Income Tax Appellate Tribunal - Bangalore
T. Ashok Pai vs Assistant Commissioner Of Income-Tax on 25 July, 1994
Equivalent citations: [1994]51ITD467(BANG)
ORDER
S. Bandyopadhyay, Accountant Member
1. The assessee before us is an individual who is an engineering graduate and had income by way of salary, shares of profit from a number of firms besides proprietorship income from an individual business and also dividend and interest. The order appealed against is the appellate order passed by the CIT(A) in which she upheld the imposition of penalty of Rs. 5,70,000 levied by the Assessing Officer under Section 271(1)(c) of the Income-tax Act, 1961. The facts of the case are as below.
2. For assessment year 1985-86, the assessee originally filed a return on 30-3-1988 claiming a loss of Rs. 2,41,647. From the wealth-tax return of the assessee for the same year, also filed on 30-3-1988, it was noticed that the assessee must have sold away large number of equity shares of Reliance Textiles Ltd. In the wealth-tax return, a deposit of Rs. 3 lakhs with M/s. Manipal Printers & Publishers was also not shown. Various omissions in the income-tax return by way of not depicting the capital gains on sale of Reliance shares and showing of the income of Rs. 1,07,119 in the proprietary concern of the assessee as loss were found. The assessment, which had originally been completed on 19-12-1990 by virtually accepting the return filed by the assessee, was reopened under Section 147(a) by issue of a notice under Section 148 on 8-12-1989. The assessee filed another return in response to this notice on 12-1-1990, this time claiming the loss of Rs. 1,04,531. However, this return also continued not to disclose the capital gains and some of the other items of income as in the original return. Around the same time, the assessee filed a petition before the Settlement Commission, which was rejected by the Additional Bench of the Settlement Commission, Madras by its order dated 26-9-1990 as unsuitable for admission inasmuch as no complexities of issues were involved in that case.
2.1 Thereafter, the assessee filed a further revised return on 23-11-1990 admitting total income of Rs. 4,92,880. The Assessing Officer found out that there were gross variations in respect of several items of income in the returns filed on the first occasion and the last revised return, the details of which are being shown below :
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Original return Finally revised
return
Rs. Rs.
Income from Salary 16,200 16,200
Manipal Security Printers 16,929 (-) 21,427 (+)
Shivalli Printers 1,15,855 (-) 1,15,855 (-)
Manipal Bottling Co. 9,000 (-) 9,000 (+)
Bajal Exports 12,964 (+) 12,964 (+)
Associated Trading Co. 1,07,119 (-) 1,07,119 (+)
Manipal Power Press Nil 20,909 (-)
Krishna Industries Nil 1,85,185 (-)
Capital gains Nil 6,44,515
Other Sources - Interest 5,708 50,708
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3. Penalty proceedings were initiated by the AO for concealment of income and also for furnishing of inaccurate particulars of income by the assessee. The assessee, at the time of filing of the second revised return itself, submitted an explanation regarding wide variation between original return and the revised return. The explanation furnished by the assessee was that mistakes had crept in the original return on account of negligence of Syndicate Bank, holding General Power of Attorney on behalf of the assessee in respect of all his transactions including even the responsibilities relating to filing of income-tax and wealth-tax returns as well as representing his income-tax and wealth-tax matters before the concerned authorities. It was stated that the income-tax return had been prepared by the Syndicate Bank and sent for the assessee's signature, which was signed by the assessee under the bona fide belief that the entire income/loss had been considered by the Syndicate Bank while preparing the return. The assessee also repeated his argument at the stage of the penalty proceedings. All these arguments put forward by the assessee before the AO at different stages and later on before the CIT(A) have been repeated before us also and we will come to consider those arguments at appropriate time.
4. The AO did not accept the abovementioned explanations of the assessee. The AO was of the view that the accusation made by the assessee about the negligence and inadvertence on the part of his authorised agents is a matter to be settled between the assessee and the said agents and that this does not absolve the assessee of his responsibility to furnish his income and wealth correctly as required under the Law. The AO harped on the point that when the assessee had signed the verification in the return, it does not lie in his mouth to plead that being an engineer, he is not conversant with the taxation and financial laws. The AO states that the assessee has been an income-tax and wealth-tax payee for a number of years and, therefore, it is his duty before signing the verification to make sure that correct income has been disclosed. The AO enumerated the different items of omission/mis-statement in the original return filed by the assessee. He stated that the assessee had not disclosed in the return, capital gains amounting to Rs. 6,44,514and that the profit of Rs. 1,07,119 made in his proprietary business M/s. Associated Trading Co., had been shown as loss of the corresponding amount in the return. The AO furthermore states that the assessee did not disclose interest amount of Rs. 45,000 from M/s. Manipal Printers & Publishers Pvt. Ltd., in the original return. The AO thus came to the conclusion that all these facts show gross negligence and inadvertence on the part of the assessee attracting thereby the penal provisions under Section 271(1)(c).
