Penalty cannot survive when assessment is quashed for invalid section 153D approval and loses its legal basis.

Penalty proceedings under the Income-tax Act could not stand where the underlying assessments had already been quashed for want of valid approval under section 153D. The Tribunal had held that the approval was mechanical, generic, and issued without application of mind, rendering the assessment orders invalid and non est. Because the penalties were wholly consequential to those assessments and based on enhanced income for multiple years, the disappearance of the assessment basis meant the penalty basis also fell away. The penalty was therefore deleted.

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Issues: Whether penalty levied under the Income-tax Act survived after the underlying assessments were quashed for want of valid approval under section 153D.

Analysis: The appeals concerned penalties imposed with reference to enhanced income for multiple assessment years. The underlying assessment orders had already been quashed by the Tribunal on the ground that the approval granted under section 153D was mechanical, generic, and without application of mind. Once the assessments were held to be invalid and non est, the basis for the penalty proceedings also disappeared, because the penalty was wholly consequential to those assessments.

Conclusion: The penalty could not survive and was liable to be deleted. The assessee succeeded.

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