Penalty under 271(1)(c) for alleged inaccurate income disclosure rejected where disclosed short-term capital gain was accepted

Penalty liability under section 271(1)(c) was contested on the ground of alleged inaccurate particulars of income; the tribunal found the assessee had disclosed short term capital gain in the return filed under section 139(4) and that the AO, after issuing a s.143(2) notice post-filing, accepted that disclosure. The only adjustments were ad hoc expense disallowances and depreciation disallowance, none amounting to a finding of inaccurate particulars; consequently penalty could not be sustained and the revenue appeal was dismissed.

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Issues: Whether penalty under Section 271(1)(c) can be levied where the assessee disclosed capital gains in the return of income filed under Section 139(4) and that disclosure was accepted in the assessment proceedings initiated under Section 143(2).

Analysis: The appeal concerns deletion of penalty levied under Section 271(1)(c) after the assessee filed a return under Section 139(4) declaring short-term capital gain. The return was filed before initiation of scrutiny under Section 143(2) and the income so offered was accepted in the assessment except for unrelated disallowances; there was no finding that the assessee furnished inaccurate particulars of income during assessment. The factual sequence and acceptance of the declared income in assessment proceedings were examined against the legal requirement for imposing penalty under Section 271(1)(c).

Conclusion: Penalty under Section 271(1)(c) cannot be sustained where the assessee had disclosed the capital gain in the return filed under Section 139(4) and the same disclosure was accepted in assessment proceedings under Section 143(2); outcome is in favour of the assessee and the penalty is deleted.

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