5. The AO has also discussed in the penalty order that the Law & Agency Department of the Syndicate Bank which was in-charge of preparation of the assessee's return was also asked to explain the omissions and ascribe reasons for not discharging their responsibility while preparing the return. The Chief Law Officer, Syndicate Bank, in his letter dated 24-12-1990 explained that the Bank was acting as Power of Attorney Holder for various customers of the bank and that it is their duty to prepare income-tax and wealth-tax returns of their clients. However, before filing the said returns, the bank is stated to be gathering the required information from the clients themselves to facilitate the preparation of the returns as they are not aware of the full activities of their clients. The returns are prepared as per the information furnished by the clients. It was stated that in respect of the assessee, viz., Shri T. Ashok Pai also, the Syndicate Bank, acting as the Power of Attorney Holders for the purpose of preparing and filing income-tax and wealth-tax returns and also engaged in the calculation of interest on deposits and dividends from different companies, called for the relevant information from the assessee, prepared the returns of income and wealth in the light of the said information and after preparing the returns sent the same to the assessee for confirmation as to whether the returns were in order. In the instant case, it was stated by the bank authorities that by their letter dated 22-3-1988 informing the assessee about the preparation of the income-tax return "on the basis of the information furnished to us (bank) by you (the assessee) and other information which we (bank) could gather" it was requested that if the assessee would find that the statement of income was in order he might kindly sign the return of income, acknowledgment for and the statement and send the same to the bank for filing before the Income-tax Officer. The return was signed by the assessee and sent back for filing. The Bank thus, claimed that there was no omission or negligence on their part because the assessee himself had signed the return after satisfying himself about the correctness of the return.
6. Finally, the AO concluded from the detailed discussions made by him in the penalty order that the assessee himself is solely responsible for furnishing the inaccurate particulars and, therefore, penalty for concealment of income is attracted. The AO detailed out once more the various items of omissions/mis-statements in the original return filed and held that the total amount concealed by furnishing inaccurate particulars was Rs. 9,55,611 as shown below :
Share income shown as loss from Rs.
M/s. Manipal Security Printers 33,858
Share income shown as loss from
M/s. Manipal Bottling Company 18,000
Share income shown as loss from
M/s. Associated Trading Co. 2,14,238
Capital gains on sale of shares
as discussed 6,44,515
Interest from M/s. Manipal
Security Printers 45,000
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9,55,611
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7. The AO found out that tax on the above amount of income sought to be evaded was Rs. 5,69,064. He, therefore, levied a penalty of Rs. 5,70,000 under Section 271(1)(c).
8. In appeal before her, the learned CIT(A) considered all the detailed facts of the case. She also paid attention to the various contentions of the AO as well as the assessee. Besides detailing the points discussed by the AO in the penalty order, the CIT(A) also referred to the affidavit from one Shri T.V. Madhusudhanan, working as an officer of Syndicate Bank, Law & Agency Division, filed before her by the assessee. She discussed that this affidavit had not been filed before the AO either at the assessment or even at the penalty stage and that the said affidavit does not, in any way, absolve the assessee of the primary responsibility of having failed to include the capital gains arising on the sale of Reliance shares. She furthermore stated that though the assessee submitted that the Syndicate Bank was handling all the affairs including those relating to the sale of shares, no proof was furnished to substantiate the same. She furthermore stated that the assessee's explanation that Syndicate Bank omitted to include the capital gains on the sale of Reliance shares inadvertently is not borne by the facts on record.
