Penalty under section 271(1)(c) cannot follow a mere quantum disallowance of interest expense claim.

Penalty under section 271(1)(c) was held unsustainable where the addition arose from disallowance of interest expenditure claimed against interest income under section 57(iii). The decisive principle was that a mere disallowance in quantum proceedings does not, by itself, satisfy the conditions for penalty; rejection of the claim did not automatically establish concealment of income or furnishing of inaccurate particulars. On the record, the penal provision could not be applied only because the expenditure claim was found unsubstantiated in assessment, and the penalty was deleted.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was sustainable where the addition arose from disallowance of interest expenditure claimed against interest income under section 57(iii) of the Income-tax Act, 1961.

Analysis: The penalty was based on the assessee's claim of interest expenditure, which the authorities found to be unsubstantiated. The decisive consideration was that a mere disallowance or addition in quantum proceedings does not, by itself, establish the conditions necessary for levy of penalty under section 271(1)(c). The record did not justify automatic application of the penal provision merely because the claim was rejected in the quantum assessment.

Conclusion: The penalty was not sustainable and was deleted in favour of the assessee.

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