Strict construction of tax penalties bars section 28(1) liability for failure to comply with section 18A(3).

A penalty under a taxing statute can be imposed only where the conduct falls squarely within the express language creating liability, and a deeming provision cannot be extended by implication to enlarge a penal charge. On that construction, failure to comply with section 18A(3) of the Indian Income-tax Act, 1922 is not covered by section 28(1), because that provision applies only where a return required by notice under section 22 or section 34 is not furnished, or is not furnished in time and manner. Penalty cannot therefore be imposed under section 28(1) for non-compliance with section 18A(3).

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Issues: Whether a person who fails to comply with section 18A(3) of the Indian Income-tax Act, 1922 can be penalised under section 28(1) of that Act.

Analysis: Section 18A(9) creates a deeming fiction in two parts. In respect of false estimates furnished under section 18A(2) or 18A(3), the statute deems the assessee to have deliberately furnished inaccurate particulars and section 28 applies accordingly. But in respect of failure to comply with section 18A(3), the deeming provision treats the assessee as one who failed to furnish a return of total income. Section 28 imposes penalty only in the specific situations where a return required by notice under section 22 or section 34 is not furnished, or is not furnished within the time and manner required by such notice. A failure to submit an estimate under section 18A(3) does not fall within either class. The provision being penal in a taxing statute must be strictly construed, and where two constructions are possible, the one favourable to the taxpayer must prevail.

Conclusion: Penalty cannot be imposed under section 28(1) for non-compliance with section 18A(3).

Ratio Decidendi: A penalty under a taxing statute can be imposed only when the case falls squarely within the express language creating liability, and a deeming provision cannot be extended by implication to cover conduct not clearly brought within the penal section.

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