Penalty ceiling under income tax law depends on tax difference between returned income and finally assessed income, not later disclosure.

Under Section 28(1) of the Income-tax Act, 1922, the ceiling on concealment penalty is computed by comparing the tax on the income returned with the tax on the income finally assessed under the Act. The later income disclosed in penalty proceedings does not change the assessed income for fixing that statutory limit, though such evidence may be relevant when determining the quantum of penalty within the limit. The construction previously adopted of Section 28 was approved, and the penalty limit was held to depend on the assessed income rather than the income subsequently disclosed in the penalty enquiry.

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Issues: Whether, for the purpose of Section 28(1) of the Income-tax Act, 1922, the maximum penalty is to be computed by comparing the tax on the false return with the tax on the income finally assessed, and not by comparing the returned income with the income disclosed later in the penalty enquiry.

Analysis: Section 28(1) measures the penalty by the amount of tax that would have been avoided if the returned income had been accepted as correct. The expression is directed to the tax actually evaded in consequence of the false return, which is ascertained by contrasting the tax payable on the income returned with the tax payable on the income ultimately assessed under the Act. Evidence produced in the penalty proceedings may be relevant to the quantum of penalty within the statutory limit, but it does not alter the assessed income for the purpose of fixing that limit.

Conclusion: The maximum penalty is to be computed by reference to the difference between the tax on the income returned and the tax on the income assessed under the Act. The question was answered in the affirmative, in favour of Revenue.

Final Conclusion: The construction previously adopted of Section 28 was approved, and the penalty limit was held to depend on the assessed income rather than the income later disclosed in the penalty enquiry.

Ratio Decidendi: Under Section 28(1) of the Income-tax Act, 1922, the ceiling on penalty for concealment is the tax difference between the income returned and the income finally assessed under the Act.

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