Penalty under section 271(1)(c) requires item-wise proof of culpable conduct; additions alone do not make penalty automatic.

Penalty under section 271(1)(c) was deleted on both disputed additions because the deemed valuation addition relating to tenancy rights, made under section 50C, did not by itself establish culpable conduct, and the same reasoning applied to the fixed-deposit interest addition. The interest was omitted from the return inadvertently, and acceptance of the quantum addition or withdrawal of the appeal did not make penalty automatic. The Tribunal held that each item must be examined separately and that penalty cannot be imposed mechanically merely because an addition survives in assessment.

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Issues: (i) Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable on the addition relating to transfer of tenancy rights made by invoking section 50C; (ii) Whether penalty was sustainable on the addition relating to interest income from fixed deposits.

Issue (i): Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable on the addition relating to transfer of tenancy rights made by invoking section 50C.

Analysis: The addition in respect of tenancy rights arose from application of the deeming fiction under section 50C. The appellate authority had already deleted penalty on a similar section 50C addition concerning sale of property on the footing that the addition was driven by valuation/deeming provisions and was supported by the DVO report. The same reasoning applied to the tenancy-rights addition, and penalty could not be sustained merely because the addition had been made in assessment.

Conclusion: The penalty levied on the tenancy-rights addition was deleted, in favour of the assessee.

Issue (ii): Whether penalty was sustainable on the addition relating to interest income from fixed deposits.

Analysis: The maturity proceeds of the fixed deposit included interest, and the principal investment itself was not in dispute. The interest component had been omitted from the return inadvertently. The record did not justify the conclusion that penalty must follow merely because the assessee accepted the addition or withdrew the quantum appeal. Penalty under section 271(1)(c) is not automatic and requires item-wise examination of the facts.

Conclusion: The penalty levied on the interest-income addition was deleted, in favour of the assessee.

Final Conclusion: No penalty survived on either of the disputed additions, and the assessee obtained complete relief in the appeal.

Ratio Decidendi: Penalty under section 271(1)(c) cannot be imposed mechanically upon every sustained addition; where the addition arises from a deeming/valuation provision or from an inadvertent omission, the Revenue must establish the requisite culpable conduct on the facts of each item separately.

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