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Facts
During a search under Section 132, the assessee admitted undisclosed income of Rs. 17,50,000/-. Subsequent assessment under Section 143(3) and penalty proceedings under Section 271AAA resulted in a penalty of Rs. 2,35,864/-, including the admitted income and additional sums for unexplained cash and stock. The assessee challenged the penalty related to the Rs. 17,00,000/- component, arguing that all conditions of Section 271AAA(2) were met, including belated payment of tax and interest.
Held
The Tribunal acknowledged that conditions (i) and (ii) of Section 271AAA(2) were fulfilled. Citing the Supreme Court decision in K. Krishnamurthy vs. DCIT, the Tribunal held that belated payment of tax and interest satisfies condition (iii) of Section 271AAA(2) as no specific timeline is prescribed. Therefore, the penalty imposed on the Rs. 17,00,000/- component was deemed unsustainable, but the matter was remitted to the AO for factual verification of the payment's sufficiency.
Key Issues
Whether belated payment of tax and interest, in the absence of a specified deadline, fulfills condition (iii) of Section 271AAA(2) to avoid penalty under Section 271AAA for undisclosed income.
Sections Cited
271AAA, 132, 143(3), 271(1)(c), 139, 260A, 274, 275
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: MS. SUCHITRA R. KAMBLE & SHRI B.M. BIYANI
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by order of first appeal dated 20.12.2024 passed by learned Commissioner of Income-tax-NFAC, Delhi [“CIT(A)”] which in turn arises out of penalty-order dated 20.03.2020 passed by learned DCIT/ACIT- 1(1), Bhopal [“AO”] u/s 271AAA of Income-tax Act, 1961 [“the Act”] for assessment-year [“AY”] 2011-12, the assessee has filed this appeal on following ground:
“That the Ld. CIT(A) erred in confirming penalty of Rs. 2,35,864/- under Sec. 271AAA of the Act.” 2. The background facts leading to present appeal are as under:
(i) A search u/s 132 was conducted upon assessee-company wherein the assessee admitted certain undisclosed income. Post-search, the assessee filed return of income of AY 2011-12 declaring a total income of Rs. 4,59,55,130/-. In the return so filed, the assessee included undisclosed income of Rs. 17,50,000/- admitted during search but, however, the assessee did not offer full amount of undisclosed income admitted during search. The case of assessee was selected for scrutiny and the AO completed assessment u/s 143(3) vide assessment-order dated 26.03.2013 after making further additions of undisclosed incomes, viz. (i) Rs. 4,85,485/- on account of unexplained cash and (ii)
Rs. 2,00,00,000/- on account of unexplained stock.
(ii) Against assessment-order, the assessee filed appeal before CIT(A) whereupon the CIT(A) granted substantial relief and after CIT(A)’s order, there survived only these additions, viz. (i) Rs. 1,68,695/- on account of unexplained cash and (ii) Rs. 4,39,948/- on account of unexplained stock.
(iii) Simultaneous with passing of assessment-order, the AO also issued show-cause notice dated 26.03.2013 to assessee for imposition of penalty u/s 271AAA which ultimately culminated into passing of penalty-order dated 20.03.2020 imposing a penalty of Rs. 2,35,864/-
Page 2 of 13 equivalent to 10% of total undisclosed income of Rs. 23,58,643/-. The components of undisclosed income of Rs. 23,58,643/- considered by AO for imposition of penalty are as under:
1 Unexplained cash 1,68,695/-
2 Unexplained stock 4,39,948/-
3 Unexplained income already offered by assessee in 17,00,000/- the return of income
Total 23,58,643/- (iv) Against penalty-order, the assessee filed first-appeal to CIT(A) but did not get any success. Now, the assessee has come before ITAT assailing the orders of lower-authorities.
Ld. AR for assessee made a straightforward submission that although the assessee has raised ground of appeal for entire amount of penalty of Rs. 2,35,864/- imposed by AO and upheld by CIT(A) but the assessee is not aggrieved by penalty qua the first two components i.e. unexplained cash of Rs. 1,68,695/- and unexplained stock of Rs. 4,39,948/-. Therefore, penalty to that extent is acceptable to assessee.
