Penalty under section 271(1)(c) upheld where the assessee failed to rebut the statutory presumption of concealment.

The amended penalty regime under section 271(1)(c) and Explanation 1 deems assessed additions to represent concealed income where the assessee fails to give a credible explanation, gives a false explanation, or cannot substantiate the explanation, unless bona fides and full disclosure are shown. Penalty proceedings remain distinct from assessment, but the assessee bears the initial burden to rebut the statutory presumption. On the facts, the assessee's explanation for the inflated purchase bill was inconsistent with his own letters and admissions, which supported inflation of the purchase price, retention of the amount in cash, and its entry in the proprietary concern's books. The Tribunal's contrary view was based on conjecture and irrelevant material, so cancellation of the penalty was not justified.

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Issues: Whether the Tribunal was justified in cancelling the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961.

Analysis: The penalty provision, as amended with effect from 1 April 1976, creates a deeming rule under Explanation 1 where the assessee fails to offer an explanation, offers a false explanation, or is unable to substantiate the explanation. In such a case, the amount added in assessment is deemed to represent concealed income, unless the assessee shows that the explanation was bona fide and that all material facts were disclosed. Penalty proceedings are distinct from assessment proceedings, but the assessee still carries the initial burden of rebutting the presumption. On the facts, the assessee's explanation that the inflated purchase bill merely reflected a price adjustment for the seller was found to be inconsistent with his own letters and admissions, which showed inflation of purchase, retention of the amount in cash, and introduction of the amount into the books of the proprietary concern. The Tribunal's conclusion that the amount had in reality been paid to the seller was contrary to the record and rested on irrelevant material and conjecture.

Conclusion: The Tribunal was not justified in cancelling the penalty. The assessee failed to discharge the burden under Explanation 1, and the penalty under section 271(1)(c) was rightly attracted.

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