Penalty under section 271(1)(c) not sustainable where deduction claim was based on prevailing law and full disclosure was made.

Penalty under section 271(1)(c) was unsustainable where the assessee had fully disclosed all material facts and claimed deduction under section 80HHC on the basis of the then-prevailing High Court ruling. The Tribunal found no concealment or furnishing of inaccurate particulars, and the later reversal of that ruling by the Supreme Court did not convert the original claim into penal misconduct. Deletion of penalty was therefore justified, and the appeal failed.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961, was sustainable where the assessee had claimed deduction under section 80HHC on the basis of the prevailing judgment and had disclosed all material facts.

Analysis: The Tribunal recorded a finding of fact that the assessee had disclosed all material facts relevant to assessment and that there was no concealment. The deduction claim was made by relying on the then-prevailing decision of this Court, and penalty followed only after that decision was later reversed by the Supreme Court and the resulting disallowance was made. On these facts, the addition could not be treated as arising from concealment or from furnishing inaccurate particulars.

Conclusion: The deletion of penalty was justified and the appeal failed.

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