Civil appeal stemming from a tax dispute. The core issue revolves around the imposition of penalties under Section 271AAA of the Income Tax Act, 1961, following a search and seizure operation at the appellant’s premises. The court examines the discretionary nature of penalty levy, the conditions for exemption from penalty under Section 271AAA(2), and the definition of “undisclosed income” in the context of a search. Ultimately, the ruling differentiates between income voluntarily declared during the search and income only disclosed during assessment, concluding that penalty is applicable only to the latter, as it does not meet the criteria for exemption.
Income Tax Act, 1961, Section 271AAA(1), 271AAA(2) – Income Tax – Penalty – Appellant admitted Rs.2,27,65,580/- as income for AY 2011-12 during the search before DDIT (Inv.) as well as substantiated the manner in which the said undisclosed income was derived and paid tax together with interest thereon, albeit belatedly – Consequently, all the conditions precedent mentioned in Section 271AAA(2) stand satisfied and, therefore, penalty under Section 271AAA(1) is not attracted on the said amount of Rs.2,27,65,580/- – However, in the assessment order dated 15th March, 2013 passed under Section 143(3) of the Act 1961, which has attained finality, it is an admitted position that the Appellant had not offered in the declaration before the DDIT(Inv.) any income on land transactions belonging to Mr. Sharab Reddy and Mr. NHR Prasad Reddy – From the assessment order dated 15th March, 2013, it is apparent that the Appellant offered Rs.2,49,90,000/- under the head income from other sources on account of these land transactions during the course of assessment proceedings only and not at any time during the search – The argument that the said transactions had not been found in the search at the Appellant’s premises but had been found due to ‘copies of sale deeds collected from the society’ cuts no ice with this Court as the sale deeds had been collected as a result of the search and in continuation of the search – Held that as the causation for collecting the sale deeds from the Society was the search at the Appellant’s premises, it cannot be said that the said documents were not found in the course of the search – Further, the expression ‘found in the course of search’ is of a wide amplitude – It does not mean documents found in the assessee’s premises alone during the search – At times, search of an assessee leads to a search of another individual and/or further investigation/interrogation of third parties – All these steps and recoveries therein would fall within the expression ‘found in the course of search’ – Since income of Rs.2,49,90,000/- constitutes undisclosed income found during the search, penalty under Section 271AAA(1) of the Act 1961 is leviable on the said amount – Also, as the said amount was not admitted in the declaration before the DDIT(Inv.) during the course of search but was disclosed by the Appellant only during the assessment proceedings, and that too, after the Assessing Officer had asked for copies of the sale deeds from the Society – Held that the exception carved out in Section 271AAA(2) is not attracted to the said portion of the income – Keeping in view the aforesaid, the present appeal is disposed of with a direction to the Appellant to pay penalty at the rate of 10% on Rs.2,49,90,000/- and not Rs.4,78,02,616/-.
(Para 37 to 42)
K. Krishnamurthy V. Deputy Commissioner Of Income Tax
Supreme Court: 2025 INSC 208: (DoJ 13-02-2025)
