Reasonable cause for cash deposits sustained as business receipts defeats penalty under the unexplained income regime.

Penalty under section 271AAC(1) was held unsustainable where cash deposits were assessed as unexplained income under section 69A read with section 115BBE, because the assessee consistently explained that the deposits were business receipts made during the demonetisation period. That explanation was treated as reasonable cause for the deposits in the circumstances, despite the addition itself being sustained. The penalty was therefore deleted.

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Issues: Whether penalty under section 271AAC(1) of the Income-tax Act, 1961 was sustainable where the corresponding cash deposits were treated as unexplained income under section 69A read with section 115BBE of the Income-tax Act, 1961.

Analysis: The explanation consistently offered was that the cash deposits represented business receipts deposited during the demonetisation period. Even though the quantum addition had been made, the explanation was held to constitute a reasonable cause for the cash deposits in the context of section 271AAC(1) read with section 115BBE. The penalty was therefore found unsustainable.

Conclusion: The penalty under section 271AAC(1) was deleted and the assessee succeeded.

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