8.1 The CIT(A) also made discussions about notings in the file of the Bank, a copy of which had been submitted before her by the assessee. She stated that the said noting clearly indicated that the Bank had taken note of the fact that capital gains had to be calculated on the sale of Reliance shares and that the Bank was also informed that the sale proceeds were utilised for the purpose of construction of house property. She thus came to the conclusion that failure to include the capital gains was not inadvertent but a conscious decision taken perhaps on the ground that the assessee might have been eligible for exemption on account of investment in house property. She further stated that another important factor to be kept in mind is that even after the issue of notice under Section 148 of the IT Act, the assessee filed the return in response to the said notice without including the capital gains arising on the sale of Reliance shares, while at the same time, the assessee filed a petition before the Settlement Commission. The CIT(A) thus opined that thus there had been a deliberate attempt to file inaccurate particulars before the Tax Officer. At this stage, the CIT(A) once more referred to the affidavit filed by the assessee obtained from Shri T.V. Madhusudhanan, which was forwarded by the CIT(A) to the AO asking him to examine Shri Madhusudhanan. The CIT(A) discusses that Shri Madhusudhanan appeared before the AO and in the statement recorded on 28-1-1992, reiterated the stand taken by him that the returns had been prepared on the basis of information furnished by the assessee. Shri Madhusudhanan also stated to have denied before the AO that there had been any letter indicating the sale of Reliance shares by the assessee. The CIT(A) thus came to the conclusion that it was very clear that the bank had prepared the return only on the basis of the information supplied by the assessee. The CIT(A) finally remarked that if the assessee's explanation was to be accepted then every tax evader could take shelter by shifting the blame on his clerks and accountants who invariably prepare the returns for them. At last, the CIT(A) fully agreed with the contention of the AO that the assessee was guilty of concealing his income and also furnishing inaccurate particulars thereof. She thus confirmed the penalty levied by the AO under Section 271(1)(c).
9. Shri G. Sarangan, learned counsel on behalf of the assessee, appearing before us, contended that the first return had been filed by the assessee on the basis of what had been prepared by the Syndicate bank acting as his General Power of Attorney Holder, by signing the same almost blindly under the bona fide belief that the return had been prepared correctly inasmuch as all the required particulars for preparing the return were already with the bank. Shri Sarangan stated that the assessee was being represented by the Syndicate Bank for a large number of years and all his transactions were also being carried on through the said Bank and hence, the assessee did not. have any reasons to disbelieve the actions of the bank. Shri Sarangan furthermore stated that the assessee had never himself handled his tax matters. He again stated that after the first return had been accepted by the Department under Section 143(1) on 13-2-1989, the assessee had no reason to suspect that any thing wrong had been done in the said return. Later on, however, having been served with the notice under Section 148 issued by the Department on 8-12-1989, the assessee became aware of the defects and deficiencies in the return already filed. Shri Sarangan stated that the second return was filed on 12-1-1990 and on the same day, the assessee filed a petition before the Settlement Commission. Shri Sarangan asserted that the gaps were kept in the second return also simply for the purpose of enabling the assessee to approach the Settlement Commission inasmuch as the basic conditions for a petition being entertained by the Settlement Commission are that a proceeding must be pending before the Assessing Officer by way of a return or otherwise and that certain additional income must be declared before the Settlement Commission. Shri Sarangan stated that this advice to keep the second return of income as filed by the assessee also in a deficient condition was rendered by the tax counsel of the assessee. However, Shri Sarangan stated that when the Settlement Commission rejected the petition filed by the assessee, the assessee had to come up with a fresh revised return before the Department depicting the full and correct picture this time which was finally accepted by the Department. Various arguments in support of the contention that the omissions/mis-statements in the original returns were results of bona fide mistakes and non-application of mind on the part of the bank officials, were put forward by Shri Sarangan alongwith a number of citations of different High Courts and Tribunals to which we shall advert to at appropriate times during the course of our order. So far as further deposition given by Shri Madhusudhanan of Syndicate Bank before the AO is concerned, Shri Sarangan brought to our notice the chronology of facts in this connection. He stated that the original affidavit was filed by Shri Madhusudhanan on 12-7-1991, whereas the examination of Shri Madhusudhanan took place by the AO at Mangalore at the instance of the CIT(A) on 28-1-1992. The CIT(A) herself however, passed her appellate order at Bangalore on 29-1-1992. The opportunity of cross-examining Shri Madhusudhanan by the auditors of the assessee at Mangalore was however, afforded on 21-1-1993, .i.e., much after the passing of the appellate order by the CIT(A).
