Penalty for cash credits was cancelled because the assessee disclosed primary facts and the explanation was not shown false.

Penalty under section 271(1)(c) was held unjustified where the assessee disclosed the nature of cash credits, identified the persons concerned, and expressed readiness to produce further evidence. As the explanation was not found false and no independent departmental enquiry established concealment, Explanation 1 was treated as inapplicable and the proviso protecting a bona fide disclosure prevented a deeming of concealment. The penalty was therefore cancelled.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the assessee surrendered the amount after offering an explanation for cash credits and after stating that further evidence could be produced if required.

Analysis: The assessee had disclosed the nature of the credits, identified the persons concerned, and expressed readiness to furnish further evidence. No independent departmental enquiry was shown to have established concealment, and the surrender was made in the context of an assurance that no penalty would be imposed. Explanation 1 to section 271(1)(c) was held inapplicable because the explanation was not found to be false, and the assessee was not called upon to substantiate it further. Since the primary facts were disclosed, the proviso to Explanation 1 protected the assessee from a deeming of concealment.

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

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