Holding

A penalty under section 271(1)(c) is not exigible unless the assessee deliberately concealed income or furnished inaccurate particulars, and the department must prove such mens rea.

Summary

T. Ashok Pai, an individual taxpayer whose returns were prepared by a professional group at Syndicate Bank, filed revised returns after the tax department demanded better particulars. The department later initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, alleging concealment of income. The Income Tax Appellate Tribunal held that the penalty was not exigible because the omission was not a deliberate act and the appellant had acted in good faith relying on professional advice. The Karnataka High Court reversed this view and upheld the penalty. The Supreme Court allowed the appeal, holding that a penalty under s.271(1)(c) can be imposed only when there is deliberate concealment or furnishing of inaccurate particulars, and the burden of proof lies on the department. Consequently, the High Court's order imposing the penalty was set aside.

Issues considered

Whether a penalty under section 271(1)(c) of the Income Tax Act is applicable when the omission of income is due to negligence or reliance on professional advice and not a deliberate act of concealment.
Who bears the burden of proof in penalty proceedings under s.271(1)(c) – the assessee or the tax department.
Whether the High Court can disturb the factual findings of the Income Tax Appellate Tribunal on a general reference.
How the terms 'inaccurate particulars' and 'concealment of income' are to be interpreted under the statute.

Legislation cited

Income Tax Act, 1961s. 271(1)(c), s. 271(1)(c) Explanation 1(a), s. 27l(l)(c), s. 27l(l)(c)(iii)

Subjects

Income TaxPenaltyConcealment of incomeSection 271(1)(c)Burden of proofTribunal findingsStrict constructionProfessional adviceRevised returnInaccurate particulars

Judgment

A SRI T. ASHOK PAI ~

v.
COMMISSIONER OF INCOME TAX, BANGALORE

MAY 18, 2007

B (S.B. SINHA AND MARKANDEY KA TJU, Jl]

fa
y
Income Tax Act, I96I:

s. 27 I (J)(c)-Filing of revised returns by assessee furnishing of all
c requisite particulars when asked for better particulars of investment-Penalty
for concealment of income-Imposition of-Held: Furnishing ofan assessment
of value of the property is not furnishing of inaccurate particulars to attract
s 27I(J)(c)-Mere omission or negligence would not constitute a deliberate
act of suppressio veri or suggestio falsi-Also not a case where penalty has
D been imposed for breach of contravention ofcommercial statute-Thus, order
.of High Court that penalty under section 271 (1)(c} was exigible, set aside.
~
.
s. 271 (J)(c) explanation 1 (a)-Penalty for concealment of income-
Burden ofproof-Held: Lies on the Department-It is to arrive atfinding that
the explanation offered by assessee was a false one, not bona fide and that he
E has not disclosed all the facts material to the computation of his incqme-
If explanation given by assessee regarding the mistake is treated to be bona
fide and it is found that he had acted on the basis of wrong legal advice,
failure to discharge his burden would not arise.

Reference-Finding of fact that assessee not guilty of deliberate
F concealment of his income-Finding offact not challenged as being perverse
,,Joo-
before High Court-Held: High Court must accept the finding-Income tax +
Act, 1961.

Appellant-individual apart from income by way of salary was having
shares of profits in various firms and also income from dividend and interest.
G A professional group filed returns of income on beh~lf of appellant-assessee.
Respondent called for better particulars of investments by appellant. Revised
returns were filed. Application was filed for settlement of tax due which was
rejected. Appellant then filed second revised return and the same was accepted.
~
However, proceedings for imposition of penalty in terms of section 27l(l)(c)
H 556
T. ASHOK PAI v.COMMNR. OF INCOME TAX, BANGALORE 557
""
""-'·
of the Income Tax Act, 1961 was initiated. Appellant contended that he had A
acted bont:t fide as tax affairs were looked after by professional group.
Tribunal held that on discovery, some omission or some wrong statement in
the original return is found, a penalty proceeding for concealment of any
particulars of income or furnishing inaccurate particulars of such income
under section 271(1)(c) of the Act is not attracted. Reference was filed. High
Court he.Id that in the facts and circumstances of the case the tribunal was
B
not right in holding that penalty u/s 271(1)(c) ~as not exigible in the instant
case. Hence the present appeal
"""-y
Allowing the appeal, the Court

