Penalty under section 271(1)(c) failed once the assessed amounts were found not to be the assessee's income.

Penalty under section 271(1)(c) was held unsustainable because the assessment findings had already established that the sums forming its basis were not the assessee's income. The amounts linked to the land transaction, the alleged profit attributed to the assessee, and the payments routed through intermediary parties all fell outside taxable income on the connected reference. Once those findings stood, the foundation for penalty disappeared, and the levy could not be justified.

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Issues: Whether the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, was justified.

Analysis: The questions on the merits of the assessment had already been answered in favour of the assessee in the connected reference. The amounts forming the basis of the penalty were held not to be the assessee's income, including the amount relating to the land transaction, the alleged profit treated as the assessee's profit, and the amount paid through the intermediary parties. In view of those findings, the basis for imposition of penalty ceased to exist.

Conclusion: The levy of penalty was not justified and the question was answered in the negative, in favour of the assessee and against the Department.

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