Penal Provisions on Undisclosed Income Found During the Course of Search [Section 271AAB] :
(i) In respect of searches initiated between 1.6.2007 and 30.6.2012, penalty was leviable @10% of undisclosed income under section 271AAA, if the undisclosed income related to –
(1) the previous year which had ended before the date of search, but the due date of filing return had not expired before the date of search and the return had not been furnished; or,
(2) the previous year in which search was conducted.
However, no penalty was leviable if the assessee admitted the undisclosed income in a statement under section 132(4) recorded in the course of search and specified the manner in which such income had been earned and paid the tax together with interest, if any, in respect of such income.
(ii) Consequently, undisclosed income (for the current year in which search takes place or the previous year which has ended before the search and for which the due date of filing of return has not expired and the return is yet to be filed) found during the course of search attracted no penalty if such undisclosed income was admitted in the course of search and penalty@10%, if such undisclosed income was not admitted in the course of search.
(iii) In order to deter the practice of concealing income, the penal provisions have been made more stringent by insertion of section 271AAB which provides for levy of penalty on undisclosed income found during the course of a search, which has been initiated on or after 1st July, 2012, which relates to specified previous year, i.e.-
(1) the previous year which has ended before the date of search, but the due date of filing return of income for the same has not expired before the date of search and the return has not yet been furnished;
(2) the previous year in which search is conducted.
(iv) Accordingly, under section 271AAB,
(1) penalty@10% would be attracted, if undisclosed income is admitted during the course of search in the statement furnished under section 132(4), and the assessee explains the manner in which such income was derived, pays the tax, together with interest if any, in respect of the undisclosed income, on or before the specified date (i.e., the due date of filing return of income or the date on which the period specified in the notice issued under section 153A expires, as the case may be) and furnishes the return of income for the specified previous year declaring such undisclosed income.
(2) If undisclosed income relating to the specified previous year is not admitted during the course of search in the statement furnished under section 132(4) but the same is disclosed in the return of income filed after the date of search and the tax along with the interest, if any, is paid before the specified date, then, the taxpayer will be liable for penalty@20% of undisclosed income.
(3) In all other cases, penalty ranging from 30% to 90% of undisclosed income would be attracted.
(v) Undisclosed income, for the purpose of this section, means:
(1) 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
(2) 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.
(vi) No penalty under section 271(1)(c) is leviable in respect of such undisclosed income.
(vii) An order imposing penalty under section 271AAB would be appealable under section 246A before the Commissioner (Appeals).
(viii) Section 274 providing for the procedure for imposing penalties and section 275 providing for a bar of limitation for imposing penalties, shall, to the extent relevant apply to penalty under section 271AAB.