Penalty for inaccurate particulars fails where domain registration receipts remain a debatable tax issue in quantum proceedings.

Penalty under section 271(1)(c) could not be sustained where the assessee had fully disclosed the domain registration receipts and the taxability of those receipts as royalty remained debatable. The quantum dispute had already been admitted by the High Court on a substantial question of law, showing that the issue was not finally settled. Mere disallowance of the claim in quantum proceedings did not establish concealment of income or furnishing of inaccurate particulars. The deletion of penalty was therefore upheld.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the underlying taxability dispute on domain registration receipts as royalty was pending in quantum appeal and had been admitted by the High Court as giving rise to a substantial question of law.

Analysis: The assessee had disclosed the relevant receipts and had taken a legal position that domain registration income was not taxable in India. The quantum addition had been sustained by the Tribunal, but the assessee's appeal before the High Court had already been admitted with a substantial question of law on the very characterization of the receipts. The existence of a pending and admitted question showed that the issue was not finally settled and remained debatable. In such a situation, mere rejection of the assessee's claim in quantum proceedings did not by itself establish concealment of income or furnishing of inaccurate particulars. Penalty under section 271(1)(c) is attracted only when the conditions for concealment or inaccurate particulars are satisfied, and not merely because a claim is ultimately disallowed.

Conclusion: The penalty was not exigible and the deletion of penalty by the first appellate authority was upheld.

Ratio Decidendi: Where the assessee has made full disclosure and the underlying tax issue is debatable, evidenced by admission of a substantial question of law in quantum proceedings, penalty under section 271(1)(c) cannot be sustained merely because the assessee's claim is rejected.

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