BHIMASANKARAM, J. - The question referred to us in the case is : 'Whether on the facts and circumstances of the case, the imposition of the penalty of Rs. 4,000 was justified under section 28(1)(c) of the Act.'
The assessee is described as a firm of Military Contractors doing business at Tadepalligudem, 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 and, 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 Commissioner and a further appeal to the Income-tax Appellate Tribunal as a result of which the sum to be added was reduced 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 party two wagon-loads of coal for Rs. 1,000 and this sale was not disclosed in the accounts.
(2) The muster-rolls produced by the assessee for wages paid did not seem to have been maintained in the usual course of business.
(3) No vouchers were produced in some cases of the purchase of materials and of payment of cartage. The Income-tax Officer considered that the assessee had deliberately concealed the income and made a false return. He therefore held the firm liable to a penalty under section 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 Income-tax Appellate Tribunal, they confirmed the levy, though they reduced the amount to Rs. 4,000. An application under section 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 provisions of section 66(2) of the Act. The aforesaid question has now come up before us for decision.
In order to appreciate the argument of the learned counsel for the assessee, it is necessary to extract the material portion of section 28 of the Income-tax Act.
Section 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 -
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(b) has without reasonable cause failed to comply with a notice under sub-section (4) of section 22 or sub-section (2) of section 23,
(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 of penalty .............. in the case referred to in clauses (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.'
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 wagon-loads of coal and that 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 is concealment of particulars of income, or deliberate 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 sum not exceeding 1 1/2 time the difference between the amount of the income-tax and super-tax, if any, actually imposed and the amount of the 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-section (3) of section 23 of the Act in making the assessment. It is true as pointed out in the yet unreported judgment of the Supreme Court in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax, West Bengal (Civil Appeal No. 217 of 1953) that the Income-tax Officer is not entitled to make 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 Commissioner of Income-tax v. Laxminarayan Badridas, can only make an honest guess, though he should have reference to some material - not necessarily material that would be evidence in Court of law. He is not compelled to limit the estimate of the assessees income to the amount which may have been deliberately suppressed. On other material, the suppression of which can be reasonably suspected, he can make an addition to the income returned. Just as the estimate under section 23(3) is not limited to the amount actually proved to have been concealed, the penalty leviable under section 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 as assessment under section 23(3) has become final, the basis of the levy of the penalty is finally settled. In this case there is a clear finding by the Appellate Tribunal that there was concealment of particulars in regard to the two wagon-loads referred to above. The finding by itself is, in our opinion, 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 assessees original return had been accepted as correct.
We have therefore no doubt that the answer to the question referred to us should be in the affirmative. The assessee will bear the cost of this reference which we fix at Rs. 250.
Reference answered in the affirmative.