Bona fide exemption claim with full disclosure does not by itself attract penalty for concealment or inaccurate particulars.

Penalty under section 271(1)(c) was not leviable where the assessee made a bona fide exemption claim supported by correspondence and disclosed all primary facts in the return and during assessment. The mere rejection of the claim in quantum proceedings did not establish concealment of income or furnishing of inaccurate particulars, because the record did not show that the explanation was false, absent, or unsupported by material disclosure. Explanation 1 applies only where the explanation lacks bona fides or relevant facts are withheld. On these facts, the penalty was cancelled in favour of the assessee.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the assessee claimed exemption on the basis of supporting letters and disclosed all material facts, but the claim was ultimately disallowed in assessment.

Analysis: The assessee had claimed exemption in respect of salary-related receipts on the strength of correspondence from the Asian Development Bank and had disclosed the relevant facts in the return and during assessment. The claim was rejected in quantum proceedings, but the record did not show that the explanation was found to be false or that material facts were withheld. Penalty under section 271(1)(c) requires concealment of income or furnishing of inaccurate particulars, and Explanation 1 applies only where the explanation is absent, false, or not bona fide with nondisclosure of material facts. A claim that is rejected on a different interpretation of the facts or law does not, by itself, establish concealment or inaccuracy when the primary facts were placed before the authorities.

Conclusion: Penalty was not leviable and was cancelled; the issue was decided in favour of the assessee.

Ratio Decidendi: Where the assessee makes a bona fide claim supported by disclosed primary facts, mere disallowance of that claim does not amount to concealment of income or furnishing inaccurate particulars for the purpose of section 271(1)(c) of the Income-tax Act, 1961.

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