Penalty for concealment requires cogent proof; assessment additions alone cannot sustain penalty on inflated purchase price.

Penalty under section 28(1)(c) of the Indian Income-tax Act, 1922 could not be sustained merely because assessment findings showed an inflated purchase price for cotton. The penalty provision is penal in character, so the revenue had to prove conscious concealment of income or deliberate furnishing of inaccurate particulars with cogent material. Assessment additions were relevant and could furnish prima facie evidence, but they were not conclusive of concealment. On the facts, the Tribunal accepted that the excess payment had gone out of the assessee's coffers for the benefit of the managing agent through the seller, and the contract price variation was also capable of explanation by market movement and quality. The Madras HC held that penalty was not exigible.

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Issues: Whether penalty under section 28(1)(c) of the Indian Income-tax Act, 1922 was sustainable on the basis of the assessment findings when the assessee had paid the inflated purchase price for cotton.

Analysis: Penalty proceedings under section 28(1)(c) are penal in character and the burden lies on the revenue to establish conscious concealment of income or deliberate furnishing of inaccurate particulars. Findings in assessment proceedings may be relevant and may furnish prima facie evidence, but they are not conclusive and cannot by themselves sustain penalty. On the facts, the Tribunal found that the excess payment for cotton had actually gone out of the assessee's coffers for the benefit of the managing agent through the seller, and that the altered price in the contract could also be explained by market movement and quality considerations. In these circumstances, the mere existence of additions in assessment did not prove deliberate concealment.

Conclusion: Penalty was not exigible and the reference was answered in favour of the assessee.

Ratio Decidendi: Penalty for concealment cannot be sustained solely on assessment findings; the revenue must prove conscious concealment or deliberate furnishing of inaccurate particulars by cogent material, and payment of an inflated outlay that reduces profits does not by itself establish concealment of income.

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