Penalty for concealment requires scrutiny of Explanation 1 and the assessee's burden where income is estimated from defective accounts.

Penalty under section 271(1)(c) requires consideration of Explanation 1 and the assessee's burden to explain alleged concealment. Where books are rejected and income is estimated because of defective accounts and unexplained credits, that circumstance alone does not automatically establish concealment. The Kerala HC held that the Tribunal should not have cancelled the penalty without examining whether the assessee had discharged the burden under Explanation 1. The matter was remitted to the Tribunal for fresh consideration after giving the assessee an opportunity to meet the penalty case and explain the alleged concealment.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act could be cancelled without considering Explanation 1 thereto and the assessee's burden to explain the alleged concealment.

Analysis: The assessee's books were rejected and income was estimated because of defects in the accounts and unexplained credits. The Tribunal held that rejection of books and assessment on estimate basis did not by itself establish concealment. The Court held that, in view of Explanation 1 to section 271(1)(c), the burden lay on the assessee to show that no concealment had occurred, and the Tribunal ought not to have vacated the penalty without examining that burden. At the same time, the assessee was to be given an opportunity to meet the penalty case before the Tribunal.

Conclusion: The order cancelling penalty was set aside and the matter was remitted to the Tribunal for reconsideration after giving the assessee an opportunity to discharge the burden.

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