HELD: 1.1 Reference of the question to the High Court was general in
c
nature. No question was referred as to whether the finding of the Tribunal
was perverse or not. Existence of mens rea is essentially a question of fact •
. The Tribunal alone, as the highest authority empowered to determine ~he
question of fact, would be entitled to go thereinto. However, hasten to add that
the same would not mean that the High Court will have no jurisdiction in this D
behalf. High Court, should not ordinarily disturb the finding of fact arrived
~
at by the Tribunal. Question oflaw should generally arise only accepting the
"' finding of fact to be correct. [Para 9) (562-C, D)

Commissioner ofIncome-Tax v. Mukundray K. Shah 2007 (290) ITR 433;
K Ravindranathan Nair v. Commissioner ofIncome-Tax, (2001) 247ITR178 E
and Century Flour Mills Ltd v. Commissioner ofIncome Tax, (2001) 247 ITR
276, referred to.

1.2. The term 'inaccurate particulars' is not defined. Furnishing of an
assessment of value of the property may not by itself be furnishing of
inaccurate particulars. Even if the explanations are taken recourse to, a F
finding has to be arrived at having regard clause (a) of Explanation 1 that the
Assessing Officer is required to arrive at a finding that the explanation offered
by an assessee, in the event, he offers one was false. He must be found to have
failed to prove that such explanation is not only bona fide but an the facts
relating to the same and material to the income were not disclosed by him. G
Thus, apart from his explanation being not bonaJule, it should be found as of
fact that he has not disclosed all the facts which was material to the
computation of his income. If an explanation given by the assessee with regard
to the mistake committed by him has been treated to be bona fide and it bas
been found as of fact that he had acted on the basis of wrong legal advice, the
H
558 SUPREME COURT REPORT_S {2007) 7 S.C.R.

A question of his fail~re to discharge his burden· in terms of explanation
appended to section 271(1)(C) of the Income Tax Act, '1961 would not arise.
[Paras 13 and 16) (563-G; 564-A, B; 563-B, C[

1.3. The explanation must be preceded by a finding as to how and as to ·
in what manner he furnished the particulars of his income. It is beyond any
B doubt or dispute that for the .said purpose the Income Tax Officer. must arrive
at its satisfaction in this behalf. (Para 17) (564-B, CJ

Commis#oner oflncome Tax v. Ram Commercial Enierprises Ltd., 246
ITR 568 and Diwan Enterprises v. Commissioner .ofIncome Tai, 246 ITR 571,
referred to. ·
c
1.4. The order imposing penalty is quasi-criminal in nature and, thus,
burden lies on the Department to establish that the assessee had concealed
his income. Since burden of proof in'penalty proceedings varies from that in
the assessment proceeding, a finding in an assessment proceeding that ·a
D particular receipt is income cannot automatically be adopted, though a finding
in the assessment proceeding constitute good evidence in the penalty
proceeding. Thus, in the penalty proceedings, the authorities must consider >-.
the matter afresh as the question has to be considered from a different angle. ---r
(Para 18) (564-C, D, E]

E 1.5. The more is the stringent law, more strict construction thereof
would be necessary. Even when the burden is required to be discharged by an
assessee, it would not be as heavy as the prosecution. Thus, the omission .of
the word "deliberate" may not be of much significance.
(Paras 19 and 20) (564-E, F]

