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Issues involved: Assessment of taxable income, imposition of penalty u/s 271(1)(c), interpretation of Explanation to section 271(1)(c), applicability of case law Commissioner of Income-tax v. Anwar Ali [1970] 76 ITR 696 (SC), voluntary admission of income by assessee to avoid penalty.
Assessment of Taxable Income: The assessee, a firm engaged in contract execution, filed a return for the assessment year 1967-68 declaring a total income of Rs. 29,016 with a net profit of 7.5%. The Income-tax Officer assessed the income at Rs. 54,196 using a flat rate of profit of 12.5% due to defective accounts, leading to penalty proceedings u/s 271(1)(c) for alleged concealment or furnishing inaccurate particulars. Interpretation of Explanation to section 271(1)(c): The court noted that the Explanation to section 271(1)(c) shifts the onus to the assessee in certain cases where returned income is less than 80% of assessed income minus disallowed expenses. However, in the absence of evidence meeting this criteria, the burden remains on the department to prove concealment or inaccuracies as per the law laid down in Commissioner of Income-tax v. Anwar Ali [1970] 76 ITR 696 (SC). Penalty Imposition: The Tribunal set aside the penalty, finding no fraud or wilful neglect by the assessee, as required by the Explanation to section 271(1)(c). The court held that the assessee's agreement to a higher assessment rate was not a confession of concealment but a practical decision due to unverifiable expenses, emphasizing the lack of positive material proving deliberate concealment. Voluntary Admission to Avoid Penalty: Drawing parallels with a previous case, the court concluded that the assessee's agreement to an enhanced assessment was likely motivated by a desire to avoid penalty, rather than an admission of concealment. The court re-drafted the question of law to focus on the cancellation of penalty, ruling in favor of the assessee and awarding costs of Rs. 200. (Please note that the names of the judges have been omitted for privacy reasons.)
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