Penalty for improper cash deposits and repayments cannot be imposed where documentary evidence shows bona fide commercial transactions.

Tax penalties for acceptance or repayment of cash deposits were challenged where the assessee produced books, bilties, confirmations and affidavits showing freight receipts and corresponding payments. The article concludes that where documentary and corroborative evidence establishes bona fide commercial transactions and withdrawals corresponding to receipts, the tax authority lacks independent satisfaction of wrongful acceptance or repayment contrary to prescribed payment modes and therefore the discretionary power to impose penalties under the relevant penalty provisions should not be exercised. Prior assessment additions treating amounts as unexplained credits do not, by themselves, justify concurrent penal liability without separate satisfaction of wrongful conduct.

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Issues: (i) Whether penalty under section 271D of the Income-tax Act, 1961 can be imposed where deposits accepted in cash were shown to be genuine freight receipts/payments and an addition under section 68 was made in assessment; (ii) Whether penalty under section 271E of the Income-tax Act, 1961 can be imposed for repayments where the transactions are bona fide and the assessment proceedings treated the amounts as unexplained cash credits under section 68.

Issue (i): Whether penalty under section 271D can be sustained against the assessee.

Analysis: The material on record included books of account, bilties, confirmations and affidavits from depositors/drivers indicating the transactions related to freight receipts and payments. The assessment officer treated entries as unexplained cash credits and made additions under section 68; however, the factual matrix showed verifiable commercial transactions and withdrawals corresponding to receipts. The imposition of penalty under section 271D requires satisfaction of wrongful acceptance of deposits by mode prohibited by law and is subject to the authority's discretionary assessment of bona fides.

Conclusion: Penalty under section 271D is not imposable and is deleted in favour of the assessee.

Issue (ii): Whether penalty under section 271E can be sustained against the assessee.

Analysis: Given the same factual findings regarding the nature of receipts and payments and the assessee's bona fide belief about the transactions, the discretionary power to impose penalty under section 271E was not satisfied. The prior treatment of amounts under section 68 in assessment precluded concurrent imposition of penal liability without independent satisfaction of wrongful repayment in contravention of the payment-mode rules.

Conclusion: Penalty under section 271E is not imposable and is deleted in favour of the assessee.

Final Conclusion: Both penalties under sections 271D and 271E are set aside on the facts and law, resulting in dismissal of the Revenue's appeals and vindication of the assessee's position regarding the genuineness and bona fides of the transactions.

Ratio Decidendi: Where verifiable documentary evidence establishes bona fide commercial transactions and the authority lacks independent satisfaction of wrongful acceptance or repayment contrary to prescribed modes, the discretionary power to impose penalties under sections 271D and 271E of the Income-tax Act, 1961 should not be exercised.

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