Where a person takes or accepts any loan or deposit or specified sum in contravention of section 185, the Assessing Officer may impose on him a penalty equal to the amount of the loan, deposit or specified sum so taken or accepted.
Why it is there
Section 185 governs the mode in which loans, deposits and specified sums may be taken or accepted, and a rule about mode is only worth as much as the consequence attached to it. Measuring the penalty by the whole amount transacted, rather than by tax or by a fraction, removes any advantage in taking the money outside the permitted mode.
Who it applies to
A person who takes or accepts a loan, deposit or specified sum in contravention of section 185
The Assessing Officer imposing the penalty
The figures, and what each one turns on
Read the condition in the same row. A figure quoted without it is a wrong answer with a citation attached.
What
Figure
The condition on it
Where
Penalty for contravention of section 185
An amount equal to the loan, deposit or specified sum so taken or accepted
Where the loan, deposit or specified sum is taken or accepted in contravention of section 185; the Assessing Officer "may" impose it
Section 450
What this means in practice
The penalty is measured by the transaction, not by the tax, so it can far exceed any revenue at stake — a large cash loan attracts a penalty of the same amount whether or not the money represented income. The word is "may", so there is a discretion whether to impose it, but the section supplies no scale on which to reduce it: it is the whole loan, deposit or specified sum, or nothing. The trigger is taking or accepting in contravention of section 185, so what the money was used for does not enter into it.
An example
Illustrative only, and invented for this page. The figures are chosen to show the rule biting, not taken from any real matter.
A firm accepts a Rs 6 lakh loan in a mode that contravenes section 185. The Assessing Officer may impose a penalty of Rs 6 lakh — the whole amount taken or accepted, not the tax on it and not a proportion of it.
Where you meet this section
In a penalty notice and order from the Assessing Officer, after a contravention of section 185 in the taking or acceptance of a loan, deposit or specified sum comes to light.
The words themselves
the Assessing Officer may impose on him, a penalty equal to the amount of the loan or deposit or specified sum so taken or accepted
Section 450, Income-tax Act, 2025.
What people get wrong
Treating the penalty as a percentage or as a capped amount. It equals the whole loan, deposit or specified sum taken or accepted.
Applying this section to repayment. It penalises taking or accepting in contravention of section 185.
Reading the penalty as automatic. The Assessing Officer "may" impose it.
Assuming only a loan is covered. The section reaches a loan, a deposit and a specified sum alike.
What this replaced
The correspondence is the Income Tax Department’s own, from its comparison utility for the 1961 and 2025 Acts. A renumbering is the easy half; whether the words changed is the half that decides cases.
271D - Penalty for failure to comply with the provisions of section 269SS
Read this before you rely on it. Every decision below was decided under the Income-tax Act, 1961. It appears here because it is tagged to a 1961 provision that the department’s own mapping carries to section 450. That is an inference we have drawn, not a holding on the new section: where the words changed in the move, the reasoning may not survive. Treat this as the place to start looking, not as authority on the 2025 Act.
ADIT (Investigation) v Kum. A.B. ShanthiSupreme CourtHelps departmenttagged s.271D You took a cash loan and now face penalty equal to the whole amount. Is there any relief?
CIT v Jai Laxmi Rice MillsSupreme CourtHelps taxpayertagged s.271D The assessment in which the s.271E satisfaction was recorded has been set aside. Can the penalty stand?
CIT v Idhayam Publications LtdHigh CourtHelps taxpayertagged s.271D Money moves both ways between me and my company on a current account. Is that a loan under 269SS?
CIT v Worldwide Township Projects LtdHigh CourtHelps taxpayertagged s.271D The liability was created by a journal entry and no money moved. Does 269SS still apply?
PCIT v Shree Madhi Surali VibhagHigh CourtHelps taxpayertagged s.271D Our co-operative credit society took and repaid cash from its members and the appellate authorities deleted the 271D and 271E penalties on reasonable…
DCIT v Umiya Co-operative Credit Society LtdITATHelps taxpayertagged s.271D Our credit society takes deposits and repays loans in cash to members. Can the department levy 271D and 271E on the whole amount?
Sanmathi Ambanna v Jt CITITATHelps taxpayertagged s.271D I took a cash loan from my father-in-law. Can they levy 271D on a genuine family transaction?
What this page does not tell you. It does not reproduce the section. Everything above was written from the section’s own text as the Income Tax Department publishes it — the text is here, and nothing here is advice on your facts. Where a figure matters, read the sub-section it comes from.