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

Penalty under section 271(1)(c) could not survive where the underlying addition had already been deleted in appellate proceedings. The Tribunal noted that the gross profit addition, which formed the basis of part of the penalty, no longer existed after the first appellate authority's finding, and the Revenue produced no material to show that this deletion had been reversed or disturbed. On that basis, the penalty relating to the deleted addition was unsustainable, while only the surviving disallowance continued to support any penalty exposure.

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Issues: Whether the penalty levied under section 271(1)(c) of the Income-tax Act, 1961 could survive after the underlying addition on which it was based had been deleted in appellate proceedings.

Analysis: The penalty had been sustained only to the extent of one disallowance, while the penalty relating to the gross profit addition had already been deleted by the first appellate authority on the ground that the corresponding addition itself no longer survived. The Revenue did not place any material to show that this deleted addition had been restored or upheld by any higher forum, or to demonstrate any error in the appellate finding.

Conclusion: The penalty could not be sustained on the deleted addition, and the Revenue's challenge was rejected.

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