4. Ld. AR next submitted that the assessee is against penalty imposed by AO qua third component i.e. the undisclosed income of Rs. 17,00,000/- admitted during search and offered by assessee in the return of income filed and for that portion, he is making submissions before bench.
Ld. AR then invited our attention to the provision of section 271AAA which is relevant in present case:
“271AAA. (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section-132 on or after the 1st day of June, 2007 but before the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. (2) Nothing contained in sub-section (1) shall apply if the assessee,— (i) in the course of the search, in a statement under sub-section (4) of section-132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) pays the tax, together with interest, if any, in respect of the undisclosed income. (3) No penalty under the provisions of clause (c) of sub-section (1) of section- 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). (4) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in this section. Explanation.—For the purposes of this section,— (a) "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 Page 4 of 13 specified previous year which is found to be false and would not have been found to be so had the search not been conducted; (b) "specified previous year" means the previous year— (i) which has ended before the date of search, but the date of filing the return of income under sub-section (1) of section-139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the said date; or (ii) in which search was conducted.” [emphasis supplied] 6. Ld. AR thereafter submitted that the assessee’s limited claim is such that it fulfills all three conditions (i), (ii) and (iii) prescribed in section 271AAA(2) and therefore the AO was barred from imposition of penalty as
per provision of section 271AAA(2).
Ld. AR invited our attention to following material/documents available in case-file to demonstrate that all three conditions (i), (ii) and (iii) were fulfilled by assessee:
in the course of the search, in a (i) Ld. AR carried us to Page No. 13 of statement under sub-section (4) of section-132, admits the impugned order where the CIT(A) has undisclosed income and specifies the manner in which narrated the facts and given such income has been derived; sufficient finding to accept fulfillment substantiates the manner in (ii) of these conditions. which the undisclosed income was derived;
(iii) pays the tax, together with Ld. AR carried us to Page 15 of interest, if any, in respect of the undisclosed income. impugned order where the CIT(A) has re-produced Order dated 21.02.2019 passed by AO wherein the AO has computed a demand of Rs.
20,82,720/- payable by assessee. However, Ld. AR pointed out that the assessee made a payment of Rs. 25,00,000/- on 06.03.2014 through
Challan Serial No. 43280 as reflected in Form No. 26AS (copy filed) but the AO has not given credit of same and therefore there is a demand computed by AO.
Replying to same, Ld. DR for revenue did not show any objection against fulfillment of first two conditions (i) and (ii) by assessee. However, Ld. DR raised an objection that the condition (iii) is not fulfilled. He submitted that the payment of Rs. 25,00,000/- being claimed by assessee to have been made on 06.03.2014 was after much delay. He submitted that the assessee filed return of income on 28.09.2011 and the AO passed assessment-order on 26.03.2013 and the AO initiated penalty proceeding vide show-cause notice dated 26.03.2013. The assessee, however, did not make payment
Page 6 of 13 upto those events. The impugned payment of Rs. 25,00,000/- on which the assessee is relying, was made on 06.03.2014. He submitted that although condition (iii) does not make a specific mention of any date/deadline by which the assessee must pay tax but there has to be a rational and purposive interpretation of condition/section. According to Ld. DR, had the assessee made payment of tax before filing return or even before completion of assessment/issuance of show-cause notice by AO for initiating penalty proceeding, the assessee would have been justified in claiming compliance of condition (iii) but in present case, the assessee made payment as late as on 06.03.2014 which was after 1 year from passing of assessment- order/issuance of show-cause notice for initiation of penalty-proceeding.
Therefore, the assessee cannot claim that the condition (iii) is satisfied. He submitted that it is a clear-cut case of non-fulfillment of condition (iii) and therefore the AO has rightly imposed penalty and the CIT(A) has also rightly upheld the penalty imposed by AO.
