DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6(1)(1), BANGALORE V. SANTOSH SHIVAJI LAD, BANGALORE

ITA 1522/BANG/2024

AI Insights

The case involves an appeal by the Revenue against the decision of the CIT(A), which had deleted a penalty imposed on the assessee, Sri Santosh Shivaji Lad, under section 271(1)(c) of the Income Tax Act. The penalty was originally levied due to the assessee's claim of 'investment in companies written off' and certain interest expenses, which the Assessing Officer (AO) disallowed, considering them as not allowable business expenditures. The ITAT upheld the CIT(A)'s decision, emphasizing that the assessee had not concealed any material facts and that the claims made, although disallowed, were based on a bona fide interpretation of the law.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 708168 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2013-2014
• Other Referred Cases: CIT vs. Reliance Petroproducts Pvt. Ltd., CIT Vs Manjunatha Cotton and Ginning Factory, CIT v. Madhushree Gupta, CIT v. Sambhav Media Ltd., CIT Vs Zoom Communication Private Limited
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MURALI MOHAN M
• Assessee Lawyers: V SRINIVASAN
• Keywords: Difference of opinion; Opportunity of being heard; Proportionate interest; Business expenditure; Bad and doubtful debts; Corroborative evidences; Depreciation; Period of limitation; Time period of passing order; Bogus
• Section: 271(1)(c)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No. 1522/Bang/2024 Assessment Year: 2013-14 The Dy. Commissioner of Income Tax, Circle - 6(1)(1), Bengaluru Vs. Sri Santosh Shivaji Lad, No.520, Amruth Nivas, 7th Main, 13th Cross, RMV 2nd Stage, Dollars Colony, Bengaluru – 560 094. . PAN – ABJPL 0839 Q APPELLANT RESPONDENT Assessee by : Shri V Srinivasan, Advocate Revenue by : Shri Murali Mohan M, CIT (DR) Date of hearing : 26.06.2025 Date of Pronouncement : 10.07.2025 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: This is an appeal filed by the Revenue against the order passed by the NFAC, New Delhi for the assessment year 2013-14. 2. The only issue raised by the revenue is that the learned CIT(A) erred in confirming the levy of penalty under section 271(1)(c) of the Act. ITA No.1522/Bang/2024 Page 2 of 16 . 3. The facts, in brief, are that the assessee is an individual who, in the return filed for the year under consideration, declared a loss of ₹38,19,629/- only. In the profit and loss account, the assessee claimed an expenditure of ₹5,55,20,973/- under the head \"investment in companies written off.\" Additionally, the assessee also claimed a deduction for interest expenses under section 57 of the Act. The assessee stated that he had promoted two companies, namely M/s Lad’s Technologies Pvt. Ltd. in 2009 and M/s Connect Films Media Pvt. Ltd. in 2008. These companies were not generating sufficient revenue to meet their day-to-day operations; therefore, he extended financial support in the form of advances to sustain their operations. It was agreed that these advances would be converted into share capital. However, as the companies failed to generate business, the advances given became irrecoverable. The Boards of Directors of M/s Lad’s Technologies Pvt. Ltd. and M/s Connect Films Media Pvt. Ltd. decided to write off the liabilities arising from the amounts lent by the assessee, recognizing them as income of ₹3 crores and ₹2.5 crores, respectively. Consequently, the assessee also wrote off the investment amount of ₹5,55,20,973/-, which had been given as advances to these companies, and claimed it as an expenditure in his profit and loss account. 4. However, the AO disallowed the assessee's claim, holding that the advances made were not for the purpose of carrying out any business of the assessee and did not constitute a trade advance. The AO also noted that the assessee is not engaged in the money-lending business and, therefore, cannot claim the write-off of advances as a trading loss. Furthermore, the AO observed that the advances given to these two companies were meant to cover their expenses and were in the nature ITA No.1522/Bang/2024 Page 3 of 16 . of a capital outlay. Consequently, the AO treated the advances as an investment in the hands of the assessee and capital in nature rather than a trade advance, making them ineligible to be claimed as a business loss. Additionally, the AO found that the assessee had not charged any interest on these advances in any financial year, indicating that the assessee did not comply with the provisions of section 36(1)(vii) read with section 36(2) of the Act, and thus, could not be claimed as bad debts. 