Penalty under section 271(1)(c) fails when the underlying section 14A disallowance is deleted in quantum proceedings.

A penalty under section 271(1)(c) could not be sustained where its sole was a section 14A disallowance that had already been deleted in the quantum proceedings. Once the Tribunal deleted the disputed disallowance, the foundation for the penalty disappeared, and the penalty order could not survive. The Revenue's challenge therefore failed because the penalty was entirely dependent on an addition that no longer existed.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was sustainable where the underlying disallowance under section 14A had already been deleted in quantum proceedings.

Analysis: The penalty was founded solely on the disallowance made under section 14A over and above the amount voluntarily disallowed by the assessee. Since the Tribunal had already deleted that very disallowance in the quantum appeal, the basis for the penalty ceased to exist. The appellate order deleting the penalty had followed the quantum decision.

Conclusion: The penalty could not survive and the Revenue's challenge failed.

Ratio Decidendi: A penalty under section 271(1)(c) cannot be sustained when the entire foundation for it, namely the disputed quantum addition or disallowance, has been deleted.

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