IMPORTANT POINTS
The High Court should not ordinarily disturb the finding of fact arrived at by the Tribunal and question of law should generally arise only accepting the finding of fact to be correct.
Trite that if 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 arise.
‘Concealment of income’ and ‘furnishing of inaccurate particulars’ carry different connotations– Concealment refers to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi.

Headnote:Constitution of India – Article 226 – Existence of mens rea is essentially a question of fact and the Tribunal alone, as the highest authority empowered to determine the question of fact, would be entitled to go thereinto – The High Court should not ordinarily disturb the finding of fact arrived at by the Tribunal–Question of law should generally arise only accepting the finding of fact to be correct.(Para9).
       (2007) 290 ITR 433; (2001) 247 ITR 178; (2001) 247 ITR 276 – Relied upon.
       Income Tax Act, 1961 – Section 271(1)(C) – Trite that if 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 arise. (Para 13).
       (Civil Appeal Arising out of SLP (C) No.26831/2004) – Relied upon.
       Words and phrases – Conceal – The expression “conceal” is of great importance – It means “to hide or keep secret” – The word “conceal” is con plus celare which implies to hide – The offence of concealment is, thus, a direct attempt to hide an item of income or a portion thereof from the knowledge of the income tax authorities – Concealment signifies a deliberate act of omission on the part of the assessee which must be either for the purpose of concealment of income or furnishing of inaccurate particulars. (Paras 14 and 15).
       Income Tax Act, 1961 – Section 271(1)(C) – The Income Tax authority have to be satisfied that the explanation offered by an assessee, in the event he offers one, was false – Apart from his explanation being not bona fide, it should be found as of fact that he has not disclosed all the facts which was material to the computation of his income. (Para 16).
       246 ITR 568; 246 ITR 571 – Relied upon.
       Code of Criminal Procedure, 1973 – Section ** – The order imposing penalty is quasi-criminal in nature and, thus, burden lies on the department to establish that the assessee had concealed his income – A finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted in a penalty proceeding – In the penalty proceedings the authorities must consider the matter afresh as the question has to be considered from a different angle – Well-settled that the more is the stringent law, more strict construction thereof would be necessary; even when the burden is required to be discharged by an assessee, it would not be as heavy as the prosecution. (Paras 18, 19
       1995 Supp (2) SCC 187 – Relied upon.
       Income Tax Act, 1961 – Section 271(1)(C) – Section 271(1)(c) remains a penal statute and therefore rule of strict construction shall apply thereto, the ingredients of imposing penalty remaining the same – The purpose of the legislature that it is meant to be deterrent to tax evasion is evidenced by the increase in the quantum of penalty, from 20% under the 1922 Act to 300% in 1985 – ‘Concealment of income’ and ‘furnishing of inaccurate particulars’ carry different connotations – Concealment refers to deliberate act on the part of the assessee – A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi. (Paras 21 and 22).
       1994 (205) ITR 244; 2004 (265) ITR 562 = (2004) 5 SCC 731; 2007 (2) SCALE 612; 2007 (2) SCALE 612 – Relied upon.
       Income Tax Act, 1961 – Section 271(1)(C) – Section 271(1)(c) and clause (iiii) relate to the conditions for imposition of penalty, whereas, on the other hand , Explanation 4 to Section 271(1)(c) relates to the computation of the quantum of penalty – It 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 bona fide may 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 – Therefore the impugned judgment cannot be sustained. (Paras 26, 29 and 30).
       (2003) 11 SCC 729; (2005) 2 SCC 324 – Distinguished.
       Facts of the case :
       Appellant is an individual. 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 Assessing Authority.
       Findings of the Court :
       Trite that if 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 arise.

JUDGMENT

S.B. Sinha, J.—

1.Leave granted.

2.The assessee is in appeal before us aggrieved 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 negative. “Whether, on 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 present case?”

3.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 Assessing Authority.

4.The Income 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 the case.

5.A reference was made to the High Court at the instance of the revenue in respect of the following question :

“Whether on 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 present case?”

6.The High Court compared the returns filed by the appellant under the Income Tax Act and the Wealth Tax

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2007 Supreme(SC) 828

Cases Referred (4)