In reply, Ld. AR submitted that the condition (iii) only requires that the assessee “pays the tax, together with interest, if any, in respect of the undisclosed income” but it does not specify any time/deadline by which the payment must be made. He submitted that the assessee must be given benefit of sub-section (2) of section 271AAA when the tax has been paid by assessee though belatedly. He submitted that identical situation has already been decided by Hon’ble Supreme Court in K. Krishnamurthy Vs. DCIT 473 ITR 557 (SC) and this bench must follow the same.
We have considered rival contentions of both sides and perused the orders of lower-authorities as well as the material held on record to which attention has been drawn. As narrated earlier, the grievance of assessee which calls for our adjudication relates to the penalty imposed by AO u/s 271AAA qua the component of undisclosed income of Rs. 17,00,000/- admitted by assessee and offered in return of income. The assessee is not against the provision of section 271AAA(1); the assessee is just claiming the benefit of section 271AAA(2). There are three conditions prescribed in section 271AAA(2) serially numbered as (i), (ii) and (iii) to be fulfilled by assessee. The revenue/respondent is claiming that the assessee has failed to fulfill condition (iii). The said condition (iii) requires the assessee to pay tax together with interest, if any, on the undisclosed income. The assessee has made a payment of Rs. 25,00,000/- on 06.03.2014 belatedly after passing of assessment-order/issuance of show-cause notice dated 26.03.2013 (although before passing of penalty-order dated 20.03.2020 by AO).
Therefore, the controversy is whether the assessee can be said to have fulfilled condition (iii) by making belated payment of tax. This situation of belated payment is directly addressed by Hon’ble Supreme Court in favour of assessee in K. Krishnamurthy Vs. DCIT 473 ITR 557 (SC); we reproduce the relevant paras of Judgement & Order of Hon’ble Supreme Court:
“FACTS: 8. On 30th September, 2013, an order imposing penalty under Section 271AAA of the Act 1961 was passed against the Appellant for AY 2011-2012.
The Respondent imposed penalty on the Appellant solely on the ground that the Appellant did not make payment of tax and penalty in terms of Section 271AAA(2) of the Act 1961 after receipt of Show Cause Notice and considering the entire received income as the undisclosed income. *** preferred against the Penalty Order dated 30th September, 11. 2013 in respect of AY 2011-2012 was however rejected while solely relying on Section 271AAA(2) of the Act 1961 to hold:
"8. With respect to penalty for AY 2011-12, it is very clear that the basic condition existing in the section has not been fulfilled i.e. to say the assessee has not met up with the liability prescribed under the section despite the time limits set by the AO........since the basic requirement of section 271AAA has not been satisfied, as the assessee has not met the liability after notices were issued and sufficient opportunities were granted. If the contention of the assessee is accepted then the penalty will never be leviable and the section 271AAA will have no meaning at all. Thus, I hold that the assessee is liable to be penalized u/s. 271AAA of the Act".
12. The Income Tax Appellate Tribunal ('ITAT') vide order dated 17th October, 2016 rejected the Appellant's appeal against the order dated 04th March, 2013 again on the ground of non-compliance with Section 271AAA(2) of the Act 1961.
13. The Appellant preferred an appeal under Section 260A of the Act 1961, on the following substantial questions of law:-
"1. Whether the compliance with all the three conditions mentioned in Subsection (2) of Section 271AAA mandatory or not?
Whether penalty prescribed @ 10% of undisclosed Income under Section 271AAA of the Act can be reduced if the tax together with interest on the undisclosed income as declared by the Assessee in the course of search in a statement under Section 132(4) is partly complied with, with a delay, in the absence of specific period for such compliance specified in the Sub-clause (iii) of Section 271AAA of the Act?"
Vide the impugned judgment dated 02nd August, 2022, the High Court 14. dismissed the appeal of the Appellant. The relevant portion of the impugned judgment is reproduced hereinbelow:-
"10. Undisputed facts of the case are, according to the learned advocate for the assessee, the assessee had admitted an undisclosed income of 2,27,65,580/- and filed returns showing income of Rs. 4,78,02,616/-. The principal argument is that nothing was found during the course of search; assessee had voluntarily filed return of income more than what he had admitted before the DDIT. According to him, machinery Section has thus failed and therefore, penalty cannot be imposed.”
