Penalty for inaccurate particulars deleted where HRA claim and FDR interest omission were treated as bona fide mistakes.

Penalty under section 271(1)(c) was examined on two grounds: the notice's failure to specify the exact limb did not invalidate proceedings where the assessment and penalty orders showed the allegation of furnishing inaccurate particulars of income. However, penalty was deleted on merits because the HRA claim, though wrong in law, was supported by the employer's form and family arrangement indicating bona fides, and the omission of FDR interest was treated as an inadvertent, bona fide mistake. An incorrect claim by itself was held not to amount to furnishing inaccurate particulars.

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Issues: (i) Whether the penalty under section 271(1)(c) was invalid for want of specification of the exact limb in the notice and penalty order. (ii) Whether penalty could be sustained on the claim of HRA exemption and non-disclosure of interest income from FDRs.

Issue (i): Whether the penalty under section 271(1)(c) was invalid for want of specification of the exact limb in the notice and penalty order.

Analysis: The assessment order had clearly proceeded on the basis of furnishing inaccurate particulars of income, and the notice under section 274 could not be read in isolation. The omission in the notice to specify the exact limb did not vitiate the proceedings where the assessment and penalty orders disclosed the nature of the default. The penalty order also recorded that the assessee had furnished inaccurate particulars of income.

Conclusion: The penalty proceedings were not invalid for want of specification of the exact limb.

Issue (ii): Whether penalty could be sustained on the claim of HRA exemption and non-disclosure of interest income from FDRs.

Analysis: The HRA claim was found to be a wrong claim because rent had not been actually paid, but the facts showed that the claim was made on the basis of the employer's form and the assessee's family arrangement, which indicated bona fides. A wrong claim in law does not by itself amount to furnishing inaccurate particulars. As to interest on FDRs, the omission was treated as an inadvertent and bona fide mistake, particularly since no TDS claim had been made against that income in the original return.

Conclusion: Penalty was not sustainable on the HRA claim or on the FDR interest omission, and the penalty was directed to be deleted.

Final Conclusion: The assessee succeeded on the merits of the penalty dispute, resulting in deletion of the penalty, though the objection to the validity of the notice and initiation of penalty was rejected.

Ratio Decidendi: A penalty under section 271(1)(c) cannot be sustained where the assessee's conduct shows a bona fide wrong claim or inadvertent omission, since an incorrect claim in law does not by itself constitute furnishing inaccurate particulars of income.

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