1966 (8) TMI 20 - HC - Income Tax

Explanation made out by assessee was not accepted by ITO would not necessarily lead to the conclusion that the assessee had furnished wrongful particulars of his income - penalty u/s 28(1)(c) of the Act was not justified

Summary

Issues:
1. Justification of penalty under section 28(1)(c) of the Indian Income-tax Act, 1922.

Detailed Analysis:
The judgment by the High Court of Kerala involved a reference by the Income-tax Appellate Tribunal regarding the levy of penalty on the assessee under section 28(1)(c) of the Indian Income-tax Act, 1922. The Tribunal had reduced an addition made to the assessee's income to Rs. 30,000 for the assessment year 1952-53 based on discrepancies found in the stock register. The Income-tax Officer imposed a penalty under section 28(3) on the assessee, which was initially set aside by the Appellate Assistant Commissioner but restored by the Tribunal. The central issue was whether the penalty imposed was justified under section 28(1)(c) based on the discrepancies in the stock register (para 1-3).

The High Court examined the Tribunal's order and emphasized the penal nature of proceedings under section 28, requiring a higher burden of proof akin to a criminal prosecution. The court cited precedents highlighting the necessity of additional material beyond a mere falsity of explanation to establish guilt under section 28(1)(c). The court referenced the Madras High Court's view that the department must prove the assessee's guilt satisfactorily. The court noted that the Tribunal primarily focused on the acceptability of the assessee's explanation for the discrepancies without establishing deliberate concealment or furnishing of inaccurate particulars of income, as required by section 28(1)(c) (para 4-7).

The High Court critically analyzed the Tribunal's reasoning and found the conclusions insufficient to establish the deliberate default on the part of the assessee as mandated by section 28(1)(c). The court emphasized the need for positive proof or material indicating the acquisition of income by the assessee, which was lacking in the present case. The court highlighted that discrepancies in the stock register should have a clear connection to income generation, which was not adequately demonstrated. Ultimately, the court answered the reference question in the negative, favoring the assessee and directing each party to bear their costs in the income-tax referred case (para 8-10).