Penalty cannot survive once appellate finding shows the return was not false and the lower tax rate applied.

Where an appellate finding held that the goods were taxable at 3% rather than 12%, the return could not be treated as false or incorrect merely because the assessing officer had applied the higher rate. Once that basis disappeared, the foundation for penalty also fell away, and the assessing officer lacked jurisdiction to impose it. The penalty order was therefore unsustainable and was quashed in favour of the petitioner.

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Issues: Whether the penalty imposed on the petitioner could survive after the appellate finding that the tax on the goods in question was payable at 3% and not at 12%, and whether the penalty order was liable to be quashed.

Analysis: The appellate finding that the goods attracted tax at 3% meant that the return filed by the petitioner could not be treated as false, wrong, or bad merely because the assessing officer had proceeded on a higher rate. Once the basis for treating the return as incorrect disappeared, the foundation for penalty also disappeared. In such a situation, the assessing officer could not assume jurisdiction to impose penalty.

Conclusion: The penalty order was unsustainable and was quashed in favour of the petitioner.

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