Penalty for alleged bogus purchases fails where the explanation is bona fide and quantum findings do not prove fictitious purchases.

Penalty under section 271(1)(c) requires concealment of income or furnishing of inaccurate particulars, and Explanation 1 applies only where the assessee's explanation is false, not substantiated, and lacking bona fides despite full disclosure of material facts. In the context of alleged bogus purchases, recorded book entries, an explanation supported by affidavit and surrounding circumstances, and a quantum finding that did not establish the purchases as wholly fictitious, were treated as sufficient to show bona fides. Non-production of the supplier by the assessee, by itself, did not establish concealment where the revenue could have exercised powers to verify third-party attendance. Penalty was therefore cancelled.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961, was leviable where the addition arose from disallowance of alleged bogus purchases and the assessee's explanation was not fully substantiated.

Analysis: The penalty provision applies only where there is concealment of income or furnishing of inaccurate particulars of income. Explanation 1 creates a rebuttable presumption where an explanation is false or is not substantiated and is not shown to be bona fide with full disclosure of material facts. The purchases were recorded in the books, and the substantive dispute in the quantum proceedings was whether they were made from the named parties or through other market sources. The finding in quantum did not establish that the entire purchases were fictitious, and the assessee had offered an explanation supported by affidavit and surrounding circumstances. The revenue authorities had powers to compel attendance of third parties, and non-production of the supplier by the assessee by itself did not establish concealment or furnishing of inaccurate particulars. On these facts, the explanation was treated as bona fide and the case was not brought strictly within the deeming fiction of the Explanation.

Conclusion: Penalty under section 271(1)(c) was not leviable and the penalties were cancelled in favour of the assessee.

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