Penalty for concealment can follow agreed additions where the assessee fails to rebut the statutory presumption with a bona fide explanation.

Penalty under section 271(1)(c) applies where the assessee fails to give a bona fide, substantiated explanation for an addition and the explanation is vague or unsupported; mere agreement to the addition does not prevent the deeming fiction in Explanation 1 from treating the amount as concealed income. The article also states that no separate intimation is required before relying on Explanation 1(B), because the statutory presumption arises once its conditions are met and the assessee must rebut it with material facts. On that basis, cancellation of penalty was described as unsustainable.

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Issues: (i) Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the assessee agreed to an addition in assessment and offered no acceptable explanation for the cash deficiency. (ii) Whether failure to specifically intimate the assessee about proposed reliance on Explanation 1(B) to section 271(1)(c) of the Income-tax Act, 1961 vitiated the penalty.

Issue (i): Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the assessee agreed to an addition in assessment and offered no acceptable explanation for the cash deficiency.

Analysis: The statutory scheme treats assessment and penalty as distinct proceedings. After the 1976 amendment, Explanation 1 operates as a rule of evidence and shifts the initial burden to the assessee to offer and substantiate a bona fide explanation supported by material facts. Mere agreement to an addition does not by itself exclude concealment. Where the explanation is vague, fanciful, or unsupported, the deeming provision applies and the amount added is treated as concealed income for penalty purposes.

Conclusion: Penalty was leviable and the assessee's plea that the addition was agreed did not bar action under section 271(1)(c).

Issue (ii): Whether failure to specifically intimate the assessee about proposed reliance on Explanation 1(B) to section 271(1)(c) of the Income-tax Act, 1961 vitiated the penalty.

Analysis: The statutory text contains no requirement that the Assessing Officer must separately notify the assessee that Explanation 1 is proposed to be applied. The Explanation itself creates a rebuttable presumption once its conditions are satisfied, and the assessee must rebut that presumption by material on record. Penalty is not invalid merely because the notice did not expressly mention Explanation 1(B).

Conclusion: The absence of a specific intimation about Explanation 1(B) did not vitiate the penalty.

Final Conclusion: The Tribunal's cancellation of penalty was unsustainable because the assessee failed to rebut the statutory presumption of concealment and no separate notice regarding Explanation 1(B) was legally required.

Ratio Decidendi: In penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961, once the conditions of Explanation 1 are attracted, the burden shifts to the assessee to substantiate a bona fide explanation with full disclosure of material facts, and no separate intimation of proposed reliance on the Explanation is required.

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