Ignorance of Law by Non-Resident Indian is a valid excuse to get immunity from Penalty u/s. 271 (1) (c)

IN THE ITAT PUNE BENCH 'A'

Emilio Ruiz Berdejo

vs.

Deputy Commissioner of Income-tax, Circle -7, Pune

Ignorance of Law is no Excuse, although it may be considered under certain facts and circumstances where the assessee provides "a bonafide explanation" to prove his case

Facts: The assessee is an employee of Tetra Pak International S.A., and has been deputed to India for working with Tetra Pak India Ltd- the assessee has received certain amounts outside India from Tetra Pak International S.A. which he did not disclose in the original return of income filed by him-The assessee filed his return of income but did not disclose the amount in the return of income- Since the assessee did not disclose this income the Assessing Officer was of the view that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act- Accordingly, he issued notice u/s.148- In response to the notice u/s.148, the assessee filed return of income and including income which was not reported in original return- Assessment was completed by the Assessing Officer- Consequently, the penalty proceedings u/s. 271(1)(c) were also initiated.

Contention of assessee: that appeal in assessee's own case in 1st round was decided in his favour by the ITAT in ITA No.991/PN/2008 it was decided the issue in favour of assessee by observing that,-

"We have already given a finding that the assessee's explanation for not disclosing the income in question in his returned income is duly evidenced by the material on record and, as such, deserves to be accepted. We have also held that in the absence of categorical conclusions about taxability of an income, particularly when the said income is taxed only on the basis of assessee's suo motu declaration and when, despite this declaration, the assessee has categorically challenged the taxability, a concealment penalty cannot be imposed. In these circumstances, it is not really necessary to go into the question whether or not there was any mens rea in the conduct of the assessee. That aspect of the matter, in this case, is somewhat academic. However, suffice to say that as held by the Hon'ble Supreme Court, in the case of Dilip N Shroff (supra), "before a penalty can be imposed, the entirety of the circumstances must reasonably point to the conclusion that the disputed amount represent income and that the assessee consciously concealed the particulars of his income or had furnished inaccurate particulars thereof". While in Dharmendra Textiles (supra), doubts have been expressed on correctness of this judgment, the expression of doubts, by itself, does not dilute binding nature of Dilip N. Shroff (supra) judgement. It is still good law and binding on all of us under Article 141 of the Constitution of India.

As held by a three judge bench in the landmark case of Hindustan Steel Limited (supra), "penalty will not be imposed merely because it is lawful to do so" and "whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances"

Revenue contended that: 

"the explanation furnished by the assessee in response to show cause notice issued by the Assessing Officer requiring the assessee to explain as to why penalty u/s. 271(1)(c) be not levied, rightly did not find favour from the Assessing Officer who was of the view that additional income of Rs. 35,47,950/- had been disclosed by the assessee in the return filed in response to notice u/s.148 of the Act and the same was not offered to tax in original return of income while assessee was well aware of this addition and income in terms of conditions for deputation to India."

ITAT Held that,

"The above observation of the Hon'ble Supreme Court implies that it is only on the point of "mens rea" that the judgment in the case of Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519 (SC) has been overruled. The meaning of term "conceal" as explained in the said judgment holds good. The Hon'ble Punjab & Haryana High Court in the case of CIT v. Sidhartha Enterprises [2010] 322 ITR 80 (Punj. & Har.) has been pleased to hold that penalty is imposed only when there is some element of deliberate default and not a mere mistake. The Mumbai Bench of the Tribunal in the case of Glories Realty (P.) Ltd. v. ITO [2009] 29 SOT 292 has held that if bona fide explanation of the assessee has not been found false then penalty will not be leviable. 

On the basis of the decision relied upon, we gather strength to form a view that penalty is not an automatic consequence of addition to income; penalty under section 271(1)(c) of the Act can come into play only when the conditions laid down under that section are satisfied; concealment of income cannot be a passive situation and it implies that the person concealing the income is hiding, covering up or camouflaging an income; penalty is not leviable in case where assessee is able to provide a 'bona fide' explanation; and penalty is not leviable in cases where assessee made errors ,under bona fide beliefs.

As a result, the appeals filed by the assessee are allowed.