Penalty under section 271(1)(c) can apply despite assessed loss, and unproved deposit explanations attract concealment.

Penalty under section 271(1)(c) may be imposed even where both the returned income and the assessed income are losses, because the post-1 April 1976 regime, through Explanation 4, links penalty to tax sought to be evaded and does not bar levy merely due to a final loss figure. An assessee must also substantiate any explanation for increased deposits or cash credits; where no satisfactory material is produced to prove the source and the explanation is not shown to be bona fide with full disclosure, the case falls within Explanation 1. On these principles, concealment was sustained and penalty confirmed.

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Issues: (i) Whether penalty under section 271(1)(c) of the Income-tax Act, 1961, is leviable where both the returned income and the finally assessed income are losses; (ii) Whether the assessee satisfactorily explained the increase in deposits so as to escape penalty under section 271(1)(c) read with Explanation 1.

Issue (i): Whether penalty under section 271(1)(c) of the Income-tax Act, 1961, is leviable where both the returned income and the finally assessed income are losses.

Analysis: The applicable law after 1 April 1976, especially Explanation 4 to section 271(1)(c), links penalty to the tax sought to be evaded and contemplates cases where concealed income is assessed against a loss figure. On that basis, the existence of a final assessed loss does not by itself bar imposition of penalty. The contrary authorities relied on by the assessee were treated as distinguishable because they proceeded on earlier statutory regimes.

Conclusion: Penalty was leviable notwithstanding that the assessed figure was a loss, and this issue was decided against the assessee.

Issue (ii): Whether the assessee satisfactorily explained the increase in deposits so as to escape penalty under section 271(1)(c) read with Explanation 1.

Analysis: The assessee failed to substantiate the explanation that the increase in two deposit schemes was merely a transfer from other schemes. No satisfactory material, including the names and addresses of the depositors, was produced to establish the nature and source of the credits. In these circumstances, the addition attracted section 68, and for penalty purposes the explanation remained unproved and not shown to be bona fide with full disclosure of material facts, bringing the case within Explanation 1.

Conclusion: The concealment finding was sustained and the penalty was upheld against the assessee.

Final Conclusion: The statutory preconditions for penalty were satisfied, and the levy of penalty for concealment was confirmed.

Ratio Decidendi: For assessment years governed by the post-1 April 1976 regime, penalty under section 271(1)(c) can be imposed even where the assessed result is a loss, and an unsubstantiated explanation for unexplained cash credits attracts concealment under Explanation 1.

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