F P.N. Krishna Lal and Ors. v. Govt. of Kera/a and Anr., (1995) Supp 2
sec 187, referred to.
1.6. Section 271(1)(c) of the Act remains a penal statute. Rule ofstrict
construction shall apply thereto. Ingredients of imposing penalty remains the
same. The purpose of the legislature that it is meant to be deterrent to tax·
G evasion. (Para 21) (564-G]

1.7. 'Concealment of income' and 'furnishing of inaccurate partkulars'
carry different connotations. Concealment· refers to deliberate act on .the part
of the assessee. A mere omission or· negligence would not constitute a
H deliberate act.of suppressio veri or suggesiiofalsi. (Para 22) [s~H; 565-AJ
T. ASHOK PAI v.COMMNR. OF INCOME TAX. BANGALORE [S.B. SINHA, J.] 559

- ....._ Dilip N. Shroffv. Joint Commissioner of Income- Tax, Mumbai, Civil
Appeal arising out ofSLP(c) No.26831/2004; Commissioner ofIncome-Tax v.
A
Jeevan Lal Sah, (1994) 205 ITR 244; K.C. Buildings and Anr. v. Assistant
Commissioner ofIncome Tax, (2004) 265 ITR 562 = {2004] 5 SCC 731; Mis.
Virtual Soft Systems Ltd v. Commissioner of Income Tax, Delhi, (2007) 2
SCALE 612; Commissioner of Income Tax, Indore v. Suresh Chandra Mital,
(2003) 11SCC729 and M Janardhana Rao v. Joint Commissioner of Income B
Tax, (2005) 2 SCC 324, referred to.
i
~
.., 1.8. It is not a case where penalty has been imposed for breach of
contravention of a commercial statute where lack of or intention to contravene
or existence of bona fide may not be of much importance. It is also not a case
where penalty is mandatorily impossible. Therefore, it was not a case where
c
the enabling provision should have been invoked.
[Para 29] (567-D, E]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2747 of2007.
D
From the Judgment and Order dated 29.9.2005 of the High Court of
~ Kamataka at Bangalore in ITRC No. 492 of 1998.
~·

G. Sarangan, Sr. Adv., Sanjay Kunur, N.N. Keshwani for the Appellant.

B. Dutta, A.S.G., T.A. Khan, Arunav Patnaik and B.V. Balaram Das for E
the Respondent.

The Judgment of the Court was delivered by

S.B. SINHA, J. 1. Leave granted.

2. The assessee is in appeal before us aggrieved by and dissatisfied F
with a judgment dated 29.9.2005, passed by a Division Bench of the Kamataka
High Court in ITRC No.492 of 1998 whereby and whereunder answer to the
following question was render.ed in the negative.

"Whether, on the facts and in the circumstances of the case, the G
Tribunal was right in holding that penalty u/s.27l(l)(C) was not exigible
in the present case?"

3. Shorn of all unnecessary details the fact of the matter is as under :

Appellant is an individual. He is an engineering graduate. Apart from H
560 SUPREME COURT REPORTS (2007) 7 S.C.R.
.s
A his income by way of salary, he was having shares of profit of a number of .
~
firms besides income from proprietorship business. He has also earned income
from dividend and interest. The banker of the assessee was the Syndicate
Bank. A power of attorney was given by the appellant in its favour. The
shares of the compani~~ which the appellant owned were lodged with and in
custody of the said Bank. Under his instructions, the Bank used to purchase
B shares of various companies and kept with it the physical possession thereof.
It has also sold the shares of the appellant and delivered the same to the
brokers or the parties and also used to pay or receive the sale proceeds and ,_
deposit the szme in the bank account. The said arrangement continued for
.a number of years in the past.
"
c Tax matters of the appellant were being looked after for a number of
years by the Law Agency Division of the Syndicate Bank, Manipal, which
was authorised to file the returns of income before the tax authorities
representing the assessee herein. For the assessment year 1985-86 the return
of income on behalf of the appellant was filed on 13.2.1989. Respondent,
D however, being not satisfied with the return, called for better particulars of
• investments made by the appellant, whereupon a revised return was filed on
12. l.1990 furnishing all the requisite particulars to the Department. An '"--
....,.
application was filed by him before the Settlement Commission on or about
17. l .1990 for settlement of the taxes due which was, however, rejected by an
order dated 26.9.1990. Appellant, thereafter, filed a second revised return,
E upon which assessment was made by the Assessing Officer. The said revised
return was accepted by the Assessing Officer. However, a proceedings for
imposition of penalty in terms of Section 27l(l)(C) of the Income Tax Act was
initiated. In the cause shown by the appellant a contention was raised that
he had acted bona fide as the tax affairs were being looked after by the
F professional group working with the Syndicate Bank. The said contention
was not accepted by the Assessing Authority.
..;:>-
4. The Income Tax Appellate Tribunal, however, considered the entire
materials brought on records and inter alia opined :

