Penalty for concealed income stands unless the assessee rebuts the statutory presumption with a bona fide, fully disclosed explanation.

After the 1976 amendment, Explanation 1 to section 271(1)(c) operates as a rule of evidence: where an assessee cannot substantiate an explanation for an addition, the amount may be deemed concealed income unless the explanation is shown to be bona fide and all material facts were disclosed. Assessment and penalty proceedings remain distinct, but the assessee bears the initial burden to rebut the statutory presumption because the relevant facts are within its special knowledge. Mere rejection of the explanation is not enough by itself; however, absent rebuttal material, the deeming provision applies. The deletion of penalty was therefore not justified and the Revenue's contention succeeded.

---

---

Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961, was lawfully deleted on the facts of the case, and whether the Tribunal was justified in affirming the deletion.

Analysis: For the assessment year in question, the statutory scheme after the 1976 amendment made Explanation 1 to section 271(1)(c) operative as a rule of evidence. Where an assessee offers an explanation for an addition but fails to substantiate it, 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. The assessment and penalty proceedings are distinct, but the initial burden to rebut the presumption lies on the assessee because the relevant facts are within the assessee's special knowledge. Mere rejection of the explanation is not, by itself, decisive; however, in the absence of any material to rebut the presumption, the deeming provision applies. The Tribunal and the first appellate authority did not apply the post-1976 legal position correctly and erred in treating the deletion of penalty as justified.

Conclusion: The deletion of penalty was not justified. The question referred was answered in the negative, against the assessee and in favour of the Revenue.

---