Penalty under section 271(1)(c) fails when the underlying disallowance is deleted, removing the basis for levy.

Penalty under section 271(1)(c) could not survive because it was founded on a disallowance of advertisement and sales promotion expenses that had already been deleted in the assessee's own case. With the underlying addition no longer in existence, the basis for levy of penalty ceased to exist, and cancellation of the penalty was upheld in favour of the assessee.

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Issues: Whether the penalty levied under section 271(1)(c) of the Income-tax Act, 1961 could survive after the disallowance on the basis of which it was levied had been deleted.

Analysis: The disallowance made in respect of advertisement and sales promotion expenses had already been deleted in the assessee's own case. Since the penalty was founded on the same disallowance, the basis for levy of penalty ceased to exist.

Conclusion: The penalty could not be sustained and the cancellation of penalty was upheld in favour of the assessee.

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