Penalty for concealment fails where income is enhanced only by rejecting books and estimating profit.

Penalty under section 271(1)(c) of the Income-tax Act was held unsustainable where the addition arose from rejection of books and estimation of profit at a higher rate. The Tribunal's finding that the assessee's low profit, not concealment, led to the income enhancement negatived fraud or gross or wilful neglect under the Explanation. As that factual finding was not separately challenged, the penalty could not be sustained and cancellation of the penalty order was justified.

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Issues: Whether the penalty under section 271(1)(c) of the Income-tax Act, 1961, could be sustained when the Tribunal found that the addition to income resulted from rejection of books and estimation of profit, and whether that finding justified cancellation of the penalty.

Analysis: Under section 271(1)(c) read with the Explanation, penalty for concealment is attracted where returned income is less than 80 per cent of assessed income unless the assessee proves absence of fraud or gross or wilful neglect. The Tribunal found that the assessee's income was enhanced because the profit shown was considered low, the books were rejected, and income was assessed by applying a higher rate. That determination negatived fraud or wilful neglect and was a finding of fact based on relevant considerations. No separate challenge was raised to that factual finding.

Conclusion: The penalty was not exigible and the Tribunal was justified in cancelling the penalty order; the reference was answered in favour of the assessee.

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