The Lord takes neither the demerit nor even the merit of any;  knowledge is enveloped by ignorance; thereby, beings are deluded.

Commentary:

The Supreme, who is all-pervading (vibhu), is not a God who sits above, peeping down and observing every sin and merit of all the people of the world, so that He could pass judgement on the Day of Judgement - such a concept can appeal only to those in whom the intellect is the least developed faculty!

The Self passing through Knowledge (gyana), like sun-light passing through glass as pure white light, emerges out as a Self which is One without a second, all-pervading and perfect. But, like sun-light passing through a prism emerging as a spectrum of colours, the same Self when It passes through ignorance (meaning, the body, mind and intellect) gets Itself split up into the endless worlds of plurality.

"Knowledge enveloped by ignorance" - just as a solitary light in a dark jungle, seen from a distance, can be described as light encased in darkness. But where knowledge is, ignorance cannot be. The relationship between knowledge and ignorance and the method of stripping knowledge naked is more elaborately discussed in the following slokam. (Chinmayananda)