Sales tax set-off claim based on a legal foundation did not justify penalty after assessment disallowance.

Penalty for claiming sales tax set-off in the return was not sustainable where the claim rested on a recognised statutory entitlement and an existing High Court decision. Although the set-off was later disallowed in assessment, that rejection did not by itself show a false return, suppression of material facts, wrong accounts, or contumacious conduct to evade tax. The penalty was therefore held unjustified and liable to be set aside.

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Issues: Whether penalty could be sustained for claiming set-off in the sales tax return when the assessee's entitlement to the set-off was later disallowed in assessment proceedings.

Analysis: The claim for set-off arose from a recognised statutory entitlement, and the dispute concerned only its applicability on the facts of the case. The assessee had based the claim on an existing High Court decision, showing a legal foundation for the return position. On these facts, the claim could not be characterised as a false return, suppression of material facts, wrong accounts, or contumacious conduct intended to evade tax. Mere rejection of the set-off claim in assessment did not, by itself, justify imposition of penalty.

Conclusion: Penalty was not justified and was liable to be set aside.

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