Penalty under Section 271(1)(c) when quantum additions are remitted cannot survive; matter restored for fresh adjudication.

Whether a penalty under Section 271(1)(c) can be sustained when the underlying assessment additions are set aside: the tribunal reasoned that penalty liability was founded on additions arising from denial of exemptions under Section 10(46) and Section 10(23C)(iv), and those quantum additions were remitted for fresh adjudication. Because the foundational findings supporting imposition of the penalty have been vacated and returned for rehearing, the legal basis for the penalty no longer subsists; the penalty cannot be sustained and the matter is restored to the assessing officer for fresh determination with an opportunity to the assessee to be heard.

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Issues: Whether the penalty under Section 271(1)(c) of the Income-tax Act, 1961 can be sustained when the quantum additions/denial of exemptions under Section 10(46) and Section 10(23C)(iv) have been set aside/remitted for fresh adjudication.

Analysis: The Tribunal examined that the penalty levied under Section 271(1)(c) was predicated on the assessment additions arising from denial of exemptions under Section 10(46) and Section 10(23C)(iv). The Tribunal noted that the coordinate Bench in the quantum proceedings has remitted the quantum issues to the Assessing Officer for fresh adjudication, thereby setting aside the underpinning additions. Given that the imposition of penalty depends on the sustained quantum additions, and those additions have been vacated and sent back for fresh consideration, the factual and legal foundation for the penalty no longer subsists. The matter was remitted to the Assessing Officer to allow fresh determination after giving the assessee an opportunity of being heard.

Conclusion: The sustained penalty under Section 271(1)(c) cannot survive in view of the setting aside/remittance of the quantum additions; the appeals are allowed and the matter is restored to the file of the Assessing Officer for fresh adjudication.

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