Bona fide tax claim with full disclosure cannot attract concealment penalty when the deduction is later disallowed.

Penalty under section 271(1)(c) was not sustainable where the assessee claimed deduction under section 36(1)(viii) on a plausible interpretation of the law, after seeking clarification and legal advice, and with full disclosure of material facts in the return. The later disallowance of the deduction did not, by itself, establish concealment or furnishing of inaccurate particulars. For Explanation 1 to section 271(1)(c), the explanation must be shown to lack bona fides or adequate disclosure; on these facts, the assessee's conduct met both requirements, so penalty could not be imposed merely because the quantum claim failed.

---

---

Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was exigible where the assessee claimed deduction under section 36(1)(viii) on the basis of a bona fide and fully disclosed interpretation of the provision.

Analysis: The assessee had made the deduction claim after seeking clarification from the revenue authorities, obtaining legal opinion, and making complete disclosure in the return. The claim was founded on an arguable interpretation of section 36(1)(viii), and the later amendment to that provision supported the view that the assessee's understanding was not a sham or pretence. For penalty under Explanation 1 to section 271(1)(c), the explanation must be shown to be not bona fide or unsupported by full disclosure. On the facts, the assessee's conduct satisfied the requirement of bona fides and disclosure, and mere rejection of the quantum claim did not justify penalty.

Conclusion: Penalty under section 271(1)(c) was not sustainable against the assessee.

Ratio Decidendi: Where an assessee makes a claim on a plausible interpretation of the law, supported by bona fide belief and full disclosure of material facts, penalty for concealment or furnishing inaccurate particulars cannot be imposed merely because the claim is ultimately disallowed.

---