10. Shri Puniha, the Departmental Representative, on the other hand, strongly contended that this was a case of concealment and furnishing of inaccurate particulars by the assessee. He pointed out that the original return of loss of Rs. 2,41,650 was accepted by the Department in good faith under Section 143(1) and that at the time of scrutiny of the wealth-tax return only, the reduction in the number of shares of Reliance was noticed which led to the detection of several omissions/mis-statements in the income-tax return. Shri Puniha argued that the assessee has all along been trying to prove his bona fide before the Syndicate Bank only but that his bona fide before the Department has not been proved. He pointed out that even the physical aspect of sale of shares of Reliance had not been disclosed at the original assessment stage. Shri Puniha brought our attention to the detailed list of shares owned by the assessee and stated that the assessee was owning shares of about 30 blue-chip companies and was also a partner in five to six firms and hence, he must have been aware of his obligations under the Income-tax Act. Shri Puniha also brought to our notice certain statements made by Shri T.V. Madhusudhanan during the course of his examination by the AO. We shall come to this point later on during the course of our appellate order. Shri Puniha also replied to the other argument taken up by Shri Sarangan to the effect that inasmuch as the same AO was assessing the assessee as well as all but one of the partnership firms in which the assessee was a partner, it was within the knowledge of the AO that the assessee was having shares of income and not loss from some of the firms and that the AO should have taken recourse to proceedings under Section 155(1), by stating that the AO is not obliged to look into his records relating to other assessees at the time of taking up the assessment of one assessee and carry on rectifications when the assessee himself had shown wrong figures in his return of income. Shri Puniha also strongly relied on the decision of the Gauhati High Court in the case of F.C. Agarwal v. CIT [1976] 102 ITR 408 as upheld by the Supreme Court in G.C. Agarwal v. CIT [1990] 186 ITR 571 in support of his contention that the assessee must be considered to be guilty of concealment of his income.
11. The word "conceal" as used in Section 271(1)(c) has not been defined in the Income-tax Act. Its ordinary dictionary meaning is "to hide or withdraw from observation, to cover or keep from sight, to prevent discovery of, to withhold knowledge of. The meaning of the word "concealment" as found in Shorter Oxford English Dictionary, 3rd edition. Vol. I, is as below :
In law, the intentional suppression of fact or truth of fact done to the injury or prejudice of another.
It is thus clear that the expression, when used in law, must imply an injury or prejudice to another, which in a tax case must mean the revenue. The connotation of the "concealment" must therefore cover a mental act to hide some thing with the purpose of reducing the income of the assessee thereby defrauding revenue. Hence, although the expression "deliberately" was omitted from the relevant Section by the Finance Act, 1964 with effect from 1-4-1964, even then it has got to be said that in order to constitute the offence of concealment, play of the mind towards evasion of tax in a designed manner has got to be present. Conversely therefore, if there be understatement of income in a very haphazard manner and if strong indications be there that there was no conscious effort on the part of the assessee to show his income at a lower figure, the assessee, in such a case, cannot be considered to be guilty of concealment of income.
12. In this particular case, references have been made by the departmental authorities on furnishing of inaccurate particulars of income by the assessee ultimately constituting concealment of income thereby. The expression "furnishing inaccurate particulars of income" in its simple form assumes a very wide character and can take into its compass any act of submission of particulars which may be inaccurate in any way. The inaccuracy in the particulars of income may be towards advantage or disadvantage of the assessee. Since this particular expression has not also been defined in the Income-tax Act, it is necessary to have a proper interpretation of the same suiting the context. The principle of 'Noscitur a sociis' may be applied herein to come to the conclusion that the expression is required to be used in this particular context in conjunction with or as an appendix to the earlier expression "concealed". Common sense tells us that an assessee cannot be visited with penalty under Section 271(1)(c) if he furnishes inaccurate particulars of his income in a manner so as to depict a higher figure of income than what it should be. We must, therefore, circumscribe the meaning of the expression "furnishing inaccurate particulars of income" to limited situations where the assessee has furnished inaccurate particulars of his income in a conscious manner so as to understate his income for the purpose of defrauding revenue.
13. In the instant case, Shri Sarangan has brought our notice to the fact that the computation of total income attached to the original return filed on 30-3-1988 was done in the following manner :
Sri T. Ashok Pai 44-00-RV-1203 - Assessment Year 1985-86 Computation of total income for the year ended 31-3-1985 Salary from CLI Ltd. Rs. 21,600.00 Less: Standard deduction 5,400.00
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Rs. 16,200.00
Income from business
Share of income/loss from : Rs.
