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Income Tax Appellate Tribunal, Hyderabad ‘A‘Bench, Hyderabad
Before: Shri Ravish Sood & Shri Madhusudan Sawdia
(िनधा�रण वष�/Assessment Year: 2019-20) Shri Rajeswara Rao Anne Vs. Deputy Commissioner of Hyderabad Income Tax PAN:ABLPA4688A Central Circle 1(4) Hyderabad (Appellant) (Respondent) िनधा��रती �ारा/Assessee by: Shri Phaneendra Nag, CA राज� व �ारा/Revenue by:: Shri S. Arun Kumar, Sr. DR सुनवाई की तारीख/Date of hearing: 09/12/2025 घोषणा की तारीख/Pronouncement: 19/12/2025 आदेश/ORDER Per Madhusudan Sawdia, A.M.:
This appeal is filed by Shri Rajeswara Rao Anne (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals)-12, Hyderabad (“Ld. CIT(A)”) dated 10.07.2025 for the A.Y. 2019-20. 2. The assessee has raised the following grounds of appeal:
1. The order passed by the Ld. CIT(A) is opposed to law, equity, weight ofevidences, facts and cireumstances of the case and are therefore liable to be quashed.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not quashing the order of the AO levying penalty u/s 271AAB of the Income Tax Act, is absolutely illegal, arbitrary and ab initio void.
3. On the facts and cireumstances of the case, the Ld. CIT(A) has erred in law in not considering the submissions of the appellant that: (i) Initiation of penalty, by the AO without giving any reasons for initiating penalty u/s 271AAB(IA) of the Income Tax Act is bad in law, (ii) Initiation of penalty, without any speeific finding in the assessment order as to the discovery, as a result of search action, ofany "undisclosed income" within the meaning of clause (c) of explanation to Section 271AAB(1A) of the Income Tax Act, is bad in law. (iii) That initiation of penalty, solely on the basis of offer of additional income voluntarily made for the purpose of buying peace and for avoiding further litigation is bad in law. (iv) That initiation of penalty on the voluntarily offered income without any finding as to requirement to maintain books of account by the Assessing Officer and the Investigation Wing, is bad in law.
4. On the facts and circumstances of the case. the Ld. CIT(A) has erred in law in not quashing the penalty imposed by the AO without specifying the default prescribed u/s 271AAB(1A) of the Income Tax Act, (i) Ld CIT(A) also erred in law in not quashing the penalty levied on the basis of stereotyped show cause Notice issued u/s 271 read with section 274 of the Income Tax Act which does not mention the spevific default committed by the appellant rendering the appellant liable to penalty under Income Tax Act.
5. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in upholding the validity of the penalty order by observing that AO has mentioned the main section. (i) The Ld CIT(A) further erred in law in observing that the appellant is well aware of the clause under which its case is covered ignoring the fact that reply of the assessee in compliance does not absolve the AO nor cure the defect in the notice issued. (ii) The Ld. CIT(A) furthher erred in law in holding that no prejudice is caused to the appellant because of not specifying of particular clause which is completely in defiance of the settled legal position which categorically holds that prejudice is on the face ofthe mechanical methods the Revenue adopts in sending a statutory notice.
6. On the facts and eircumstances of the case and in law the Ld. CIT(A) erred in ignoring the finding of hon'ble Tribunal in appellant's own case on quantum appeal [ITA No175 to 177
Page 2 of 7 of 2023] wherein it is held that merely because the assessee has admitted an amount to buy peace of mind, bringing the amount of the additional income declared by the respective assessees to tax at higher rate as per the provisions of section 11ISBBE is not justified especially when no other incriminating material was found, meaning that it is not undisclosed income.
7. The appellant craves leave of the Hon'ble Tribunal to amend OR raise any other ground, cross objection, including any additional ground of appeal not set out in the appeal Memo.”
3. The brief facts of the case are that the search and seizure operation under section 132 of the Income Tax Act, 1961 (“the Act”) was conducted on 05.10.2018 in the cases of various persons, including the assessee. During the course of the search operation, excess gold jewellery weighing 1390 grams valued at Rs.40,39,700/- was found from the family of the assessee. The assessee in his statement recorded under section 132(4) of the Act on 01.12.2018, admitted income of Rs.24 lakhs. Subsequently, the assessee filed his return of income for the Assessment Year 2019– 20 under section 139(1) of the Act on 31.08.2019 admitting a total income of Rs.1,14,75,060/-, which included Rs.24 lakhs offered as additional income during the course of search. The case of the assessee was selected for scrutiny and notices under sections 143(2) and 142(1) of the Act were issued by the Learned Assessing Officer (“Ld. AO”). During the assessment proceedings, the Ld. AO brought the entire amount of Rs.24 lakhs offered during search to tax by invoking section 69A read with section 115BBE of the Act. The assessment was completed under section 143(3) of the Act vide order dated 09.03.2021. The appeal against the quantum addition of Rs.24 lakhs reached this Tribunal, wherein vide order dated
Page 3 of 7 this Tribunal held that section 69A read with section 115BBE of the Act would not apply to the addition of Rs.24 lakhs and that the said amount was liable to be taxed under normal rate. Thereafter, on the said amount of Rs.24 lakhs, the Ld. AO initiated penalty proceedings under section 271AAB(1A) of the Act and levied a penalty of Rs.8,61,120/- vide order dated 27.03.2024.