5.1 Similarly, the AO observed that the assessee had declared interest income of ₹22,07,803/- under the head \"Other Sources\" and claimed an interest expenditure of ₹40,66,274/- under section 57 of the Act. When asked to provide details of the expenditure incurred to earn the interest income, the assessee failed to substantiate the claim. Consequently, the AO restricted the allowable expenditure under section 57 of the Act to ₹22,07,803/- and added the excess claim to the total taxable income of the assessee. Hence, the AO completed the assessment order after making disallowance of claim of \"investment in companies written off” and claim of expenditure under section 57 of the Act. The AO in the assessment order also initiated penalty proceeding for furnishing inaccurate particulars of income. 6. The disallowance and addition made by the AO were upheld by the learned CIT(A) and subsequently confirmed by the ITAT vide order dated 06-06-2022 in appeal bearing ITA No. 1298/Bang/2018. 7. Thereafter, the AO issued a notice under Section 274 of the Act on April 25, 2023, showcasing the assessee, why the penalty should not ITA No.1522/Bang/2024 Page 4 of 16 . be levied. However, the assessee only asked for an extension of time till 15.05.2023, stating that he and his authorized representative were busy with the Karnataka Assembly Elections. He did not provide any explanation or supporting documents regarding the incorrect claim disallowed during the assessment. Since, the limitation period for passing the penalty order was expiring on 30.04.2023, the AO proceeded to decide the matter based on the available records. 7.1 As per the AO, it was the assessee’s duty to explain why the penalty should not be levied. Since the assessee did not provide any reply or documents, it was clear to the AO that the assessee had no valid explanation. Therefore, the AO concluded that the assessee furnished inaccurate particulars of income and proceeded to levy penalty under section 271(1)(c) of the Act. According to the AO, the assessee wrongly claimed to have written off advances given to two companies, M/s Lad Technologies Pvt. Ltd. and M/s Connect Films Media Pvt. Ltd., as business losses. According to the AO, these advances were not trade advances or loans from a money-lending business and did not qualify as business losses. Therefore, claiming them as business expenditure was wrong. The AO further held that even though those companies had declared the advances as income, it did not give the assessee a right to claim the same as an expense and reduce his taxable income by ₹5,55,20,973/- only. 7.2 Further, regarding interest income, the AO found that the assessee declared only ₹22,07,803/- as interest earned but claimed ₹40,66,247/- as interest expense. On being asked for clarification, the assessee only stated that the borrowed funds were used to earn interest ITA No.1522/Bang/2024 Page 5 of 16 . income through fixed deposits but did not give any clear details. Therefore, the AO restricted the allowable interest expense to ₹22,07,803 and added the remaining amount to the taxable income. 7.3 The AO also noted that the Income Tax Appellate Tribunal (ITAT) had confirmed the disallowances made during the assessment, stating that the advances written off were capital in nature and that no supporting evidence was provided for the interest expenditure claim. 7.4 Lastly, the AO held that the assessee did not submit any revised computation or voluntary disclosure of the mistakes during the assessment or penalty proceedings. Hence, the AO concluded that the assessee failed to discharge the legal burden of proving that he had not furnished inaccurate particulars of income. Hence, the penalty under section 271(1)(c) was justified for furnishing inaccurate particulars of income. Thus, the AO passed a penalty order on April 28, 2023, imposing a penalty for furnishing inaccurate particulars of income for Rs. 2,16,16,550 being hundred percent of the amount of tax sought to be evaded. 8. The aggrieved assessee preferred an appeal before the learned CIT(A). 9. Before the learned CIT(A), the assessee contended that the penalty order passed was void and unjustifiable as it was passed without affording a proper opportunity of being heard. It was submitted that, in the present case, the notice under section 274 read with Section 271(1)(c) of the Act was issued on April 25, 2023, requiring the assessee ITA No.1522/Bang/2024 Page 6 of 16 . to appear personally the very next day. Subsequently, the AO passed the penalty order on April 28, 2023. Thus, the reasonable opportunity of being heard, as mandated under the law was not provided, rendering the penalty order invalid. 