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Issues involved: Levy of penalty u/s 271(1)(c) of the Income Tax Act, 1961, applicability of the Explanation to section 271(1)(c) in the case.
Summary: The High Court of Allahabad considered a case involving the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961, and the applicability of the Explanation to this section. The assessee, a registered firm engaged in the shoe business, had filed a return of income for the assessment year 1968-69. The Income Tax Officer (ITO) made additions to the income, which were later reduced on appeal. The Tribunal upheld certain inclusions as income from other sources. Subsequently, penalty proceedings were initiated by the Income Tax Appellate Tribunal (ITAT), resulting in a penalty of Rs. 57,000 being levied. The assessee appealed against this penalty order. The ITAT held that penalty proceedings are criminal in nature and emphasized the importance of informing the person being penalized of the exact charge against them. The Tribunal found that the assessee was not intimated about being charged under the Explanation to section 271(1)(c), and therefore, the penalty could not be levied based on the Explanation. The Tribunal also analyzed whether the provisions of the Explanation were satisfied and concluded that even if applicable, the assessee was not liable for the penalty. Consequently, the Tribunal allowed the assessee's appeal and canceled the penalty order. Upon reference by the Commissioner, the High Court considered the questions raised by the Tribunal. The Court examined the applicability of the Explanation to section 271(1)(c) and the burden of proof on the assessee to establish lack of fraud or negligence. The Court clarified that the Explanation automatically applies in cases where the returned income is less than 80% of the assessed income, and the burden of proving lack of fraud or negligence lies with the assessee. The Court found that in the present case, the Explanation was applicable as a matter of law. Therefore, the Court upheld the Tribunal's decision to cancel the penalty and answered the questions in favor of the assessee on the first issue and in favor of the department on the second issue. In conclusion, the High Court ruled in favor of the assessee, emphasizing the importance of proper notice and burden of proof in penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.
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