Section 271AAB penalty relief where seized cash adjusted against tax liability satisfied the payment condition and blocked higher levy.

Seized cash retained by the Department and later adjusted against tax liability on disclosed undisclosed income was treated as effective payment for Section 271AAB purposes, so the assessee satisfied the condition for the concessional penalty rate under clause (a) and the higher rate under clause (c) was not justified. The article also notes that a penalty order cannot be sustained on a new ground first raised at the Tribunal when the original levy rested only on alleged non-payment of tax and interest before filing the return; the basis of a quasi-criminal penalty cannot be expanded at the appellate stage. The concessional 10% penalty was therefore sustained.

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Issues: (i) Whether the assessee was entitled to the concessional penalty rate under Section 271AAB(1)(a) where seized cash retained by the Department was later adjusted against the tax liability on the undisclosed income. (ii) Whether the Revenue could sustain the higher penalty by raising, for the first time before the Tribunal, the objection that the manner of earning the undisclosed income had not been specified and substantiated.

Issue (i): Whether the assessee was entitled to the concessional penalty rate under Section 271AAB(1)(a) where seized cash retained by the Department was later adjusted against the tax liability on the undisclosed income.

Analysis: The assessee had disclosed the income in the search statement, requested adjustment of the seized cash against the tax liability, and reiterated that request in the return. The Department retained the seized cash from the date of search and ultimately adjusted it against the assessee's tax liability for the relevant assessment year. Once the amount was treated as satisfying the tax liability, the date of seizure was treated as the effective date of payment for purposes of the penalty provision. On the facts, there was no surviving default of non-payment of tax and interest before filing of return so as to justify the higher penalty under clause (c).

Conclusion: The assessee was entitled to the benefit of Section 271AAB(1)(a), and the penalty was correctly restricted to 10% of the undisclosed income.

Issue (ii): Whether the Revenue could sustain the higher penalty by raising, for the first time before the Tribunal, the objection that the manner of earning the undisclosed income had not been specified and substantiated.

Analysis: The penalty order proceeded only on the footing that tax and interest had not been paid before filing of return, and the appellate authorities below adjudicated the matter on that basis. The additional objection regarding failure to specify and substantiate the manner of earning was not the ground on which penalty had been levied. In quasi-criminal penalty proceedings, the basis of the penalty cannot be enlarged at the appellate stage by introducing a new justification that did not form part of the original order.

Conclusion: The new ground was not entertainable and did not support the higher penalty.

Final Conclusion: The Revenue's challenge failed, and the restriction of penalty to the concessional rate was sustained.

Ratio Decidendi: Where seized cash retained by the Department is ultimately appropriated towards the assessee's tax liability on disclosed undisclosed income, the relevant payment condition under Section 271AAB is satisfied if the assessee had duly requested such adjustment; a penalty order cannot later be enlarged on new grounds not forming part of the original basis of levy.

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