Penalty for disallowances in a search assessment fails without incriminating material or proof of concealment.

Penalty under section 271(1)(c) was held unsustainable where additions for society charges and depreciation arose from routine book examination and prior-year treatment, not from incriminating material found in search. The claims were disclosed in the return and financial statements, and there was no finding of false particulars or concealment of income. In an unabated assessment year, additions made without seized material could not, by themselves, justify penalty. Mere rejection of a claim did not establish concealment or furnishing of inaccurate particulars, so deletion of the penalty was upheld.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable on disallowance of society charges and depreciation made in assessment under section 143(3) read with section 153C of the Income-tax Act, 1961, where no incriminating material was found during search.

Analysis: The additions on which penalty was founded were routine disallowances arising from examination of books of account and prior-year treatment, not from any seized or incriminating material. The claims for society charges and depreciation were disclosed in the return and financial statements, and there was no finding that the particulars furnished were false or that income had been concealed. In an unabated assessment year, additions made without incriminating material could not, by themselves, justify penalty. Penalty proceedings require an independent basis showing concealment or furnishing of inaccurate particulars, and mere non-acceptance of a claim does not establish either limb.

Conclusion: Penalty under section 271(1)(c) was not sustainable, and deletion of the penalty was upheld.

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