However the following case law could help Penalty in cases of unexplained cash credits - The provisions of section 68 permitting the Assessing Officer to treat unexplained cash credit as income are enabling provisions for making certain additions where there is failure by the assessee to give an explanation or where the explanation is not to the satisfaction of the Assessing Officer. However, the addition made on this count would not automatically justify the imposition of penalty under section 271(1)(c) by recourse only to Explanation 1 below section 271(1)(c). No penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income as with the hypothesis that it does. If the assessee gives an explanation which is unproved but not disproved, i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee’s case is false, the Explanation cannot help the department because there will be no material to show that the amount in question was the income of the assessee - National Textiles v. CIT [2001] 249 ITR 125 (Guj.).
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