Independent proof required for cash loan penalty; cheque dishonour conviction alone cannot sustain section 271D penalty.

Penalty under section 271D cannot be sustained merely because the assessee was convicted in cheque dishonour proceedings; income-tax proceedings require independent proof that a cash loan or deposit was actually accepted in violation of section 269SS. Where the Assessing Officer failed to make his own enquiry, did not bring cogent material on record, and did not examine the lender or allow cross-examination, reliance only on the criminal conviction was insufficient. The penalty was therefore deleted.

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Issues: Whether penalty under section 271D could be sustained merely on the basis of a conviction in proceedings under section 138 of the Negotiable Instruments Act, without independent evidence that the assessee had accepted cash loan in violation of section 269SS.

Analysis: The penalty was founded on the premise that the assessee had taken cash loan and issued a cheque that was dishonoured. The conviction in the cheque dishonour case did not by itself establish that a cash loan or deposit had in fact been accepted in contravention of section 269SS. Income-tax proceedings are independent, and the Assessing Officer was required to make his own enquiry and bring cogent material on record to prove acceptance of loan in cash. No such independent evidence was collected, nor was the lender examined or made available for cross-examination. Reliance only on the criminal court's conviction was insufficient to justify penalty under section 271D.

Conclusion: The penalty was not sustainable and was directed to be deleted.

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