Penalty for unexplained surrendered income upheld where no explanation of nature and source was furnished.

Penalty under section 271(1)(c) was sustained because the assessee surrendered income without furnishing any explanation of the nature and source of the amount. Explanation 1 applied where no explanation was offered, or where an explanation was unsubstantiated and not shown to be bona fide with full disclosure of material facts. The nature and source of the surrendered amount were facts within the assessee's special knowledge, and the absence of any explanation triggered the statutory deeming fiction of concealment. The Tribunal erred in treating the surrender itself as sufficient to delete the penalty. The substantial question of law was answered in favour of the Revenue.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the assessee surrendered income without furnishing any explanation regarding the nature and source of the amount.

Analysis: The assessee had initially offered a sum during assessment proceedings and later scaled it down, but did not offer any explanation for the receipt in respect of which the addition was made. Explanation 1 to section 271(1)(c) applies where a person fails to offer an explanation, or offers one that is not substantiated and is not shown to be bona fide with full disclosure of material facts. The Court held that the nature and source of the surrendered amount were material facts within the assessee's special knowledge, and the absence of any explanation attracted the statutory deeming fiction of concealment. The Tribunal erred in treating the surrender as sufficient to cancel the penalty and in ignoring the effect of Explanation 1.

Conclusion: Penalty under section 271(1)(c) was rightly imposed; the substantial question of law was answered in favour of the Revenue and against the assessee.

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