Case: Sri T. Ashok Pai Vs. Commissioner of Income Tax, Bangalore

Shorn of all unnecessary details the fact of the matter is as under :Appellant is an individual. He is an engineering graduate. Apart from his income by way of salary, he was having shares of profit of a number of firms besides income from proprietorship business. He has also earned income from dividend and interest. The banker of the assessee was the Syndicate Bank. A power of attorney was given by the appellant in its favour. The shares of the companies which the appellant owned were lodged with and in custody of the said Bank. Under his instructions, the Bank used to purchase shares of various companies and kept with it the physical possession thereof. It has also sold the shares of the appellant and delivered the same to the brokers or the parties and also used to pay or receive the sale proceeds and deposit the same in the bank account. The said arrangement continued for a number of years in the past. Tax matters of the appellant were being looked after for a number of years by the Law Agency Division of the Syndicate Bank, Manipal, which was authorised to file the returns of income before the tax authorities representing the assessee herein. For the assessment year 1985-86 the return of income on behalf of the appellant was filed on 13.2.1989. Respondent, however, being not satisfied with the return, called for better particulars of investments made by the appellant, whereupon a revised return was filed on 12.1.1990 furnishing all the requisite particulars to the Department. An application was filed by him before the Settlement Commission on or about 17.1.1990 for settlement of the taxes due which was, however, rejected by an order dated 26.9.1990. Appellant, thereafter, filed a second revised return, upon which assessment was made by the Assessing Officer. The said revised return was accepted by the Assessing Officer. However, a proceedings for imposition of penalty in terms of Section 271(1)(C) of the Income Tax Act was initiated. In the cause shown by the appellant a contention was raised that he had acted bona fide as the tax affairs were being looked after by the professional group working with the Syndicate Bank. The said contention was not accepted by the AssessingIncome Tax Appellate Tribunal, however, considered the entire materials brought on records and inter alia opined :(1) When on discovery, some omission or some wrong statement in the original return is found, a penalty proceeding for concealment of any particulars of income or furnishing inaccurate particulars of such income as contemplated under Section 271(1)(C) of the Income Tax Act may not be attracted.(2) The revised return having been accepted by the Department and the penalty having not been imposed with reference to the original return filed by assessee, he cannot be considered to be guilty of concealment of income.(3) The fault, if any, was with his tax counsel and even the said tax counsel viz. the Syndicate Bank, cannot be said to have acted in a mala fide manner in preparing the return of income of the assessee wrongly. The bona fides of the assessee are proved by the facts and circumstances of thereference was made to the High Court at the instance of the revenue in respect of the following questionon the facts and in the circumstances of the case, the Tribunal was right in holding that penalty u/s. 271(1)(C) was not exigible in the presentHigh Court compared the returns filed by the appellant under the Income Tax Act and the Wealth Tax Act and arrived at the following decisionprincipal is responsible for all the act done by the agent. That apart, in the case on hand there is no material to show that the agent has acted in excess of his authority or in disobedience of the authority given by the principal. The stand taken by the Bank manifestly makes it clear to us that they prepared the return of income on the basis of information furnished by the assessee. The assessee is an engineer and a tax payee for a number of years cannot contend that he signed the return of income by believing his power of attorney holder. This contention of the assessee cannot be believed for the reason that in his revised return dated 12.1.1990 again declared a loss of Rs.1,04,531/- and did not admit the capital gains and other income. The first appellate authority rightly holds that if the explanation of assessee is accepted then every tax evader could take shelter by shifting the blame on his clerk and accountants who invariably prepare the return for them. The contention of the assessee that because of the negligence on the part of the Bank the mistake of concealment has crept in is not acceptable."

Court's reasoning:
The assessee is in appealaggrieved by and dissatisfied with a judgment dated 29.9.2005, passed by a Division Bench of the Karnataka High Court in ITRC No.492 of 1998 whereby and whereunder answer to the following question was rendered in the, on thefacts and in the circumstances of the case, the Tribunal was right in holding that penalty u/s.271(1)(C) was not exigible in the present casef an explanation given by the assessee with regard to the mistake committed by him has been treated to be bona fide and it has been found as of fact that he had acted on the basis of wrong legal advice, the question of his failure to discharge his burden in terms of explanation appended to Section 271(1)(C) of the Income Tax Act would not ariseThe order imposing penalty is quasi-criminal in nature and, thus, burden lies on the department to establish that the assessee had concealed his income. Since burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitute good evidence in the penalty proceeding. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angleA mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsiIt is not a case where penalty has been imposed for breach of contravention of a commercial statute where lack of or intention to contravene or existence of bonamay not be of much importance. It is also not a case where penalty is mandatorily impossible. It was, therefore, not a case where the enabling provision should have been invoked