Penalty for disallowed deduction claim fails absent concealment or inaccurate particulars under income-tax law

A disallowed claim for deduction under section 80-IB(7A) does not, by itself, justify penalty under section 271(1)(c) where the assessee disclosed the relevant facts and supported the claim with audit material. Penalty is distinct from assessment and is attracted only on proof of concealment of income or furnishing of inaccurate particulars. A claim that is legally unsustainable, but not shown to be bogus or false, does not automatically amount to concealment. The analysis also reflects the relevance of consistency where penalty was earlier cancelled in similar circumstances. On these facts, the penalty was held not to be justified.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the assessee made a claim for deduction under section 80-IB(7A) of the Income-tax Act, 1961 which was disallowed in assessment.

Analysis: The claim for deduction was based on the assessee's understanding of the project completion and was supported by the audit report and other material placed before the Assessing Officer. The disallowance of the deduction showed only that the claim was legally untenable, not that the return contained false particulars or that income had been concealed. Penalty proceedings are distinct from assessment proceedings, and penalty is attracted only where there is deliberate concealment or furnishing of inaccurate particulars. The record did not show that the claim was bogus, and the earlier cancellation of penalty in similar circumstances supported application of consistency.

Conclusion: Penalty under section 271(1)(c) was not justified and was rightly cancelled by the first appellate authority.

Final Conclusion: The assessee's appeal succeeded, and the penalty order was set aside.

Ratio Decidendi: A disallowed legal claim, made on disclosed facts and without proof of deliberate concealment or furnishing of inaccurate particulars, does not by itself attract penalty under section 271(1)(c) of the Income-tax Act, 1961.

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