Bona fide deduction claim on interest income did not justify penalty under section 270A where the issue was debatable.

Penalty under section 270A was held not leviable where the assessee claimed deduction under section 80P(2)(a)(i) on interest income from a co-operative bank and a commercial bank. The claimed deduction raised a debatable question on the character of the interest income and the extent of eligibility for deduction. Because the position was arguable and supported by a bona fide tax claim, it was not treated as deliberate misreporting or under-reporting of income. A claim that is not fully accepted in assessment does not, by itself, justify penalty when the underlying issue is plausible and contested.

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Issues: Whether penalty under section 270A of the Income-tax Act, 1961 was leviable for the assessee's claim of deduction under section 80P(2)(a)(i) in respect of interest income from a co-operative bank and a commercial bank.

Analysis: The claim for deduction under section 80P(2)(a)(i) involved a debatable question relating to the character of interest income and the extent of eligibility for deduction. The assessee's claim was not found to be a case of deliberate misreporting or under-reporting of income. A claim made on a bona fide basis, even if not fully accepted in assessment, does not by itself attract penalty under section 270A when the issue is arguable and supported by a plausible tax position.

Conclusion: Penalty under section 270A was not leviable and the assessee succeeded on the penalty issue.

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