Penalty for disallowed deduction claim fails where disclosure was made and bona fide legal explanation was supported by records.

Penalty under section 271(1)(c) was held unsustainable where the assessee's deduction claim under section 80GGC was made on the basis of the auditor's note and supporting records. The assessee had disclosed the underlying payment and advanced a legal claim to deduction; mere disallowance of that claim in quantum proceedings did not, by itself, establish furnishing of inaccurate particulars. For penalty to be levied, the explanation had to be shown false or lacking bona fides, and that standard was not met on the facts disclosed. The penalty was therefore deleted.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the assessee's claim for deduction under section 80GGC was later disallowed, but the claim had been made on the basis of the auditor's note and supporting documentation.

Analysis: The claim was made in the return on the basis of the auditor's considered view and accompanying records. The surrounding material showed that the assessee had disclosed the underlying payment and had taken a legal position that the amount was deductible. Mere rejection of that claim in quantum proceedings did not, by itself, establish that the assessee had furnished inaccurate particulars. For penalty to survive, the explanation had to be shown to be false or lacking bona fides, which was not established on these facts.

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

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