TaxTMI 
TaxTMI 
2026 (9) TMI 245
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent year 2016-17. The Assessing Officer levied penalty of Rs.8,92,500, being 30% of the undisclosed income of Rs.29,75,000, which has been confirmed by the learned CIT(A). The assessee has challenged the applicability of section 271AAB to the amount in question and, alternatively, the levy of penalty under the residuary clause (c) at 30% instead of clause (a) at 10%. Thus, the issues which require our consideration are, first, whether the jewellery valued at Rs.29,75,000 constitutes "undisclosed income" within the meaning of the Explanation to section 271AAB and, secondly, if it does, the clause and the corresponding rate at which penalty is exigible. 2. Brief facts are that a search and seizure action under section 132 was carried out i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....2,55,07,440, wherein the amount of Rs.29,75,000 was included and offered to tax under the head "Income from other sources". The corresponding tax was also paid. The assessment was subsequently completed under section 143(3) on 29.12.2017. The disclosure of Rs.29,75,000 was accepted, though penalty proceedings under section 271AAB were initiated. In the penalty proceedings, the assessee contended that nearly the entire jewellery found during the search had been reconciled and only a relatively small portion could not be immediately matched; that the jewellery had been acquired in earlier years; and that the disclosure was made to avoid prolonged controversy. The Assessing Officer held that the jewellery was found during the search, was not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... case, constitutes a special penalty regime for undisclosed income detected during a search under section 132. It does not prescribe a single uniform rate. Instead, it creates graded consequences depending upon the conduct of the assessee during and after the search. Clause (a) prescribes penalty at 10% where the assessee, in the course of search, admits the undisclosed income in a statement under section 132(4), specifies and substantiates the manner in which it was derived, pays the tax together with interest and declares the income in the return furnished for the specified previous year. Clause (b) applies where the income is not admitted during the search but is subsequently declared and the prescribed conditions are fulfilled. Clause (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ellery valued at Rs.29,75,000 falls within the statutory definition. It was physically found during the search and could not be reconciled with the wealth-tax returns, valuation reports or any other contemporaneous record maintained by the assessee or his family members. The assessee himself admitted in the statement recorded under section 132(4) that this portion of the jewellery was unrecorded and offered its value as income for the year under consideration. The very same amount was subsequently included in the revised return for the assessment year 2016-17 and assessed as such. The contention that the jewellery had been acquired in earlier years remains unsupported by any purchase evidence, valuation report, wealth-tax declaration, famil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gs. 9. The Assessing Officer invoked clause (c) principally on two grounds: that the assessee had not specified and substantiated the manner in which the undisclosed income was derived, and that the amount was not declared in the return initially filed. Insofar as the first ground is concerned, the disclosure was not an amorphous or ad hoc surrender unconnected with any identifiable asset. It was directly referable to a specifically identified quantity and value of jewellery found during the search which could not be reconciled with the disclosed wealth-tax records. The nature of the undisclosed income and the manner in which it manifested itself were therefore apparent from the statement and the search material: it represented unexplain....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dehors such admission or remains undeclared. The assessee before us falls materially within the former category: he admitted the income at the search stage, identified it with the unreconciled jewellery, paid tax, incorporated the amount in the revised return before completion of assessment and never resiled from the admission. 11. Clause (c) is residuary in character and should apply where the factual conditions bringing the case within the preceding clauses are absent. It cannot be invoked mechanically merely because the compliance under clause (a) is considered imperfect in form, when its substantive ingredients stand fulfilled. Here, the Department did not have to independently determine the amount of undisclosed income dehors the as....