IMPORTANT POINT
Cause of action being inadvertent mistake, imposition of penalty is improper.

JUDGMENT

Madan B. Lokur, J.-Leave granted.

2. The assessee is aggrieved by a judgment and order dated 18.12.2008 passed by the High Court of Calcutta in ITA No.120 of 2006. By the impugned judgment, a penalty imposed on the assessee under Section 271(1)(c) of the Income Tax Act, 1961 was upheld, though the quantum was reduced. We are of the view that on the facts of the case the imposition was not justified.

3. We are concerned with the assessment year 2000-2001. The assessee provides multidisciplinary management consultancy services and has a worldwide reputation. It filed its return of income on 30.11.2000 under Section 139(6) read with Section 139(6A) of the Income Tax Act (for short, ‘the Act’). As statutorily required by Section 139(6A) of the Act, the assessee also filed its tax audit report under Section 44AB of the Act. The Statement of Particulars filed by the assessee was in Form 3CD as required by Rule 6G(2) of the Income Tax Rules, 1962 and is, in a sense, an integral part of the return.

4. In Column 17(i) of the Statement, it was stated as follows: -

17. Amounts debited to the profit and loss

account being:-

a. xx xx xx xx xx xx

b. xx xx xx xx xx xx

c. xx xx xx xx xx xx

d. xx xx xx xx xx xx

e. xx xx xx xx xx xx

f. xx xx xx xx xx xx

g. xx xx xx xx xx xx

h. xx xx xx xx xx xx

(i) provision for payment of gratuity not allowable

Rs.23,70,306/- under section 40A(7);

(Liability provided for payment of gratuity)

5. Even though the Statement indicated that the provision towards payment of gratuity was not allowable, the assessee claimed a deduction thereon in its return of income. On the basis of the return and the Statement, an assessment order was passed under Section 143(3) of the Act on 26.03.2003. According to the assessee, the claim for deduction was inadvertent and it also seems to have been overlooked by the Assessing Officer.

6. Much later, the Assessing Officer issued a notice to the assessee under Section 148 of the Act on 22.01.2004 for reopening the assessment. The notice did not indicate any reason why it was issued except to state that income for the assessment year 2000-2001 had escaped assessment.

7. In response to the notice, the assessee filed its return under protest on 16.02.2004 and also requested for the grounds for reopening the assessment.

8. By a letter dated 16.12.2004, the assessee was furnished the reasons for reopening the assessment, which read as under:-

“A. Reasons for-opening u/s 147 relevant to A.Y. 2000-01

1. In this case, regular assessment was completed under Section 143(3) on 26.03.03 at a total income of Rs.24,42,91,550/-.

2. On perusal of the assessment records, it is seen from Clause 17(i) of the Tax Audit Report that Rs.23,70,306/- being liabilities provided for payment of gratuity, was provided for during the year. This provision is not allowable u/s 40A(7) and was required to be added back. However, the same has not been added by the assessee in its computation, thereby leading to underassessment of income by Rs.23,70,306/-.”

9. Soon after the assessee was communicated the reasons for re-opening the assessment, it realized that a mistake had been committed and accordingly by a letter dated 20.01.2005 the Assessing Officer was informed that there was no willful suppression of facts by the assessee but that a genuine mistake or omission had been committed which also appears to have been overlooked by the Assessing Officer before whom the Tax Audit Report was placed. Accordingly, the assessee filed a revised return on the same day. A re-assessment was passed on the same day and the asses