Penalty under section 271(1)(c) falls when the quantum additions are set aside, even if limited re-examination is allowed.

Penalty under section 271(1)(c) could not be sustained where the quantum additions forming its were deleted in principle for want of corroborative evidence. The Tribunal noted that only a limited re-examination of seized material was permitted to the Assessing Officer for possible cash transactions in the assessee's name, and that such remand did not preserve the earlier penalty basis. The penalty proceedings therefore could not continue on the existing additions, although fresh penalty action could be initiated if new additions arose on re-examination in accordance with law.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 could survive after the quantum additions forming its basis were set aside in principle and remitted for limited re-examination.

Analysis: The quantum order had deleted the additions in principle and held that no addition could be sustained in the absence of corroborative evidence, though the Assessing Officer was permitted to re-examine the seized material for any cash transactions in the assessee's name. Since the very foundation of the penalty had been removed, the penalty proceedings could not continue on the basis of the earlier additions. The fact that a limited re-examination was permitted in the quantum matter did not justify restoration of the penalty proceedings at that stage. Liberty was, however, preserved to initiate penalty proceedings again if fresh additions were made on re-examination in accordance with law.

Conclusion: The penalty did not survive on the existing quantum basis and the appeals were allowed.

Ratio Decidendi: Penalty under section 271(1)(c) cannot stand when the additions constituting its foundation are set aside in principle, subject only to a limited remand for possible fresh assessment.

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