The officer disallowed your claim. Does a disallowance automatically bring penalty with it?
No. Section 271(1)(c) needs either concealment or particulars that are factually false. Where everything was disclosed truthfully and only the legal claim was untenable, there is nothing inaccurate — and no penalty.
Decided by the Supreme Court (V.S. Sirpurkar J and Dr Mukundakam Sharma J) on 2010-03-17, reported as (2010) 322 ITR 158 (SC); [2010] 189 Taxman 322 (SC); [2010] 230 CTR 320 (SC); (2010) 3 SCC 1; AIR 2010 SC 1881; Civil Appeal No. 2463 of 2010. It bears on section 271(1)(c), section 14A of the Income Tax Act 1961, in Penalty matters.
This is the answer to the most common penalty in practice — the one that follows automatically from a disallowance. The question to ask is not whether the claim was right, but whether the facts behind it were fully and truthfully disclosed.
Binding on every court and authority in India.
Read aloud by your device. Press again to stop.
The assessee, an investment company, filed its return for assessment year 2001-02 on 31 January 2001 declaring a loss of Rs 26,54,554. The claim in issue was interest on borrowings used to buy IPL shares as a matter of business policy; admittedly no dividend income was earned on those shares. On assessment under section 143(3) completed on 25 November 2003 the total income was determined at Rs 2,22,688, the interest expenditure of Rs 28,77,242 being disallowed under section 14A, and penalty proceedings under section 271(1)(c) were initiated at the same time. Penalty of Rs 11,37,949 was levied. In reply to the show-cause notice the assessee said that every detail in the return was correct, that the disallowance rested on a different view of the same facts, and that in its own case for assessment year 2000-01 the Commissioner (Appeals) had deleted a similar interest disallowance and the Tribunal had upheld that. The Commissioner (Appeals) deleted the penalty, the Tribunal confirmed the deletion and the High Court dismissed the Revenue's appeal.
The Court dismissed the Revenue's appeal. Section 271(1)(c) requires either concealment of the particulars of income or the furnishing of inaccurate particulars of income. This was not a case of concealment, and the Revenue did not put it that way. 'Particulars' means the details supplied in the return, and 'inaccurate' means not exact or correct, not according to truth, erroneous; read together they mean details in the return that are untrue. There was no finding that any detail supplied by the assessee was incorrect, erroneous or false, so no penalty could arise (paras 7 to 9). Making an incorrect claim in law cannot by any stretch amount to furnishing inaccurate particulars, and merely because a claimed expenditure is not accepted the penalty is not attracted; on the Revenue's argument every disallowed claim would invite penalty, which is not the intendment of the legislature (paras 7 and 10).
The Court read section 271(1)(c) strictly, as a penalty provision in a taxing statute: unless the case is strictly covered by the words, the provision cannot be invoked (para 7). It took 'particulars' from the Law Lexicon as the details of a claim or the separate items of an account, and 'inaccurate' from Webster's as not exact or correct, not according to truth, erroneous; the two read together mean details supplied in the return which are untrue (paras 7 and 9). Since it was admitted that no information in the return was incorrect or inaccurate, the assessee could not prima facie be held guilty of furnishing inaccurate particulars, and the Revenue's proposition that an incorrect claim in law is itself inaccurate particulars was rejected. The Court noted Atul Mohan Bindal for the proposition that the conditions in section 271(1)(c) must exist before the section applies (paras 7 and 8). It then traced the mens rea question: Dilip N. Shroff had held that mens rea was necessary and that 'inaccurate' signified a deliberate act or omission, but Dharamendra Textile Processors overruled it on that point alone, holding the liability to be civil and strict; Dharamendra found no fault with Dilip N. Shroff's explanation of 'conceal' and 'inaccurate'. The Court said it was not concerned with mens rea in this case, only with whether inaccurate particulars had in fact been given (paras 8 and 9). Finally it applied Sree Krishna Electricals, where penalty had been set aside because the items not included in turnover were disclosed in the dealer's own books, observing that the present case was stronger still since no fault had been found with the particulars in the return (para 11).
