Penalty u/s. 271AAA(1) for undisclosed income admitted during search set aside as tax paid with interest

K. Krishnamurthy Vs DCIT (Supreme Court of India)

Supreme Court held that no penalty under section 271AAA(1) of the Income Tax Act when undisclosed income during course of search is admitted and paid tax with interest. Accordingly, penalty u/s. 271AAA(1) set aside.

Facts- A search and seizure operation was carried out at the Appellant’s premises on 25^th November, 2010 u/s. 132 of the Act 1961. The Appellant disclosed an income of Rs.2,27,65,580/- as a consequence of the search and seizure.

On 30^th September, 2013, an order imposing penalty u/s. 271AAA of the Act 1961 was passed against the Appellant for AY 2011­2012. The Respondent imposed penalty on the Appellant solely on the ground that the Appellant did not make payment of tax and penalty in terms of Section 271AAA(2) of the Act 1961 after receipt of Show Cause Notice and considering the entire received income as the undisclosed income.

On the same day, another order imposing penalty u/s. 271AAA of the Act 1961 was passed in respect of AY 2010-2011. Penalty at the rate of 10% was imposed on the entire returned income.

Conclusion- Section 271AAA(1) of the Act 1961 stipulates that the Assessing Officer may, notwithstanding anything contained in any other provisions of the Act 1961, direct the Assessee, in a case where search has been carried out to pay by way of a penalty, in addition to the tax, a sum computed at the rate of 10% (Ten per cent) of the undisclosed income of the specified previous year. However, the imposition of penalty is not mandatory. Consequently, penalty under this Section may be levied if there is undisclosed income in the specified previous year.