Penalty for concealment cannot stand on a mere income difference when additions fail to prove concealment.

Penalty under section 271(1)(c) of the Income-tax Act could not be sustained merely because assessed income exceeded returned income, where the Tribunal found that the additions and disallowances did not establish concealment. The Tribunal's separate reasons, including its treatment of the item brought to tax under section 41(2), were held to be sound, and the observations on burden of proof were not treated as the core basis. The Explanation then applicable did not assist the Revenue because the grounds relied on for penalty were considered and rejected. The penalty was therefore rightly cancelled in favour of the assessee.

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Issues: Whether, on the facts and in the circumstances of the case, the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, read with its Explanation, was legally sustainable.

Analysis: The returned income and assessed income differed because of additions and disallowances, including an amount brought to tax under section 41(2). The Tribunal deleted the penalty on the basis that a mere difference between returned and assessed income does not by itself justify penalty, and it gave a separate reason regarding the item of Rs. 7,300. The observations on burden of proof were not treated as the core basis of the decision, and the Tribunal's reasoning was held to be sound. The Explanation to section 271(1)(c), as then applicable, did not assist the Revenue because the reasons for penalty had been considered and rejected.

Conclusion: The penalty was rightly cancelled, and the question was answered in favour of the assessee and against the Revenue.

Ratio Decidendi: Penalty under section 271(1)(c) cannot be sustained merely because assessed income exceeds returned income, when the Tribunal has found the additions and disallowances insufficient to establish concealment and has negatived the grounds relied upon for penalty, including the Explanation then in force.

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