Law:

Section:

Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income - Assessment year 1967-68 - Assessee's books of accounts were found to be defective inasmuch as expenses were not open to verification - ITO assessed taxable income by applying a flat rate of profit on total receipts - IAC imposed penalty under section 271(1)(c ) rejecting assessee's plea that he agreed to higher rate on understanding given by ITO that he would not impose any penalty - Tribunal, however, cancelled penalty imposed on assessee - Whether assessee's agreement to be assessed at higher flat rate was obviously motivated by understanding from ITO to escape penalty, therefore, same did not amount to confession of concealment - Held, yes - Whether since department had failed to prove that said addition was in fact assessee's income which he had deliberately concealed, Tribunal was justified in cancelling impugned penalty - Held, yes FACTS Under the assessee was a firm engaged in the business of execution of contracts with a M.E.S. For the assessment year 1967-68, he filed a return declaring a total income of Rs. 29,016 showing a net profit of 7.5 per cent on the total receipts. The assessee's books of accounts were found to be defective inasmuch as the expenses were not open to verification. The ITO assessed the taxable income at Rs. 54,196 by applying a fiat rate of profit of 12.5 per cent on the total receipts. The ITO also initiated proceedings for imposition of penalty under section 271(1)(c). As the minimum penalty imposable was more than Rs. 1,000, the matter was referred to the IAC as required by section 274(2) of the Act. The IAC levied a penalty of Rs. 5,000. On appeal the penalty had been set aside by the ITAT on the ground that the assessee could not be said to have committed any, fraud or wilful neglect as mentioned in the Explanation to section 271(1)(c) and hence the provision of penalty would not be applicable because the onus lay upon the department which onus the department had failed to discharge. On reference: HELD Under section 271(1)(c) a penalty is imposable if the assessee has concealed the particulars of his income or has furnished inaccurate…

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