Hundi transaction evidence required for section 69D addition, and related penalty fails when the loan itself is unproved.

Section 69D applies only where an actual borrowing or repayment on a hundi during the relevant previous year is proved. The seized receipts, being undated and supported by an unsigned promissory note, did not establish a genuine hundi transaction, and the amount had already been taxed in another person's hands; the quantum addition was therefore unsustainable. Penalty under section 271D also failed because it was based on the same unproved cash loan allegation, and once the underlying borrowing was not established, the penalty could not survive. The relief granted to the assessee was sustained.

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Issues: (i) Whether the addition made under section 69D of the Income-tax Act, 1961 could be sustained on the basis of the seized receipts and alleged hundi transaction; (ii) Whether the penalty levied under section 271D of the Income-tax Act, 1961 could survive after deletion of the quantum addition.

Issue (i): Whether the addition made under section 69D of the Income-tax Act, 1961 could be sustained on the basis of the seized receipts and alleged hundi transaction.

Analysis: Section 69D applies only where an amount is actually borrowed on a hundi or repaid thereon during the relevant previous year. The seized documents did not establish a proved hundi transaction for the assessment year in question. The receipts were undated, the accompanying promissory note was unsigned, and the record did not show concrete evidence that the assessee had borrowed the amount in the relevant year. The amount had also been taxed in the hands of another person in separate proceedings, and the material on record did not justify a fresh addition in the assessee's hands.

Conclusion: The addition under section 69D was not sustainable and the deletion of the addition was upheld.

Issue (ii): Whether the penalty levied under section 271D of the Income-tax Act, 1961 could survive after deletion of the quantum addition.

Analysis: The penalty proceeding was founded on the assumption that the assessee had received a cash loan in contravention of section 269SS. Once the quantum addition itself was held unsustainable for want of evidence of any borrowing in the relevant year, the basis for penalty disappeared. In the absence of proof of the alleged loan or deposit, the penalty could not be maintained.

Conclusion: The penalty under section 271D was not leviable and the deletion of the penalty was upheld.

Final Conclusion: Both departmental appeals failed and the relief granted to the assessee by the first appellate authority was sustained.

Ratio Decidendi: Section 69D applies only when an actual hundi borrowing or repayment during the relevant previous year is proved, and a penalty under section 271D cannot stand where the underlying cash loan or deposit itself is not established.

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