Penalty under section 271(1)(c) fails when the underlying quantum addition is deleted and no foundation remains.

Penalty under section 271(1)(c) cannot survive where the underlying quantum addition has already been deleted. The note explains that the penalty was based on the view that profit from early termination of a forward foreign exchange contract was taxable as income from other sources, but the quantum appeal had already held the gain to be capital in nature and deleted the addition. Once that foundation disappeared, there was no basis to sustain the penalty, and it was unnecessary to examine whether the claim was bona fide or the issue debatable.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 could survive when the very addition on which it was founded had already been deleted in the quantum appeal.

Analysis: The penalty was levied on the premise that the profit from early termination of the forward foreign exchange contract was taxable as income from other sources. The Tribunal noted that in the assessee's quantum appeal the addition had already been deleted and the gain had been held to be capital in nature. Once the underlying addition ceased to exist, there was no surviving foundation for the penalty, and it was unnecessary to examine the alternate question whether the claim was bona fide or the issue debatable.

Conclusion: The penalty under section 271(1)(c) did not survive and its deletion was sustained in favour of the assessee.

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