Cash-loan penalty cannot survive when reassessment is quashed and the Revenue cannot independently prove the alleged contravention.

Penalty under section 271D based on alleged cash loans does not survive where the reassessment proceedings and the foundational satisfaction for initiation of penalty have been quashed, unless the Revenue independently proves the cash transaction constituting the contravention. The text also states that penalty proceedings are conceptually independent for limitation purposes, but that independence does not preserve a penalty when its underlying basis has been invalidated. In the absence of independent incriminating material beyond third-party statements and coded seized entries, the alleged violation of section 269SS was not established on sustainable evidence, and the penalties were deleted.

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Issues: Whether penalties imposed under section 271D for alleged acceptance of cash loans could survive after the reassessment proceedings, on which they were founded, had been quashed; and whether the Revenue had independently established contravention of section 269SS.

Analysis: The reassessment proceedings for the relevant years had already been annulled by the Tribunal in the assessee's own case, along with the consequential additions. The penalties under section 271D arose from the same search material, statements, and reassessment findings. The Court held that while penalty proceedings under section 271D are conceptually independent for limitation purposes, they do not survive when the very foundation for the alleged default has been held invalid. It also found that no independent incriminating material, apart from third-party statements and seized coded entries, was brought to establish actual acceptance of cash loans by the assessee. In these circumstances, the alleged violation of section 269SS was not proved on sustainable evidence.

Conclusion: The penalties under section 271D could not be sustained and were deleted.

Ratio Decidendi: Where the reassessment proceedings and the foundational satisfaction for initiation of penalty are quashed as void ab initio, a penalty under section 271D based on the same substratum cannot survive unless the Revenue independently proves the cash transaction constituting the alleged contravention.

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