Penalty for concealed income fails where disclosed facts and an unproved explanation prevent deemed concealment under Explanation 1.

Penalty under section 271(1)(c) is not sustainable where the assessee has disclosed all material facts, given an explanation for cash credits, and the explanation is not shown to be false after enquiry. On these facts, mere inability to further substantiate the explanation does not trigger deemed concealment under Explanation 1 when the proviso applies. The cancellation of the penalty followed because the addition, by itself, did not establish concealment or deemed concealment.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was sustainable in respect of a surrendered cash credit added as income from undisclosed sources.

Analysis: The assessee had explained the cash credits as amounts due to agriculturists who had supplied goods for sale, disclosed the names of the creditors, and stated that further evidence could be produced if required. The surrender was made on the assurance that no penal action would follow. No enquiry was held to disprove the explanation, and therefore the explanation was not found to be false. On the facts disclosed, the assessee's failure to further substantiate the explanation did not attract the deeming fiction in Explanation 1, because the proviso protected an assessee who had disclosed all material facts.

Conclusion: Penalty under section 271(1)(c) was not exigible and was cancelled.

Final Conclusion: The addition did not justify a finding of concealment or deemed concealment, and the penalty order was set aside.

Ratio Decidendi: Where the assessee has disclosed all material facts and its explanation is neither found false nor rejected after enquiry, Explanation 1 to section 271(1)(c) does not create deemed concealment and penalty cannot be imposed.

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