Penalty under section 271AAC(1) fails when the underlying addition is deleted and no taxable income remains.

Penalty under section 271AAC(1) cannot be sustained where the substantive addition under section 69A is deleted in revision under section 264 and the assessed income is given effect as nil. Once the foundation for the penalty disappears, the levy has no surviving basis in law. The revisional deletion of the addition therefore renders the penalty order unsustainable, and relief follows to the assessee.

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Issues: Whether penalty under section 271AAC(1) of the Income-tax Act, 1961 could survive after the addition under section 69A was deleted in revision under section 264 and the assessed income was given effect as nil.

Analysis: The addition made in assessment under section 147 read with section 144B was subsequently deleted by the revisional order under section 264, and the revised order was also given effect by assessing the income at nil. Once the substantive addition no longer survived, the foundation for invoking penalty under section 271AAC(1) ceased to exist. A penalty order cannot be sustained when the very basis for its levy has been removed.

Conclusion: The penalty under section 271AAC(1) was unsustainable and the impugned order was set aside, resulting in relief to the assessee.

Ratio Decidendi: Penalty under section 271AAC(1) cannot survive once the addition that formed its foundation is deleted and no taxable income on that basis remains.

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