Bona fide deduction claim with full disclosure does not trigger penalty merely because the claim is disallowed in assessment.

A bona fide deduction claim, made with full disclosure of material facts, does not attract penalty under section 271(1)(c) merely because the claim is later disallowed in assessment. The assessee had consistently claimed the deduction in earlier years, relied on a contractual clause, and disclosed the relevant facts in the return. On those facts, the explanation was accepted as bona fide and not as concealment or furnishing of inaccurate particulars. The penalty was therefore not sustainable, and the deletion of penalty was upheld.

---

---

Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the assessee claimed deduction under section 42 on the basis of a bona fide interpretation of the contract and past allowance of the claim.

Analysis: The assessee had disclosed the relevant facts in the return and had claimed the deduction consistently in earlier years, which had been allowed. The claim was also supported by a contractual clause relied upon by the assessee. On these facts, the claim was found to be made under a bona fide belief. Mere disallowance of the deduction in quantum proceedings did not, by itself, establish concealment or furnishing of inaccurate particulars. Since the material facts were disclosed and the explanation was bona fide, the case did not fall within the mischief of section 271(1)(c).

Conclusion: The penalty under section 271(1)(c) was not sustainable and the deletion of penalty was upheld.

Final Conclusion: The Revenue's appeals failed and the penalty deletion in favour of the assessee was affirmed.

Ratio Decidendi: A bona fide claim supported by disclosure of all material facts does not attract penalty under section 271(1)(c) merely because the claim is disallowed in assessment.

---