Manipal Security Printers 16,929.00
Rs.
Shivally Printers 1,15,855.00
Manipal Bottling Co. 9,000.00
Associated Trading Co. 1,07,118.75
Bajal Export Corporation 12,964.00
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(-) 2,35,938.75
Income from other sources
Rs.
Dividends 15,537.00
Interest 6,727.00
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22,264.00
Less : Interest paid to Bank 16,389.90
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5,874.10
Less : Commission paid to Bank 165.50 5,708.60
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5,708.60
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Net Income (Loss) Rs. 2,41,647.35
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Income from Sri Krishna Industries & Manipal Power Press have been taken provisionally as Nil."
The said computation was done by the Syndicate Bank on behalf of the assessee. Shri Sarangan has pointed out that the net salary income of Rs. 16,200 shown in the computation sheet was not ultimately considered in the final computation of loss. It has also been pointed out that the computation sheet did not show whether the figures of "share of income/loss" from the different firms and the proprietary concern M/s. Associated Trading Co., represented positive (income) or negative (loss) figures. Our attention has been drawn to another paper found in the working file of the bank in which the figures of Rs. 16,929, Rs. 1,15,855, Rs. 9,000 and Rs. 1,07,118.75 were all considered as negative figures representing loss. The aggregate of these four figures was arrived at Rs. 2,48,902.75. The other figure of Rs. 12,964 was deducted from the above-mentioned figure by obviously considering the said figure to be a positive figure showing income. The net result was the loss figure of Rs. 2,35,938.75, to which the positive figure of Rs. 5,708.60 representing income from other sources was added back (instead of being deducted) to arrive at the final figure of loss at Rs. 2,41,647.35. This figure was ultimately shown in the return filed originally. Shri Sarangan thus argues to our convincement that the entire exercise was done in a very haphazard and erratic manner without proper application of mind. Shri Sarangan has also stated that the assessee did not supply any figure or share of profit or loss from the different partnership firms in which he was a partner. On the other hand, he simply supplied the bank with copies of the assessment orders of the concerned firms which clearly included the allocated shares of profit or loss in appropriate manner. Even the profit and loss account of the proprietary business of the assessee, viz., M/s. Associated Trading Company is also stated to have been supplied to the bank which clearly showed the net profit of Rs. 1,07,118.75. All these papers consisting of the copies of assessment orders of the different firms and also the profit and loss account of the proprietary business of the assessee are stated to have been found in the relevant file of the bank. Shri Sarangan thus finally contends that it is difficult to understand why and how the person preparing the draft return considered some of the evidently positive figures as loss.
13.1 In the above-mentioned computation sheet of total income, it was mentioned that the income from M/s. Krishna Industries and M/s. Manipal Power Press had been taken provisionally as nil. Shri Sarangan has brought our notice to the fact that the allocation order dated 17-3-1988 in the case of M/s. Sri Krishna Industries showing loss of Rs. 1,85,185 was also supplied to the bank in due course, but that the bank did not include such huge figure of loss in the return prepared by it, which distinctly went to the disadvantage of the assessee.
13.2 On a proper appreciation of the facts of the case, we are inclined to be in agreement with the arguments of Shri Sarangan. The papers clearly show that the officer of the bank in-charge of preparation of the return of income of Shri T. Ashok Pai, at the original stage was in possession of the various assessment-cum-allocation orders of different firms and also the profit and loss account of the proprietary concern M/s. Associated Trading Co., with him. He failed to apply his mind properly and thus took into consideration positive figures from M/s. Associated Trading Co. and shares of profit from M/s. Manipal Security Printers and M/s. Manipal Bottling Co., as representing loss figures. The facts show that the guilt lies completely with the person who prepared the computation of total income.
