Law:

Section:

Section 271(1)(c) , read with section 41(1) of the Income-tax Act, 1961 - Penalty - For concealment of income - Assessment year 1968-69 - Whether penalty can be levied under section 271(1)(c) for non-disclosure of an income which is deemed to be an income under section 41(1) provided other conditions of section 271(1)(c) are satisfied - Held, yes FACTS The firm received refund from the sales tax department and credited same in the personal accounts of the two partners. It was not entered in the returns of income of the firm or the two partners on the ground that the refund related to the earlier period when the firm was constituted differently and that it was not the income of the present firm. The ITO however, treated it as 'deemed income' under section 41(1) and added the same in computing the total income of the firm. The AAC, confirmed the order of the ITO. Further appeal to the Tribunal was dismissed. The IAC levied penalties on all the assessees under section 271(1)(c) holding that they were defaulters for not showing that income in the returns. The Tribunal deleted the penalties holding that an income which was deemed as income did not lead to concealment of income because the amount was taken as the assessee's income by legal fiction. In the opinion of the Tribunal, legal fiction did not establish concealment. On reference : HELD The word 'income' has been defined in the Act and it includes income under section 41. A reading of sections 4 and 5 shows that the 'deemed income' under section 41 shall be liable to tax under section 4, as such an income will be as good an income as income from any other source mentioned in the definition clause. According to section 271, the concealment of income or furnishing of inaccurate particulars regarding any income would entitle the ITO and the AAC to impose penalty. Therefore, if income under section 41 is concealed, the provisions of section 271 are attracted provided other conditions in that section are fulfilled. The officers concerned have, however, to determine as to whether the income so received fulfilled other conditions for imposition of penalty. An income which was accrued as a result of the deeming…

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