Tribunal quashes penalty under Section 271AAB for undisclosed income found during assessment

The Tribunal allowed the appeal, ruling that the penalty under Section 271AAB was not applicable as the undisclosed income was discovered during assessment proceedings and not during the search. The penalty of Rs. 1,42,500 imposed on the assessee was quashed as the income found during assessment did not meet the criteria set forth in Section 271AAB. The Tribunal emphasized that for the penalty to apply, the undisclosed income must be unearthed during the search, as defined under the section.

---

---

Issues Involved:
1. Imposition of Penalty under Section 271AAB on addition made on account of Undisclosed Income.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271AAB on Addition Made on Account of Undisclosed Income:

The case involves an appeal against the order of the Commissioner of Income Tax (Appeals) confirming the penalty of Rs. 1,42,500 under Section 271AAB of the Income Tax Act for the assessment year 2012-13. The penalty was imposed due to an addition of Rs. 4,75,000 on account of unexplained cash credits discovered during assessment proceedings following a search on the Dhanjimama group.

The assessee contended that the penalty under Section 271AAB was not applicable since the undisclosed income was not unearthed during the search proceedings but during the assessment proceedings. The assessee argued that for invoking Section 271AAB, the undisclosed income should have been seized during the search, and the assessee's name did not appear in the list of persons with additional income disclosed during the search on the Dhanjimama group.

The Tribunal noted that the unexplained cash credits of Rs. 4,75,000 were discovered during the assessment proceedings and not during the search. The Tribunal emphasized that for penalty under Section 271AAB, the income must be found during the search, as stipulated by the definition of "undisclosed income" under Section 271AAB.

The Tribunal referenced judicial precedents, including:
- Shiv Bhagwan Gupta v. ACIT [2021] 125 taxmann.com 306 (Patna - Trib.): It was held that for penalty under Section 271AAB, the undisclosed income must be unearthed during the search, and the income found during assessment proceedings does not qualify unless it meets the specific definition under Section 271AAB.
- Chandra Suresh Kothari v. DCIT [2022] 135 taxmann.com 275 (Nagpur - Trib.): It was held that if the penalty was not initiated based on undisclosed income found during the search, the penalty under Section 271AAB is not applicable.

The Tribunal concluded that Section 271AAB is a self-contained code and operates independently of assessment proceedings. Since no incriminating material was found during the search on the Dhanjimama group that could form the basis of the addition of Rs. 4,75,000, the penalty under Section 271AAB was not justified. The Tribunal held that the Commissioner of Income Tax (Appeals) erred in confirming the penalty imposed by the Assessing Officer.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the penalty under Section 271AAB was not applicable as the undisclosed income was discovered during the assessment proceedings and not during the search. The penalty imposed was thus quashed.

---