9.1 Furthermore, the assessee submitted that any addition or disallowance made in the assessment order does not, per se, empower the AO to levy a penalty under section 271(1)(c) of the Act. The assessee contended that, in the present case, he had made advances to companies in which he was the majority shareholder. However, these advances became unrecoverable and were accordingly written off in both the assessee’s books and the companies’ books, which can be verified from the respective accounts. Therefore, the assessee claimed the amount as a loss, but the claim was disallowed by the revenue authorities. 9.2 Similarly, the assessee claimed that an expenditure against interest income under section 57 of the Act was accepted in part to the extent of interest income by the Revenue. Thus, this is not a case of furnishing inaccurate particulars of income but rather a situation where certain claims made in the return were not accepted by the revenue authorities. Therefore, given the facts and circumstances, no penalty under section 271(1)(c) of the Act can be levied. To support his argument, the assessee relied on several case laws, including the ratio laid down by the Hon’ble Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd., reported in 322 ITR 158. ITA No.1522/Bang/2024 Page 7 of 16 . 10. The learned CIT(A) after considering the facts in totality deleted the levy of penalty by observing as under: 7.12. I have examined the facts of the case and have gone through the case laws cited by the assessee. The assessee submitted that Rs.3,00,00,000/- was written back as its income by M/s Lad’s Technologies Private Limited and similarly Rs.2,50,00,000/- was written back as its income by M/s Connect Films Media Private Limited. Upon receipt of letters from these companies that they will be unable to repay back these amounts, the assessee decided to write off these amounts and debited the amounts in his Profit and Loss account. Prima facie, the act of the assessee does not seem to involve any malafide intention on his part as he has decided to write off these advances after the companies have given him letters in writing that they would be unable to repay the amounts and have decided to write back the amounts as income in their books. The assessee has shown in his Profit and Loss account these amounts which he believed has been irrecoverable. The addition of these amounts by the AO and later on confirmed by the CIT(A) and the Hon’ble ITAT has shown that amounts were in fact not allowable. The reasons for disallowance have been discussed already in preceding paras of this order. However, since penalty proceedings being different from the assessment proceeding, the issues of deliberateness, willfulness and intention being malafide need to be examined in the light of various judicial pronouncements of the Honorable Courts. 7.12.1. In CIT Vs Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Karnataka HC), the jurisdiction High Court has held that- “The imposition of penalty is not automatic, i.e., imposition of penalty even if the tax liability is admitted, is not automatic. Even if the assessee has not challenged the order of assessment levying tax and interest and has paid the same, that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities which has resulted in payment of such tax or such tax liability came to be admitted, and if not, it would have escaped from tax net as opined by the Assessing Officer in the assessment order. Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty can be passed. If the explanation offered, even though not substantiated by the assessee, is found to be bona fide and all facts relating to the same and material for the computation of his total income have been disclosed by him, no penalty can be imposed.” In the case of the present assessee, the AO in his penalty order has noted that the assessee has asked for adjournment of hearing although having the knowledge that penalty will get time barred by 30.04.2023. The AO thus held that the assessee has not offered any explanation and thus levied penalty u/s 271(1)(c). However, the AO has not brought anything on record to show that the act of the assessee in filing his return of income has been done with malafide intention or willful and deliberate furnishing of inaccurate particulars of income. The facts have been disclosed by the assessee and there was nothing which would point towards that the figures were manipulated or ITA No.1522/Bang/2024 Page 8 of 16 . wrong. In view of the above, I am of the opinion that the action of the assessee is bonafide as he has disclosed the transactions fully in his Profit and Loss account. The ratio of the decision held by the jurisdictional High Court in this case of CIT Vs Manjunatha Cotton and Ginning Factory(supra) is squarely applicable in the case of the assessee. 