Section 271AAA: Penalty where search has been initiated

Section 271AAA explains that if a person fails to disclose his undisclosed income within the time prescribed, then the Assessing Officer shall direct the Assessee to pay, by way of penalty, in addition to the tax payable by him, a sum computed at the rate of ten percent of the undisclosed income of the specified previous year. It is applicable upto June 30, 2012.

It is also proposed to insert a new provision in the Act (section 271AAB) for levy of penalty in a case where search has been initiated on or after 1st July, 2012.

If the Assessee has disclosed his undisclosed income at any time during the course of search, then the Assessee will not be penalized.

If the undisclosed income is disclosed between any time from the date of termination of search to date of return filling, then the Assessee has to pay 10% of the undisclosed income as the penalty in addition to the tax paid.

If the Assessee discloses the undisclosed income after the return filling date then he shall be penalized upto 20% of the undisclosed income.

Reference:

Section 271AAA, of the Income tax act, 1961-

In the Income Tax Act, after section 271AA, the following section shall be inserted, namely-

Penalty where search has been initiated under section 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 Chief 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;

(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.