D. MANMOHAN, J.M. These appeals are filed at instance of assessee and they pertain to asst. yrs. 1990-91 and 1991-92. Penalty levied by AO under s. 271(1)(c) of Act having been confirmed by learned CIT(A), assessee is in appeal before us. 2 . assessee is managing partner of M/s K.M. Abdul Sattar Corpn., Adoni. For years under consideration, assessee declared total income of Rs. 26,440 and Rs. 56,333, respectively which included share income from two firms. returns were originally processed under s. 143(1)(a) of Act. 3 . In course of assessment proceedings of firm M/s K.M. Abdul Sattar Corpn., it came to light that benami savings bank account was operated by managing partner (appellant in these appeals). In name of Mr. M.S. Abdul Khader, savings bank account in Laxmi Vilas Bank, Adoni was maintained bearing account No. 1631. When this was put to assessee, he agreed that entries in bank account reflect his transactions. Letter dt. 30th July, 1992 addressed by assessee to ITO, reads as under : "Kindly permit me to file this submission before I answer your questions in pursuance of summon issued upon me to appear before you on 31st July, 1992. I beg to submit as under. I own responsibility of maintaining savings account in name of M . S . Abdul Khader in Laxmi Vilas Bank, Adoni (saving bank account). Immediately on obtaining bank extracts in day or two I will file my revised return of income with peak credit of deposits in that account, along with self-assessed tax." 4. assessments were, therefore, reopened by issuing notice dt. 31st July, 1992 under s. 148 of Act. In response to notice assessee declared peak unexplained credit of Rs. 37,500 for asst. yr. 1990-91 and Rs. 9,086 for asst. yr. 1991-92. After adjusting earlier years peak credit offered to tax, assessee offered Rs. 53,586 as income for asst. yr. 1991- 92. Covering letter dt. 6th Aug., 1992 addressed to AO reads as under : "I am filing my revised returns for asst. yrs. 1990-91 and 1991-92 along with 140-A tax paid challans. bank statements, copy of which I have obtained now in name of M.S. Abdul Khader, Adoni, starts on 8th Dec., 1989 and end on 8th March, 1991 relevant for asst. yrs. 1990-91 and 1991-92 end on 8th March, 1991 when bank account is closed once and for all. statements show that both deposits and withdrawals are there on various dates, money is kept in and taken out. money revolves and circulates both as deposits and outgoings. Therefore, it is from statement, peak credit is worked out for both years. Detailed statement is enclosed. For asst. yr. 1990-91 ending on 31st March, 1990 peak works out on 16th Feb., 1990 at Rs. 37,500. In asst. yr. 1991-92 peak works out as per statements enclosed as o n 4th March, 1991 at Rs. 91,086 (excluding savings bank account interest at Rs. 20,415). As money rotates and there is balance on 1st April, 1990 brought forward from previous year, amount of Rs. 37,500 is being there already in previous year, peak is worked out as under : Total peak credit for year 4-3-1991 (1991-92) 91,086 Less : Total peak credit already offered for taxation in previous year ending 31-3-1990 (1990-91) 37,500 Balance 53,586 This fact has already been submitted in my letter dt. 30th July, 1992 and filed before you on 31st July, 1992 even before I gave deposition maybe treated as my income and tax payable is worked out on this basis. This income now offered for two years is my individual one. I pray that my submission may be accepted in same spirit with whichI came forward to right wrong,if any." (Emphasis, italicised in print, supplied) 5. Based on revised return filed in response to notice issued under s. 148 of Act, AO completed assessments and initiated proceedings under s. 271(1)(c) of Act. In response to show-cause letter, assessee vide letter dt. 21st Sept., 1992 replied as under : "Your letter Sir, has brought out all facts of same and there is no denial of same even now. All partners of firm have been examined on oath. Except one, all others have no knowledge of bank account in name of M.S. Abdul Khader nor its operation. On other hand even before I gave testimony filed letter before you owning responsibility of bank account. I submit there is no shame in making mistake but there is greater wisdom in recognizing it, great humility in admitting it but above all, great glory in correcting same, I have exactly done this. I filed revised returns for both years admitting peak credits. I paid taxes on this spot. bank entries consist of deposits and withdrawals. On 8th Dec., 1989, I deposited Rs. 20,000 while opening account. very next day, I withdrew Rs. 10,000 and