A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppNo. Section 271(1)(c) needs either concealment or particulars that are factually false. Where everything was disclosed truthfully and only the legal claim was untenable, there is nothing inaccurate — and no penalty. This was decided by the Supreme Court (V.S. Sirpurkar J and Dr Mukundakam Sharma J) and bears on section 271(1)(c), section 14A of the Income Tax Act 1961. It is reported as (2010) 322 ITR 158 (SC); [2010] 189 Taxman 322 (SC); [2010] 230 CTR 320 (SC); (2010) 3 SCC 1; AIR 2010 SC 1881; Civil Appeal No. 2463 of 2010. This is the answer to the most common penalty in practice — the one that follows automatically from a disallowance. The question to ask is not whether the claim was right, but whether the facts behind it were fully and truthfully disclosed. If it applies to you, the first step is this: Show, item by item, that the facts underlying the claim were disclosed in the return or the tax audit report.
The assessee, an investment company, filed its return for assessment year 2001-02 on 31 January 2001 declaring a loss of Rs 26,54,554. The claim in issue was interest on borrowings used to buy IPL shares as a matter of business policy; admittedly no dividend income was earned on those shares. On assessment under section 143(3) completed on 25 November 2003 the total income was determined at Rs 2,22,688, the interest expenditure of Rs 28,77,242 being disallowed under section 14A, and penalty proceedings under section 271(1)(c) were initiated at the same time. Penalty of Rs 11,37,949 was levied. In reply to the show-cause notice the assessee said that every detail in the return was correct, that the disallowance rested on a different view of the same facts, and that in its own case for assessment year 2000-01 the Commissioner (Appeals) had deleted a similar interest disallowance and the Tribunal had upheld that. The Commissioner (Appeals) deleted the penalty, the Tribunal confirmed the deletion and the High Court dismissed the Revenue's appeal. The matter was decided on 2010-03-17 by the Supreme Court (V.S. Sirpurkar J and Dr Mukundakam Sharma J). On those facts the Supreme Court held as follows. The Court dismissed the Revenue's appeal. Section 271(1)(c) requires either concealment of the particulars of income or the furnishing of inaccurate particulars of income. This was not a case of concealment, and the Revenue did not put it that way. 'Particulars' means the details supplied in the return, and 'inaccurate' means not exact or correct, not according to truth, erroneous; read together they mean details in the return that are untrue. There was no finding that any detail supplied by the assessee was incorrect, erroneous or false, so no penalty could arise (paras 7 to 9). Making an incorrect claim in law cannot by any stretch amount to furnishing inaccurate particulars, and merely because a claimed expenditure is not accepted the penalty is not attracted; on the Revenue's argument every disallowed claim would invite penalty, which is not the intendment of the legislature (paras 7 and 10).
The Court read section 271(1)(c) strictly, as a penalty provision in a taxing statute: unless the case is strictly covered by the words, the provision cannot be invoked (para 7). It took 'particulars' from the Law Lexicon as the details of a claim or the separate items of an account, and 'inaccurate' from Webster's as not exact or correct, not according to truth, erroneous; the two read together mean details supplied in the return which are untrue (paras 7 and 9). Since it was admitted that no information in the return was incorrect or inaccurate, the assessee could not prima facie be held guilty of furnishing inaccurate particulars, and the Revenue's proposition that an incorrect claim in law is itself inaccurate particulars was rejected. The Court noted Atul Mohan Bindal for the proposition that the conditions in section 271(1)(c) must exist before the section applies (paras 7 and 8). It then traced the mens rea question: Dilip N. Shroff had held that mens rea was necessary and that 'inaccurate' signified a deliberate act or omission, but Dharamendra Textile Processors overruled it on that point alone, holding the liability to be civil and strict; Dharamendra found no fault with Dilip N. Shroff's explanation of 'conceal' and 'inaccurate'. The Court said it was not concerned with mens rea in this case, only with whether inaccurate particulars had in fact been given (paras 8 and 9). Finally it applied Sree Krishna Electricals, where penalty had been set aside because the items not included in turnover were disclosed in the dealer's own books, observing that the present case was stronger still since no fault had been found with the particulars in the return (para 11). In the words reproduced by the source cited on this page: "A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee." The decision followed or applied Dilip N. Shroff v. Joint CIT [2007] 291 ITR 519 (SC) — followed and relied upon on the meaning of 'conceal' and 'inaccurate particulars'; overruled by Dharamendra Textile Processors only on the requirement of mens rea; Sree Krishna Electricals v. State of Tamil Nadu [2009] 23 VST 249 (SC) — followed and relied upon.
