Penalty under section 271(1)(c) fails when the assessment basis under section 115JB is wrongly applied to a foreign bank.

Penalty under section 271(1)(c) cannot be sustained where it is founded entirely on an assessment made by wrongly applying section 115JB to a foreign bank. The Tribunal noted the coordinate Bench view that section 115JB does not apply to foreign banks; once that statutory basis for the addition failed, the foundation for the related penalty also disappeared. On that reasoning, the penalty was held not sustainable and was directed to be deleted.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 could be sustained where the assessment was made by applying section 115JB to a foreign bank.

Analysis: The assessee was a foreign bank and the assessment, as well as the penalty, rested on the application of section 115JB. The Tribunal noted that the relevant view of coordinate Benches was that section 115JB does not apply to a foreign bank. Once the very basis of the assessment addition failed, the foundation for penalty based on the same computation also disappeared.

Conclusion: The penalty under section 271(1)(c) was not sustainable and was directed to be deleted, in favour of the assessee.

Ratio Decidendi: Penalty under section 271(1)(c) cannot survive where it is founded solely on an assessment made by wrongly applying section 115JB to a foreign bank.

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