MANSUKHLAL & BROTHERS, BOMBAY vs. COMMISSIONER OF INCOME-TAX, BOMBAY

CIVIL APPEAL No. 864/1966Supreme Court[1969] 1 S.C.R. 97003 September 1968Bench: 2 JudgesAuthor: V. RAMASWAMI, A.N. GROVER9 pages
AI SummaryDismissed

What were the facts?

For the assessment year 1948-49, the assessee firm declared an income of Rs. 45,904. The Income Tax Officer (ITO) adjusted this figure to Rs. 48,135 by disallowing certain deductions. Additionally, the ITO added Rs. 90,000, which was not concealed but should have been included, and Rs. 24,000, which was concealed income. The total assessed income became Rs. 1,62,135. The Department sought to impose a penalty of Rs. 62,000 under Section 28(1)(c) of the Income-tax Act, 1922, calculated as 1.5 times the tax difference between the assessed income (Rs. 1,62,135) and the returned income (Rs. 45,904). The assessee contended that the penalty should be based on the tax avoided only on the concealed income of Rs. 24,000, or alternatively, on the difference between the assessed income and Rs. 1,38,135 (Rs. 48,135 + Rs. 90,000). The Appellate Assistant Commissioner and Tribunal partially agreed with the assessee regarding the Rs. 90,000 but upheld the concealment of Rs. 24,000 and restored the penalty of Rs. 62,000. The High Court, on reference, ruled in favour of the Department.

What did the Supreme Court hold?

The Tribunal held that for penalty computation under Section 28(1)(c), it is immaterial whether one or more items were concealed; the quantum is computed on the difference between the tax on the finally assessed income and the tax on the income as returned. The High Court's answer to the reference question was affirmed. The Supreme Court rejected the assessee's contention that the penalty should be correlated to the tax evaded or the amount concealed. The Court held that the object of Section 28(1)(c) is deterrence against tax evasion, which is achieved by imposing penalties irrespective of the amount concealed. The word 'avoided' in Section 28(1)(c) means 'escaped' and not 'evaded'. The 'income as returned' refers to the income shown in the return filed under Section 22. Therefore, the maximum penalty is 1.5 times the difference between the tax on the total income as finally assessed and the tax on the income as shown in the assessee's return, irrespective of the amount of concealment. The appeal was dismissed.

What were the issues?

1. Whether, for the purpose of levying penalty under Section 28(1)(c) of the Income-tax Act, 1922, the 'income as returned' includes items of income not actually returned but added to the assessment solely on the ground of lack of evidence (i.e., Rs. 90,000 in this case)? Assessee's arguments: - The penalty under Section 28(1)(c) is in the nature of additional tax and should be correlated to the tax evaded, not disproportionate to the income concealed (Rs. 24,000). - The 'income as returned' for penalty calculation should be Rs. 1,38,135 (Rs. 48,135 + Rs. 90,000), meaning the penalty should be 1.5 times the tax difference between the assessed income (Rs. 1,62,135) and Rs. 1,38,135. - Relied on observations in Abraham v. I.T.O., Kottayam and Malbary v. C.I.T., Bombay, North regarding proportionality and correlation to tax evaded. Revenue's arguments: - Section 28(1)(c) provides that the maximum penalty is 1.5 times the difference between the tax on the total income as finally assessed and the tax on the income as shown in the assessee's return, irrespective of the amount of concealment. - The word 'avoided' in Section 28(1)(c) means 'escaped' and not necessarily 'evaded'. - The 'income as returned' means the income shown in the return filed under Section 22, not income computed by authorities minus additions for concealment. - Relied on C.I.T., Burma v. A.A.R. Chettiar Firm, A.A.R. Chettiar v. C.I.T., Burma, and K. Subbaraju Gopalraju v. E.I.T. Madras.

Which sections of the Income-tax Act were involved?

Section 28(1)(c),Section 66(1),Section 22

AI-generated summary — verify with the full judgment below

•• • • MANSUKHLAL & BROTHERS, BOMBAY v. COMMISSIOl'iER 011 INCOME-TAX, BOMBAY September 3, 1968 [V. RAMASWAMI AND A. N. GROVER, JJ.)

Income-tax Act (11 of 1922), s. 28(1) (c)-'Avoi.Jed· and "incmn•! as returned', 1neani11g of--,Scope of clause.

Under s. 28( l) (c) of the Inaome-tax Act, 1922, if an assessee conceals particulars of his income, then, in addition to any tax iJayablc by him, he may be directed to pay, by way of penalty, a sum not exceeding one A B and a half times the amount of the tax which would have been avoided c if the income as returned by him had been accepted as correct.

For the assessment year 194849, the asscssee showed an income of Rs. 45,904 in his return. 'fhe Department disalluwcJ c;.,;rtuia deductions and corrected the figure to Rs. 48.135. It also added two other items; (i) Rs. 90,000 which was not concealed but which should have been in- cluded in the assesscc's return of income, and (ii) R'i. 24,000 v.rhich. "IVas income concealed by the asscssee. After ascertaining the asse~sce's income at Rs. 1,62,135 (Rs. 48.135 +Rs. 90.000 -i- Rs. 24.000\, the Department sought to impose on the assessce a penalty of Rs. 62,00\J under s.

The order continues below.

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