G (I) When on discovery, some omission or some wrong statement in
the original return is found, a penalty proceeding for concealment
of any particulars of income or furnishing inaccurate particulars
of such income as contemplated under Section 27l(I)(C) of the
· .1come Tax Act may not be attracted. -:r- \om

H (2) The revised return having been ac<;epted by the Department and
T. ASHOK PAI v.COMMNR. OF INCOME TAX, BANGALORE [S.B. SINHA, J.] 561

the penalty having not been imposed with reference to the original A
return filed by assessee, he cannot be considered to be guilty of
concealment of income.
(3) The fault, if any, was with his tax counsel and even the said tax
counsel viz. the Syndicate Bank, cannot be said to have acted in
a ma/a fide manner in preparing the return of income of the B
assessee wrongly. The bona fides of the assessee are proved by
the facts and circumstances of the case.

5. A reference was made to the High Court at the instance of the
reNenue in respect of the following question :

"Whether on the facts and in the circumstances of the case, the
c
Tribunal was right in holding that penalty u/s. 27l(l)(C) was not
exigible in the present case?"

6. The High Court compared the returns filed by the appellant under the
Income Tax Act and the Wealth Tax Act and arrived at the following decision: D
"The principal is responsible for all the act done by the agent. That
apart, in the case on hand there is no material to show that the agent
has acted in excess of his authority or in disobedience of the authority
given by the principal. The stand taken by the Bank manifestly makes
it clear to us that they prepared the return of income on the basis of E
information furnished by the assessee. The assessee is an engineer
and a tax payee for a number of years ·cannot contend that he signed
the return of income by believing his power of attorney holder. This
contention of the assessee cannot be believed for the reason that in
his revised return dated 12.1.1990 again declared a loss of Rs.1,04,531/ F
- and did not admit the capital gains and other income. The first
appellate authority rightly holds that if the explanation of assessee is
accepted then every tax evader could take shelter by shifting the
blame on his clerk and accountants who invariably prepare the return
for them. The contention of the assessee that because of the
negligence on the part of the Bank the mistake of concealment has G
crept in is not acceptable."

7. Mr. G. Sarangan, learned senior counsel appearing on behalf of the
appellant, would submit that the Tribunal having arrived at a finding of fact
that the appellant was not guilty of deliberate concealment of his income and
thus, having no mens rea in this behalf, the impugned judgment cannot be H
562 SUPREME COURT REPORTS (2007) 7 S.C.R.

A sustairted. In any event, it was urged, no specific question having been
referred as tc:> whether the findings of the Tribunal are perverse or not, the
-..,.-
High Court committed a manifest error in differing with the findings of fact "'
arrived at by ~e Tribubnal.

.8. Mr. B. Datta, learned Additional Solicitor General appearing on behalf
B of the respondent, on the other hand, would submit that the Assessing
·Authority as also the Commissioner of Income Tax having arrived at a finding
of fact that the appellant was guilty of deliberate concealment of his income,
the Tribunal was not correct in interfering therewith.

