Law:

Section:

Explanation to section 271(1)(c)Income-tax Act, 1961 [as inserted by the Finance Act, 1964 with effect from 1-4-1964] - Penalty - For concealment of income - ITO made additions towards cash credit, since he was not satisfied by explanation offered by assessee - Addition made was more than 20 per cent of assessed income - Thereafter, penalty proceedings were initiated and IAC levied a penalty under Explanation to section 271(1)(c) - On appeal, Tribunal, however, deleted said penalty - Whether in view of fact that Tribunal did not record any finding on question as to whether there was lack of fraud or gross or wilful neglect on part of assessee, matter was to be referred back to it for fresh consideration of entire material on record - Held, yes FACTS During assessment proceedings, the ITO noticed an entry showing cash credit in the assessee's books. Though the assessee pleaded that the entry represented a loan and also filed a confirmation letter from the creditor in support of it, the ITO disbelieved the explanation of the assessee and held that the loan transaction was not genuine and that it represented income from a undisclosed sources. He added that amount while assessing the total income of the assessee and initiated penalty proceedings against the assessee and referred the matter to the IAC. The amount of returned income was less than 80 per cent of the total assessed income. The IAC held that the assessee did nothing to prove that omission to return the correct income was not due to any fraud or gross or wilful neglect on his part and thus held the assessee guilty of concealment and levied penalty. On appeal, the Tribunal, however, deleted the penalty. On reference: HELD The Explanation to section 271(1)(c) comes into play if the condition of its applicability is satisfied. The condition is an objective one, namely, that the total income returned by the assessee is less than 80 per cent of the correct income, that is, total assessed income reduced by bona fide expenditure disallowed as deduction. If this objective condition is satisfied, the Explanation at once creates a legal fiction that the assessee shall be deemed to have concealed the particulars of…

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