14. As regards the question of non-inclusion of the interest amount of Rs. 45,000 on the deposit of Rs. 3 lakhs with M/s. Manipal Printers & Publishers Ltd., Shri Sarangan has drawn our attention to the two different sheets of papers containing the computation of dividend and interest income lying with the bank, in its file. In one of these sheets, besides dividend income and also interest income from M/s. Manipal Industries and I.O.D.S, the gross interest of Rs. 45,000 was correctly shown. The second sheet however, in which the total interest income was shown as Rs. 6,727 only omitting the item relating to M/s. Manipal Printers & Publishers Ltd., completely, seems to have been taken into consideration while preparing the computation of total income. Shri Sarangan has argued that in doing so, not only the income of Rs. 45,000 was omitted to be shown in the statement of computation of income, but also the tax deduction of Rs. 4,500 there from also remained omitted to be claimed in the first return. Shri Sarangan argues that how this happened is beyond his comprehension. In any case, no intention on the part of the assessee can be assumed from the circumstances inasmuch as the assessee also stood to lose credit for TDS to the extent of Rs. 4,500 in the process. We feel that so far as this particular item is also concerned, the circumstances show that the omission was as a result of slip on the part of the person incharge of preparation of the sheet relating to computation of income and no intention can be attributed to the assessee on this account also.
15. The last and bigger item to be considered is the amount of Rs. 6,44,515 being capital gains on the sale of Reliance shares. Shri Sarangan admitted that no specific information relating to the computation of capital gains was imparted by the assessee to the bank. He, however, argued that the fact about sale of the shares and the sale consideration was very much within the knowledge of the bank staff. In the wealth-tax return prepared by the bank around the same time, the figure of shares of Reliance was also shown at the much reduced figure of 82 only whereas in the immediately preceding year, the total number of shares was 7082. It is the argument of Shri Sarangan that it was the duty of the bank staff preparing the income statement consequently to highlight the transaction by way of sale of Reliance shares and to take into consideration the resulting capital gains in the return of income of the assessee. It has been stated that the shares of Reliance company were being kept by the assessee with Syndicate Bank for the purpose of safe deposit and also for handling dividend from these shares. Our attention has also been drawn to the paper found in the relevant file of the bank to the effect that 7000 equity shares of Reliance Textile Industries had been sold during the year ending on 31 -3-1985 and that capital gains therefrom were required to be ascertained. Shri Sarangan argues that if even thereafter the bank officers failed to take into consideration the capital gains, in the computation of income of the assessee, the blame lay with them. We find from a perusal of the affidavit, of Shri T.V. Madhusudhanan, a copy of which has been placed on our record that in the said affidavit Shri Madhusudhanan admitted that there was a notation dated 24-8-1984 made by his predecessor in-charge that 7000 equity shares of Reliance Textile Industries had been sold by the assessee and that the capital gains on this transaction required to be ascertained in assessment year 1985-86. Shri Madhusudhanan also stated in the said affidavit that it was a fact that the shares were originally in the custody of the bank in the Division and that the same were delivered (to the buyers) during July 1984.
16. The discussions above clearly show that there was no conscious act on the part of the assessee himself to omit any of the five items considered in the impugned penalty order from his statement of income/loss filed along with the original return. The other inaccuracies about claiming losses in case of positive income cannot also be ascribed to the assessee. There also does not seem to be any design with the bank authorities in preparing a completely distorted picture about the income/loss of the assessee for this year. On the other hand, the facts, as discussed above, clearly show that the particular officer who was in-charge of preparation of the relevant statement suffered from lack of application of mind and acted thoroughly in an inadvertent manner. However, deliberateness on his part also cannot at all be presumed. From our discussions earlier about the connotation of the expression "concealment" and the proper interpretation of the other expression "furnishing of inaccurate particulars", we are not in a position to say that the present situation exactly comes within the purview of misconduct under either of these two expressions.
17. Shri Sarangan has relied on the decision of the Bombay High Court in the case of Lachman Chaturbhuj Java v. R.G. Nttsure [1981] 132 ITR 631. In that particular case, that assessee had employed his Chartered Accountant to prepare the wealth-tax return on his behalf. The Bombay High Court held in that case-
... It is not even the department's case that there was any collusion between the petitioner and his chartered accountant or that the chartered accountant deliberately and wantonly gave a palpably wrong advice which no reasonable person, much less a professional person, would give or that there were any mala fides, or for that matter even want of bona fides, on the part of the petitioner in following the advice or on the part of the chartered accountant in giving it. Surely, it would not be unreasonable to expect an assessee, who engages a chartered accountant to assist him in tax matters which get more complicated day by day, to be advised and guided by him.
