Levy of penalty under section 271AAB(1A) requires incriminating search material; penalty deleted where none found, tax at normal rate

Levy of penalty under section 271AAB(1A) requires the income to qualify as "undisclosed income" per the Explanation clause, meaning it must be represented by money, bullion, jewellery or other valuables, or be indicated by entries, documents or transactions found during a search. Where no incriminating material is found during search, the statutory condition for invoking the penalty is absent and the penalty cannot be sustained; consequently the penalty is to be deleted and the additional amount, if taxable, is assessed at the normal rate.

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Issues: Whether penalty under section 271AAB(1A) of the Income-tax Act, 1961 is leviable in respect of Rs. 21,00,000 offered during search when no incriminating material representing that sum was found during the search.

Analysis: The issue turns on the Explanation to section 271AAB which defines "undisclosed income" as income represented by money, bullion, jewellery or entries in books or other documents or transactions found in the course of a search under section 132 and not recorded or disclosed before the date of search. The Tribunal's earlier factual finding in the connected quantum proceedings recorded that no incriminating material was found during the search in respect of the Rs. 21,00,000 and directed taxation of that sum under normal provisions rather than under the special rate provision. Given the statutory definition, the foundational condition for imposing penalty under section 271AAB(1A) presence of incriminating material discovered in search representing the income is not satisfied if no such material was found.

Conclusion: Penalty under section 271AAB(1A) is not sustainable in respect of the Rs. 21,00,000 as no incriminating material was found during the search; the penalty is therefore deleted and the appeal is allowed.

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