Complete factual disclosure with an untenable exemption claim does not make a return false for penalty purposes.

Complete disclosure of turnover and sales facts does not amount to a false return merely because the assessee advances an untenable exemption claim. Under section 43(1) of the Madhya Pradesh General Sales Tax Act, 1958, falsity arises only where a statement of fact in the return is untrue; a wrong legal plea, even if knowingly unsustainable, does not by itself make the return false. On that basis, the foundation for penalty failed, and the penalty was not justified.

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Issues: (i) Whether the assessee had deliberately furnished a false return within the meaning of section 43(1) of the Madhya Pradesh General Sales Tax Act, 1958 by claiming exemption on sales to electrical undertakings; (ii) Whether the penalty imposed on the assessee was sustainable.

Issue (i): Whether the assessee had deliberately furnished a false return within the meaning of section 43(1) of the Madhya Pradesh General Sales Tax Act, 1958 by claiming exemption on sales to electrical undertakings.

Analysis: The return fully disclosed the turnover, the sales and the sales to electrical undertakings. The disputed claim was only a legal plea that those sales were exempt. The legal position was that the return would be false only if there was a false statement of fact in the return. Where the facts are fully and correctly disclosed, an untenable legal plea does not convert the return into a false return, even if the assessee knew the plea to be unsustainable.

Conclusion: The assessee had not deliberately furnished a false return within the meaning of section 43(1).

Issue (ii): Whether the penalty imposed on the assessee was sustainable.

Analysis: Since the foundation for penalty was the alleged filing of a false return, and that foundation failed, the penalty could not be sustained. The answer to the first issue necessarily negatived the basis for the penalty.

Conclusion: The penalty imposed on the assessee was not justified.

Final Conclusion: The reference was answered in favour of the assessee and against the levy of penalty, on the principle that complete disclosure of facts is not rendered false merely because an untenable legal exemption claim is made.

Ratio Decidendi: A return becomes false only when a statement of fact required by the return is falsely made; a merely untenable legal claim, when all material facts are fully disclosed, does not amount to a false return for penalty purposes.

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