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Facts
A search was conducted on the assessee, leading to assessments for AY 2012-13 to 2018-19. For AY 2018-19, the AO disallowed deductions claimed under Chapter-VIA and partly rejected exempted agricultural income, leading to an increased total income. A penalty was imposed under Section 271AAB on the disallowed deduction amount.
Held
The Tribunal held that the disallowance of deductions claimed under Section 80C and 80TTA by the AO did not fall within the definition of 'undisclosed income' as defined in Section 271AAB. Therefore, the penalty imposed under Section 271AAB was not sustainable.
Key Issues
Whether the penalty under Section 271AAB is applicable on disallowances of deductions under Chapter-VIA, which do not fit the definition of 'undisclosed income'?
Sections Cited
132, 143(3), 153A, 139, 271AAB, 80C, 80TTA, 139(1), 153A, 132(4)
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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI, & SHRI PARESH M. JOSHI
आदेश/ O R D E R
Per B.M. Biyani, AM:
Feeling aggrieved by order of first-appeal dated 13.02.2025 passed by CIT(A)-3, Bhopal [“CIT(A)”] which in turn arise out of penalty-order dated 16.03.2022 passed by Central Circle-1, Bhopal [“AO”] u/s 271AAB of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2018-19, the assessee has filed this appeal on the grounds as mentioned in Form No. 36 (Appeal Memo).
The background facts leading to this appeal are such that a search u/s 132 of the Act was conducted by Income-tax Department upon assessee on 04.08.2017 pursuant to which the assessments for AYs 2012- 13 to 2018-19 were framed u/s 153A/143(3). In present appeal, we are Page 1 of 6 concerned with AY 2018-19 for which the assessee filed original return u/s 139 on 30.08.2018 declaring a total income of Rs. 3,10,230/- alongwith exempted agricultural income of Rs. 11,793/-. While completing assessment u/s 143(3), the AO made two adjustments, namely (i)
Deduction of Rs. 1,60,000/- claimed by assessee under Chapter-VIA was disallowed, and (ii) Exempted agricultural income was not accepted partly to the extent of Rs. 2,948/- and addition was made. This way, the AO assessed total income at Rs. 4,73,178/- (r/o to Rs. 4,73,180/-).
Simultaneously, the AO initiated proceeding for imposition of penalty u/s 271AAB qua the first item i.e. the disallowance of Rs. 1,60,000/- through show-cause notice dated 27.12.2019 and ultimately, passed penalty-order dated 16.03.2022 imposing a penalty of Rs. 96,000/- equal to 60% of 1,60,000/- being the amount of disallowance. Aggrieved, the assessee carried matter in first-appeal to CIT(A) and made submissions. However, the CIT(A) being unconvinced with assessee’s submission, upheld penalty.
Still aggrieved, the assessee has come in next appeal before us challenging the orders of lower-authorities.
Having heard learned Representative of both sides and on perusal of case record, we find that the assessee, while offering total income of Rs. 3,10,230/- in return of income filed u/s 139, claimed two deductions under Chapter-VIA, viz. (i) a deduction of Rs. 1,50,000/- u/s 80C which is available under the provisions of Act for investment in LIC, etc. and (ii) another deduction of Rs. 10,000/- u/s 80TTA which is available under the Page 2 of 6 provisions of Act for interest income from bank. However, the AO disallowed those deductions while framing assessment u/s 143(3). Subsequently, the AO imposed penalty u/s 271AAB qua the disallowance and the CIT(A) upheld AO’s action. Therefore, the limited question which calls our adjudication is whether or not the section 271AAB was applicable in present case?
At first, we re-produce the relevant portion of section 271AAB reading as under:
“(1A) 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 date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,- (a) a sum computed at the rate of thirty per cent of the undisclosed income of the specified previous year, 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) On or before the specified date- (A) Pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of sixty per cent of the undisclosed income of the specified previous year, if it is not covered under the provisions of clause (a). XXX
Explanation.- For the purposes of this section,- (a) “specified date” means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be; (b) “Specified previous year” means the previous year- (i) which has ended before the date of search, but the date of furnishing 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 date of search; or (ii) in which search was conducted.
(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.” [emphasis supplied] 5. A bare reading of above provision shows that the section prescribes penalty @30% or 60% of the “undisclosed income” and the term
Page 4 of 6 “undisclosed income” has also been defined by Parliament in Explanation (c) to section 271AAB itself. The said Explanation [re-produced in preceding para and emphasised in bold letters] prescribes that “undisclosed income” means (i) any income represented 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 u/s 132, or (ii) any income represented by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course which is found to be false and would not have been found to be so had the search not been conducted. In present case, the AO has made disallowance of the deductions claimed by assessee u/s 80C and 80TTA. The said disallowance made by AO neither fits in (i) nor in (ii). The Ld. DR for revenue, though relied upon orders of lower authorities, yet could not demonstrate as to how the provision of section 271AAB could have application in present case when the ‘disallowance’ made by AO does not fit in the definition of “undisclosed income”. Needless to mention that the definition of “undisclosed income” is very precise and exhaustive, there is no scope to expand the same. Faced with this situation, we are unable to sustain the penalty imposed by AO u/s 271AAB. We, therefore, allow the claim of assessee and delete the penalty imposed by AO. The assessee succeeds in this appeal.
Resultantly, this appeal is allowed.
Order pronounced in open court on 28/11/2025