 January 2004; on being given the reasons on 16 December 2004 the assessee wrote on 20 January 2005 saying a genuine mistake had been made, filed a revised return the same day, and paid the tax and interest. The Assessing Officer then levied penalty under s.271(1)(c) at 300 per cent of the tax sought to be evaded, quantified at Rs 27,37,689. The Commissioner (Appeals) upheld it; the Tribunal upheld the imposition but, describing the error as a silly mistake by a high-calibre organisation that should not have made it, reduced the penalty to 100 per cent; and the Calcutta High Court dismissed the appeal on 18 December 2008 in ITA No. 120 of 2006 (paras 2 to 13). On an affidavit filed at the Court's direction the assessee explained that the return was prepared by a person who was not a Chartered Accountant and who was unaware that some employees taken over on an acquisition were not members of an approved gratuity fund, and was signed by a director who did not notice the discrepancy (paras 14 to 16). The matter was decided on 2012-09-25 by the Supreme Court (S.H. Kapadia CJ and Madan B. Lokur J). On those facts the Supreme Court held as follows. The appeal was allowed and the order of the Calcutta High Court was set aside (para 21). On the peculiar facts, imposition of penalty was not justified: the assessee had committed an inadvertent and bona fide error and had not intended to or attempted either to conceal its income or to furnish inaccurate particulars (para 20). Because the tax audit report filed with the return unequivocally stated the provision was not allowable under s.40A(7), what occurred was a computation error in the return, not concealment or inaccurate particulars (paras 18, 19).
The Court treated the facts as peculiar and somewhat unique, noting that even a reputed firm with great expertise could make a silly mistake, which both the Tribunal and the High Court had themselves acknowledged (para 17). Because the tax audit report was filed with the return and stated in terms that the provision for gratuity was not allowable under s.40A(7), the failure to add it back was a computation error; the assessee had not noticed it, and neither had the Assessing Officer who framed the assessment, so in that sense the Assessing Officer had made the same mistake in overlooking the report (para 18). The contents of the report meant there could be no question of concealment or of furnishing inaccurate particulars; the error was a human one, and the calibre and expertise of the assessee had little or nothing to do with an inadvertent error. Absence of due care in such a case does not make an assessee guilty under s.271(1)(c), even though the assessee should have been careful (para 19). The High Court had gone the other way on the footing that s.271(1)(c) imposes a strict civil liability for which wilful concealment and mens rea are not essential (para 13); the Supreme Court did not disturb that general proposition but held it did not fit these facts. In the words reproduced by the source cited on this page: "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."
It was decided by the Supreme Court on 2012-09-25 and is reported as [2012] 348 ITR 306 (SC); [2012] 253 CTR 1 (SC); [2012] 211 Taxman 40 (SC); [2012] 25 taxmann.com 400 (SC); Civil Appeal No. 6924 of 2012 (arising out of SLP (C) No. 10700 of 2009). Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 271(1)(c), section 40A(7), section 44AB, section 148, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed and the order of the Calcutta High Court was set aside (para 21). On the peculiar facts, imposition of penalty was not justified: the assessee had committed an inadvertent and bona fide error and had not intended to or attempted either to conceal its income or to furnish inaccurate particulars (para 20). Because the tax audit report filed with the return unequivocally stated the provision was not allowable under s.40A(7), what occurred was a computation error in the return, not concealment or inaccurate particulars (paras 18, 19). It arises in Penalty matters, on section 271(1)(c), section 40A(7), section 44AB, section 148 of the Income Tax Act 1961, and was decided by S.H. Kapadia CJ and Madan B. Lokur J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Explain the mechanism of the error plainly rather than arguing about intention. Note that being a large or well-advised taxpayer is not held against you; the Court said so expressly.
Still good law. No source located showing it overruled, doubted or distinguished on the bona fide inadvertent error principle. For AY 2017-18 onwards s.271(1)(c) is inoperative and s.270A applies, so it now governs earlier years and pending proceedings. That finding was checked against a published source, which is linked on this page, on 2026-08-25. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Court twice tied its conclusion to 'the peculiar facts of this case' (paras 17, 20), so this is not a general rule that any omission disclosed in the tax audit report escapes penalty. What did the work was that the disclosure of non-allowability was in the return package itself, in Column 17(i) of Form 3CD, so nothing had been withheld and the failure was arithmetical. The Supreme Court did not disturb the general proposition, stated by the High Court at para 13, that s.271(1)(c) creates a civil liability for which wilful concealment and mens rea are not essential. For assessment year 2017-18 onwards s.271(1)(c) is displaced by s.270A, so this governs earlier years and pending proceedings. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed and the order of the Calcutta High Court was set aside (para 21). On the peculiar facts, imposition of penalty was not justified: the assessee had committed an inadvertent and bona fide error and had not intended to or attempted either to conceal its income or to furnish inaccurate particulars (para 20). Because the tax audit report filed with the return unequivocally stated the provision was not allowable under s.40A(7), what occurred was a computation error in the return, not concealment or inaccurate particulars (paras 18, 19).
TaxSphere, “Price Waterhouse Coopers Pvt Ltd v CIT”, https://taxnotice.vittsphere.com/caselaw/case/price-waterhouse-coopers-v-cit/ (validity last checked 2026-08-25)
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