Penalty for non-filing of return cannot be doubled under section 28(1)(b) when no return was ever filed

Penalty under section 28(1)(b) presupposes that a return has been furnished, because the clause is quantified by reference to the income returned and the tax avoided on acceptance of that return. Where no return is filed at all, that basis is absent and a fictional nil return cannot be assumed for penalty purposes. In such a situation, the proper penalty is for failure to furnish the return under section 28(1)(a) only, and not an additional penalty under section 28(1)(b) for non-compliance with the notice requiring production of accounts or evidence.

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Issues: Whether, when an assessee fails to file any return in response to notice under section 22(2) of the Income-tax Act, 1922 and also fails to comply with a notice under section 22(4), the Income-tax authorities can levy penalties both under section 28(1)(a) and section 28(1)(b).

Analysis: Section 28(1)(b) presupposes the existence of a return, because the measure of penalty is linked to the income as returned by the assessee and the tax that would have been avoided if that return had been accepted. Where no return at all has been furnished, the basis for quantifying a penalty under clause (b) is absent. A penal provision must be construed according to its ordinary and rational meaning, and a fictional assumption that a nil return had been filed cannot be adopted. Such a construction would also produce the incongruous result that a person who files no return could escape the penalty attached to failure to furnish a return.

Conclusion: Penalty could be imposed only under section 28(1)(a) for failure to furnish the return, and not also under section 28(1)(b) for failure to comply with section 22(4) when no return had been filed at all.

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