Penalty for disputed enhanced compensation fails where disclosure was made and taxability remained debatable.

Penalty under section 271(1)(c) was held unsustainable where the assessee had disclosed enhanced compensation and the related NABARD bond investment in the return and supporting records. The compensation arose during pending litigation, the award remained stayed by the High Court, and the taxability of enhanced compensation was debatable at the relevant time. On these facts, the omission could not be characterised as concealment of income or furnishing of inaccurate particulars, so deletion of the penalty was upheld in favour of the assessee.

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Issues: Whether penalty under section 271(1)(c) was leviable for non-offer of enhanced compensation as long-term capital gain and for the manner in which exemption on investment in NABARD bonds was claimed.

Analysis: The assessee had disclosed the receipt of enhanced compensation and the investment in NABARD bonds in the return and supporting material. The compensation was received during subsisting litigation and the award stood stayed by the High Court, creating a bona fide belief that the amount was not taxable in the year of receipt. The question of taxability of enhanced compensation was itself debatable at the relevant time. In these circumstances, the omission could not be treated as concealment of income or furnishing of inaccurate particulars.

Conclusion: Penalty under section 271(1)(c) was not sustainable and its deletion was upheld in favour of the assessee.

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