Penalty under section 271(1)(c) fails when assessed income stays below taxable limit and no tax is found payable.

Penalty under section 271(1)(c) was not sustainable where the assessed income remained below the taxable limit and no tax was payable, because the statutory basis for computing tax sought to be evaded under Explanation 4 could not operate. The text notes that the case did not involve reduction of loss or conversion of loss into income, so the precondition for penalty was absent. On that footing, the penalty was deleted in favour of the assessee.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 could be sustained where the assessed income remained below the taxable limit and no tax was found payable, so that the computation of tax sought to be evaded failed.

Analysis: Penalty under section 271(1)(c) is linked to the amount of tax sought to be evaded, as quantified by Explanation 4 to the provision. On the facts found, the assessed income did not give rise to any tax demand, and the case did not fall within the situation of reduction of loss or conversion of loss into income. Since the statutory mechanism for computing tax sought to be evaded could not operate on the assessed facts, the precondition for levy of penalty was not satisfied.

Conclusion: Penalty under section 271(1)(c) was not leviable and the penalty was deleted in favour of the assessee.

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