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Issues involved: The issues involved in this case are whether the Explanation to section 271(1)(c) of the Income-tax Act, 1961, was applicable only to assessment years 1964-65 onwards and whether the penalties imposed by the Inspecting Assistant Commissioner under section 271(1)(c) of the Act were valid.
Judgment Summary: The High Court of BOMBAY delivered a judgment on a reference under section 66(2) of the Indian I.T. Act, 1922, and section 256(2) of the I.T. Act, 1961, concerning assessment years 1955-56 to 1957-58 and 1960-61 to 1965-66. The case involved income derived from film exhibition, running a flour mill, and weaving cloth, where the assessee's account books were destroyed in a fire, leading to filing returns based on estimates. The Income Tax Officer (ITO) rejected the assessee's income estimates, leading to penalty imposition by the Inspecting Assistant Commissioner (IAC) for alleged concealment of income under section 271(1)(c) of the I.T. Act, 1961. The Tribunal held that there was no concealment of income by the assessee and rejected the penalties imposed by the IAC. The High Court focused on whether the penalties were valid, as deciding in favor of the assessee on this issue would render the first issue unnecessary. The court analyzed the Explanation to section 271(1)(c) which deals with penalty for concealing income or furnishing inaccurate particulars. It was noted that the assessee filed returns based on estimates, and there was no evidence of deliberate concealment or false estimates by the assessee. The court emphasized that the additions made by the ITO to the assessee's income estimates were modest and did not indicate deliberate underestimation. Therefore, it was concluded that there was no deliberate concealment of income by the assessee, and hence, no penalty was warranted. The court ruled in favor of the assessee on the issue of penalty validity, rendering the first issue irrelevant. The Commissioner was directed to pay the costs of the reference to the assessee.
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