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Section 271(1)(c) of the Income-tax Act, 1961 – Penalty – For concealment of income – Assessment years 1955-56 and 1956-57 – ITO reopened assessment for assessment years in question and made additions in regard to cash credits – On that basis, IAC imposed penalties under section 271(1)(c) – Tribunal accepted contention of assessee that those cash credits had come out of suppressed profits from trading transaction of assessee and deleted addition of said cash credits in view of substantial additions made to trading accounts – However, it confirmed penalty orders, observing that assessee had concealed income while filing his original returns by understanding trading results – Whether when cash credits were deleted there remained nothing on foundation of which penalty proceedings might be initiated or penalty might be levied – Held, yes – Whether, therefore, penalties levied under section 271(1)(c) could not be sustained – Held, yes FACTS The ITO reopened the assessments for the assessment years in question and in such reassessment proceedings made certain additions with regard to cash credits as also interest paid on such loans. The IAC on this basis levied penalty under section 271(1)(c). In quantum appeals, the Tribunal accepted the assessee's contention that the credits in these two years had come out of suppressed profits from the trading transaction of the assessee. It, therefore, held that though these cash credits were not genuine, no further addition in respect of them had to be made in view of the substantial additions made in the trading accounts. It accordingly deleted the additions. However, in penalty appeals, the Tribunal upheld the penalty orders on the ground that the assessee had concealed his income while filing his original returns by understanding the trading results and this satisfaction regarding concealment had taken place in the course of instant proceedings when it was found that the assessee had introduced fictitious credits and had also claimed interest on such fictitious loans. On reference : HELD When these cash credits were deleted by the Tribunal from the two relevant assessment years, there remained nothing on the foundation of…

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