Penalty for unexplained investment sustained where incriminating digital evidence confirmed undisclosed income and immunity conditions were unmet.

Penalty under section 271AAC(1) was sustained where unexplained investment had already been confirmed as income under section 69B on the basis of seized digital evidence, including an Excel sheet and WhatsApp communications treated as incriminating material showing on-money payment. The immunity proviso applied only if the income was included in the return and tax was paid under section 115BBE before the end of the relevant previous year, and those conditions were not met. The word "may" in section 271AAC(1) did not create an unfettered discretion to ignore established undisclosed income, and pendency of a further quantum challenge did not displace the penalty basis.

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Issues: Whether penalty under section 271AAC(1) of the Income-tax Act, 1961 was sustainable in respect of unexplained investment confirmed as income under section 69B, and whether the assessee could avoid penalty on the basis of the discretionary word "may", a claimed bona fide explanation, or pendency of further challenge to the quantum addition.

Analysis: The addition made under section 69B had already been sustained on quantum by the Tribunal on the basis of seized digital evidence, including the Excel sheet and WhatsApp communications, which were treated as incriminating material showing on-money payment for purchase of the flat. The impugned penalty was founded on that sustained addition. The proviso to section 271AAC(1) grants immunity only where the income is included in the return and tax is paid in the manner prescribed under section 115BBE before the end of the relevant previous year. Those conditions were not satisfied. The pendency of a further appeal against the quantum finding did not dilute the Tribunal's factual finding or displace the basis for penalty. The use of the word "may" in section 271AAC(1) did not confer an unfettered discretion to ignore a duly established case of undisclosed income without any bona fide rebuttal.

Conclusion: The penalty under section 271AAC(1) was rightly sustained and the challenge to its levy failed.

Ratio Decidendi: Where unexplained investment is conclusively established by incriminating evidence and the statutory conditions for immunity under section 271AAC(1) are not met, penalty may validly be levied notwithstanding the pendency of a further quantum challenge.

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