Penalty for concealment survives estimated income where books are rejected and deliberate suppression is proved

Penalty under section 28(1)(c) remains attracted where the assessee's income is found to have been deliberately suppressed and the books of account are rejected as unreliable. Estimation of income after rejection of accounts does not by itself defeat penalty where the real basis is concealment, not a mere accounting dispute. Once deliberate manipulation of entries and conscious suppression are established, reliance on the proviso to section 13 does not exonerate the assessee from penalty. The penalty proceedings were therefore validly sustained against the assessee.

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Issues: Whether penalty under section 28(1)(c) of the Indian Income-tax Act, 1922 could be validly initiated and sustained when the assessee's income had been estimated after rejection of the books of account.

Analysis: The income returned by the assessee was found to be unreal, and the books were not accepted as reliable. The authorities found deliberate manipulation of entries relating to bank loans, which supported the conclusion that income had been consciously suppressed. In such a situation, the estimation of income under the proviso to section 13 did not exonerate the assessee from penalty, because the real basis of the case was concealment and not merely an accounting method dispute. The court also indicated that once deliberate suppression was established, the applicability of section 13 became irrelevant to the penalty question.

Conclusion: Penalty proceedings under section 28(1)(c) were validly initiated and sustained; the answer was against the assessee and in favour of the department.

Ratio Decidendi: Where the rejection of accounts and estimation of income rest on found deliberate suppression or concealment, penalty under section 28(1)(c) is attracted and is not displaced by reliance on the proviso to section 13.

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