Sub-section (1) of Section 271-AAA of the Act reads as follows: "The assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007 but before the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year."
12. Sub-section (2) makes it clear that Sub-section (1) shall not apply if three conditions mentioned therein are fulfilled.
Admittedly, as recorded by the Tribunal, third condition namely, the payment of tax, together with interest, if any, has not been fulfilled by the assessee.
In view of the above, first substantial questions raised by the appellant is answered in favour of the Revenue holding that compliance of all three conditions in Sub-clause (2) of Section 271AAA of the Act are mandatory.
Second question with regard to reduction of penalty commensurate with quantum of tax which the appellant has deposited, is also answered against the assessee and in favour of the revenue, because, admittedly, appellant had not disclosed the income at all. But for search, the same could not have been unearthed. Having filed the returns, the assessee did not comply with condition No.3 in Sub- Section (2). If the second question were to be answered in favour of assessee, it will amount to placing premium on a person who does not abide by law.
In view of the above, this appeal must fail and it is accordingly dismissed." *** ARGUMENTS ON BEHALF OF THE RESPONDENT:
He submitted that the assessee had failed to adhere to any of the conditions specified under the aforesaid Section as the assessee had never admitted to any undisclosed income and the income was detected only after a search and the assessee never disclosed or explained the manner in which that income was derived/earned and lastly, he did not pay the tax and the interest thereon until 2016 i.e. after three years of the assessment order. *** SECTION 271AAA(2): 32. Section 271AAA(2) of the Act 1961 stipulates that Section 271AAA(1) shall not be applicable if the assessee- (i) in a statement under sub-section (4) of Section 132 in the course of the search, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) pays the tax, together with interest, if any, in respect of the undisclosed income. (See: Chaturvedi & Pithisaria's Income Tax Law Seventh Edition). 33. Consequently, if the aforesaid conditions (i) and (ii) are satisfied and the tax together with interest on the undisclosed income is paid upto the date of payment, even with delay, in the absence of specific period of compliance, then penalty at the rate of 10% (Ten per cent) under Section 271AAA of the Act 1961 is normally not leviable. *** CONCLUSION: 43. 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% (Ten per cent) on Rs. 2,49,90,000/- (Rupees Two Crores Forty Nine Lakhs Ninety Thousand Only) and not Rs.4,78,02,616/- (Rupees Four Crores Seventy Eight Lakhs Two Thousand Six Hundred Sixteen Only). Pending applications, if any, also stand disposed of. [emphasis supplied] 11. Thus, in the above case decided by Hon’ble Apex Court, the assessee paid tax much after passing assessment-order/issuance of show-cause notice i.e. after three years of passing assessment-order (Para 26 of order of Hon’ble Supreme Court re-produced above). In present case, the assessee has paid tax on 06.03.2014 whereas the assessment-order was passed/ show-cause notice was issued on 26.03.2013. Therefore, the situation of Page 11 of 13 assessee is well covered by decision of Hon’ble Supreme Court and respectfully following the same, we too hold that the penalty imposed by AO qua the component of undisclosed income of Rs. 17,00,000/- is not sustainable when the assessee has made payment belatedly on 06.03.2014.
However, while holding so, we remit this issue to AO for factual verification of payment of Rs. 25,00,000/- being claimed to have been made by assessee and also whether the payment so made was sufficient enough to cover the tax together with interest, if any, payable by assessee in respect of undisclosed income of Rs. 17,00,000/- as required by condition (iii). If the AO is satisfied with such limited verification, the AO shall delete the penalty qua the component of Rs. 17,00,000/- and modify penalty-order so as to retain penalty for other two components of unexplained cash of Rs. 1,68,695/- and unexplained stock of Rs. 4,39,948/- only.
Resultantly, this appeal is partly allowed for statistical purpose.
Order pronounced by putting up on notice board as per Rule 34 of ITAT Rules, 1963 on 22/12/2025