It was decided by the Supreme Court on 2010-03-17 and is reported as (2010) 322 ITR 158 (SC); [2010] 189 Taxman 322 (SC); [2010] 230 CTR 320 (SC); (2010) 3 SCC 1; AIR 2010 SC 1881; Civil Appeal No. 2463 of 2010. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 271(1)(c), section 14A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Court dismissed the Revenue's appeal. Section 271(1)(c) requires either concealment of the particulars of income or the furnishing of inaccurate particulars of income. This was not a case of concealment, and the Revenue did not put it that way. 'Particulars' means the details supplied in the return, and 'inaccurate' means not exact or correct, not according to truth, erroneous; read together they mean details in the return that are untrue. There was no finding that any detail supplied by the assessee was incorrect, erroneous or false, so no penalty could arise (paras 7 to 9). Making an incorrect claim in law cannot by any stretch amount to furnishing inaccurate particulars, and merely because a claimed expenditure is not accepted the penalty is not attracted; on the Revenue's argument every disallowed claim would invite penalty, which is not the intendment of the legislature (paras 7 and 10). It arises in Penalty matters, on section 271(1)(c), section 14A of the Income Tax Act 1961, and was decided by V.S. Sirpurkar J and Dr Mukundakam Sharma J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Separate the legal argument on the claim from the factual question of disclosure — they are different fights. If the penalty is under s.270A rather than s.271(1)(c), argue the application; the statutory scheme is different and this case does not transfer automatically.
Still good law. Still applied — the Ahmedabad ITAT relied on it in DCIT v Unimed Technologies Ltd (AY 2016-17) to delete a Rs 1.61 crore s.271(1)(c) penalty, holding that a fully disclosed but incorrect claim is not furnishing inaccurate particulars. Its authority is however confined by time: s.271(1)(c) does not apply to any assessment year commencing on or after 1 April 2017, having been replaced by s.270A (now s.439 of the Income-tax Act 2025). Commentary also notes the carve-out that a claim so unreasonable as to suggest deliberate evasion can still attract penalty. That finding was checked against a published source, which is linked on this page, on 2026-08-25. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This does not protect a claim founded on false facts or on suppressed material — the whole reasoning depends on there being no finding that any detail in the return was incorrect. It is a section 271(1)(c) authority; its application to section 270A must be argued, not assumed. Note also what the judgment says about mens rea: Dilip N. Shroff, on which it relies for the meaning of 'conceal' and 'inaccurate particulars', was overruled by Dharamendra Textile Processors on the single point that mens rea is required, the liability under section 271(1)(c) being civil and strict. The Court here said it was not concerned with mens rea at all — the question was simply whether inaccurate particulars had in fact been furnished. An argument built on the assessee's bona fides therefore has to be framed as an absence of inaccurate particulars, not as an absence of intent. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Court dismissed the Revenue's appeal. Section 271(1)(c) requires either concealment of the particulars of income or the furnishing of inaccurate particulars of income. This was not a case of concealment, and the Revenue did not put it that way. 'Particulars' means the details supplied in the return, and 'inaccurate' means not exact or correct, not according to truth, erroneous; read together they mean details in the return that are untrue. There was no finding that any detail supplied by the assessee was incorrect, erroneous or false, so no penalty could arise (paras 7 to 9). Making an incorrect claim in law cannot by any stretch amount to furnishing inaccurate particulars, and merely because a claimed expenditure is not accepted the penalty is not attracted; on the Revenue's argument every disallowed claim would invite penalty, which is not the intendment of the legislature (paras 7 and 10).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Valuables were found at my premises and I say they are not mine. Who has to prove ownership?
Is penalty under s.271(1)(c) criminal, quasi-criminal or civil?
The penalty notice does not say whether I concealed income or filed inaccurate particulars. Does that matter?
Is a valuation you put on an asset 'inaccurate particulars' if the officer disagrees with it?