In the instant case also, the assessee who is an engineering graduate and looks after his business interests in various fields, employed Law and Agency Division of the Syndicate Bank not only as a professional adviser but also as the actual agent in the matter of representing his tax cases including even preparation of his income-tax and wealth-tax returns. Filling an income-tax return is not very easy these days and it certainly requires professional skill to do so. If the assessee therefore, rather blindly relied on the said professional skill, expertise, integrity and sincerity of his counsel and agent, viz., M/s. Syndicate Bank, the assessee certainly cannot be blamed for doing so. As we have seen earlier, the matter was dealt with by the Bank in a very haphazard and erratic way thereby belying the faith of the assessee in the competence of the Bank. However, the facts clearly suggest that there cannot be any collusion between the assessee and the Syndicate Bank, which is a Government undertaking and the extremely haphazard manner in which the income of the assessee was computed coupled with the fact that some of the actions on the part of the bank in the preparation of the said income went completely against the assessee, clearly prove the lack of any collusion between the two parties.
18. Reliance has also been placed by the assessee on two decisions of the Orissa High Court viz., CWT v. Chiranjilal Agarwala [1983] 140 ITR 687, Special Leave Petition against which decision was refused by the Supreme Court as reported at 187 ITR (Statutes) 45 and the case of CWT v. Ajit Kumar Sur [1983] 140 ITR 389 (Ori.). In the case of Chiranjilal Agarwala (supra), the High Court came up with the opinion that where the assessee for the first time is assessed to wealth-tax and acts on the advice of his lawyer in the matter of filing of his return, the explanation of delay based upon such advice is acceptable. In the instant case, Shri T. Ashok Pai, assessee, did not become assessable to income-tax for the first time in the instant year and hence, this particular judgment does not seem to help his case much. In the other case however, Shri Ajit Kumar Sur, assessee, did not submit his returns of net wealth for assessment years 1964-65 to 1968-69 as, on the advice of his counsel, he was under the bona flde belief that certain HUF properties were not to be included in his net wealth. The High Court held that the decision of the Tribunal, in favour of that assessee, as the final fact-finding authority, was correct and no question of law arose for reference.
19. Lastly, Shri Sarangan has also relied on the decision of the ITAT, Hyderabad Bench 'B' in the case of Gudiwada Ramachandra Rao v. ITO [1991] 37 ITD 443. In that particular case, it was held by the Tribunal that the fact that the assessee was assessed at a different place and his wife was assessed in another place and also the fact that the assessee and his wife were represented by different auditors suggested that there could be a bona fide error in not including the share income of the wife of the assessee in the return of that assessee. The Tribunal furthermore held as below :
Again at least for purposes of imposition of penalty, which is penal in character and proceedings are quasi-criminal in nature, the dictum of Ignorentia Legis non excused cannot be stretched beyond its true limits. The offence of concealment is thus a direct attempt to hide an item of income or portion thereof from the knowledge of the income-tax authorities. It is implicit in the word 'concealed' that there has been a deliberate act on the part of the assessee. In the instant case, the assessee was under a bona fide belief not to include his wife's share income and, therefore, there was no concealment of income under Section 271(1)(c).
In that view, the Tribunal set aside the penalties imposed by the ITO.
20. The sum total of all the abovementioned judgments clearly show firstly that in a case of penalty under Section 271(1)(c) which is quasi-criminal in nature, the guilt of concealment of income or of furnishing of inaccurate particulars of income must imply a conscious effort to do so on the part of the assessee and furthermore in the present day world of multifarious legal complexities, the dictum of 'Ignorentia Legis non excusat' cannot be stretched beyond a reasonable limit. No fault can, therefore, be found with an assessee who bona fide relies on his Tax Counsel-cum-Agent in the matter of preparation of his income-tax and wealth-tax return including the work of computation of income/loss/net wealth for the said purpose. If the legal Counsel/Agent commits a blunder in the exercise of his duty, not in a mala fide manner, nor again in collusion with the assessee, the assessee should not be visited with penalty under Section 271(1)(c). The argument taken up by the learned CIT(A), that if the assessee's contention be accepted then every tax evader can take shelter by shifting the blame on to his clerks and accountants who invariably prepare the return, also does not seem to have much force. In such ordinary cases, which have been thought of by the CIT(A), the direct employees of the assessees prepare the returns and the assessees are expected to oversee the working of the said employees and clerks who work under the direct authority of the assessees. In the instant case however, the work of preparing the return had duly been entrusted with a professional concern. For a large number of years, the said professional concern carried on its duty rather faithfully and also competently. The assessee could not, therefore, have any reason to doubt the efficiency of the professional concern, viz.. Syndicate Bank in the present case. It is very clear from our discussions above that in this particular year, the bank people bungled the entire affairs and committed rather silly mistakes out of sheer mis-application of mind or gross inadvertence. The assessee, blindly acting on the working of the bank, should not therefore be held responsible.
