Penalty rate under Section 271AAB reduced where search officers failed to elicit source explanations during s.132 proceedings.

Where search and seizure proceedings uncovered cash and valuables but authorised officers did not elicit or record explanations about the source of those assets during on site questioning, the conditions for applying the higher penalty rate under the penal provision are not satisfied; accordingly the lesser specified penalty rate applies and the assessing authority must compute penalty on that basis. The analysis distinguishes liability based on whether the taxpayer was asked and failed to admit undisclosed income during the search, and treats absence of targeted questioning as determinative against the higher rate.

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Issues: Whether penalty under Section 271AAB of the Income-tax Act, 1961 should be levied at 30% (s.271AAB(1A)(a)) or 60% (s.271AAB(1A)(b)) where search was conducted under Section 132 and the search party did not put specific questions / record statements under Section 132(4) regarding the source of cash and valuables found.

Analysis: The facts show search and seizure proceedings under Section 132 of the Income-tax Act, 1961 with cash and valuables found and partly seized. Statements recorded under Section 132(4) were limited to certain persons and did not include specific questioning regarding the source of the cash and jewelleries. The relevant penal provision distinguishes cases covered by Section 271AAB(1A)(a) (rate 30%) from those falling under Section 271AAB(1A)(b) (rate 60%). The applicability of the higher rate depends on the assessed failure to admit undisclosed income in response to enquiries during search proceedings. Where the authorised officers did not elicit explanations about the assets found by putting appropriate questions under Section 132(4), the conditions for applying the higher rate are not satisfied and the lesser rate under subsection (a) is triggered.

Conclusion: Penalty under Section 271AAB of the Income-tax Act, 1961 is to be computed at 30% (s.271AAB(1A)(a)) and not at 60% (s.271AAB(1A)(b)). The Assessing Officer is directed to compute penalty at 30%.

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