Penalty for disallowed deduction not leviable where all material facts were disclosed and the claim was bona fide.

Penalty under section 271(1)(c) is attracted only on concealment of income or furnishing of inaccurate particulars, and Explanation 1 applies where the assessee fails to explain, gives a false explanation, or cannot substantiate a bona fide explanation despite full disclosure. A mere disallowance of a claim in assessment does not by itself establish concealment, because assessment and penalty proceedings are distinct. Where the assessee had disclosed all material facts and supporting particulars for project feasibility and market research expenditure, the dispute concerned only the allowability of the deduction and amounted to a debatable claim. On that basis, penalty was not sustainable.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the assessee had disclosed all particulars of expenditure and merely claimed deduction of project feasibility and market research expenses, which were later disallowed in assessment.

Analysis: Penalty under section 271(1)(c) applies only when there is concealment of particulars of income or furnishing of inaccurate particulars. The provision, read with Explanation 1, creates a rebuttable presumption only where the assessee fails to offer an explanation, offers a false explanation, or cannot substantiate a bona fide explanation coupled with full disclosure of material facts. The assessment and penalty proceedings are distinct, and a mere disallowance of a claim or a different computation of income by the Assessing Officer does not by itself establish concealment. On the facts, the assessee had furnished complete particulars and supporting material for the expenditure claim, and the dispute was only whether the expenditure fell within section 35D. Such a debatable claim, made on disclosed facts, does not amount to furnishing inaccurate particulars or concealment.

Conclusion: Penalty under section 271(1)(c) was not sustainable on the facts, and cancellation of the penalty was ly upheld in favour of the assessee.

Ratio Decidendi: A penalty for concealment or furnishing of inaccurate particulars cannot be imposed merely because an assessee's disclosed claim for deduction is disallowed in assessment; where all material facts are fully disclosed and the explanation is bona fide, Explanation 1 to section 271(1) is not attracted.

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