Penalty for unsustainable exemption claim fails when all material facts are disclosed and no inaccurate particulars are furnished.

Penalty under section 271(1)(c) was held not sustainable where the assessee had disclosed all material particulars about two rented residential accommodations and the dispute concerned only the legal admissibility of exemption under section 10(13A). The Tribunal applied the principle that an incorrect or untenable claim, without concealment of income or furnishing of inaccurate particulars, does not by itself attract penalty. It also accepted that the assessee's explanation was bona fide and not shown to be false, so the penalty was cancelled.

---

---

Issues: Whether penalty under section 271(1)(c) of the Income-tax Act was sustainable where the assessee, having disclosed the facts relating to two rented residential accommodations, claimed exemption under section 10(13A) in respect of both and the claim was found inadmissible in law.

Analysis: The assessee had disclosed all material particulars relating to the rented accommodations, and there was no finding that any factual detail in the return was incorrect, false, or inaccurate. The dispute related only to the legal admissibility of the exemption claimed. The Tribunal applied the principle that a mere unsustainable claim, without concealment or furnishing of inaccurate particulars, does not attract penalty under section 271(1)(c). It also accepted that the assessee's claim was supported by a bona fide understanding of the law, and that the explanation was neither unsubstantiated nor mala fide. The record also showed that satisfaction for initiation of penalty proceedings had been recorded, but that did not affect the unsustainability of the penalty on merits.

Conclusion: Penalty under section 271(1)(c) was not exigible, and the penalty was liable to be cancelled in favour of the assessee.

---