Penalty under section 271(1)(c) not leviable on disallowed cash purchases where the claim was made under Rule 6DD(g).

Disallowance of cash purchases under section 40A(3) did not, by itself, justify penalty under section 271(1)(c) where the purchases were not found bogus and the assessee had made a bona fide claim under Rule 6DD(g) that the sellers were villagers without bank accounts. Penalty requires concealment of income or furnishing of inaccurate particulars, and an unsustainable claim alone is insufficient. The penalty orders were therefore set aside in favour of the assessee.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the addition arose from cash payments disallowed under section 40A(3) of the Income-tax Act, 1961 and the assessee claimed the case fell within Rule 6DD(g) of the Income-tax Rules, 1962.

Analysis: The cash purchases were not found to be bogus. The claim made by the assessee was that the purchases were from villagers without bank accounts and therefore fell within the exception in Rule 6DD(g). Even though that contention was not accepted in the assessment, the mere disallowance of expenditure did not, by itself, establish concealment of income or furnishing of inaccurate particulars. Penalty under section 271(1)(c) requires a clear case of concealment or inaccurate particulars, and an incorrect claim, without more, does not attract the provision.

Conclusion: Penalty under section 271(1)(c) was not leviable and the penalty orders were set aside in favour of the assessee.

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