Unexplained cash credits and deemed concealment justify penalty where identity is shown but genuineness and creditworthiness fail.

Penalty under section 271(1)(c) was discussed in the context of unexplained cash credits under section 68 where the assessee had proved identity of creditors but not their creditworthiness or the genuineness of the transactions. The creditors' explanations for the source of funds were found unsupported by evidence, including claims of money from relatives and agricultural income. Applying Explanation 1 to section 271(1)(c) and the test of human probabilities, the text treats the explanation as not bona fide and the arrangement as a designed method to introduce capital, leading to deemed concealment and exigibility of penalty.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable on unexplained cash credits assessed under section 68 of the Income-tax Act, 1961.

Analysis: The cash credits were held to be unexplained because the assessee failed to establish the creditors' creditworthiness and the genuineness of the transactions, even though their identity was shown. The creditors' statements did not satisfactorily explain the source of the funds, which was said to have come from unnamed relatives and alleged agricultural income without supporting evidence. The explanation was found to be unsubstantiated and not a plausible or acceptable explanation within the meaning of Explanation 1 to section 271(1)(c). The surrounding circumstances and the test of human probabilities showed the transaction to be a designed and improbable arrangement to introduce capital in the firm, making the case one of deemed concealment.

Conclusion: Penalty under section 271(1)(c) was held exigible and the deletion of penalty by the first appellate authority was reversed, in favour of the Revenue.

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