Law:

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Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income - Assessment year 1988-89 - Whether Assessing Officer can invoke Explanation 1 to section 271(1)(c) without giving an indication of same in notice issued to assessee - Held, yes CASES REFERRED TO K.P. Madhusudhanan v. CIT [2001] 251 ITR 99/ 118 Taxman 324 (SC) [Para 4], CIT v. P.M. Shah [1993] 203 ITR 792/[1995] 79 Taxman 431 (Bom.) [Para 4], CIT v. Dharamchand L. Shah [1993] 204 ITR 462/ 70 Taxman 414 (Bom.) [Para 4], CIT v. K.P. Madhusudhanan [2000] 246 ITR 218/[2002] 125 Taxman 265 (Ker.) [Para 4] and Capital Cinema v. CIT [1989] 179 ITR 628/ 45 Taxman 360 (Punj. & Har.). [Para 5]. Rajesh Bindal for the Appellant. Akshay Bhan for the Respondent. ORDER G.S. Singhavi, J. - In this appeal filed under section 260A of the Income-tax Act, 1961 (for short, the Act), the appellant has prayed for determination of the following question of law : "Whether on the fact and in the circumstances of the case, the Hon'ble ITAT was justified in law in deleting the penalty under section 271(1)(c) amounting to Rs. 73,000 by holding that Explanation 1 to section 271(1)(c ) has not been invoked by the Assessing Officer ignoring the part that Explanation 1 to the section 271(1)(c) is an integral part of the section 271(1)(c) as held by the Punjab & Haryana High Court in the case of Capital Cinema v. CIT [1989] 179 ITR 628?" 2. The respondent, which is a registered firm and is engaged in the business of sale of agricultural commodities and commission agency, filed return for the assessment year 1988-89 declaring an income of Rs. 86,040. The Assessing Officer completed the assessment at Rs. 2,40,770 by making additions on account of cash credits including interest thereon, disallowance of losses in gram and barley accounts etc. He also initiated penalty proceedings under section 271(1)(c) read with section 274 of the Act. After considering the reply of the respondent, the Assessing Officer, vide his order dated 29-5-1991, imposed penalty of Rs. 80,000. The appeal filed by the respondent was partly allowed by Commissioner of Income-tax (Appeals), Faridabad [for short, CIT(A)], who reduced the…

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