Penalty for cash deposits under tax law survives where breach of banking-channel rules is proved and no reasonable cause is shown.

Acceptance of deposits otherwise than by account payee cheque or draft was found to fall within the mischief of Section 269-SS because the amounts were recorded as deposits and were not shown to have been received through the banking channel. Once that statutory breach was established, penalty under Section 271-D operated mandatorily unless reasonable cause under Section 273-B was proved. No such reasonable cause was shown, so deletion of the penalty was unjustified and the assessee remained liable.

---

---

Issues: Whether penalty under Section 271-D of the Income-tax Act, 1961 was rightly deleted for breach of Section 269-SS of the Income-tax Act, 1961, and whether the assessee had established reasonable cause under Section 273-B of the Income-tax Act, 1961.

Analysis: The finding recorded by the Assessing Officer that the assessee had accepted deposits otherwise than by account payee cheque or draft remained undisturbed through the appellate stages. On that basis, the receipt fell within the mischief of Section 269-SS of the Income-tax Act, 1961, since the amounts were shown in the books of account as deposits and were not proved to have been received through the banking channel. Once the statutory breach was established, Section 271-D of the Income-tax Act, 1961 operated as a mandatory penalty provision. The assessee also failed to show any reasonable cause to attract the protection of Section 273-B of the Income-tax Act, 1961.

Conclusion: The deletion of penalty was unjustified and the assessee was liable to penalty under Section 271-D of the Income-tax Act, 1961 for violation of Section 269-SS of the Income-tax Act, 1961.

Ratio Decidendi: Where acceptance of deposits otherwise than by account payee cheque or draft is found and remains undisturbed on record, the statutory penalty under Section 271-D follows unless reasonable cause under Section 273-B is proved; the genuineness or business character of the transaction does not by itself negate the statutory breach.

---