Deleted quantum additions eliminate the basis for under-reporting or misreporting penalty, requiring deletion of the consequential penalty.

Deletion of the quantum additions removed the foundation and computational basis for penalty for under-reporting or misreporting of income. As no under-reported income or tax payable remained after the assessee was found eligible for exemption and the additions, including disallowance of guarantee-claim provisions, were deleted, the penalty could not survive. Pendency of a challenge to the quantum order did not justify retaining the penalty, and a later prospective amendment was irrelevant because liability had to be assessed under the law applicable on the alleged default date. The Section 270A penalty was therefore directed to be deleted.

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Issues: Whether penalty for under-reporting and misreporting of income could survive after the quantum additions forming its basis had been deleted.

Analysis: The quantum order had held the assessee eligible for exemption and directed deletion of the additions, including the disallowance of provision for guarantee claims. Consequently, there was no under-reported income or tax payable on such income, and the foundation as well as computational basis for penalty ceased to exist. Pendency of the Revenue's challenge to the quantum order could not justify sustaining the penalty. A subsequent prospective amendment was also irrelevant, since penalty had to be tested under the law applicable on the date of the alleged default.

Conclusion: The penalty under Section 270A was unsustainable and was directed to be deleted.

Ratio Decidendi: Where the quantum additions constituting the foundation for a penalty are deleted, penalty for under-reporting or misreporting based on those additions cannot be sustained.

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