Discretionary penalty under section 271AAC cannot follow mechanically from a section 68 addition where only a technical breach is shown.

Penalty under section 271AAC of the Income-tax Act is not automatic merely because an addition is made under section 68. The use of the word "may" shows that the provision is discretionary, and penalty cannot follow mechanically from an assessed addition. Because penalty proceedings are quasi-criminal, they require a higher threshold than assessment proceedings. On the facts, unsecured loans were reflected in the books, and the section 68 addition arose from incomplete supporting details in ex parte assessment proceedings under section 144. The breach was treated as technical rather than concealment, so penalty under section 271AAC was held not exigible and was deleted.

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Issues: Whether penalty under section 271AAC of the Income-tax Act, 1961 could be sustained merely because an addition was made under section 68 of the Income-tax Act, 1961, and whether such penalty was automatic.

Analysis: The unsecured loans were reflected in the books of account, and the addition under section 68 arose from the assessee's failure to furnish complete supporting details in the assessment proceedings conducted ex parte under section 144 of the Income-tax Act, 1961. The statutory language of section 271AAC confers discretion by using the expression "may", and penalty cannot follow mechanically from the making of an addition. Penalty proceedings are quasi-criminal in nature and require a higher threshold than assessment proceedings. On the facts, the default at best disclosed a technical breach and not concealment warranting automatic penalty.

Conclusion: The penalty under section 271AAC of the Income-tax Act, 1961 was not exigible and was deleted.

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