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Proper computation of penalty under Section 28 of the Income-tax Act. Analysis: The case involved an assessment of income tax for the year 1930-31 for money-lenders at Maubin. The Income-tax Officer assessed their income at a higher amount than declared, leading to penalty proceedings under Section 28 (1) of the Act. Section 28 (1) allows for a penalty if an assessee has concealed income particulars or furnished inaccurate details. The penalty is calculated based on the tax avoided due to the false return. The assessee's income was initially assessed at a higher figure, and later, during an inquiry under Section 28 (3), it was found to be lower. The penalty imposed was based on the difference between the tax on declared income and assessed income. The Commissioner confirmed the penalty, leading to a contention by the assessee regarding the maximum penalty that could be imposed under Section 28 (1). The interpretation of Section 28 (1) was crucial in determining the maximum penalty. The question revolved around whether the penalty should be based on the difference between the tax on the declared income and the tax on the assessed income. The court referred to previous judgments to establish that the penalty should not exceed the tax difference between declared and assessed income. The court emphasized that the penalty calculation should reflect the tax amount that the government would have lost if the false return had been accepted. The court clarified that the penalty amount should be determined based on the actual tax paid on the correct income compared to the tax that would have been paid on the false return. The court highlighted that while the maximum penalty is based on the tax difference between declared and assessed income, the actual imposition of the penalty lies within the discretion of the income tax authorities. The court stressed that the assessee should be given an opportunity to present evidence during penalty proceedings to support their case for a lower penalty or no penalty at all. The court affirmed that evidence regarding the actual income of the assessee is relevant for penalty determination, not for altering the tax assessment. Ultimately, the court upheld the correct interpretation of Section 28 as established in previous cases and affirmed that the penalty should be based on the tax variance between declared and assessed income. In conclusion, the court held that the maximum penalty under Section 28 (1) is determined by the tax difference between declared and assessed income. The court emphasized the discretionary power of income tax authorities in imposing penalties and the relevance of evidence presented by the assessee during penalty proceedings. The judgment affirmed the proper computation of penalties under the Income-tax Act, ensuring fairness and reasonableness in penalty imposition based on actual tax discrepancies.
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