SC Relieves PwC of Section 271(1)(c) Penalty for Inadvertent & Bonafide Error

Price Waterhouse Coopers Pvt. Ltd. Vs CIT (Supreme Court of India)

Supreme Court of India has overturned a penalty imposed on Price Waterhouse Coopers Pvt. Ltd. (PwC) under Section 271(1)(c) of the Income Tax Act, 1961, for an inadvertent error in its income tax return for the assessment year 2000-2001. The apex court found that the imposition of the penalty was not justified given the specific facts of the case.

The judgment, delivered by a bench of the Supreme Court, set aside the order of the Calcutta High Court which had upheld the penalty, albeit with a reduced quantum.

PwC, a globally recognized management consultancy firm, had filed its return of income along with the statutorily required tax audit report in Form 3CD. In Column 17(i) of this statement, it was explicitly mentioned that the provision for gratuity payment was not allowable as a deduction under Section 40A(7) of the Income Tax Act.

Despite this clear statement in the tax audit report, PwC inadvertently claimed a deduction for the gratuity provision in its income tax return. Subsequently, the assessment order under Section 143(3) was passed, seemingly without the Assessing Officer noticing this discrepancy.

Later, the Assessing Officer issued a notice under Section 148 to reopen the assessment, stating that income had escaped assessment. In response, PwC filed a return under protest and sought the reasons for reopening. The reasons provided by the Assessing Officer specifically pointed out the non-addition of the gratuity provision, amounting to an underassessment of income.