1978 (9) TMI 14 - HC - Income Tax

Summary

Issues:
1. Assessment of cash credit as undisclosed income.
2. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961.
3. Application of Explanation to section 271(1)(c) in penalty proceedings.

Analysis:

Assessment of Cash Credit:
The assessee filed a return for the assessment year 1964-65, with a cash credit of Rs. 15,000 in the name of Kedar Nath Agarwalla. The Income Tax Officer (ITO) treated this credit as undisclosed income of the assessee. The addition was confirmed by the Appellate Authority and the Income-tax Appellate Tribunal. Subsequently, the ITO reopened the assessment and added an enhanced amount of Rs. 20,000 as the assessee's income from undisclosed sources.

Imposition of Penalty:
The ITO initiated penalty proceedings under section 271(1)(c) of the Act. The Income-tax Appellate Tribunal found that the assessee's explanation for the cash credit was rejected, but it did not constitute sufficient evidence to prove concealment of income. The Tribunal held that the addition in the accounts was due to defective accounting and not deliberate concealment. Therefore, the Tribunal set aside the penalty imposed by the Income-tax Appellate Commissioner (IAC).

Application of Explanation to Section 271(1)(c):
The Explanation to section 271(1)(c) was inserted in the Act in 1964. It deems concealment of income if the returned income is less than 80% of the correct income, unless the assessee proves no fraud or negligence. The Tribunal found that the conditions for applying the Explanation were not met in this case. The revenue failed to establish the correct income, compare it with the returned income, or prove fraud or negligence by the assessee. The Tribunal's decision not to apply the Explanation was upheld by the High Court, as no further enquiry was deemed necessary.

In conclusion, the High Court held that the Tribunal's decision to set aside the penalty was justified, as the Explanation to section 271(1)(c) did not apply in this case. The revenue did not provide sufficient evidence to prove concealment of income or negligence by the assessee. Therefore, the questions of law were answered in favor of the assessee, and no further enquiry was directed.