Section 271AAB penalty on undisclosed search cash was upheld, but confined to the minimum statutory rate.

Cash found during search was admitted by the assessee in a section 132(4) statement as unaccounted and undisclosed, and no satisfactory explanation for its source or manner of earning was furnished, so penalty under section 271AAB remained leviable in principle. The absence of any difference between returned income and assessed income did not defeat penalty proceedings where the disclosure was search-related and not voluntary. However, because the assessee failed to specify and substantiate the manner of derivation, the case fell under the residuary clause rather than the more lenient limbs, and the penalty had to be confined to the minimum statutory rate instead of 90%.

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Issues: (i) Whether penalty under section 271AAB of the Income-tax Act, 1961 was exigible where cash found during search was admitted to be unaccounted and undisclosed but no satisfactory explanation of its source or manner of earning was furnished; (ii) Whether the penalty could be sustained at the maximum rate of 90% or had to be restricted to the statutory minimum rate under the applicable residuary clause.

Issue (i): Whether penalty under section 271AAB of the Income-tax Act, 1961 was exigible where cash found during search was admitted to be unaccounted and undisclosed but no satisfactory explanation of its source or manner of earning was furnished.

Analysis: Cash was found during search under section 132, and in the statement under section 132(4), the assessee admitted that the cash belonged to him and was unaccounted and undisclosed. The disclosure in the return was held to be consequent to the search and seizure, not voluntary. The absence of a difference between returned income and assessed income in quantum proceedings did not take the case outside penalty proceedings. Since the assessee failed to explain the source of the cash and did not satisfy the statutory requirements for the more lenient clauses, penalty proceedings were held to survive.

Conclusion: Penalty under section 271AAB was held leviable in principle, and the assessee was not exonerated from penalty liability.

Issue (ii): Whether the penalty could be sustained at the maximum rate of 90% or had to be restricted to the statutory minimum rate under the applicable residuary clause.

Analysis: The assessee admitted the undisclosed income, but failed to specify and substantiate the manner in which it was derived. Accordingly, the case did not fall under section 271AAB(1)(a), and clause (b) was also inapplicable. The matter was therefore covered by the residuary clause in section 271AAB(1)(c), under which penalty is leviable at not less than 30% and not exceeding 90%. As no extraordinary circumstances were recorded for adopting the maximum rate, the penalty was required to be confined to the minimum prescribed rate.

Conclusion: The penalty was directed to be restricted to 30% of the undisclosed income, and levy at 90% was set aside to that extent.

Final Conclusion: The assessee remained liable to penalty under section 271AAB, but only at the lower statutory rate applicable under the residuary provision; the assessment of penalty was modified accordingly.

Ratio Decidendi: Where an assessee admits undisclosed income found during search but fails to specify and substantiate its manner of derivation, the case falls within the residuary limb of section 271AAB(1), and in the absence of recorded reasons for enhancement, penalty cannot be levied at the maximum rate and must be restricted to the minimum statutory rate.

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