Penalty deletion upheld where the assessee's explanation was found reasonable in proceedings linked to a deduction claim.

Penalty under section 271(1)(c) arising from a claim for deduction under section 36(1)(viii) was not restored where the Tribunal had deleted it on the basis that the assessee's explanation was reasonable. Although the quantum addition had been sustained, the Court confined its review to the penalty proceedings and found no ground to interfere with the Tribunal's view. The Court also noted that a similar penalty appeal arising from the same Tribunal judgment had already been dismissed, reinforcing the result. The deletion of penalty was therefore upheld.

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Issues: Whether the deletion of penalty under Section 271(1)(c) of the Income-tax Act, 1961, arising from the assessee's claim for deduction under Section 36(1)(viii) of the Income-tax Act, 1961, called for interference.

Analysis: The Tribunal had deleted the penalty on the footing that the assessee's explanation was reasonable. The quantum addition had been confirmed, but the question before the Court was confined to the penalty proceedings. The Court found no reason to take a different view, and also noted that a similar penalty appeal concerning the same Tribunal judgment had already been dismissed.

Conclusion: The deletion of penalty was upheld and no interference was called for.

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