Bona fide explanation and prior disclosure can defeat concealment penalty where the Department cannot show it is false.

Penalty under section 271(1)(c) was considered in two contexts: amount disclosed under the Voluntary Disclosure of Income and Wealth Act but omitted from the return, and cash credits shown in partners' accounts as alleged chit fund receipts. On the first, the explanation that the amount was omitted because it was believed to be covered by the disclosure scheme was treated as bona fide, especially where disclosure preceded the return and the Department already had the information; the penalty deeming fiction was therefore not attracted. On the second, the partners' identity and capacity were not disputed and the explanation was not shown to be false, so the addition did not justify concealment penalty.

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Issues: (i) Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable in respect of Rs. 1,10,000 disclosed under the Voluntary Disclosure of Income and Wealth Act, 1976 but not included in the return for the assessment year 1976-77. (ii) Whether penalty was leviable in respect of Rs. 10,800 credited in the partners' accounts as alleged chit fund receipts.

Issue (i): Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable in respect of Rs. 1,10,000 disclosed under the Voluntary Disclosure of Income and Wealth Act, 1976 but not included in the return for the assessment year 1976-77.

Analysis: The disclosure had been made before the return was filed, the amount was shown in the books by crediting the partners' accounts, and the relevant information was already with the Department. The assessee had paid part of the tax and remained in correspondence regarding the statutory certificate contemplated by the disclosure scheme. On these facts, the explanation that the amount was not included in the return because the assessee believed it was covered by the disclosure scheme was treated as bona fide. In the absence of any finding that the explanation was false or not bona fide, the deeming consequence under the penalty explanation was not attracted.

Conclusion: Penalty was not exigible on this amount and the deletion of penalty was upheld in favour of the assessee.

Issue (ii): Whether penalty was leviable in respect of Rs. 10,800 credited in the partners' accounts as alleged chit fund receipts.

Analysis: The credits stood in the names of the partners, their identity and financial capacity were not disputed, and the firm had offered an explanation which was not found to be false. The addition itself did not establish concealment for penalty purposes, and the explanation was accepted on the touchstone of preponderance of probability.

Conclusion: Penalty was rightly deleted on this addition also and the assessee succeeded.

Final Conclusion: The Revenue's challenge to the deletion of penalty failed, and the penalty order did not survive.

Ratio Decidendi: Where the assessee offers a bona fide explanation supported by contemporaneous disclosure and the Department has not shown that the explanation is false, penalty for concealment or furnishing inaccurate particulars cannot be sustained.

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