Concealment penalty not attracted on a mere section 40A(3) disallowance where no contumacious conduct was shown.

Penalty for concealment was not sustainable where the addition stemmed only from a disallowance under section 40A(3) and did not, by itself, prove concealment of income. The assessee's conduct was not found contumacious, and the mere operation of a deeming disallowance was held insufficient to attract section 271(1)(c). Penalty was therefore deleted in favour of the assessee.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 could be sustained on disallowance made under section 40A(3) of the Income-tax Act, 1961.

Analysis: The disallowance arose from application of a deeming provision and did not, by itself, establish concealment of income. The assessee's conduct was not found to be contumacious, and the cited authorities supported the view that a mere disallowance does not automatically attract penalty.

Conclusion: Penalty under section 271(1)(c) was not leviable on the facts, and it was deleted in favour of the assessee.

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