7.12.2. In CIT v. Madhushree Gupta [2013] 33 taxmann.com286/216 Taxman 65 (Delhi) (Mag.) it has been held that - Mere making of claim, which was not sustainable, in law, would not ipso facto, amount to furnishing inaccurate particulars regarding income. 7.12.3. In CIT v. Sambhav Media Ltd. [2013] 32 taxmann.com 371 (Guj.) for the assessment year 2000-01, the assessee claimed deduction under section 24 as well as also for depreciation. The Assessing Officer disallowed deduction on plea that assessee was disentitled to claim double deduction of depreciation as well as deduction under section 24 and made addition to its income. The AO also imposed penalty under section 271(1)(c) upon it. The Hon’ble Gujarat High Court held that this being a matter of bona fide difference of opinion between assessee and department regarding allowability of claim, imposition of penalty was not justified in the case. 7.12.4. In the case of CIT Vs Zoom Communication Private Limited [2010] 191 Taxman 179 (Delhi), it has been held- “11. Thus, in case of failure of the assessee to offer any explanation or the explanation furnished by him being found false, penalty may be imposed on him. However, if an explanation is offered by the assessee, mere failure on his part to substantiate it will not be enough to warrant penalty, if the explanation is bonafide and all the facts relating to the same were disclosed by him in the Return. Explanation 1 to Section 271(1) would be inapplicable in respect of any amount added or disallowed as a result of rejection of the explanation furnished by the assessee, provided that his explanation is shown to be bonafide and all the facts relating to the same and material to the computation of his total income were disclosed by him. Xxxxxxxxxxxxx 16. The proposition of law which emerges from this case, when considered in the backdrop of the facts of the case before the Court, is that so long as the assessee has not concealed any material fact or the factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty under section 271(1)(c) of the Act, even if the claim made by him is unsustainable in law, provided that he either substantiates the explanation offered by him or the explanation, even if not substantiated, is found to be bona fide. If the explanation is neither substantiated nor shown to be bona fide,Explanation 1 to section 271(1)(c) would come in to play and the assessee will be liable to for the prescribed penalty.” Seen in the background of the judgment delivered in the case of CIT Vs Zoom Communication Private Limited (supra), in the present case of the assessee, the claim of the assessee has nowhere been proved as false during the assessment proceedings as well as appellate proceedings. The amounts disclosed were not found to be false and the assessee has on its part claimed it as allowable which were held as not allowable by the appellate authorities. In ITA No.1522/Bang/2024 Page 9 of 16 . the light of this observation, I am of the view that the explanation of the assessee is bonafide and in the absence of any findings that will show that the assessee has acted with malafide intention, the ratio delivered in the case of CIT Vs Zoom Communication Private Limited (supra) will be squarely applicable in the case of the assessee. 7.12.5. In CIT Vs Reliance Petroproducts (P) Ltd. [2010] 189 Taxman 322 (SC), the Hon’ble SC has held that penalty under section 271(1)(c) would by itself not be attracted merely because assessee had claimed expenditure, which claim was not accepted or was not acceptable to revenue. The relevant extracts of relevant paras of the order are reproduced here as under:- “A glance of provision of section 271(1)(c ) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The instant case was not the case of concealment of the income. That was not the case of the revenue either. