Feeding Mistakes and Penalty Immunity: Bona Fide Data‐Entry Errors vs. Section 271(1)(c) Sanctions

Introduction

This commentary examines the Chhattisgarh High Court’s decision in Chhattisgarh State Power Transmission Company Ltd. v. DCIT Circle‑1(1), Raipur (Tax Case No. 91/2024), rendered on April 9, 2025. The core issue is whether an inadvertent “feeding mistake” in the computation of book profits—voluntarily disclosed by the assessee before or during scrutiny assessment—can attract a penalty under Section 271(1)(c) of the Income Tax Act, 1961. Parties: the Chhattisgarh State Power Transmission Company Ltd. (“the assessee”) vs. the Deputy Commissioner of Income Tax (“the Revenue”). The High Court framed the substantial question:

“Whether in view of the voluntary disclosure of the income which is said to be feeding mistake, the imposition of a penalty under Section 271(1)(c) was correct?”

Background and Key Issues

The assessee, a government company providing high‐voltage transmission services, filed its 2016–17 return declaring nil income (after offsetting losses) and book profits of ₹26.90 crores for MAT purposes.
Statutory and tax audits certified book profits of ₹35.75 crores, which the assessee later admitted was the correct figure.
During scrutiny, the assessee on its own volition disclosed the difference of ₹8.85 crores as a “data feeding mistake” and furnished a revised return.
The Assessing Officer accepted the corrected figures but initiated penalty proceedings under Section 271(1)(c) for furnishing “inaccurate particulars.”
The CIT(Appeals) quashed the penalty; the ITAT restored it; the High Court ultimately allowed the assessee’s appeal.

Summary of the Judgment

The Division Bench (Justices Sanjay K. Agrawal & Deepak K. Tiwari) held that:

The ingredients of Section 271(1)(c) require either concealment of income or furnishing of inaccurate particulars with mala fide intent.
The assessee had:
- Filed the tax audit report (Form 3CA/3CD) with correct book profits before scrutiny selection.
- Voluntarily and promptly disclosed the “feeding mistake” during the assessment proceedings.
No concealment or inaccuracy persisted once the error was corrected on record; the mistake was bona fide and inadvertent.
Reliance on Supreme Court precedents established that mere human/computational errors—when disclosed—do not trigger Section 271(1)(c) penalties.
The ITAT’s order restoring the penalty was set aside; the CIT(Appeals) order deleting the penalty was restored.

Analysis

1. Precedents Cited

Price Waterhouse Coopers Pvt. Ltd. v. CIT, Kolkata‑I (2012) 11 SCC 316
Held that filing a tax audit report disclosing a provision (e.g., gratuity) meant no concealment or inaccurate particulars—mere computation errors cannot attract Section 271(1)(c).
CIT, Ahmedabad v. Reliance Petroproducts Pvt. Ltd. (2010) 11 SCC 762
Defined “particulars” as detailed items of claim; “inaccurate particulars” must be incorrect or untrue details, not a disputed claim rejected later.
Sree Krishna Electricals v. State Of Tamil Nadu (2009) 11 SCC 687
Under sales tax law, held that incorrect statements not disguised in accounts did not merit penalty if revenue was not concealed.

2. Legal Reasoning

The Court’s reasoning can be distilled into three pillars:

Statutory Text of Section 271(1)(c): It penalises only where an assessee “conceals” income or “furnishes inaccurate particulars.” Both are independent and require a finding of either deliberate concealment or false information.
Voluntary Disclosure & Timeliness: The assessee had no need to be prompted; it corrected its error before the AO framed the assessment, demonstrating absence of fraudulent intent.
Distinguishing Bona Fide Mistakes: Supreme Court precedents emphasise that bona fide computational errors—especially when supported by contemporaneous audit reports—fall outside Section 271(1)(c)’s mischief.

3. Potential Impact

This decision clarifies that:

Taxpayers who discover inadvertent data‐entry or computation mistakes and promptly correct them—supported by tax audit reports—will not face penalties under Section 271(1)(c).
Departmental authorities must distinguish between genuine mistakes and deliberate concealment; they cannot impose penalties merely because a claim is adjusted or reversed.
Future litigation will refer to this precedent when assessing whether a taxpayer’s conduct meets the threshold of “inaccurate particulars” or “concealment.”

Complex Concepts Simplified

Section 271(1)(c): Imposes penalty when an assessee either hides income or gives wrong/incomplete details. Requires proof of concealment or false particulars.
Tax Audit Report (Form 3CA/3CD): A statutory audit under Section 44AB, reflecting audited profits and losses, which can pre‐empt penalty if filed with the return.
Minimum Alternate Tax (MAT) – Section 115JB: Applies a minimum tax on book profits, irrespective of declared taxable income. Accurate book profit figures are critical.
‘Feeding Mistake’: A data‐entry or computation error in the return or electronic filing portal, distinguishable from deliberate misstatement.

Conclusion

The Chhattisgarh High Court’s judgment sets a vital precedent: bona fide, inadvertent errors in tax filings—when voluntarily disclosed and corrected before or during assessment—do not attract Section 271(1)(c) penalties. This ruling safeguards taxpayers from undue sanction for human or system errors, provided they act transparently and in good faith. It reinforces the principle that penalties should target genuine fraud or concealment, not honest mistakes.