Unproved cash loan transaction defeats penalty under section 271D where alleged breach of section 269SS is not established.

Penalty under section 271D could not be sustained where the alleged cash loan transaction itself remained unproved. The record referred to seized material and a third-party statement, but the assessee consistently denied having taken the loan and the quantum assessment had already been quashed on legal grounds without any final finding establishing the transaction. Uncertainty also remained about the alleged intermediary and the directness of the loan arrangement, and no effective enquiry was made to verify it. On these facts, the alleged breach of section 269SS was not established and the penalty failed.

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Issues: Whether penalty under section 271D of the Income-tax Act, 1961 was sustainable when the alleged cash loan transaction remained unestablished.

Analysis: The penalty rested on the alleged acceptance of a cash loan in violation of section 269SS of the Income-tax Act, 1961. The transaction was said to be supported by seized material and a third-party statement, but the assessee consistently denied having taken the loan. The quantum assessment had already been quashed on legal grounds, so there was no final adjudication establishing the alleged loan transaction. The record also showed uncertainty regarding the directness of the transaction and the alleged intermediary, with no effective enquiry to verify the asserted loan arrangement.

Conclusion: The alleged violation of section 269SS of the Income-tax Act, 1961 was not established and the penalty under section 271D of the Income-tax Act, 1961 was unsustainable.

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