Penalty under section 271(1)(c) cannot survive once the underlying quantum addition is deleted and confirmed in appeal.

Penalty under section 271(1)(c) could not be sustained where it rested entirely on a quantum addition relating to exemption under section 54G, and that addition had already been deleted in quantum proceedings and confirmed in further appeal. With the foundation for the penalty gone, the Revenue could not maintain the penalty independently. The Tribunal therefore held the penalty unsustainable and the Revenue's challenge failed.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 could survive after the quantum addition relating to the claim under section 54G of the Income-tax Act, 1961 had been deleted and such deletion had been confirmed in further appeal.

Analysis: The penalty was founded on the addition made in the assessment under sections 143(3) read with 153A of the Income-tax Act, 1961. The underlying disallowance concerning exemption under section 54G of the Income-tax Act, 1961 had already been set aside in quantum proceedings, and that deletion was affirmed by the High Court. Once the basis of the addition no longer survived, the penalty imposed for that addition could not be sustained independently.

Conclusion: The penalty under section 271(1)(c) was rightly held to be unsustainable and the Revenue's challenge failed.

Ratio Decidendi: A penalty under section 271(1)(c) of the Income-tax Act, 1961 cannot survive when the very quantum addition on which it is founded has been deleted and that deletion has attained confirmation.

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