Law:

Section:

Section 271(1)(c) of the Income-tax Act, 1961 – Penalty – For concealment of income – Assessment year 1968-69 – ITO made addition on account of salary payment disallowed to partners while computing assessed income of assessee – As returned income was less than 80 per cent of assessed income, Explanation to section 271(1)(c) was applied and penalty was imposed – On appeal, Tribunal found that there was no evidence on record that partners to whom salary was paid were not working partners and that amount shown in books to have been paid to partners as their salary was not in fact paid and when said amount was deducted from the assessed income, returned income was not less than 80 per cent of assessed income as calculated for purpose of Explanation – Whether on findings recorded by Tribunal penalty imposed on assessee solely on basis of Explanation to sec 271(1)(c) was rightly cancelled - Held, yes FACTS The ITO computed the total income of the assessee by making addition on account of salary payment disallowed to the partners. Accordingly penalty proceedings were initiated. The IAC held that the Explanation to section 271(1)(c) applied, and as it was established that the assessee was guilty of gross and wilful neglect in not adding the salary paid to the partners in the returned income, penalty was exigible under section 271(1)(c). The Tribunal, on appeal, set aside the order of the IAC on the view that the Explanation to section 271(1)(c) was not applicable, as even though salary paid to the partners was not allowable yet inasmuch as it had been bona fide spent by the assessee for earning the profits it had to be deducted from the assessee's income. On reference: HELD The Explanation to section 271(1)(c) applies only where the returned income is less than 80 per cent of the assessed income, but certain deductions have to be made in the assessed income before the Explanation can be applied. All expenditure which is bona fide incurred by an assessee for the purpose of earning the income has to be deducted even though it may have been disallowed by the ITO. Thus, the mere disallowability of an expenditure under the Act does not exclude the amount so spent, from…

Deprecated: trim(): Passing null to parameter #1 ($string) of type string is deprecated in /home/digixyei/sldsystempk.com/view/master-layout/view_case.php on line 492