Penalty proceedings may rely on later evidence arising before completion, but initial concealment must still be supported by sufficient material.

Penalty under section 28(1)(c) requires sufficient material showing concealment of income or deliberate furnishing of inaccurate particulars at the time proceedings are initiated. On the record available at initiation, the circumstantial material did not complete the link connecting the business with the assessee-firm, so concealment was not established then. However, evidence that comes into existence after initiation but before completion of the penalty proceedings may be considered in deciding liability. Material created only after the penalty order cannot be used. The later material available during the proceedings could therefore be taken into account, but the subsequent letter could not.

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Issues: (i) Whether the Tribunal was justified in holding that there was no evidence on record when penalty proceedings were initiated to show concealment of income or deliberate furnishing of inaccurate particulars; (ii) Whether, while levying penalty under section 28(1)(c), the Income-tax Officer could consider evidence brought on record after initiation of penalty proceedings in addition to the material already on record.

Issue (i): The material available before initiation of penalty proceedings was only circumstantial and did not complete the link necessary to connect the Lakshmi & Co. business with the assessee-firm. On that record alone, concealment of income or deliberate furnishing of inaccurate particulars was not established.

Conclusion: The Tribunal was right in holding that no sufficient evidence existed on the record at the time penalty proceedings were initiated.

Issue (ii): Additional material coming into existence during the pendency of the penalty proceedings could be taken into account for determining liability to penalty. Evidence arising after initiation of the proceedings but before their completion was admissible for that purpose, whereas material created only after the penalty order could not be used.

Conclusion: The Income-tax Officer was entitled to consider the later material that came into existence on 28 July 1962, along with the earlier record, but not the subsequent letter of 27 December 1963.

Final Conclusion: The reference was answered by holding that the finding of no pre-existing evidence was correct, and that later evidence arising during the penalty proceedings could validly be considered for imposing penalty.

Ratio Decidendi: In penalty proceedings, evidence coming into existence after initiation of the proceedings but before their completion may be considered, but concealment or furnishing of inaccurate particulars must be supported by sufficient material on the record at the time the proceedings are initiated.

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