Burden under section 271(1)(c) shifts to the assessee; penalty survives only for unexplained investment amounts.

The Explanation to section 271(1)(c) applied to penalty proceedings initiated after the relevant dates, so the burden shifted to the assessee to offer a probable explanation for the source of the invested or concealed amounts. Where the assessee could trace part of the to earlier returns, that explained portion could not be penalised. However, for the balance amounts for which no satisfactory source was shown, the onus under the Explanation was not discharged and penalty survived only to that extent. The excess penalty was therefore not sustainable and was to be reduced accordingly.

---

---

Issues: (i) Whether the Explanation to section 271(1)(c) of the Income-tax Act, 1961 applied to the penalties for the assessment years in question and shifted the burden on the assessee. (ii) Whether penalty under section 271(1)(c) was sustainable in respect of the amounts for which the assessee gave no satisfactory explanation of source.

Issue (i): Whether the Explanation to section 271(1)(c) of the Income-tax Act, 1961 applied to the penalties for the assessment years in question and shifted the burden on the assessee.

Analysis: The relevant penalty proceedings were initiated after 1 April 1962 and 1 April 1964, and the returns for the assessment years under consideration were filed in 1971. The applicable law was therefore the law in force at the time of initiation of penalty proceedings. On that basis, the Explanation to section 271(1)(c) governed the matter, and any penalty, if leviable, had to be computed with reference to the amounts concealed.

Conclusion: The Explanation to section 271(1)(c) applied against the assessee.

Issue (ii): Whether penalty under section 271(1)(c) was sustainable in respect of the amounts for which the assessee gave no satisfactory explanation of source.

Analysis: The assessee's explanation was accepted as probable to the extent of the amounts traced to returns filed for earlier years, but no explanation at all was offered for the balance amounts. Where an amount invested is within the special knowledge of the assessee and no probable source is shown, the assessee fails to discharge the onus under the Explanation. The record did not support any further source beyond the declared earlier returns, and the assessee's burden was discharged only in part.

Conclusion: Penalty was sustained only for the unexplained balance amounts and deleted for the explained portion; the assessee succeeded in part.

Final Conclusion: The appeals resulted in a partial relief to the assessee, with the penalties reduced to the extent of the unexplained amounts and the excess directed to be refunded if recovered.

Ratio Decidendi: In penalty proceedings governed by the Explanation to section 271(1)(c), the assessee must offer a probable explanation for the source of invested or concealed ; where no explanation is furnished for the relevant balance, the onus is not discharged and penalty survives to that extent.

---