Penalty under section 271(1)(c) falls where section 68 addition is substantially reduced and explanation is accepted in substance.

Penalty under section 271(1)(c) does not survive where the quantum addition under section 68 is substantially reduced and the assessee's explanation is accepted in substance. Here, the cash deposits in the bank account were treated in the quantum proceedings as broadly attributable to cash sales turnover and cash in hand, with only a small estimated addition sustained. As the basis for alleging concealment or furnishing of inaccurate particulars for the full amount was materially eroded, the penalty foundation was not intact and the penalty was deleted.

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Issues: Whether penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 could survive when the related quantum addition had been substantially reduced and the assessee's explanation regarding the cash deposits had been accepted in substance.

Analysis: The penalty was founded on an addition made under section 68 of the Income-tax Act, 1961 in respect of cash credits in the bank account. In the quantum appeal, the Tribunal had restricted the addition to a small estimated amount and deleted the balance, proceeding on the basis that the cash deposits were broadly attributable to cash sales turnover and cash in hand. Once the underlying addition stood substantially curtailed on estimate and the assessee's explanation was accepted to a material extent, the foundation for alleging concealment or furnishing of inaccurate particulars for the entire amount no longer remained intact.

Conclusion: The penalty under section 271(1)(c) was not sustainable and was deleted.

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