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Assessment of undisclosed income, Penalty under section 271(1)(c) of the Income-tax Act, 1961, Interpretation of the Explanation to section 271(1)(c) regarding concealment of income. Analysis: The case involves a reference under section 256(1) of the Income-tax Act 1961 for the assessment year 1966-67. The assessee, a proprietor of a bakery, had not produced any books of account until the assessment year in question. The Income-tax Officer found discrepancies in the books produced by the assessee, particularly regarding a cash credit of Rs. 40,000. The Officer added Rs. 30,000 to the total income of the assessee as income from an undisclosed source. Additionally, the Officer estimated the assessee's business income higher than declared. The Appellate authorities upheld these additions, leading to a total income determination of Rs. 50,000 for the assessee. The Inspecting Assistant Commissioner imposed a penalty of Rs. 33,688 under section 271(1)(c) of the Income-tax Act, citing concealment of income. The assessee contended that the penalty was unjustified, claiming the Rs. 30,000 was his savings and a loan given to another party. The Income tax Appellate Tribunal considered the matter and canceled the penalty, stating that the addition of Rs. 30,000 was based on surmises and conjectures, not meeting the criteria for levying a penalty under section 271(1)(c). However, the Tribunal failed to consider the Explanation to section 271(1)(c), which deems concealment if the total income returned is less than 80% of the assessed income, unless the assessee proves the failure to report correctly was not due to fraud or gross neglect. The High Court held that the Tribunal overlooked this crucial aspect and directed the Tribunal to reassess whether the assessee had proven the absence of fraud or gross neglect in reporting the correct income. If not satisfied, the Tribunal should apply section 271(1)(c) as appropriate. Therefore, the High Court answered the question posed in the negative, favoring the Revenue. The Tribunal was instructed to reevaluate the matter in light of the Explanation to section 271(1)(c) and proceed accordingly. The assessee was directed to pay the costs of the reference to the Revenue.
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