Penalty under section 271(1)(c) fails where the addition is deleted or the taxpayer fully discloses facts and only the legal claim is rejected.

Penalty under section 271(1)(c) was held unsustainable where the related quantum addition on non-existing assets had already been deleted, because the basis for alleging concealment or inaccurate particulars no longer survived. The article also notes that depreciation disallowed under section 32(1)(iii) read with section 43(1) and Explanation 10 did not justify penalty, since the assessee had disclosed the relevant grants, subsidies and contributions and the dispute was only over an unsustainable legal claim. A mere rejection of a claim in law, without false facts, does not by itself establish concealment.

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Issues: (i) whether penalty under section 271(1)(c) was leviable on depreciation disallowed on non-existing assets; (ii) whether penalty under section 271(1)(c) was leviable on depreciation disallowed under section 32(1)(iii) read with section 43(1) and Explanation 10 thereto.

Issue (i): whether penalty under section 271(1)(c) was leviable on depreciation disallowed on non-existing assets.

Analysis: The disallowance on non-existing assets had already been deleted in quantum proceedings. Once the underlying addition ceased to survive, the basis for alleging concealment or furnishing of inaccurate particulars in relation to that claim also disappeared.

Conclusion: Penalty was not leviable on this issue and was deleted in favour of the assessee.

Issue (ii): whether penalty under section 271(1)(c) was leviable on depreciation disallowed under section 32(1)(iii) read with section 43(1) and Explanation 10 thereto.

Analysis: The assessee had disclosed the relevant facts in its return and financial statements, including grants, subsidies and contributions toward the cost of assets. The claim was rejected in quantum, but the material facts were not found to be false. In such circumstances, a disallowance on account of an unsustainable claim does not, by itself, establish concealment or furnishing of inaccurate particulars. The principle that penalty cannot follow merely because a claim in law is rejected governed the issue.

Conclusion: Penalty was not leviable on this issue and was deleted in favour of the assessee.

Final Conclusion: All three penalty appeals succeeded, and the impugned penalty was set aside in full.

Ratio Decidendi: Penalty under section 271(1)(c) cannot be sustained where the underlying addition no longer survives or where all primary facts are fully disclosed and the dispute concerns only an unsustainable legal claim.

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