Penalty under section 271(1)(c) not leviable on disclosed, bona fide claims later disallowed on legal grounds

Penalty under section 271(1)(c) was not attracted where the assessee had disclosed all primary facts and the disputed claims were rejected only on a different view of allowability. The business loss disallowance was based on the expenditure being considered excessive, not bogus or false, and the interest claim failed on legal inadmissibility, including section 14A, without any finding of concealment or inaccurate particulars. As penalty proceedings are distinct from assessment proceedings, a bona fide but unsustainable claim does not by itself justify penalty. The penalty was therefore deleted.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable on disallowance of business loss and interest expenditure when the assessee had disclosed the primary facts and had made a claim that was not accepted in assessment.

Analysis: The disallowance of business loss was made because the expenditure was considered excessive in relation to the trading activity, but the expenditure itself was not found to be bogus, false, or not incurred. The assessee had disclosed all material particulars, and the rejection of the claim was only on a different view of allowability. In respect of interest expenditure, the borrowed funds and their use for investment in shares were disclosed, and the claim was found inadmissible on the ground of law, including the effect of section 14A of the Income-tax Act, 1961, but not shown to be false or mala fide. Penalty proceedings being distinct from assessment proceedings, a mere unsustainable claim or disallowance, without concealment or inaccurate particulars, does not justify penalty.

Conclusion: Penalty under section 271(1)(c) of the Income-tax Act, 1961 was not leviable and was deleted.

Ratio Decidendi: Where the assessee has disclosed all primary facts and the claim is bona fide, mere disallowance of an expenditure claim or a difference in legal view does not amount to concealment of income or furnishing of inaccurate particulars for the purpose of penalty under section 271(1)(c) of the Income-tax Act, 1961.

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