Judgment

GROVER, J. :- This is an appeal by special leave from a judgment of the Bombay High Court in a reference made under Section 66 (1) of the Income-tax Act,1922, hereinafter called the Act, answering the following question which had been referred to it in the negative and against the assesses :

"Whether in computing for purposes of levy of penalty under Sec. 28 (1) (c) the amount of income-tax and super-tax which would have been avoided if the income as returned had been accepted such "income as returned" includes item of income too, which though not actually returned had been added in the assessment solely on ground of lack of evidence ?"

The assessee is a firm dealing in hessian, twins, gunny bags, etc, on wholesale basis. For the assessment year 1948-49 the assessee had returned income amounting to Rs. 45,904. The Income-tax Officer, however, added two items of Rs. 24,000 and Rs. 90,000 as profits and income from undisclosed sources which had been concealed by the assessee. A penalty of Rs. 62,000 was imposed within the maximum limits provided by Section 28 (1) (c) of the Act.The Appellate Assistant Commissioner in appeal held that only the item of Rupees 24,000 be treated as concealed income and the other amount of Rs. 90,000 could not be treated as such for the purpose of imposing a penalty. In his opinion maximum penalty payable under Section 28 (1) (c) came to Rs. 30,000 and taking into consideration all the circumstances he imposed a penalty of Rupees 20,000 only on the assessee. In appeal the Appellate Tribunal agreed with the Appellate Assistant Commissioner that there was no concealment in the matter in respect of Rs. 90,000 but affirmed the finding of concealment of the amount of Rs. 24,000. It was held by, the tribunal that as there had been concealment of profit it was wholly immaterial whether one item or more that one item had been concealed and the quantum had to be computed under Section 28 (1) (c) not on the basis of tax on the items proved to have been concealed but on the difference between the tax on the assessee s income as finally assessed and the tax which would have been avoided if the return filed by him had been accepted as correct, The tribunal restored the order of the Income-tax Officer imposing a penalty of Rs. 62,000.

2. The argument which was addressed before the High Court was that on a true interpretation of Section 28 (1) (c) the penalty could be only 1-1/2 times of the tax payable on the concealed income. It was urged that the maximum penalty had to be calculated on the basis of tax avoided i.e. tax which had been evaded by reason of concealment and not tax that had escaped for any other reason because an assessee might take a mistaken view of fact or law and bona fide not include certain items of income in his return. The Income-tax authorities might take a different view and add that income but that addition would not attract penalty. In the words of the High Court the argument proceeded on these lines:-

"The additions made by the Income-tax authorities of the tribunal to the income returned by him constituted part of the "income as returned" by the assessee. In the instant case, the only amount that has been added an account of concealment is Rs. 24,000. The rest of the additions on the ground of disallowance of certain expendure and the addition of Rs. 90,000 as income from undisclosed source are parts of the income returned by the assessee. The maximum penalty thus, which could have been imposed in the instant case was one and half times the tax on the difference between Rs.1,62,135 and Rs. 1,38,135 (Rs. 48,135 as computed by the Income-tax Officer and Rs. 90,000 added as income from undisclosed source)."

3. On behalf of the Revenue the position that was taken up and has been sought to be supported before us is that Section 28 (1) (c) provides that if an item of concealment of income is discovered the maximum penalty which can be imposed is 1- 1/2 times the difference between the t