Case Law Details
Jasraj Changalal Jain Vs DCIT (ITAT Mumbai)
Search Surrender Doesn’t Mean Maximum Penalty: ITAT Cuts Section 271AAB Levy from 90% to 30%
The Mumbai ITAT granted substantial relief to an assessee by reducing penalty under Section 271AAB from a harsh 90% to 30%, holding that the AO cannot mechanically impose the maximum penalty without recording extraordinary reasons.
During a search under Section 132, cash of over ₹33 lakh was found from the assessee’s premises. In his statement recorded under Section 132(4), the assessee admitted that the cash belonged to him and accepted it as undisclosed income. The amount was later declared in the return filed pursuant to the search.
The AO nevertheless imposed penalty at the maximum rate of 90% under the residuary clause of Section 271AAB(1)(c), alleging that the assessee failed to substantiate the manner in which the undisclosed income was earned.
The Tribunal held that the assessee indeed failed to explain and substantiate the source of cash and therefore could not claim the concessional 10% penalty under Section 271AAB(1)(a). However, the ITAT simultaneously observed that once the assessee admitted ownership of the cash and offered it to tax, imposition of the maximum penalty rate required special justification.
The Bench noted that the statute itself prescribes a range of 30% to 90% under clause (c), and the AO had failed to specify any exceptional circumstances warranting the harshest possible penalty. Accordingly, the ITAT directed the AO to restrict the penalty to the minimum prescribed rate of 30% instead of 90%.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The assessee has filed the present appeal against the impugned order dated 08.07.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals)-48, Mumbai, [“learned CIT(A)”], which in turn arose from the penalty order passed under section 271AAB of the Act, for the assessment year 2013-14.
2. In this appeal, the assessee has raised the following grounds: –
“On the facts and circumstances the learned CIT(A) erred in confirming penalty of Rs.9,94,140/- under section 271AAB of the Income Tax Act.”
3. The solitary grievance of the assessee is against the levy of penalty under section 271AAB of the Act.
4. The brief facts of the case are that the assessee was subjected to search and seizure action under section 132 of the Act on 08.11.2012. During the search at the premises of the assessee, i.e., Room No.303, 3rd Floor, Bherumal House, Sheikh Memon Street, Mumbai, cash of Rs.33,19,096/- was found. In his statement recorded under section 132(4) of the Act, the assessee submitted that the cash found from the premises belongs to him. The assessee further admitted that the cash is unaccounted and undisclosed and accordingly offered it for taxation during the year under consideration. Consequently, cash of Rs. 33,13,800/- was seized out of the cash found of Rs. 33,19,096/-.
5. For the year under consideration, the assessee filed his return of income on 10.01.2014, declaring therein total income of Rs.34,17,720/-, wherein the cash seized from the premises amounting to Rs.33,13,800/- was also declared. The Assessing Officer (“AO”), vide order dated 24.03.2015 passed under section 143(3) of the Act, assessed the total income of the assessee at Rs.57,99,920/- by making an addition of Rs.23,82,200/- on account of undisclosed commission income. In further appeal, the learned CIT(A) partly allowed the appeal filed by the assessee, deleting the addition of Rs. 23,82,200/- made by the AO. The Revenue’s appeal before the Tribunal was dismissed vide order dated 26.07.2018.
6. In the meanwhile, a notice dated 14.02.2019 was issued under section 271AAB of the Act. In view of the fact that during the search and seizure proceedings at the office premises of the assessee, cash of Rs.33,19,096/-was found and the assessee in his statement recorded under section 132(4) of the Act admitted that the cash found from the premises belongs to him and also offered to tax the undisclosed cash of Rs.33,13,800/-, the AO, vide order dated 27.02.2019 passed under section 271AAB of the Act, levied a penalty of Rs.9,94,140/-, being 90% of the undisclosed income.
7. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and upheld the penalty levied by the AO under section 271AAB of the Act. Being aggrieved, the assessee is in appeal before us.
8. During the hearing, the learned Authorised Representative (“learned AR”) submitted that as there is no difference between the returned income and the income ultimately assessed in the hands of the assessee pursuant to the appellate orders, no penalty under section 271AAB of the Act can be levied. The learned AR further submitted that if at all, the penalty under section 271AAB of the Act cannot be levied to an extent of 90% of the undisclosed income.