21. Shri Puniha, the learned Departmental Representative, has tried to argue that the assessee proved his bona fide before the Syndicate Bank] but not before the Assessing Officer. It is required to be mentioned here that it is the assessee who has been penalised for an act of mis-application, of mind coupled with inadvertence of the bank. If the assessee proves his bona fides in the entire matter, it must be taken that he has proved his bona fides before the Income-tax Department also. The other point raised by the learned Departmental Representative that even the physical aspect of the transaction in the Reliance shares was also not depicted in the original return, also completely relates to the fault of the bank in preparing the return. As argued by Shri Puniha, it would perhaps have been better had the assessee applied his own mind in scrutinising the return and thereafter putting his signature thereon. However, looking to the busy nature of occupation of the assessee, he cannot be blamed if he has acted rather blindly on the advice and working of his Counsel and Agent whom he considers to be quite reliable and efficient. Shri Puniha has also drawn our attention to some of the answers of Shri T.V. Madhusudhanan during the course of his examination and cross-examination. One of these points is the negative answer given by Shri Madhusudhanan to the question put to him about whether the sale proceeds of shares or debentures of the assessee were transacted through the power of attorney account of the assessee. The point is not whether the sale proceeds were transacted through such power of attorney account but whether at the time of preparation of return of income of the assessee, the bank authorities were in knowledge of the sale of the shares in Reliance Textile Industries. The discussions made by us above clearly show that the bank was in full knowledge of the said facts. Shri Madhusudhanan also stated that he had not seen or noticed the notation dated 24-8-1984 during the time of preparation of the return of income of the assessee. He also considered himself not to be primarily responsible for not including the transactions relating to sale of shares by the assessee in his return of income for this year. However, it must be said that Shri Madhusudhanan made these statements to save his own skin. Nobody would declare himself to be responsible for any default which might be committed during the course of his official business. Again, when the notation dated 24-8-1984 was already in the file of the Bank, how and why Shri Madhusudhanan missed that notation at the time of preparation of the return of income of the assessee is not of much importance.
22. Finally, it is required to take into consideration the reliance placed by Shri Puniha on the decision of the Gauhati High Court in the case of F.C. Agarwal (supra). In that particular case, the High Court held, which was later on approved by the Supreme Court, that as a proposition of law it may be correct that where a revised return is submitted under Section 139(5) before the assessment is made after the assessee has discovered some omission or some wrong statement in the original return, a penalty proceeding for concealment of the particulars of income or furnishing inaccurate particulars of such income as Contemplated under Section 271(1)(c) of the Act may not be attracted. The High Court, however, furthermore held that for that purpose however, the revised return itself must be within the correct ambit and scope of Section 139(5). The High Court went on discussing that the further requirement in this connection is that this omission or wrong statement in the original return must be due to bona fide inadvertence or mistake on the part of the assessee.
22.1 In the instant case, there is no doubt about the fact that the final revised return has virtually been accepted by the Department and that penalty has been imposed not with reference to the final return but with reference to the original return filed by the assessee. It is also not the plea of the assessee that he is absolved of the penalty under Section 271(1)(c) simply because of the fact that he filed his revised return in a correct manner. On the other hand, as we have seen earlier, even at the stage of the filing of the original return also, the assessee cannot be considered to have been guilty of concealment of his income or of furnishing of inaccurate particulars of his income. The fault, if any, was with his Tax Counsel and Agent and it has been discussed by us that even the said Tax Counsel and Agent, viz., Syndicate Bank cannot also be considered to have acted in a mala fide manner in preparing the return of income of the assessee wrongly. So far as the assessee himself is concerned, his bona fides are provided by the facts and circumstances discussed above.
23. Lastly, therefore, we are of the opinion that in the peculiar circumstances of the case, although the return of income originally filed by the assessee suffered from serious defects of the nature of omission of certain items of income, at the same time again, the assessee himself cannot be considered to be guilty of any of the offences as envisaged under Section 271(1)(c). Hence, we reverse the orders of the authorities below and cancel the penalty under Section 271(1)(c) imposed upon the assessee by holding that this is not a fit case for imposition of such penalty.
24. In the result, the appeal filed by the assessee succeeds.