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Issues involved:
The judgment involves the interpretation of penalty provisions under section 271(1)(c) of the Income Tax Act, 1961, specifically in relation to the amendment introduced from 1st April, 1976. The key questions referred to the High Court concern the imposition of penalty based on the accuracy of the assessee's declared income and the justification of deleting a penalty levied by the Assessing Officer. Issue 1: Accuracy of Declared Income The Tribunal proceeded with the reference as the assessee did not appear for the hearing. The case pertains to a penalty imposed on the assessee for furnishing inaccurate particulars under section 271 of the IT Act for the assessment year 1978-79. The penalty was initially cancelled by the appellate authority, a decision affirmed by the Tribunal. The Department sought a reference to the High Court based on the amendment to Explanation 1 to section 271. The High Court analyzed the provisions of section 271, emphasizing that penalty can be imposed if the assessing authority finds that the explanation offered by the assessee is false, leading to concealment of income. The Explanation inserted in 1976 requires the authority to first establish concealment before seeking an explanation, placing the initial burden on the Department to show prima facie evidence of concealment before proceeding with penalties. The Court concluded that the Explanation does not absolve the Department from further investigation beyond issuing a notice for a false explanation, emphasizing the importance of natural justice in the process. Issue 2: Justification of Penalty Deletion The High Court answered both questions referred by the Tribunal in favor of the assessee and against the Revenue. The decision was based on the requirement for the assessing authority to establish concealment before seeking explanations from the assessee, as mandated by the amendment to Explanation 1 of section 271. The Court highlighted the procedural obligations on the Department to demonstrate prima facie evidence of concealment before penalizing the assessee for furnishing inaccurate particulars. This interpretation underscores the significance of due process and evidentiary standards in imposing penalties under the Income Tax Act.
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