Penalty under section 271AAC(1) falls when the section 69A addition is deleted and deposits are treated as explained receipts.

Penalty under section 271AAC(1) was unsustainable where the underlying quantum addition under section 69A had already been deleted and the cash deposits were treated as explained business receipts. Once the addition itself no longer survived, section 69A ceased to apply to the deposits, and the consequential penalty could not stand independently. The Tribunal therefore deleted the penalty, accepting that the penalty provision could not be invoked without a surviving basis in the quantum assessment.

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Issues: Whether penalty under section 271AAC(1) of the Income-tax Act, 1961 was sustainable after the quantum addition based on section 69A had already been deleted and the source of deposits was treated as explained.

Analysis: The penalty was founded on the addition of cash deposits as unexplained income. The Tribunal noted that in the quantum proceedings the addition had already been set aside and the deposits were treated as explained business receipts, making section 69A inapplicable. Once the very basis of the addition no longer survived, the consequential penalty could not be sustained.

Conclusion: The penalty under section 271AAC(1) was deleted and the appeal was allowed in favour of the assessee.

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