Penalty limitation and reasonable cause under income tax law can defeat cash transaction penalties where bona fide banking-like conduct is shown.

Penalty limitation under section 275(1)(c) is computed from the initiation of penalty action before the competent authority, not merely from the assessment order or later notice; on that basis, the penalty orders were treated as within time. However, the assessee's bona fide banking-like conduct, involving deposits and repayments through ordinary business facilities, was accepted as reasonable cause under section 273B. That factual foundation brought the case within the statutory protection and prevented levy of penalty under sections 271D and 271E.

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Issues: (i) Whether the penalty orders under sections 271D and 271E of the Income-tax Act, 1961 were barred by limitation under section 275(1)(c); (ii) Whether the assessee established reasonable cause under section 273B so as to avoid penalty for acceptance and repayment of cash deposits and loans.

Issue (i): Whether the penalty orders under sections 271D and 271E of the Income-tax Act, 1961 were barred by limitation under section 275(1)(c).

Analysis: The limitation under section 275(1)(c) turns on the date on which action for imposition of penalty is initiated, not merely the date of assessment order and not the later date of notice by the competent authority. The relevant reference to the competent authority was made on 01.01.2008, and the period of limitation therefore extended to 31.07.2008. The penalty orders passed on 26.07.2018 were within time on the reasoning accepted by the Court, and the contrary objection was rejected.

Conclusion: The limitation objection failed and was answered against the assessee.

Issue (ii): Whether the assessee established reasonable cause under section 273B so as to avoid penalty for acceptance and repayment of cash deposits and loans.

Analysis: The assessee was found, in practical terms, to be functioning as a banking institution, dealing with members and non-members in the ordinary course of its business and facilitating deposits and repayments through banking channels and account facilities. On that factual foundation, the cash transactions were treated as occurring in the normal course of a bona fide business model, and the conduct was held to constitute reasonable cause for the statutory violations, so as to attract the protection of section 273B. The penalty provisions under sections 271D and 271E were therefore held inapplicable.

Conclusion: Reasonable cause was established and the penalty was not leviable.

Final Conclusion: The assessees' challenges were rejected on limitation but accepted on reasonable cause, with the result that the impugned penalties could not survive.

Ratio Decidendi: For penalty under section 275(1)(c), the operative starting point is the initiation of action for penalty before the competent authority, and a bona fide banking-like course of conduct may constitute reasonable cause under section 273B to defeat penalty under sections 271D and 271E.

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