9. On the contrary, the learned Departmental Representative (“learned DR”) submitted that as the cash of Rs.33,19,096/- was found from the office premises of the assessee and the assessee himself claimed that the same is unaccounted and could not substantiate the manner of earning the said cash, the AO was completely justified in levying the penalty under section 271AAB of the Act. The learned DR submitted that the assessee offered to tax the cash found from his premises only pursuant to the search, and that if the search had not taken place, the said cash would have escaped taxation.
10. We have considered the submissions of both sides and perused the material available on record, as per Rule 18(6) of the ITAT Rules, 1963. In the present case, it is undisputed that the cash of Rs.33,19,096/- was found from the premises of the assessee during the search and seizure action under section 132 of the Act. Further, the assessee in his statement recorded under section 132(4) of the Act has admitted that the cash found from the premises belongs to him and the same is unaccounted and undisclosed. The assessee also failed to explain the source of said cash. Accordingly, out of the cash of Rs. 33,13,096/-, cash of Rs. 33,13,800/- was seized and the same was declared by the assessee in his return of income for the year under consideration. Thus, from these facts, it is evident that the disclosure of cash of Rs. 33,13,800/- in the return of income was not voluntary, but the same was only pursuant to the seizure of cash from the premises of the assessee during the search and seizure proceedings under section 132 of the Act. Therefore, the fact that there is no difference between the returned income and the income ultimately assessed in the hands of the assessee pursuant to the appellate orders in quantum proceedings cannot lead to the assessee escaping the mischief of penalty proceedings.
11. It is further pertinent to note that the penalty was levied under section 271AAB(1) of the Act, which during the year under consideration, reads as follows: –
“Penalty where search has been initiated.
271AAB. (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,—
(a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee—
(i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived;
(ii) substantiates the manner in which the undisclosed income was derived; and
(iii) on or before the specified date—
(iv) pays the tax, together with interest, if any, in respect of the undisclosed income; and
(v) furnishes the return of income for the specified previous year declaring such undisclosed income therein;
(b) a sum computed at the rate of twenty per cent of the undisclosed income of the specified previous year, if such assessee—
(i) in the course of the search, in a statement under sub-section (4) of section 132, does not admit the undisclosed income; and
(ii) on or before the specified date—
(A) declares such income in the return of income furnished for the specified previous year; and
(B) pays the tax, together with interest, if any, in respect of the undisclosed income;
(c) a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b).”
12. Thus, section 271AAB(1)(a) of the Act prescribes a penalty at the rate of 10% of the undisclosed income, in case the assessee admits the undisclosed income, and specifies and substantiates the manner in which the said income was derived. Further, section 271AAB(1)(b) of the Act prescribes a penalty at the rate of 20% of the undisclosed income, in case the assessee does not admit the undisclosed income. Clause (c) of section 271AAB(1) of the Act is a residuary clause and prescribes a penalty at the rate of 30% but not exceeding 90% of the undisclosed income in cases not covered by clause (a) and clause (b) of section 271AAB(1) of the Act.
13. As noted in the foregoing paragraphs, in the present case, it is an undisputed fact that the cash of Rs.33,19,090/- was found from the premises of the assessee, and the assessee, in his statement recorded under section 132(4) of the Act, admitted that the cash belongs to him and the same is unaccounted and undisclosed. However, it is also evident from the record that the assessee failed to explain the source of said cash. Thus, it is equally true that the assessee failed to specify and substantiate the manner in which the undisclosed income was derived. Therefore, both the conditions of section 271AAB(1)(a) of the Act are not satisfied in the present case. Accordingly, we are of the considered view that the case of the assessee does not fall within the ambit of section 271AAB(1)(a) of the Act. Since the assessee admitted the undisclosed income, clause (b) of section 271AAB(1) of the Act is also not applicable. Therefore, the provisions of the residuary clause (c) of section 271AAB(1) of the Act are applicable to the present case, whereby the penalty at the rate of 30% but not exceeding 90% of the undisclosed income is leviable.
14. In the present case, the AO has levied the penalty at the rate of 90%, without specifying the extraordinary circumstances for levying the penalty at the maximum rate. Since the provisions of clause (c) of section 271AAB(1) of the Act itself provide a penalty at the rate of 30% of the undisclosed income, we are of the considered view that the same should be levied as the assessee also admitted to owning the cash found during the search proceedings and declared it in the return of income for the instant year. Accordingly, we direct the AO to restrict the penalty to 30% of the undisclosed income as per the provisions of section 271AAB(1)(c) of the Act. With the above directions, the sole ground raised by the assessee is partly allowed.
15. In the result, the appeal by the assessee is partly allowed.
Order pronounced in the open Court on 30/04/2026
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