Appellate enhancement can restore cancelled penalty, but penalty fails where accepted books support the turnover.

Appellate enhancement power was construed to include restoration of a penalty cancelled in full, because the post-1986 amendment expressly covered full or partial restoration and was treated as clarificatory. That made the enhancement petition maintainable. On the merits, however, penalty under section 16(2) was not exigible where the turnover was supported by accepted books of account and the accounts were not rejected, so the penalty could not be sustained. The legal position therefore recognises a wide appellate power to restore penalty, but no liability arises under the penalty provision on facts showing duly accepted book turnover.

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Issues: (i) Whether an enhancement petition was maintainable for restoring a penalty cancelled in full by the appellate authority; (ii) whether penalty under section 16(2) was exigible on the facts of the case.

Issue (i): Whether an enhancement petition was maintainable for restoring a penalty cancelled in full by the appellate authority.

Analysis: The provision governing appellate powers permitted enhancement and, after the 1986 amendment, expressly included restoration fully or partially. The amendment was treated as clarificatory and was read as removing the anomaly that would otherwise leave an order cancelling penalty wholly unchallenged. The power to enhance was held wide enough to cover restoration of penalty levied by the assessing officer.

Conclusion: The enhancement petition was held to be maintainable and the issue was decided against the assessee.

Issue (ii): Whether penalty under section 16(2) was exigible on the facts of the case.

Analysis: The turnover had been assessed on the basis of the book turnover, the accounts were accepted, and the turnover was found in the books. On those facts, the penalty provision was held inapplicable, following the controlling view that such penalty cannot be imposed where the accounts support the turnover and are not rejected.

Conclusion: Penalty under section 16(2) was held not exigible, in favour of the assessee.

Final Conclusion: Although the State's enhancement petition was held maintainable, the penalty itself could not be sustained on the merits, so the revision failed.

Ratio Decidendi: The appellate power to enhance includes restoration of a penalty cancelled in full where the statute, as clarified by amendment, permits restoration, but penalty cannot be upheld when the assessed turnover is supported by accepted books of account and the penalty provision is otherwise not attracted.

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