other next day I withdrew Rs. 1,000. This would not have been possible but for earlier credit. Similar is case with all other entries for two years. As is seen from bank account, each deposit is linked to withdrawal and there is nexus between both. Considering only credits would have been justified as proposed in your notice, if there were no debit entries. Both being there, they cannot be divorced and bifurcated one from other. money is circulating, sometimes credit being made into bank and at other times withdrawing from same account. amount withdrawn on 5th March, 1991 at Rs. 10,000 and Rs. 80,000 is debit item. fact that you desire to consider its ultimate destination is in itself proof that both debits and credits are being considered. amounts withdrawn on above dates are spent in following manner : 1. Rs. V.C.R. purchased which is now lying for repairs. 17,000 2. Medical and travelling expenses for my father and myself at Rs. Madras and Kurnool for his treatment. He died on 27-8-1991. 15,000 3. Rs. Purchase of gold ornaments about 5 tolas. 20,000 4. Rs. Miscellaneous expenses for which no details are available. 8,000 5. Cash on hand now with friends without interest and with Rs. myself. 30,000 two deposits of demand drafts of Rs. 10,000 and Rs, 15,000 credited into bank on 17th Nov., 1990 and withdrawn on same date are drafts brought by parties and given to me for cashing same and to be returned to them to avoid identification problem from bankers. I do not have details. If I am given details of places and names of purchasers of DDs, I can explain in detail. Even these amounts have gone into peak credit, offered for taxation. As regards proposal to levy of penalty under s. 271(1)(c) I have placed before you, all cards even before enquiry. If telling truth is punishable, I have little defence. I never wished to carry guilt all to myself till I am alive. It had to be corrected and I did same. To punish or not to punish will be in your good hands. law has every force to punish person. Should it not encourage person when he wants to reform himself. prose has no place in taxation. But yet permit me to quote historical fact : mother sought from Napoleon pardon of her son. emperor said it was man's offence and justice demanded his death. I do not ask for justice. Said mother and plead for mercy. But said emperor, he does not deserve mercy. Sir, cried mother. It would not be mercy if he deserves it, and mercy is all I ask. Well, then, said emperor, I will have mercy. And her son was saved. As quality of mercy is not strained, it could still drop gently from your pen." (Emphasis, italicised in print, supplied) 6 . It may be relevant to notice that AO was of opinion that income offered to tax by assessee is not assessable in his hands since it is income of firm. In other words, though investigation made by AO and other material available on record indicate that income referable to peak credit is assessable in assessee's hands, AO was not clear about it and hence he made protective assessments in assessee's hands. AO was of opinion that peak credit is taxable in hands of firm. 7 . In penalty proceedings, AO observed that assessee was cornered and hence he filed revised returns, which cannot save him from levy of penalty. Appeals filed before CIT(A) were also dismissed on ground that revised returns were filed consequent to notice under s. 148 as result of detailed investigation undertaken by Department and, hence they cannot be treated as voluntary returns. assessee had full knowledge of transactions in bank account and thus assessee can be said to have wilfully furnished inaccurate particulars of income. Further, explanation offered in response to notice under s. 271(1)(c) was found to be false. Learned CIT(A) observed that assessee failed to prove that explanation offered isbona fide. 8 . Further aggrieved, assessee is in appeal before Tribunal. Learned counsel for assessee reiterated submissions before us. He contended that peak credit was offered to tax to purchase peace with Department and, in fact, even as per AO it was not income of assessee but added on protective basis. same income was added in firm's hands. Learned counsel relied upon following decisions in support of his contention that penalty is not leviable, merely because addition is agreed to inasmuch as, assessee voluntarily came forward to offer peak credit as his income much before AO could decide upon taxability of credit in assessee's hands. Further, assessee fully co-operated with Department. (a)Sir Shadi Lal Sugar & General Mills Ltd. & Anr. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC); (b)CIT vs. Suresh Chandra Mittal (2001) 170 CTR (SC) 182 : (2001) 251 ITR 9 (SC); (c)CIT vs. M.M. Rice Mills (2002) 253 ITR 17 (P&H). 9. On other hand, learned Departmental Representative strongly relied upon orders of tax authorities. She submitted that assessee initially denied transactions in bank account and filed returns only upon detailed enquiry. Learned Departmental Representative, therefore, contended that there was intention to evade payment of tax. 10. We have carefully considered rival submissions and perused record. Admittedly, assessee owned transactions in bank account only upon enquiry by AO. It is not case where assessee offered explanation to state that income assessed to tax is not his income. He categorically submitted that he owned responsibility of maintaining bank account in benami name. Thus, assessee stated truth in response to show-cause notice. Learned CIT(A) observed that explanation is false and assessee did not prove that it isbona fide.When assessee admits that he has committed wrong it cannot be said that his statement is false or notbona fide.If statement of assessee is false, converse must be true. If converse is true, it implies that assessee's statement that transactions in bank account are his own funds is wrong in which event no addition could have been made by AO and consequently penalty is not imposable. In fact, it would be in conformity with view of AO inasmuch as he did not, accept, at first instance, that income was earned by assessee but held that it was income of firm. If statement of assessee is not false, it isbona fidestatement. However, nothing much turns upon this statement. In fact, it is not case of assessee that he has furnished true and correct particulars of income. He admitted mistake and filed revised returns in response to notice under s. 148 of Act. Thus, only question remains to be considered is whether penalty is automatic even if assessee corrects his mistake. This is case where it cannot be said that revised returns were filed after detection by Department. very fact that income returned in response to notice under s. 148 was assessed on protective basis shows that on date of filing revised return, AO has not detected concealment of income of assessee. returns of income were filed by assessee voluntarily and co-operated with AO in all respects in completion of assessment. Sec. 271(1)(c) of Act gives discretion to AO to exonerate assessee from levy of penalty, even in case where assessee concealed income or furnished incorrect particulars of income. expression : "If AO ...... is satisfied that any person (c) has concealed particulars of his income or furnished inaccurate particulars of such income, he may direct..." shows that AO is vested with discretion to levy or not to levy penalty in deserving case. In case ofHindustan Steel Ltd. vs. State of Orissa (1 97 2) 83 ITR 26 (SC), apex Court held that penalty should not be imposed merely because it is lawful to do so. AO has to exercise his discretion judicially. Hon'ble Madhya Pradesh High Court (Indore Bench) in following cases observed that if assessee files revised return, though at later stage, and discloses true income, penalty need not be imposed : (a)CIT vs. S.V. Electricals (P) Ltd. (2005) 274 ITR 334 (MP), (b)CIT vs. Shyamlal M. Soni (2005) 276 ITR 156 (MP). 11. No doubt mere filing of revised return will not automatically protect assessee from levy of penalty but, in given case, where assessee comes forward with clean breast though after detection, and files returns of income offering additional income and expresses remorse for his past conduct unhesitantly, AO may have to exercise discretion in favour of such assessee as otherwise expression 'may' in s. 271(1)(c) remains dead letter if it is understood that in case of admitted concealment penalty is automatic. At least in some exceptional cases, discretion vested in officer should be used to drop proceedings. In our considered view, case before us is more befitting case to exercise such discretion, particularly in view of fact that at time of filing revised returns, AO has not made up his mind to add income in assessee's hands but assessee voluntarily offered it to tax and thus it cannot be said to be case of declaring income after detection by Department. 12. case law relied upon by learned counsel are not applicable to facts of this case. However, considering peculiar circumstances of case we deem it fit case for cancelling penalty and we direct AO accordingly. 13. In result, appeals filed by assessee are allowed. *** K. DEEDAR AHMED v. INCOME TAX OFFICER