Law: Income Tax Act, 1961

Section: 271(1)(c),260(1)

Income-tax--- ----Penalty---Concealment of income---Burden of proof---Dispute regarding source of investment in machinery in assessment proceedings ---Assessee agreeing to inclusion of certain amount in his assessment---Revenue not discharging the burden of proving that the amount represented concealed income of the relevant accounting year---Penalty could not be imposed--­Indian Income Tax Act, 1961, S. 271(1)(c). During the relevant accounting year, the assessee had installed machinery in his business at a cost of Rs.2,32,500. The contention of the assessee was that the assessee had obtained a loan of Rs.2,30,000 from the Gujarat State Financial Corporation in order to purchase this machinery. The Income-tax Officer summoned G and certain statements were recorded. The assessee, however, did, not avail,of the opportunity of cross-examining the persons whose statements were recorded. However, the matter was settled before the Inspecting Assistant Commissioner and a sum of Rs.40,000 was taken as income from the undisclosed sources. The Income-tax Officer thereafter made the assessment afresh on the basis of the settlement and included therein a sum of Rs.40,000 on account of "income from undisclosed sources" and proceedings for levy of penalty were initiated. The matter went up to the Tribunal. The Tribunal specifically found that in the present case simply because the assessee agreed that he should be taxed on the amount of Rs.40,000 which was spent by him from outside the books and the source of which he could not explain, it did not follow that the amount of Rs.40,000 was the undisclosed income of the assessee in the assessment year 1970-71. It deleted the penalty. On a reference: Held, that the admission of the assessee that he had no proper explanation for the amount of Rs.40,000 did not ipso facto absolve the Revenue of its burden of proving that the amount of Rs.40,000 was the income of the assessee for the year 1970-71 and/or there was any fraud or negligence on his part to invoke the penalty proceedings. The Tribunal was justified in deleting the penalty. CIT v. Vinaychand Harilal (1979) 120 ITR 752 (Guj.) rel. CIT (Addl.) v. Chandravilas Hotel (1987)…

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