Penalty under Section 271D unsustainable where the assessing officer disallowed cash loans yet imposed penalty without an admitted contravention.

Whether penalty under Section 271D can stand where AO disallowed claimed cash loans and made additions under Section 69, the Tribunal found the penalty unsustainable because the AO did not accept the loans as such yet concurrently initiated penalty for contravention of Section 269SS. The Tribunal emphasised that levy of penalty requires an undisputed finding of the contravention; inconsistent findings-addition under unexplained investment while treating loans as admitted for penalty-undermine penalty jurisdiction. Outcome: penalty under Section 271D deleted and appeal allowed for the assessee.

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Issues: Whether the penalty under Section 271D of the Income-tax Act, 1961 is sustainable where the Assessing Officer has not accepted the assessee's claim of cash loans and has made additions under Section 69.

Analysis: The Assessing Officer disallowed the claimed cash loans and made an addition of Rs.8,00,888 under Section 69, treating the amounts as unexplained investment. Simultaneously the Assessing Officer recorded satisfaction to initiate penalty proceedings under Section 271D for alleged contravention of Section 269SS. This results in inconsistent findings: the claim of cash loans was not accepted (leading to addition), yet penalty was levied treating the cash loans as an admitted violation. The record shows the addition on merits is pending adjudication before the appellate authority and the penalty was imposed without an undisputed finding that the cash loans were in fact accepted as such.

Conclusion: Penalty under Section 271D of the Income-tax Act, 1961 deleted; appeal allowed in favour of the assessee.

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