COMMISSIONER OF INCOME TAX, MADRAS versus M/S. KHODAY ESWARSA & SONS

Citation: [1972] 1 S.C.R. 846 · Decided: 22-09-1971 · Supreme Court of India · Bench: C.A. VAIDYIALINGAM · Disposal: Dismissed

Judgment (excerpt)

846 
COMMISSIONER OF INCpME 1AX, MADRAS 
' 
V. 
MIS. KHODAY ESWA~A & SONS 
'September '22, ·197'1 
[C. A. VAID!ALINGA¥ AND P. !AGANMOHA\" RtooY~ JJ.] 
Income-tax ;J.ct (Il of 1922), s. 2B(-l.)(c)-Levy,of pe11alty-;--Ri!asons 
.in assesSment proceedings-Weight to' be, attached to. 1 
1 
In income-tax. proceedli1gs to_ the tax~ble 'income s.hown <'by the _respon-
dent in its return two items amoitg-Oth~ \Ver& added ton .the .basis 
th_at 
there were illicit S'af~S of alcohol anQ that -cer.tain.- sales had not· been pro-
perly ·accounted 'for:\ Jbereafter, the Income-t4x Officer, Special Investi-
gation Circle, issued notice that ... he proposed 
1to h;vy 
a penalty 
µnder 
s. 28(1)(r.) of the lnc'ome-tax Act, 1922, as ,the respondent bad conceal-
ed particulars of its income and 'deliberately ~furni~l'led inaccurate parti-· 
culars. 
He rejected the explanation of th~ ass:!ssee and levied a penalty. 
In the order levying penalty the Incorne-tax Offi~er st:1ted that the reasoi1s -
for adding_ the disputed amounts in the total income of the assessee had 
been already discussed in the original order 6f assessment and that there 
was no need to repeat them. 
The AppelJate Assistant Commissioner 
in 
appeal confirmed the penalty. 
His approach to the case \Vas riot different 
and was based upon a guess that because there were many contiguous dry 
areas the ·respondeht would have surtepti~iously sold alcohol: The APpt;:l-
latc Tribunal considered the circumstances 
under which 
the 
additions 
came to be made by the ·Department in the assyssment J>roceedings. and 
the various points which were 'prcsSc'ct hefore it &nd the Appellate Assistant 
Commissioner on behalf of the assessee, and held that 'though there might 
be certain Poubtfut transactions it could not be stated that asscssec had 
made· any deliberate attempt at concealm~nt regarding its pharmaceutical 
section, and that, though there might be justification for making additions 
in the original assessment order thos·e additions. by themselves Could not 
lead to the conclusion that the respondent had concealed its income or 
that it h3d furnished deliberately inaccurate particulars. 
On the basis of 
tho~e findjngs the AppellateL Tribunal set aside the order levying penalty. 
TheTeafter, the Appellate Tribunal, holding thit the reasons given by it 
for setting aside the penalty proceedings 
were all based on findings 
of 
fact and that no question o.f law' arose out of those findings, rejected an 
application by the appellant for re'ferring the question as to whether the 
'Appellate Tribunal ·was right in cancelling the oenalty. 
The appellant 
then filed an application under s. 66(2)> of the Act but the High Court 
dismissed it on the same ground. 
' 
DismiSsing the appeal, 
HELD : The penalty, p'roceetjings being penal: in character the Denart-
~ent must es~blish that the receipt of the amOU'Q-t iri dtspute constiiutes 
income of the assessee. 
Apart from the falsity of any explanation g:iven 
by the assessee. the J?epartment must 
have before 
it, before levying: a 
penalty, cogenl ln<l:tenal or evidence from ~ 1hich, it could he inferred that 
the· asse~see had consciously concealed the· particulars of his income or 
had dehberat_ely 
fu~n_ished inaccurate particulars. 
The original 
asses~~ 
!'lent proceeding for computing the tax is evidence in the penalty procced-
1~g, b~t the pe~a~ty cannot be levied solely on the basis 
of the reasons 
g1ven:.m the original assess{llent order. [853 B-D] 
'A 
B 
c 
-
~:: -
D 
E 
F 
G 
H 
A 
II 
c 
D 
E 
C.I.T. v. KHODAY & SONS (Vaidialingam, J.) 
847 
Jn the present case, except the reasons given in the original assessment 
order for including the disputed items in the total income, the Department 
had no othe'f material or evidence 
from which 
it could be reasonably 
inferred that the assessee had consciously concealed particulars of 
his 
income or had deliberately furnished inaccurate particulars. 
The Appel-
late Tribunal made a correct and judicial 
approach in considering 
the 
question whether the penalty provisions were attracted as against the res-
pondent. 
The conclusions drawn by the Appellate Tribunal \Vere findings 
of fact recorded against the Department. 
Since on those findings of fact 
no question of law arose the High Court \\1as 
justified in rejecd ng 
the 
application filed by the appellant under s. 66(2) of the Act. [852 B-E] 
853 E-F] 
Conunissioner of lnco111e-tax West Bengal-I v. Anwar Ali, [1970] 7

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