9. Reference of the question to the I:Iigh Court as noticed hereinbefore
c was general in nature. No question was referred as to.whether the finding of
the Tribunal was perverse or not. Existence of mens rea is essentially a
question of fact. The Tribunal alone, as the highest authority empowered to
de.termine the question of fact, would be entitled to go thereinto. We may,
however, hasten to add that the same would not mean that the High Court .
D will have no jurisdiction in this behalf. The High Court, it is well known,
should not ordinarily disturb the finding of fact arrived at by the Tribunal.
Question of law should· generally arise only accepting the finding of fact to A
·._;
be correct.

10. In Commissioner of Income-Tax v. Mukundray K. Shah (2007) 290 ~·
E ITR 433, this Court observed thus :

"The above two judgments indicate that the question as to whether
payment made by the company is for the benefit of the assessee is
a question of fact. In this case, the Tribqnal has concluded that the
payment routed through MKF and MKI was for the benefit of the
F assessee. This was a finding of fact. It was not perverse. Therefore,
the High Court should not have interfered with the said finding." ,_,>-
'f

l l. In K. Ravindranathan Nair v. Commissioner of Income-Tax (2001)
247 ITR 178, a three-Judge Bench of this Court opined :

G ."The onlyjurisdiction of the High Court in a reference application is
.\ to answer the questions. of law that are placed before it. It is only
<
when a finding Qf the Tribunal on fact is challenged as being perverse,
in. the sense set out above, that a question of law can be said to
arise."

H
T. ASHOK PAI v.COMMNR. OF INCOME TAX, BANGALORE (S.B. SINHA, J.] 563 ·

12. Yet again in Century Flour Mills Ltd v. Commissioner of Income- A
Tax (2001) 247 ITR 276, it was observed by this Court:

"We have perused the order of the High Court and heard learned
counsel and are in no doubt that the High Court was right. The
Appellate Tribunal having arrived at the finding of concealment of
income on the basis of the material on record, no question of law B
arose, reference of which could be called for."

13. It is, therefore, trite that if an explanation given by the assessee with
regard to the mistake committed by him has been treated to be bona fide and
it has been found as of fact that he had acted on the basis of wrong legal
advice, the question of his failure to discharge his burden in terms of C
explanation appended to Section 27l(I)(C) of the Income Tax Act would not
arise.

14. In Dilip N. Shroffv. Joint Commissioner of Income-Tax, Mumbai,
(Civil Appeal Arising out of SLP (C) No.26831/2004) delivered today, this D
Court observed.

"The expression "conceal'' is of great importance. According to
Law Lexicon, the word "conceal" means:

"to hide or keep secret. The word "conceal" is con + celare which
implies to hide. It means to hide or withdraw from observation; to E
·cover or keep from sight; to prevent the discovery of; to withhold
knowledge of. The offence of concealment is, thus, a direct attempt
to hide an item of income or a portion thereof from the knowledge of
the income tax authorities."

In Webster's Dictionary, "inaccurate" has been defined as: F
"not accurate, not exact or correct; not according to truth; erroneous;
as an inaccurate statement, copy or transcript."

15. It signifies a deliberate act of omission on the part of the assessee.
Such deliberate act must be either for the purpose of concealment of income G
or furnishing of inaccurate particulars.

16. The term 'inaccurate partieulars' is not defined. Furnishing of an
assessment of value of the property may not by itself be furnishing of
inaccurate particulars. Even if the explanations are taken recourse to, a finding__

I
I H
564 SUPREME COURT REPORTS [2007) 7 S.C.R.

A has to be arrived at having regard clause (a) of Explanation l that the
Assessing Officer is required to arrive at a finding that the explanation offered
rv an assessee, in the event, he offers one was false. He must be found to
have failed to prove that such explanation is not only not bona fide but all
the facts relating to the same and material to the income were not disclosed
by hint. Thus, apart from his explanation being not bona fide, it should be
B found as of fact that he has not disclosed all the facts which was material
to the computation of his income.

