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Penalty imposition under section 271(1)(c) of the Income-tax Act, 1961 based on agreed addition of Rs. 35,000 to trading results without clear consent to penalty proceedings. Analysis: The case involved an appeal against the imposition of a penalty under section 271(1)(c) of the Income-tax Act, 1961. The assessee, a registered firm dealing in machinery parts, declared a gross profit of Rs. 1,28,433 at a rate of 7% on a turnover of Rs. 17,64,994 for the assessment year 1977-78. An addition of Rs. 35,000 was made by the Income Tax Officer (ITO) to cover possible leakages, which the assessee agreed to without filing an appeal. However, penalty proceedings were initiated by the ITO based on this agreed addition. The ITO contended that the addition and agreement to it implied concealment of income, justifying the penalty of Rs. 21,000. The Commissioner (Appeals) upheld the penalty, citing the assessee's awareness of potential penalty proceedings due to the notation '271(1)(c)' in the order sheet. The Commissioner relied on a previous court decision to justify the penalty. The appeal before the Appellate Tribunal challenged the penalty imposition. The assessee's counsel argued that agreeing to the addition did not imply consent to penalty proceedings or admission of concealment. The counsel highlighted that no defects were found in the accounts, and the addition was made to cover possible leakages due to a perceived low gross profit rate. The counsel cited various court decisions to support the argument that penalty imposition was not justified in the absence of specific queries or explanations sought from the assessee. On the other hand, the departmental representative argued in favor of the penalty, citing the absence of a response from the assessee to the show-cause notice and the applicability of Explanation 1 to section 271(1)(c) for the assessment year in question. The Tribunal analyzed the facts and precedents cited by both parties. It noted that the assessee's agreement to the addition was not tantamount to agreeing to penalty proceedings or admitting concealment. The Tribunal emphasized that the agreement was made to buy peace due to a perceived low gross profit rate, and no queries or notices were issued to the assessee regarding the addition. The Tribunal also highlighted that the ITO's observations regarding concealment were not substantiated by the facts. The Tribunal referenced various court decisions to support its conclusion that the agreed addition did not establish concealment of income, warranting the deletion of the penalty under section 271(1)(c). Consequently, the Tribunal allowed the appeal, overturning the penalty imposition. In conclusion, the Tribunal's decision emphasized that each case must be evaluated based on its specific facts. The Tribunal found that the assessee's agreement to the addition did not signify concealment of income, leading to the deletion of the penalty. The judgment underscored the importance of factual analysis and the absence of evidence supporting the imposition of the penalty under section 271(1)(c) in this case.
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