Bona fide legal claim on a debatable waiver receipt issue does not by itself attract penalty for inaccurate particulars.

Full disclosure of primary facts in audited accounts, notes, the tax audit report and computation supported the assessee's claim that the waiver amount was a capital receipt. The issue was treated as a debatable question of law, and the Court applied the settled principle that penalty under section 271(1)(c) cannot be imposed merely because a legal claim is rejected. Because the explanation was found bona fide and not shown to be false, an incorrect claim in law did not amount to concealment or furnishing inaccurate particulars, and the penalty was deleted.

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Issues: Whether penalty for furnishing inaccurate particulars of income under section 271(1)(c) could be sustained when the assessee had disclosed the relevant facts in the return, accounts, tax audit report and computation, and the claim that the waiver amount was a capital receipt was a debatable one.

Analysis: The assessee had furnished the material particulars in audited accounts, notes to accounts, the tax audit report and the computation of income, and the claim was supported by an explanation that the sales tax deferral liability had been prematurely discharged at discounted value. The dispute turned on the legal character of the waiver amount as capital receipt or revenue receipt, which required examination of the scheme and was treated by the Court below as debatable. Applying the principle that penalty cannot be imposed merely because a legal claim is rejected, and that section 271(1)(c) is attracted only where income is concealed or particulars furnished are inaccurate, the Court held that the assessee's explanation was bona fide and not shown to be false. Reliance was placed on the settled rule that an incorrect claim in law, by itself, does not amount to furnishing inaccurate particulars.

Conclusion: The penalty was not exigible and the deletion of penalty was upheld in favour of the assessee.

Ratio Decidendi: Where an assessee makes full disclosure of primary facts and advances a bona fide but unsuccessful claim on a debatable issue of law, rejection of that claim does not by itself constitute concealment or furnishing of inaccurate particulars under section 271(1)(c).

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