Ignorance of law caused by complicated provisions amounts to “bona fide belief”

CIT vs. Hans Christian Gass (Bombay High Court)

The assessee, a foreign national, was an employee of Sandvik AB, Sweden. He was deputed to India and appointed Managing Director of Sandvik Asia Ltd. In addition to the salary from Sandvik Asia, he received an amount from Sandvik AB, Sweden, being the difference between the tax rates in India and Sweden. In the ROI, the assessee did not offer the amount received from Sandvik AB to tax even though it was taxable in India. On being asked by the AO, the assessee offered the same to tax and paid tax thereon for all years including the earlier and subsequent AYs. The AO levied penalty on the ground that the assessee was assisted by tax experts and so ignorance of the law was no excuse. However, the Tribunal deleted the penalty on the ground that (i) there were multiple amendments to the statutory provisions (s. 10(b)(vii)) and the concept of grossing-up embedded therein is of a technical nature and out of the scope of common knowledge of the tax payers, (ii) the possibility of mistake by even tax experts cannot be ruled out; (iii) the assessee relied on the tax experts and signed the ROI, (iv) the conduct of the assessee in paying up the taxes for all the years including those that were beyond reassessment showed his bona fides, (v) the claim of bona fide belief need not be substantiated with documentary evidence but can also be substantiated by circumstantial evidence; (vi) penalty is not an automatic consequence of addition to income; (vii) concealment implies that the person is hiding, covering up or camouflaging an income; penalty is not leviable in case where assessee is able to provide a ‘bona fide’ explanation; penalty is not leviable in cases where assessee made errors ,under bona fide beliefs. On appeal by the department to the High Court, HELD dismissing the appeal: