Bona fide treaty exemption claim cannot attract penalty where all primary facts were disclosed and particulars were not inaccurate.

Penalty under section 271(1)(c) was held unsustainable where the assessee disclosed all primary facts and made a treaty-based exemption claim under the India-USA DTAA on residential status and salary income. The mere disallowance of that claim in assessment did not establish concealment or furnishing of inaccurate particulars, because an unsuccessful but bona fide claim is not enough to justify penalty without contumacious or dishonest conduct. The penalty was deleted and the issue was decided in favour of the assessee.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the assessee had disclosed all primary facts and the claim for exemption under the India-USA DTAA was disallowed in assessment.

Analysis: The assessee had furnished the relevant return and supporting material and had claimed treaty benefit on the basis of residential status under the tie-breaker rule in Article 4(2) and exemption of salary under Article 16(1). The disallowance of the exemption claim in assessment did not, by itself, establish concealment or furnishing of inaccurate particulars. Penalty under section 271(1)(c) requires more than an unsuccessful claim and is not justified in the absence of contumacious or dishonest conduct. Applying the settled principle that a bona fide claim does not attract penalty merely because it is rejected, the levy was held unsustainable.

Conclusion: The penalty was not leviable and was deleted; the issue was decided in favour of the assessee.

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