Bona fide explanation and timing difference in income recognition saved the assessee from concealment penalty.

Penalty under section 271(1)(c) was held unsustainable where the assessee did not initially offer interest income in the return but explained that, under the cooperative society framework and regulatory directions, the income was recognised on receipt basis. The explanation was found bona fide, not false, and the amount was disclosed during assessment. As the dispute reflected only a timing difference in income recognition under section 145 rather than concealment or furnishing of inaccurate particulars, the penalty was directed to be deleted, while the underlying addition remained relevant for tax computation.

---

---

Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the assessee did not offer interest accrued on loans in the return but explained that the income was accounted for on receipt basis under the governing cooperative society framework and was later offered in assessment.

Analysis: The addition arose from the treatment of interest income under section 145 of the Income-tax Act, 1961. The assessee's explanation was that its accounting practice was influenced by the Karnataka Co-operative Societies Act and Rules and by the directions of its regulatory authorities, resulting in interest on loans being brought to tax on realization basis. The record showed that the amount was disclosed during assessment, the explanation was not found to be false, and the same method resulted only in timing adjustment of income across years. In these circumstances, the non-disclosure in the return was treated as a bona fide explanation rather than concealment or furnishing of inaccurate particulars.

Conclusion: Penalty under section 271(1)(c) was not sustainable and was directed to be deleted.

Final Conclusion: The assessee succeeded on merits and the penalty order stood set aside, leaving the assessment addition undisturbed for tax computation purposes but without penal consequences.

Ratio Decidendi: Penalty for concealment or furnishing inaccurate particulars is not leviable where the assessee's explanation is bona fide, is not shown to be false, and the disputed addition reflects only a timing difference in recognition of income.

---