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars. [Para 7] Therefore, it must be shown that the conditions under section 271(1)(c ) exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed, because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. [Para 8] The word 'particulars' must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. [Para 9] The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was argued that the falsehood in accounts can take either of the two forms: (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce ITA No.1522/Bang/2024 Page 10 of 16 . the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. Such contention could not be accepted as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that, by itself, would not attract the penalty under section 271(1)(c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. [Para 10]” 7.12.6. In the landmark judgment delivered here in the case of CIT Vs Reliance Petroproducts (P) Ltd. [2010] 189 Taxman 322 (supra), the Hon’ble Apex Court has held – “merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that, by itself, would not attract the penalty under section 271(1)(c)”. I am of the view that the case of the present assessee is covered by the decision of the Apex Court. The assessee has claimed expenditure which was considered by the authorities as not allowable. Thus, this case falls in the category where two views are possible. Further no information given in the return was found to be incorrect or inaccurate. The statements made or any details supplied were not found to be factually incorrect. Thus, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars as held in the judgment of the Apex Court as above. 7.13. On the second issue of disallowance, the AO in his penalty order has held the view that the assessee has furnished inaccurate particulars in respect of income from other sources by reflecting/ offering to tax only Rs.22,07,803/- under interest income whereas he has claimed expenses in the nature of interest from borrowings amounting to Rs.40,66,247/-. On calling for details as to why the expenses should be allowed u/s 57 of the Act, the assessee only stated that the borrowed funds were mostly utilized to put money in savings in the form of Fixed Deposits on which interest is earned and offered to tax. Thus AO concluded that the assessee has failed to substantiate as to how much of borrowed funds were put into savings and how much is the proportionate interest on the borrowed funds. Here, the interest expenditure claimed was restricted to an amount of Rs.5,82,772/- was brought to tax. It seen from the facts as discussed above that the assessee has kept certain borrowed funds in FDs and earned interest on it. The assessee was asked to indicate how much of borrowed funds were put into FDs and the proportionate interest earned on those borrowed funds. The AO thus disallowed certain interest expenses and brought to tax an amount of Rs.5,82,772/-. In this particular instance too, it is seen that the assessee has given an explanation which the AO considered it not satisfactory and thus an amount of Rs.5,82,772/- was brought to tax. The AO has not given in his assessment order how this amount has been arrived at. This amount thus seems to be an estimated figure calculated by the AO. In the light of the above, I am of the opinion that there has not been any furnishing of inaccurate particulars of ITA No.1522/Bang/2024 Page 11 of 16 . income. The assessee has disclosed his expenses as well as income under interest head. The amounts disclosed have not been proved as false or bogus. Further, the AO has not brought out anything on record that would prove that the intention of the assessee was malafide. Furthermore, in many judicial pronouncements of various courts, it had been held that penalty is not leviable when addition/disallowance is made on estimation basis. 7.14. In the below mentioned judgments it has been held that Penalty u/s 271(1)(c) cannot be imposed on additions made on estimate basis. • CIT vs Smt K Meenakshi Kutty in 258 ITR 494 (Mad.) • CIT(A) vs Valmik bhai H Patel in 280 ITR 487 (Guj.) • CIT(A) vs Rajbans Singh in 276 ITR 351 (All.) • CIT vs Lallubhai Jogibhai Patel in 261 ITR 216 (Guj.) • CIT vs Shivnarayan Jamnalal &Co. in 232 ITR 311 (HP) • Navjivan Oil Mills vs CIT in 252 ITR 417 (Guj.) • CIT vs Ravail singh &Co. in 254 ITR 191 (P&H) • CIT vs Sangrur Vanaspati Mills Ltd in 216 ITR 92 (P&H) .CIT Vs Ample Properties Ltd [2012] 20 taxmann.com 422 (Mad) 7.15. The AO in his penalty order has held that assessee has not attempted to establish his bonafides nor submitted any explanation before the AO during the penalty proceedings and thus has failed to discharge the onus laid down upon him in terms of