Section 271AAB of the Income-tax Act imposes penalties for undisclosed income found during searches initiated after December 15, 2016. However, the Finance Act, 2024 introduced block assessment provisions for searches under section 132 starting from September 1, 2024, leading to potential confusion regarding the applicability of Section 271AAB. To clarify, the Finance Bill, 2025 proposes an amendment to section 271AAB, specifying that penalties under this section will not apply to searches initiated under section 132 on or after September 1, 2024. This amendment aims to remove any ambiguity regarding the provision’s scope and will take effect from September 1, 2024.
Budget 2025: Non-applicability of Section 271AAB of the Act
The existing provisions of sub-section (1A) of section 271AAB of the Act relates to penalty in respect of searches initiated after 15.12.2016.
2. Vide Finance Act, 2024, provisions of ‘Block Assessment’ (Chapter XIV-B) were introduced for searches initiated under section 132 of the Act on or after the 1st day of September, 2024. Although section 271AAB of the Act is clear that its provisions are not applicable to proceedings conducted under section 158BC of the Act, it is proposed to remove any ambiguous interpretation of its applicability to searches conducted on or after 01.09.2024.
3. Therefore, it is proposed to amend section 271AAB of the Act to provide that its provisions shall not be applicable to the assessee in whose case search has been initiated under section 132 on or after the 1st day of September, 2024.
4. This amendment will take effect from the 1st day of September, 2024.
[Clause 75]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 75 of the Bill seeks to amend section 271AAB of the Income-tax Act relating to penalty where search has been initiated.
Sub-section (1A) of the said section, inter-alia, provides that for a search initiated on or after the 15th December, 2016, a penalty of thirty per cent. of undisclosed income may be levied, if the assessee admits such undisclosed income under sub-section (4) of section 132 and specifies the manner in which such income has been derived and on or before the specified date, pays the tax together with interest, if any, in respect of such undisclosed income and furnishes the return of income for the specified previous year declaring such income. In case, above conditions are not fulfilled then a penalty of sixty per cent. of undisclosed income may be levied.
It is proposed to amend the said sub-section so as to provide that the provisions shall not be applicable to a case where search has been initiated under section 132 on or after the 1st day of September, 2024.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
75. Amendment of section 271AAB.
In section 271AAB of the Income-tax Act, in subsection (1A), in the opening portion, after the words “the assent of the President”, the words, figures and letters “but before the 1st day of September, 2024” shall be inserted and shall be deemed to have been inserted with effect from the 1st September, 2024.
