Concealment penalty burden shifts under the Explanation when reassessment is completed later, but credible evidence can rebut it.

Penalty for concealment under section 271(1)(c) is governed by the law in force when penalty proceedings are dealt with, so the Explanation inserted by the Finance Act, 1964 applied where reassessment was completed after 1 April 1962. That Explanation shifts the initial burden to the assessee to show that the inaccurate return did not arise from fraud or gross or wilful neglect. The burden is rebuttable and may be discharged on a preponderance of evidence through credible explanations and surrounding circumstances. On the materials described, the assessee's explanation was treated as sufficient to rebut the presumption of concealment, and the penalty was considered not exigible.

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Issues: (i) Whether penalty for concealment under section 271(1)(c) of the Income-tax Act, 1961, was governed in the present case by the law applicable on the date of filing of the return or by the law in force when reassessment was completed, including the Explanation to section 271(1)(c); (ii) Whether, on the facts and materials on record, the assessee had discharged the burden under the Explanation and the penalty levied under section 271(1)(c) was rightly cancelled.

Issue (i): Whether penalty for concealment under section 271(1)(c) of the Income-tax Act, 1961, was governed in the present case by the law applicable on the date of filing of the return or by the law in force when reassessment was completed, including the Explanation to section 271(1)(c).

Analysis: The reassessments were completed after the introduction of the Explanation to section 271(1)(c) by the Finance Act, 1964. The legal position applied was that penalty proceedings are governed by the law in force when the default is dealt with for penalty purposes and, in cases covered by section 297(2)(g), the 1961 Act applies to penalty even for earlier assessment years if reassessment is completed after 1 April 1962. The Explanation therefore shifted the initial burden to the assessee to show that the failure to return the correct income did not arise from fraud or gross or wilful neglect.

Conclusion: The Explanation to section 271(1)(c) of the Income-tax Act, 1961, applied to the present penalty proceedings.

Issue (ii): Whether, on the facts and materials on record, the assessee had discharged the burden under the Explanation and the penalty levied under section 271(1)(c) was rightly cancelled.

Analysis: The assessee produced discharged hundis, account entries and creditor particulars to support the explanation for the credits, and the Department did not summon or disprove the creditors. The burden under the Explanation is rebuttable and can be discharged on a preponderance of evidence. On a cumulative consideration of the surrounding circumstances, the explanation was treated as sufficient to rebut the presumption of concealment and to negative fraud or wilful neglect. The finding was supported by the materials and by the approach that penalty cannot rest merely on conjecture after quantum additions have been sustained.

Conclusion: The penalty was not exigible and its cancellation was justified.

Final Conclusion: The reference was answered in favour of the Revenue on the legal applicability of the Explanation, but the assessee succeeded on the merits of penalty exigibility, and the Tribunal's cancellation of penalty was upheld.

Ratio Decidendi: For concealment penalty, the applicable law is the law in force when the reassessment and penalty proceedings operate under the relevant transitional provision, and once the Explanation to section 271(1)(c) applies, the assessee can avoid penalty by rebutting the presumption through a credible explanation and surrounding circumstances showing absence of fraud or wilful neglect.

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