explanation 1 to section 271(1)(c) of the Act. The observation of the AO here is considered entirely not reasonable or maintainable. The assessee has submitted his reply requesting for time till 15.05.2023. The AO has noted that penalty was getting barred by limitation on 30-04-2023 and the assessee inspite of having the knowledge did not comply with furnishing explanation within the due time. Thus, in the present case it cannot be assumed that the assessee has “failed” in furnishing his reply. Be that it may, the assessee has come up with his explanation during the present appellate proceedings and is adjudicated on the facts and circumstances of the case. 8. Decision 8.1. Ground of appeal 1 is general in nature and not adjudicated separately. 8.2. Ground of appeal 2 is directed against order passed u/s 271(1)(c) as order passed has been barred by limitation u/s 275. The assessee during the appellate proceedings submitted that Proviso (b) of Sec.275 (1A) and sec.275(1)(a) prohibit passing an order imposing the penalty after the expiry of six months from the end of the month in which the order of the ITAT is received by the Principal Commissioner of Income Tax. He submitted that he Appellate order has been passed by the Income Tax Appellate Tribunal C Bench, Bangalore on 06.06.2022 and the Assessing Officer has passed an order under section 271(1) (c) of Income Tax Act on 28.04.2023 after a lapse of 10 months. However, in the penalty order of the AO, in para 2 of the order, the AO has mentioned clearly that the order of the Hon’ble ITAT was received at the office of Pr. Commissioner of Income-tax, Bengaluru-1, Bengaluru on 17.10.2022. In the light of this fact, I am of the view that the AO has passed penalty order u/s 271(1)(c) within time as it was passed within 6 months from the end of the month in which order of ITAT was received by the office PCIT-1, Bengaluru. The contention of the assessee is not supported by facts and thus not sustainable. Accordingly, Ground of appeal 2 is hereby dismissed. 8.3. Considering the facts and circumstances of the case and the detailed findings and discussions as above in paras 7.2. to 7.15 and respectfully ITA No.1522/Bang/2024 Page 12 of 16 . following the judgments of the Hon’ble SC and Hon’ble High Courts, I am of the considered view that the explanation furnished by the assessee is bonafide and in the absence of any findings that will show that the assessee has acted with malafide intention, the explanation offered by the assessee does not suffer from any infirmities. Further, I am of the view that the assessee has claimed expenditures which were considered by the authorities as not allowable. Thus, this case falls in the category where two views are possible. Furthermore no information given in the return was found to be incorrect or inaccurate. Thus, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars as held in the judgment of the Apex Court in CIT Vs Reliance Petroproducts (P) Ltd. [2010] 189 Taxman 322(supra). Thus, penalty levied u/s 271(1)(c) is held not sustainable and liable to be deleted. Accordingly, the AO is hereby directed to delete the penalty levied u/s 271(1)(c). Grounds of appeal 3,4, and 5 are hereby allowed. 11. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us. 12. The learned DR before us argued that, in the facts of this case, the learned CIT(A) was not correct in deleting the penalty. The learned DR pointed out that the assessee had claimed a deduction for \"Investment in Companies written off,\" which is not an allowable expense under the Income Tax Act. Both the AO and the learned CIT(A) themselves have already concluded that such a claim is not an expense at all. Therefore, the learned DR submitted that the claim amounts to furnishing inaccurate particulars of income. The learned DR further submitted that the assessee did not provide any evidence or proper explanation to support the claim of expenses under section 57 of the Act at any stage of the proceedings, either during assessment or before the appellate authorities. Hence, the incorrect claim made by the assessee should be treated as filing of inaccurate particulars of income. Lastly, the learned DR contended that the ld. CIT(A) wrongly relied on the Hon’ble Supreme Court judgment in the case of Reliance Petroproducts Pvt. Ltd. [2010] 189 Taxman 322, as the facts of that case are different from the ITA No.1522/Bang/2024 Page 13 of 16 . facts of the present case. Therefore, the benefit of that judgment cannot be extended to the assessee in the present case. 13. On the