Aggrieved with the penalty order of the Ld. AO, the assessee filed appeal before the Ld. CIT (A). The Ld. CIT(A) upheld the penalty levied by the Ld. AO.
Aggrieved with the order of the Ld. CIT (A), the assessee is in further appeal before this Tribunal. During the appellate proceedings, the Learned Authorized Representative (“Ld. AR”) submitted that the assessee had offered Rs.24 lakhs during the search only to buy peace of mind and had duly included the amount in her return of income filed under section 139(1), paying taxes thereon. The Ld. AR submitted that no incriminating material was found during search in relation to the sum of Rs.24 lakhs. He invited our attention to para no. 12 of the Tribunal’s consolidated order on the quantum addition in placed at page no. 84 of the paper book, wherein this Tribunal recorded a categorical factual finding that no incriminating material was found for the addition of Rs.24 lakhs and accordingly directed the Ld. AO to tax the said sum at normal rates. The Ld. AR argued that the levy of penalty under section 271AAB(1A) of the Act presupposes that the income must fall within the definition of “undisclosed income” under clause (c) of the Explanation to section 271AAB of the Act. Since no material, document or evidence was found during
Page 4 of 7 the search relating to the said sum, the amount cannot be treated as “undisclosed income,” and hence no penalty is leviable. Accordingly, the Ld. AR prayed before the Bench to delete the penalty levied by the Ld. AO.
Per contra, the Learned Departmental Representative (“Ld. DR”) relied upon the order of the lower authorities and submitted that but for the search, the assessee would not have disclosed the income of Rs.24 lakhs. It was therefore argued that the income falls within the sweep of “undisclosed income.”
We have carefully considered the rival submissions and perused the material available on record. We have also gone through para no. 12 of the Tribunal’s order in the quantum appeal in placed at page no. 84 of the paper book, which is to the following effect:
“12. We, therefore, are of the opinion that merely because the assessee has admitted an amount of Rs.1.00 crore in his hands and in the hands of various family members to buy peace of mind, bringing the amount of the additional income declared by the respective assessees to tax at higher rate as per the provisions of section 115BBE is not justified especially when no other incriminating material was found. In view of the above discussion, we are of the considered opinion that although the additional income declared by the assessee can be brought to tax, however, the same cannot be taxed at special rate under the provisions of section 115BBE. We, therefore, set aside the order of the learned CIT (A) and direct the Assessing Officer to tax the additional income declared at Rs.24.00 lakhs under the normal provisions and not under the provisions of section 115BBE. The grounds raised by the assessee are accordingly allowed.”
8. On perusal of the above, it is evident that, this Tribunal has recorded a clear and categorical finding that no incriminating material was found during search for the addition of Rs.24 lakhs. It was on this factual basis that the Tribunal directed the Ld. AO to Page 5 of 7 tax the said sum under the normal rate. We have further examined the definition of “undisclosed income” as provided under clause (c) of the Explanation to section 271AAB of the Act, which is to the following effect:
“271AAB. (1) ……………… (1A)…… (2)………… (3)…………….. Explanation … (a)……………… (b)………………. (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 course relating to such previous year; or (B) otherwise not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; or (ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted.”
On perusal of the above, it is abundantly clear that the definition expressly provides that the income must be represented by money, bullion, jewellery or other valuable article or thing, or must be indicated by any entry in books of account or other documents or transactions found during the course of search under section 132 of the Act. Thus, the very foundation for levy of penalty under section 271AAB(1A) of the Act is the existence of Page 6 of 7 incriminating material found during search indicating such income. In the present case, as already recorded by this Tribunal in the quantum proceedings, no incriminating material whatsoever was found for the addition of Rs.24 lakhs. In the absence of such incriminating material, the said amount does not fall within the meaning of “undisclosed income” as defined in the clause (c) of Explanation to section 271AAB of the Act. When the statutory condition is not fulfilled, penalty under section 271AAB(1A) of the Act cannot be sustained. In view of the above factual and legal position, and in conformity with the earlier findings of this Tribunal in the quantum appeal, the Ld. AO is directed to delete the penalty levied under section 271AAB(1A) of the Act in respect of addition of Rs.24 lakhs.