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Imposition of penalty under s. 271(1)(c) of the IT Act, 1961 based on concealment of income. Analysis: The appeal in question was against the penalty imposed under section 271(1)(c) of the IT Act, 1961. The assessee, a registered firm deriving income from powerloom cloth manufacture, had filed a return showing an income of Rs. 43,258 for the assessment year 1971-72. The original assessment order applied a gross profit rate of 8% on an estimated turnover of Rs. 1,37,600, resulting in an addition of Rs. 42,835. The assessment was set aside on appeal, and a fresh assessment was made, repeating the earlier addition. The Income Tax Officer (ITO) then initiated penalty proceedings, leading to the imposition of a penalty equivalent to the concealed income of Rs. 43,000 by the Income-tax Appellate Tribunal (ITAT). The ITAT found that the returned income fell below 80% of the assessed income, triggering the provisions of Explanation to section 271(1)(c). The ITAT concluded that the low partner withdrawals and understatement of construction costs suggested gross neglect by the assessee in reporting the correct income. The ITAT upheld the penalty based on these findings. In the appeal before the ITAT, the assessee argued that there was no evidence of income concealment as the assessment was based on profit estimation rather than concrete evidence of concealment. The assessee also contended that penalty proceedings were not initiated during the original assessment and that there was no additional evidence to justify the penalty in the revised assessment order. The ITAT considered relevant case law, including decisions from the Madras High Court, to determine whether the penalty was justified. After careful consideration, the ITAT held that the penalty could not be sustained in this case. The ITAT emphasized that the addition in the assessments was based on profit estimates and did not conclusively prove income concealment. The ITAT highlighted that the burden of proof lay with the assessee to show no fraud or wilful neglect, which was considered discharged as the returns were supported by accounts and not contradicted by evidence of actual concealment. The ITAT distinguished the case from precedents cited by the Revenue, ultimately concluding that the penalty imposed under section 271(1)(c) could not be upheld. Consequently, the ITAT allowed the appeal, canceling the penalty imposed on the assessee.
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