contrary, the learned AR before us reiterated the submissions made during the appellate proceedings and vehemently relied on the findings of the ld. CIT-A. 14. We have heard the rival contention of both the parties and perused the materials available on record. After carefully considering the facts and the submissions of both sides, and examining the relevant provisions of the Income Tax Act and the judicial precedents, we observe that the penalty in question has been levied under section 271(1)(c) of the Income Tax Act, 1961, which applies when an assessee has either concealed particulars of income or furnished inaccurate particulars of income. The Hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC) has clearly held that merely making a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars of income. There must be some element of concealment or deliberate misstatement. In this case, the assessee disclosed all relevant facts regarding the advances given to the two companies, M/s Lad’s Technologies Pvt. Ltd. and M/s Connect Films Media Pvt. Ltd., which were later written off due to their failure to generate business. The assessee disclosed these transactions openly in his profit and loss account. It is not the case of the Revenue that the assessee concealed the advances or gave any false information about them. The dispute is only regarding the allowability of the write-off as a business expenditure, which has been disallowed as a capital loss. This is a legal interpretation ITA No.1522/Bang/2024 Page 14 of 16 . of the nature of the transaction and not a case of furnishing inaccurate particulars of income. 14.1 Similarly, in respect of the interest income and expenditure under section 57 of the Act, the assessee disclosed the interest earned and claimed the related expenditure. While the AO disallowed part of the interest expenditure for want of proper linkage, it is evident that the assessee made a full disclosure of both income and expenditure. There is no finding of concealment or deliberate misstatement of facts by the assessee. Further, the Hon'ble Karnataka High Court in the case of CIT v. Manjunatha Cotton and Ginning Factory [2013] 359 ITR 565 (Karn.) has held that mere disallowance of a claim, without establishing a deliberate act of concealment or furnishing of false particulars, does not automatically lead to penalty under section 271(1)(c) of the Act. Additionally, the Hon’ble Delhi High Court in CIT v. Madhushree Gupta [2013] 33 taxmann.com 286 has observed that mere making of a claim, which is not sustainable in law, would not amount to furnishing inaccurate particulars of income. 14.2 In the present case, the assessee’s claims, though ultimately disallowed, were based on a bona fide understanding of the facts and applicable law. The explanations offered by the assessee have neither been proved to be false nor any mala-fide intentions has been established by the Assessing Officer. The Revenue has not demonstrated that the assessee intended to mislead or suppress material facts. 14.3 It is also relevant to mention that the penalty provisions are distinct from the assessment proceedings. While the assessment involves ITA No.1522/Bang/2024 Page 15 of 16 . determining the correct income, penalty proceedings require establishing the assessee's intent to conceal or furnish inaccurate particulars, which is absent in this case. Therefore, applying the legal principles laid down by the Hon’ble Supreme Court in Reliance Petroproducts Pvt. Ltd. (supra) and other Hon’ble High Court decisions, we hold that this is a case where two views are possible on the allowability of the claims made by the assessee. The mere rejection of the assessee's claim does not mean that the assessee furnished inaccurate particulars of income. Accordingly, we hold that the learned CIT(A) rightly deleted the penalty imposed under section 271(1)(c) of the Act. The findings of the CIT(A) are well-reasoned, logical, and in line with the settled position of law. Therefore, in the facts and circumstances of the case, the penalty levied under section 271(1)(c) of the Income Tax Act is unsustainable and deserves to be deleted. We decide the issue in favour of the assessee. Hence the ground of appeal raised by the revenue is hereby dismissed. 15. In the result, the appeal of the Revenue is hereby dismissed. Order pronounced in court on 10th day of July, 2025 Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 10th July, 2025 / vms / ITA No.1522/Bang/2024 Page 16 of 16 . Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore "