Penalty Under Section 271(1)(c) cannot survive setting aside of assessment; confirmation vacated pending de novo assessment.

Whether a penalty confirmed under section 271(1)(c) can stand when the assessment on which it was based is set aside: ITAT examined the necessary temporal and logical link between a penalty confirmation and the continued existence of the foundational assessment and held that once the first appellate authority set aside the original assessment and directed a de novo assessment the confirmation lacked an operative foundation; consequently the tribunal set aside the penalty confirmation and deleted the penalty, permitting the Assessing Officer to initiate penalty proceedings afresh after completion of the de novo assessment.

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Issues: Whether the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 can be sustained where the underlying assessment order has been set aside and a de novo assessment has been directed.

Analysis: The appellate tribunal examined the temporal and logical link between a confirmed penalty under section 271(1)(c) and the continued existence of the assessment order on which the penalty was founded. The tribunal noted that the first appellate authority, after confirming the penalty, subsequently set aside the original assessment order and directed de novo assessment, thereby removing the assessment order that formed the basis for the penalty. Considering the effect of setting aside the assessment, the tribunal determined that the earlier confirmation of penalty lacked an operative foundation while the assessment order no longer existed and that any invocation of penalty proceedings should await the outcome of the de novo assessment.

Conclusion: The impugned order confirming penalty under section 271(1)(c) is set aside and the penalty deleted; the Assessing Officer may initiate penalty proceedings afresh if warranted after completion of the de novo assessment.

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