Uncorroborated third-party statement cannot sustain section 271D penalty without disclosure of material or cross-examination.

Penalty under section 271D was found unsustainable where the alleged cash loan rested only on an uncorroborated third-party statement. The material relied upon was not furnished to the assessee, no cross-examination was allowed, and no independent evidence established a violation of section 269SS. In the absence of admissible corroboration, the allegation was treated as based on presumption, surmise and conjecture. The penalty order and appellate confirmation were reversed, and the assessee's challenge succeeded.

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Issues: Whether penalty under section 271D of the Income-tax Act, 1961 was sustainable where the alleged cash loan was supported only by a third-party statement, no copy of the statement or incriminating material was supplied, no cross-examination was afforded, and no corroborative evidence established a violation of section 269SS.

Analysis: The assessee consistently denied having taken any cash loan. The penalty was founded solely on the statement of a third party recorded during search, without furnishing the statement, the incriminating papers, or the material showing how the alleged transaction was reflected in the third party's assessment. There was also no opportunity for cross-examination. In the absence of independent corroboration, the allegation rested on presumption, surmise and conjecture. Loose papers and untested third-party material, by themselves, were held insufficient to sustain the penal action.

Conclusion: The penalty under section 271D was not sustainable and was deleted. The assessee succeeded.

Final Conclusion: The penalty order and the appellate confirmation were reversed, and the assessee's appeal was allowed on the ground that a penal consequence under section 271D cannot be upheld without admissible, corroborated evidence and compliance with the principles of natural justice.

Ratio Decidendi: A penalty for violation of section 269SS cannot be sustained on the basis of an uncorroborated third-party statement without furnishing the material relied upon and granting cross-examination when the assessee denies the transaction.

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