TaxTMI 
TaxTMI 
2026 (9) TMI 1402
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ignoring the fact that the assessee has admitted in his statement under section 132(4) of the Act the undisclosed income of Rs. 14.15 Crore on account of incriminating document found and seized from his office premises on which penalty amounting to Rs. 1,41,50,000 under section 271AAB of the Act is imposed. 2. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) is justified in ignoring the fact that the assessee declared the same income in the return of income for AY 2016-17 after the department unearthed the same. It is important to mention here that had there been no search in this case, such undisclosed income would not have been detected and no taxes would have been paid. Therefore, penalty amounting to Rs. 1,41,50,000 under section 271AAB of the Act is imposed. 3. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) is justified in ignoring the fact that the additional income offered by the assessee was not on his own volition but was on the basis of incriminating material found and seized during the search. Therefore, penalty amounting to Rs. 1,41,50,000 under section 271AAB of the Act....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e satisfied. The AO reasoned that the undisclosed income of Rs 14,23,05,000 had been admitted in the statement under section 132(4) of the Act, reaffirmed by the letter dated 25.09.2017, declared in the return and the tax thereon paid, and that the surrender rested upon incriminating documents found in the search and could not be explained away as having been made merely to buy peace. On that basis the AO levied penalty at the rate of ten per cent on the entire surrendered sum of Rs 14,23,05,000, computed at Rs 1,42,30,500. The AO did not undertake any separate examination of whether the sum of Rs 14,15,00,000 referable to the diary notings independently fell within the statutory definition of undisclosed income. 6. On appeal, the CIT(A), by the impugned order dated 21.02.2025, partly allowed the appeal, deleting the penalty referable to the sum of Rs 14,15,00,000 and confirming the penalty referable to the cash of Rs 8,05,000. 7. In deleting the penalty of Rs 1,41,50,000 referable to the sum of Rs 14,15,00,000, the CIT(A) undertook a detailed examination of the seized material and recorded a series of findings. He found that the notings in the seized diary did not disclose t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce which was never retracted and was reaffirmed by the letter dated 25.09.2017 and offered to tax in the return, and that but for the search the income would not have been detected. It was urged by the learned DR that the seized diary is "other documents" within the definition of undisclosed income and that the additional income was not offered on the assessee's own volition but on the basis of the incriminating material found in the search. Reliance was placed by the learned DR on MAK Data (P.) Ltd. v. CIT [2013] 358 ITR 593 (SC). 10. The learned Authorised Representative (hereinafter referred to as "the AR") supported the impugned order and submitted that the sum of Rs 14,15,00,000 was recorded merely as loose notings of advances in a diary found during the search, without any date, name, address, mode of payment or particulars of the persons concerned, and without any corresponding asset having been found in the course of the search. It was submitted by the learned AR that the surrender was made to buy peace and to avoid litigation, that no enquiry was made by the Department to establish the existence of the persons named or the transactions, that the AO did not invoke secti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection (4) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date- (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (c) a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). ..... (3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation.-For the purposes of this section,- ..... (c) "undisclosed income" means- (i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has- (A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal cours....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and uncanalised but must be a sound discretion guided by law. Their Lordships further held that such a penalty provision must be strictly construed, that the mere surrender of income in the course of search or in a statement recorded thereunder is not sufficient to fasten the levy, and that the onus lies upon the AO to establish that undisclosed income was found in the course of the search. The Hon'ble Supreme Court observed in paragraphs 34 and 35 of its judgment as under: "34. The expression 'Undisclosed Income' has been defined in Explanation (a) appended to Section 271AAA of the Act 1961. This Court is of the view that as Section 271AAA is a penalty provision, it has to be strictly construed. The fact that the assessee has surrendered some undisclosed income during the course of search or that the surrender is emerging out of the statements recorded during the course of search is not sufficient to fasten the levy of penalty. The onus is on the Assessing Officer to satisfy the condition precedent stipulated in the said Explanation, before the charge for levy of penalty is fastened on the assessee. 35. Consequently, it is obligatory on the part of the Assessing ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....c) of the Act and dealt with the evidentiary effect of a voluntary surrender for the purpose of a concealment penalty. It does not dilute, much less displace, the specific and exhaustive definition of undisclosed income enacted in section 271AAB of the Act. The question before us is not whether the surrender was voluntary or whether it was retracted, but whether the surrendered amount falls within the statutory definition, and for the reasons already recorded, it does not. The contention that the amount must be presumed to be undisclosed income because it would not have surfaced but for the search is, in substance, an invitation to apply the deeming fiction of section 69 of the Act to the penalty provision, which, for the reasons already given, is impermissible. A levy of penalty cannot rest upon a presumption piled upon an inference, in the absence of any material establishing an inflow of undisclosed income. 20. We do not find any inconsistency in the order of the CIT(A) that would warrant interference at the instance of the Revenue. The character of each item has to be tested against the statutory definition on its own facts. The cash of Rs 8,05,000 was money found in the sea....