17. The explanation having regard to the decision of this Court must be
preceded by a finding as to how and as to in what manner he furnished the
C particulars of his income. It is beyond any doubt or dispute that for the said
purpose the Income Tax Officer must arrive at its satisfaction in this behalf.
[See Commissioner ofIncome Tax v. Ram Commercial Enterprises Ltd, 246
ITR 568 and Diwan Enterprises v. Commissioner ofIncome Tax, 246 ITR 571 ].

18. The order imposing penalty is quasi-criminal in nature and, thus,
D burden lies on the department to establish that the assessee had concealed
his income. Since burden of proof in penalty proceedings varies from that in
the assessment proceeding, a finding in an assessment proceeding that a
particular receipt is income cannot automatically be adopted, though a finding
in the assessment proceeding constitute good evidence in the penalty
proceeding. In the penalty proceedings, thus, the authorities must consider
E the matter afresh as the question has to be considered from a different angle.

19. It is now a well-settled principle of law that the more is the stringent
law, more strict construction thereof would be necessary. Even when the
burden is required to be discharged by an assessee, it would not be as heavy
F. as the prosecution; [See P.N. Krishna Lal and Ors. v. Govt. of Kera/a and
Anr., [1995] Supp 2 Sec 187]

20. The omission of the word "deliberate", thus, may not be of much
significance.

. 21. Section 271 (I)(c) remains a penal statute. Rule of strict construction
G shall apply thereto. Ingredients of intposing penalty remains the same. The
purpose of the legislature that it is meant to be deterrent to tax evasion is
evidenced by the increase in the quantum of penalty, from 20% under the 1922
Act to 300% in 1985.

22. 'Concealment of income' and 'furnishing of inaccurate particulars'
H
T. ASHOK PAI v.COMMNR. OF INCOME TAX, BANGALORE [S.B. SINHA, J.] 565
-,. carry different connotations. Concealment refers to deliberate act on the part A
of the assessee. A mere omission or negligence would not constitute a
deliberate act of suppressio veri or suggestio falsi.

23. We may notice that in Commissioner of Income-Tax v. Jeevan Lal
Sah, (1994) 205 ITR 244, this Court dealt with the amendment of Section
271(l)(C) made in the year 1964 to hold: B
"Even after the amendment of 1964, the penalty proceedings, it is
"'' evident, continue to be penal proceedings. Similarly, the question
whether the assessee has concealed the particulars of his income or
has furnished inaccurate particulars of his income continues to remain
a question of fact. Whether the Explanation has made a difference is- c
while deciding the said question of fact the presumption created by
it has to be applied, which has the effect of shifting the burden of

- proof. The entire material on record has to be considered keeping in
mind the said presumption and a finding recorded."

24. The question came for consideration of this Court yet again in K.C.
D

"- Builders and Anr. v. Assistant Commissioner of Income-Tax (2004) 265 ITR
562 = [2004) 5 sec 731, wherein it was held :

"One of the amendments made to the abovementioned provisions is
the omission of the word 'deliberately' from the expression 'deliberately
E
furnished inaccurate particulars of such income'. It is implicit in the

- word 'concealed' that there has been a deliberate act on the part of
the assessee. The meaning of the word 'concealment' as found in
Shorter Oxfort English Dictionary, third edition, Volume I, is as follows:

'In law, the intentional suppression of truth or fact known, to the F
injury or prejudice of another.'
~
The word 'concealment' inherently carried with it the element of
mens rea. Therefore, the mere fact that some figure or some particulars
have been disclosed by itself, even if it takes out the case from the
.purview of non-disclosure, it cannot by itself, even if it takes out the G
case from the purview of non-disclosure, it cannot by itself take out
the case from the purview of non-disclosure, it cannot by itself take
out the case from the purview of furnishing inaccurate particulars.
Mere omission from the return of an item of receipt does nernwr
amount to. concealment nor deliberate furnishing of inaccurate
H
566 . SUPREME COURT REPORTS (2007] 7 S.C.R.
'
A particulars of income unless and until there is some evidence to show ...,.~·

or some circumstances found from which it can be gathered that the
omission was attributable to an intention or desire on the part of the
assessee to hide or conceal the income so a$ to avoid the imposition
of tax thereon. In order that a penalty under Section 27l(l)(iii) may be
imposed, itltas to be proved that the assessee has consciously made
B the concealment or furnished inaccurate particulars of his income."

