Penalty under section 271(1)(c) falls when the underlying addition is deleted and no longer survives.

Penalty under section 271(1)(c) could not survive once the addition forming its sole basis had been deleted. The penalty proceeding was wholly consequential to the assessment finding that treated a sum as undisclosed income, and that finding had already been finally decided in favour of the assessee. With the underlying addition no longer existing, the foundation for imposing penalty disappeared, making the deletion of penalty justified.

---

---

Issues: Whether the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 was sustainable after the addition forming its basis had been deleted.

Analysis: The penalty rested entirely on the earlier assessment order treating the sum of Rs. 20,000 as undisclosed income. That assessment controversy had already been finally decided in favour of the assessee, and the addition no longer survived. Since the penalty proceeding was consequential to the assessment finding, the foundation for the penalty disappeared once the addition was deleted.

Conclusion: The deletion of the penalty was justified and the question was answered in favour of the assessee and against the Department.

---