Search-based undisclosed income can sustain section 158BFA(2) penalty despite pending quantum appeal.

Undisclosed income found in block assessment from search material and follow-up enquiry can attract penalty under section 158BFA(2) where the statutory exceptions do not apply. The text states that the income was traced to seized computer and server records, the quantum addition had already been upheld, and the assessee had returned nil undisclosed income, so the proviso did not exempt penalty. Mere admission or pendency of the quantum appeal before the High Court did not by itself bar penalty, though any later success in that appeal could have consequential effect.

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Issues: Whether penalty under section 158BFA(2) was leviable on undisclosed income determined in block assessment on the basis of search material and subsequent enquiry, and whether pendency of the assessee's appeal before the High Court displaced the penalty.

Analysis: The undisclosed income was determined from data seized during search, namely computer and server records preserved in CDs, which revealed client code mismatch and led to further investigation and special audit. The quantum addition had already been upheld in appellate proceedings, and the Tribunal in the quantum appeal had held that the real nature of the transactions came to light only from the search material and follow-up enquiry. The decision further noted that section 158BFA(2) confers discretion to levy penalty where undisclosed income determined under Chapter XIV-B exceeds the income returned, and that the assessee's case did not satisfy the proviso exempting penalty because nil undisclosed income had been returned. The mere fact that the High Court had admitted the quantum appeal did not bar penalty, since admission of an appeal does not conclude that penalty is unwarranted, and any later success in the appeal could be given consequential effect.

Conclusion: Penalty under section 158BFA(2) was rightly sustained and was leviable against the assessee.

Final Conclusion: The appeal failed because the penalty was founded on search-based undisclosed income duly upheld in quantum proceedings, and the pending High Court appeal did not negate the statutory basis for penalty.

Ratio Decidendi: Where undisclosed income in block assessment is established from search material and follow-up enquiry, penalty under section 158BFA(2) may be imposed in the absence of the statutory exceptions, and mere pendency or admission of a quantum appeal does not by itself prevent such penalty.

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