Law:

Section:

Section 271(1)(c) of the Income-tax Act 1961 - Penalty - For concealment of income - Assessment year 1965-66 - While completing assessment of assessee firm, ITO found various cash credits in its books of account - ITO brought to tax said amount as assessee's income from undisclosed source and, referred matter to IAC for imposition of penalty - IAC taking view that assessee's case was governed by substantive provisions of section 271(1)(c) and in alternative, it was also covered by section 271(1)(c) read with explanation to said section, imposed a penalty - Tribunal, however, held that levy of penalty of IAC on co-joint reading of section 271(1)(c) read with Explanation was unsustainable in as much as ITO was not shown to have been satisfied with regard to concealment of income as per provisions of section 271(1)(c) read with Explanation - Whether Tribunal was right, in so far as it took view that prima-facie satisfaction for initiation of penalty proceedings is satisfaction of ITO and not that of IAC - Held, yes - Whether, however, since explanation to section 271(1)(c) enacts merely a rule of evidence, it was competent to authority which imposed penalty to invoke its aid in reaching final conclusion on question of concealment, although ITO had not resorted to it at stage when he made reference - Held, yes - Whether, Tribunal, was incorrect in holding that levying of penalty by IAC relying on Explanation to section 271(1)(c) was unsustainable - Held, yes FACTS While completing the assessment of the assessee firm for the assessment year 1965-66, the ITO found various cash credits in its books of account. As the assessee failed to satisfactorily explain the nature and source of the said cash credits, the ITO brought to tax the said amount as the assessee's income from undisclosed sources. The ITO also initiated action for levy of penalty for concealment of such income. The IAC, in the course of the penalty proceedings, was of the view that the assessee's case was governed by the substantive provision of section 271(1)(c), and, in the alternative, that it was also covered by section 271(1)(c) read with the Explanation to the said section as the income returned was…

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