The question referred to us in this case is:
'Whether on the facts and circusmtances of the case, the imposition of the penalty of Rs.4,000/- was justified under S. 28(1)(c) of the Act?'
(2) The assessee is described as a firm of Military contractor doing business at Tradepalligudem, West Godavari District. For the assessment year 1944-45, the firm returned an income of Rs.19,639/- on the basis of their accounts. The Income-tax Officer called for their accounts. The Income-tax Officer called for their accounts and on examination found that they were defective. So rejecting their estimate, he added a sum of Rs.54,455/- to the income returned.
There was an appeal to the Appellate Assistant Commissioiner and a further appeal to the Income Tax Appellate Tribunal, as a result of which the sum to be added was resulted to Rs.35,354/-. Three reasons for rejecting the account books were assigned by the Income Tax Authorities:
(1) There was evidence that out of the coal supplied by the Government to enable the assessee to perform a contract, the assessee sold to a private to perform a contract, the assessee sold to a private party the two waggon loads of coal for Rs,1,000/- and this sale was not disclosed in the accounts:
(2) Themuster rolls produced by the assessee for wages paid did not seem to have been maintained in the ususal course of business:
(3) No vouchers were produced in some cases of the purchase of material and of payment of cartage.
The Income Tax Officer considered that the assessee had deliverately concealsed the incoem and made a false return. He, therefore, held that the firm was liable to a penalty under S. 28(1)(c) of the Act and levied a sum of Rs.4,700/- as penalty. That imposition was confirmed on appeal to the Appellate Assistant Commissioner.
On further appeal to the Incoem Tax Appellate Tribunal, they confirmed the levy though they reduced the amount to Rs.4,000/-. An Appellate Tribunal, they confirmed the levy though they reduced the amount to Rs.4,000/- An application under S. 66(1) of the Act to the Tribunal to refer the question of law arising out of this Order to this Court was rejected, but the Madras High Court which at that time had jurisdiction in the matter directed a reference to be made under the provisionsof S.66(2) of the Act. The aforesaid question has now come up before us for decision.
(3) In order to appreciate the argument of the learned Counsel for the assessee, it is necessary to extract the material portion of S. 28, Income-tax Act, S. 28(1) reads:
'(28)(1): If the Income Tax Officer, the Appellate Assistant Commissioner (or the Appellate Tribunal) in the course of any proceedings under this Act, is satisfied that any person xx xx
(b) has without reasonable cause failed to comply with a notice under sub-s. (4) of s. 22 or sub-s (2) of S. 23, or.
(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income.
(he or it may direct) that such person shall pay by way or penalty xx xx xx
In the case referred to in cls. (b) and (c) in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income-tax and super tax, if any, which would have been avoided, if the income as returned by such person had been accepted as the correct income.'
(4) It is contended for the assessee that the finding recorded by the Income TAx Appellate Tribunal related only to the non-disclosure in the accounts of the sale of two waggon-loads of coal and that the penalty could be levied in respect only of the amount of concealed income. This contention seems to us manifestly unsound. It ignores the express language of the Section. The finding necessary in our opinion, for the liability to penalty in a case like this, a concealment of particulars of income or deliberately furnishing of inaccurate particulars of such income.
Once that finding is recorded, it seems to us that it was open to the appropriate authority to levy by way of penalty a sum not exceeding one and a half times-the difference between the amount of the income tax and super tax, if any, actually imposed and the amount of such tax as would have been payable if the original return had been accepted as correct. When the Income Tax Officer finds that particulars of income are concealed or that inaccurate particulars of income have been deliberately furnished he acts under sub-s. (3) S. 23 of the Act in making the assessment.
It is true as pointed out in the yet unreported Judgment of the Supreme Court in -- 'Dhakeshwari Cotton mIlls Ltd. v. Commr. of Income Tax, West Bengal', since reported in (S) AIR 1955 SC 65 (A), that the Income Tax Officer is not entitled to make a pure guess. He cannot make an assessment without reference to any evidence or material at all. There must be something more than mere suspicion to support the assessment.
Where the assessee suppressed particulars the Officer, as their Lordships of the Privy Council stated in -- 'Commr. of Income Tax. U. P. and C. P. v Badridas Ramrai shop Akola', AIR 1937 PC 133 at p. 138 (B), can only make an honest guess, though he should have reference to some material -- not necessarily material that would be evidence in a Court of law. He is not compelled to limit the estimate of the assessee's income to the amount which may have been deliberately suppressed. On other materials, the suppression of which can be reasonably suspected, he can make an addition to the income returned.
Just as the estimate under S. 23(3) is not limited, to the amount actually proved to have been concealed, the penalty leviable under S. 28(1) (c) is to relate to the actual tax assessed on the income as finally estimated, which as shown above, need not be confined to the income shown to have been concealed. We are not now concerned with the legality of the actual assessment.
Once an assessment under S. 23(3) has become final, the basis of the levy of the penalty is finally settled. In this case, there is a celar finding by the Appellate Tribunal that there was concealment, of particulars in regard to the two waggon-loads referred to above. The finding by itself is, in our opinioin, sufficient to justify the levy of penalty and the penalty is to be computed with reference to the tax actually paid, and the tax that might have been payable if the assessee's original return had been accepted as correct.
(5) We have, therfore, up doubt that the answer to the question referred to us should be in the affirmative. The assessee will bear the costs of this reference, which we fix at Rs.250/-.
(6) Answer in the affirmative