Penalty computation for concealment covers only income actually undisclosed in the return, not disclosed firm interests pending assessment.

For penalty under section 271(1)(c)(iii) of the Income-tax Act, the tax avoided is computed only on income whose concealment could actually have reduced tax if the return had been accepted. Where the assessee had already disclosed its interest in other firms, but the firm profits were not yet ascertainable because accounts were unfinished, that disclosed share income could not be treated as concealed for penalty computation. Only the undisclosed share income from M/s. Anand Yarn & Co., for which no corresponding disclosure was made, could form the basis of penalty.

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Issues: Whether, for penalty under section 271(1)(c)(iii) of the Income-tax Act, 1961, the tax avoided had to be computed on the entire difference between returned income and assessed income, or only on the income concealed from one firm where the assessee had not disclosed the amount, excluding share income from other firms whose existence and the assessee's interest had already been disclosed in the return.

Analysis: The relevant test under section 271(1)(c)(iii) was the amount of tax which would have been avoided if the income as returned had been accepted as correct. Where the assessee had disclosed its interest in firms but could not specify the profit because the firm accounts were not finalised, the returned disclosure itself prevented any tax avoidance on that share income. Section 155(1) of the Income-tax Act, 1961, and the corresponding rectification provision in section 35 of the Indian Income-tax Act, 1922, recognised that partner-related income could be adjusted when the firm's assessment was completed. The only income in respect of which tax could have been avoided on acceptance of the return was the undisclosed share income from M/s. Anand Yarn & Co., because no corresponding disclosure had been made for that source.

Conclusion: Penalty was leviable only on the tax relatable to the concealed income from M/s. Anand Yarn & Co. and not on the share income from the other firms whose interest had been disclosed in the return.

Final Conclusion: The reference was answered against the Revenue and the penalty computation was confined to the undisclosed firm income alone.

Ratio Decidendi: For penalty under section 271(1)(c)(iii), tax avoided must be computed only on the income whose concealment actually made tax avoidance possible on acceptance of the return, and not on income already disclosed in substance in the return.

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