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TMI Blog1976 (2) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... o the gross profit 804 (2) Interest on credits surrendered by the assessee in the earlier assessment year. 3,000 (3) Hundi credits which were not satisfactorily explained during the year of account. 12,000 (4) Amounts disallowed out of expenses incurred by the assessee but considered to be inadmissible. 2,863 At the time of completion of the assessment, the ITO initiated action under s. 271(1)(c) of the IT Act and issued notice to the assessee calling upon him to show cause why penalty under that section should not be imposed on him for concealment of income. 3. In reply to the above notice, the assessee stated that the loss returned by him has been converted into a profit of Rs. 1,002 only by rejecting his accounts under s. 145 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, it could not be said that the amount was conclusively proved to be of the nature of income of the assessee during the year of account. Accordingly, he was of the view that no penalty could be levied with reference to that amount. However, he falt that the amount of Rs. 3,000 representing interest on the credits surrendered in the earlier years stood on a different footing. As the assessee had already surrendered such credits in the earlier years as income, the interest credited to those accounts and claimed by the assessee in its P & L a/c, should been added back by the assessee while filing his return of income. As this was not done, the AAC falt that a penalty equal to the amount of such interest namely Rs. 3,000 could be imposed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, he contended that the AAC should have sustained the entire penalty of Rs. 22,500 imposed by the ITO. 7. The amount of Rs. 12,000 added by the ITO to the total income of the assessee was in respect of cash credit to the extent of Rs. 31,600 introduced by the assessee in his accounts during the year of account. In respect of these credits the assessment order passed by the ITO shows that the assessee had explained that these amounts were borrowed from certain parties at Katni on hundies but they were not prepared to come forward and admit the fact of having lent such amounts to the assessee. It was submitted that they were also not prepared to sign the discharge on the hundi khokas and that one or two of them who had actually signe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be brought to the aid of the Department. I shall presently consider the applicability of the Explanation to the above addition. In any case, it could not be said that there is evidence of concealment of income, without the aid of the Explanation to s. 271(1)(c), so as to warrant the imposition of a penalty under s. 271(1)(c), in respect of this amount. 8. Coming to the amount of Rs. 3,000, representing interest on cash credits surrendered by the assessee for assessment in the earlier years, which the assessee failed to add back in filing his return of income for the present assessment, I shall now consider whether it constitutes concealment of income on the part of the assessee or was only an inadvertent omission, as claimed by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a consideration of the facts and circumstances of the case, it is clear that neither of these additions namely Rs. 12,000 and Rs. 3,000 would attract the provisions of s. 271(1)(c), without calling the explanation to that section to aid. This is where the Circular of the CBDT, referred to by the learned counsel for the assessee, comes into the picture. That Circular categorically excludes the application of the Explanation to s. 271(1)(c) in these cases where the income assessed does not exceed Rs. 10,000 if the difference of over 20 per cent between the returned income and the assessed income is due either to the addition to the gross profit or due to addition of cash credits. The relevant part of the Circular reads as under :-- "In para ..... X X X X Extracts X X X X X X X X Extracts X X X X
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