Bona fide deduction claim defeats section 270A penalty where DSIR approval was short of the amount claimed.

Penalty under section 270A of the Income-tax Act was upheld as deleted where the disallowance arose only because the deduction claimed for in-house research and development expenditure under section 35(2AB) exceeded the amount later approved in Form 3CL by DSIR. The claim had been made on the basis of the tax auditor's report, and the assessee learned of the short approval only after DSIR communication during assessment. On those facts, the claim was treated as bona fide and unsupported by any material showing misreporting of income or malafide intent; the Revenue's challenge failed and the penalty deletion stood confirmed.

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Issues: Whether penalty under section 270A of the Income-tax Act, 1961 was rightly deleted where the disallowance arose from part non-approval of deduction claimed under section 35(2AB) of the Income-tax Act, 1961 and the assessee had relied on the tax auditor's report and DSIR approval process.

Analysis: The penalty was founded only on the difference between the deduction claimed for in-house research and development expenditure and the amount later approved in Form 3CL by the DSIR. The claim had been made on the basis of the tax auditor's report and the assessee could know of the short approval only after receipt of the DSIR communication during assessment. On these facts, the disallowance was treated as arising from a claim made without malafide intent, and the record did not support an allegation of misreporting of income within section 270A.

Conclusion: The deletion of penalty was upheld and the penalty under section 270A was not restored.

Final Conclusion: The appeal of the Revenue failed and the penalty deletion stood confirmed.

Ratio Decidendi: A penalty for misreporting of income under section 270A of the Income-tax Act, 1961 cannot be sustained where the disputed disallowance results from a bona fide deduction claim supported by the tax auditor's report and the assessee lacked malafide intent.

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