Bona fide deduction claim defeats under-reporting penalty where the dispute is interpretational and earlier years were accepted.

Penalty for under-reporting was not attracted where the assessee's deduction claim under section 80-IC had been accepted on merits in earlier years and the present disallowance arose from the same recurring interpretational dispute. The addition was made by following the earlier assessment approach, and the penalty rested mainly on the assessee's failure to challenge the assessment for the year in question. A bona fide legal claim supported by material facts, even if ultimately disallowed, does not by itself show concealment or furnishing of inaccurate particulars. On that basis, deletion of penalty under section 270A was upheld.

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Issues: Whether penalty under section 270A of the Income-tax Act, 1961 was leviable where the disallowance arose from the assessee's claim for deduction under section 80-IC of the Income-tax Act, 1961, which had already been accepted in earlier years on merits.

Analysis: The disallowance related to a recurring claim on the eligibility of the assessee's unit for deduction, and the merits of that claim had already been decided in the assessee's favour in earlier years by the appellate forum. The present year's addition was made by following the same approach, and the penalty was founded essentially on the fact that the assessee did not challenge the assessment in the relevant year. A mere disallowance of a legal claim does not, by itself, establish under-reporting or justify penalty where the claim is bona fide and supported by material facts. The earlier favourable decisions and the interpretational nature of the dispute showed that the claim was not a case of concealment or false particulars.

Conclusion: Penalty under section 270A was not exigible, and the deletion of penalty was upheld in favour of the assessee.

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