25. The said prineiple has been reiterated in Mis Virtual Soft Systems
Ltd v, Commissioner ofIncome Tax, Delhi [2007] 2 SCALE 612, where it was
.......
held:

c "24 Section 271 of the Act is a penal provision and the.re are. well
established principles for the interpretation of such a penal provision.
Such a provision has to be construed striCtly and narrowly and not
. widely or with the object of advancing the object and intention of the
legislature."
D 26. Referring to a large number of decisions, it was furthennore observed:

"27. Every statutory provision for imposition of penalty has two
distinct components:

E (i) That which lays down the conditions for imposition of penalty.
(ii) That which provides for computation of the quantum of penalty.

Section27l(l)(c) and clause (iiii) relate to the conditions for imposition
of penalty, whereas, on the other hand , Explanation 4 to Section
27l(l)(c) relates to. the computation of the quantum of penalty.
F
...,~
28. The provisions of Section 27l(l)(c)(iii) prior to l.4.1976, and after
its amendment by the Finance Act, 1975 with effect from 1.4.1976, later
provisions being applicable to the assessment year in question, being
substantially the same except that in place of the word 'income' in sub
clause (iii) to sub clause (c) of Section 271 prior to its amendment by
G
Finance Act, 197 5, the expression "amount of tax sought to be evaded"
have been substituted. Explanation 4 inserted for the purpose of
clause (iii) where the expression ''the amount of tax sought to be
evaded", was inserted had in fact made no difference in so far as the
. main criteria, namely, absence of tax continued to exist, prior to or after
H l.4.1976, changing only the measure or the scale as to the working of

;
T. ASHOK PAI v.COMMNR. OF INCOME TAX, BANGALORE [S.B. SINHA, J.) 567
the penalty which earlier was with reference to the 'income' and after A
the amendment related to the 'tax sought to be evaded': The sine qua
non which was there prior or after the amendment on 1.4.1976 to the.
fact that there must be a positive income resulting in tax before any
penalty could be levied continued to exist. The penalty imposed was
in 'addition to any tax'. If there was no tax, no penalty could be levied. B
~ The return filed declaring loss and assessment made at a reduced loss
···~

did not warrant any levy of penalty within the meaning of Section
27l{l)(c)(iii) with or without Explanation.4."

27. In Commissioner of Income TaX, Indore v. Suresh Chandra Mital
(2003] I I SCC 729, whereupon Mr. Datta, learned Additional Solicitor General C
relied, no reason was assigned and only the order of the High Court was not
interfered with. Therein, it appears, the assessee pleaded th.at he had submitted
-4 the revised return of income which was not found to be sufficient.

28. In M Janardhana Rao v. Joint Commissioner ofIncome Tax [2005]
2 sec 324, whereupon again reliance was placed by Mr. Datta, this Court was D ..
concerned with the meaning of the substantial question of law as obtaining
in Section 27IA of the Income Tax Act. We are not concerned with the said
question in the present case.

29. It is not a case where penalty has been imposed for breach of
contravention of a commercial statute where lack of or intention to contravene E
or existence of bona fie may not be of much importance. It is also not a case
where penalty is mandatorily impossible. It was, therefore, not a case where
the enabling provision should have been invoked.

30. For the reasons aforementioned the impugned judgment cannot be
sustained which is set aside accordingly. The appeal is allowed. However, in F
the facts and circumstances of this case, there shall be no order as to costs.

N.J. Appeal allowed.