Facts of the Case

The Revenue filed an appeal challenging the order of the Income Tax Appellate Tribunal deleting penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 against Compro Technologies Pvt. Ltd. for Assessment Year 2009–10.

The assessee had furnished Form No. 29B certified by a Chartered Accountant regarding computation of book profits under Section 115JB. Subsequently, it was found that the Chartered Accountant had incorrectly interpreted the interaction between Section 115JB and Section 10A while computing book profits.

The Chartered Accountant submitted a personal affidavit accepting that the error was committed due to misunderstanding and misinterpretation of the applicable provisions. It was also observed that this was the first year when Section 115JB had become applicable to companies covered under Section 10A, creating complexity in application of the law.

Issues Involved

  1. Whether penalty under Section 271(1)(c) of the Income Tax Act, 1961 could be imposed where an incorrect claim arose from a bona fide error committed by a Chartered Accountant.
  2. Whether an erroneous computation of book profits under Section 115JB caused by complexity arising from the interaction of Section 10A and Section 115JB amounts to concealment of income or furnishing inaccurate particulars.
  3. Whether Explanation 1 to Section 271(1)(c) stood satisfied by the assessee's explanation and conduct.

Petitioner’s Arguments (Revenue)

The Revenue contended that:

  • The assessee had furnished an incorrect computation of book profits resulting in inaccurate particulars being furnished in the return of income.
  • Such incorrect computation justified imposition of penalty under Section 271(1)(c).
  • The Tribunal had erred in deleting the penalty.

Respondent’s Arguments (Assessee)

The assessee submitted that:

  • The error occurred because the Chartered Accountant misunderstood the applicability and interaction of Section 115JB with Section 10A.
  • The Chartered Accountant himself filed an affidavit accepting the mistake and responsibility.
  • The mistake was neither intentional nor made for concealing income.
  • The error represented a genuine and bona fide human error arising from complexity in statutory interpretation.
  • The assessee had subsequently corrected the mistake by filing revised returns in later years. 

Court Findings / Order

The Delhi High Court upheld the order of the Income Tax Appellate Tribunal and dismissed the Revenue's appeal.

The Court observed:

  • The assessee had discharged its burden under Explanation 1 to Section 271(1)(c).
  • The explanation furnished by the assessee was genuine and not an excuse or device intended to conceal income.
  • The mistake committed by the Chartered Accountant arose from a bona fide human error while interpreting complex provisions of law.
  • The Tribunal's findings were objective and plausible.
  • Reliance was correctly placed upon the judgment of Price Waterhouse Coopers Pvt. Ltd. v. CIT (2012) 348 ITR 306 (SC).
  • No substantial question of law arose for consideration.

Accordingly, the appeal was dismissed.

 

Important Clarification

The Court clarified that mere incorrect computation or an inadvertent mistake arising from complex statutory interpretation does not automatically justify imposition of penalty under Section 271(1)(c). Where the assessee demonstrates bona fide conduct and absence of intent to conceal income, penalty provisions may not be attracted.

Further, reliance upon professional advice and certification may be considered relevant in evaluating the bona fides of the assessee's conduct.

 

Sections Involved

  • Section 271(1)(c) – Penalty for concealment of income or furnishing inaccurate particulars
  • Explanation 1 to Section 271(1)(c)
  • Section 115JB – Minimum Alternate Tax (MAT) / Book Profit Computation
  • Section 10A – Exemption in respect of profits derived from export-oriented undertakings
  • Form No. 29B provisions under the Income Tax Act, 1961


Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2014:DHC:6872-DB/SKN09122014ITA7442014.pdf

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