Concealment penalty and Explanation 1 apply where sham sales through sister concerns divert profits and mask income.

Sales routed through sister concerns at below-market prices, with direct delivery to outside purchasers and only book-entry activity by the intermediaries, were treated as sham transactions used to divert profits and conceal income. On those facts, concealment penalty under section 271(1)(c) was considered attracted, with concealment and furnishing inaccurate particulars treated as overlapping in the case. Explanation 1 to section 271(1)(c) was described as a rebuttable rule of evidence that can be invoked at the appellate stage even if not expressly relied on by the Assessing Officer. The taxpayer failed to rebut the presumption, and the double-taxation objection was rejected. The penalty was sustained, subject to reduction to the minimum quantum.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable for concealment of income through paper sales routed to sister concerns, whether Explanation 1 to section 271(1)(c) could be applied at the appellate stage, and whether the penalty deserved reduction in quantum.

Analysis: The assessment and penalty records showed that the assessee routed sales through sister concerns at prices below market rates, while delivery was made directly to outside purchasers and the sister concerns performed only book-entry functions. On these facts, the transactions were found to be sham and artificial, adopted as a tax-saving device to divert profits. The charge of concealment was held to have been specifically brought to the assessee's notice, and the distinction between concealment of income and furnishing inaccurate particulars was treated as overlapping in the facts of the case. Explanation 1 to section 271(1)(c) was held to be a rule of evidence that automatically applies where concealment proceedings are initiated, and the appellate authority was competent to invoke it even if the Assessing Officer had not expressly referred to it. The assessee failed to rebut the presumption arising under the Explanation. The plea based on double taxation was rejected because taxing the income in the hands of another person did not bar assessment in the hands of the right person.

Conclusion: Penalty under section 271(1)(c) was upheld as leviable, and Explanation 1 was correctly applied; however, the quantum was restricted to the minimum penalty amount, resulting in partial relief to the assessee.

Ratio Decidendi: Where evidence shows that sales are routed through illusory interposed concerns to divert profits, concealment penalty is attracted, and Explanation 1 to section 271(1)(c) operates as a rebuttable rule of evidence that may be invoked at the appellate stage.

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