After a search the Assessing Officer levied 10% penalty under section 271AAA on my entire assessed income — can it be confined to the part that was really undisclosed?
It depends on how each slice of income came to light. The Supreme Court held on 13 February 2025 that penalty under section 271AAA is not automatic: the Assessing Officer must first show that the amount is undisclosed income of the specified previous year found in the course of the search. On the Rs.2,27,65,580 the assessee had admitted in his section 132(4) statement, explained the manner of earning and on which he paid tax with interest — late, but paid — the immunity in section 271AAA(2) applied and no penalty was leviable. Penalty at 10% survived only on Rs.2,49,90,000 offered later, during assessment.
Decided by the Supreme Court (Supreme Court of India; J.B. Pardiwala and Manmohan JJ, judgment delivered by Manmohan J) on 2025-02-13, reported as 2025 INSC 208; Civil Appeal No. 2411 of 2025 (arising out of SLP (C) No. 943 of 2023). It bears on section 271AAA, section 271AAA(2), section 132(4) of the Income Tax Act 1961, in Penalty and Search, Survey & Block Assessment matters.
This is the Supreme Court's own reading of section 271AAA, and it settles two points that were being decided both ways by Tribunals. First, sub-section (1) uses "may": the levy is discretionary and the Assessing Officer carries the burden of demonstrating that the sum is undisclosed income found in the search, so a bare surrender in a search statement is not by itself a penalty base. Second, sub-section (2) does not fix a time limit for paying the tax and interest, so payment made belatedly still earns immunity. The Court also read "found in the course of search" widely — material gathered from a third party because of the search counts — which cuts against the assessee on income he discloses only once the Assessing Officer starts asking.
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A search under section 132 was carried out at the assessee's premises on 25 November 2010. He was a land procurer under a memorandum of understanding of 19 January 2009 with one Hashim Moosa, who in turn had contracted to supply land to a co-operative society. In his statement during the search he admitted income of Rs.2,27,65,580 for assessment year 2011-12. His return for that year, filed in November 2012, showed Rs.4,77,11,330; the assessment of 15 March 2013 put the total at Rs.4,78,02,616. That figure included Rs.2,49,90,000 on the Sharab Reddy and NHR Prasad Reddy land transactions, which he offered only during assessment, after the Assessing Officer obtained sale deeds from the society. Penalty at 10% was levied on the whole Rs.4,78,02,616 on the footing that the tax and interest had not been paid in time. The Commissioner (Appeals), the Tribunal and the Karnataka High Court all upheld it.
The appeal was disposed of by restricting the penalty. Penalty at 10% under section 271AAA(1) is leviable on Rs.2,49,90,000 only, not on Rs.4,78,02,616. On the Rs.2,27,65,580 admitted in the search statement, all three conditions in section 271AAA(2) were satisfied — admission with the manner of earning, substantiation of that manner, and payment of tax with interest, although belated — so sub-section (1) did not apply at all. The Court also held that assessment year 2011-12, the year of the search, was the specified previous year, because the section 139(1) due date for the earlier year had already expired on 31 July 2010 and Explanation (b)(i) therefore could not be attracted.
The Court read section 271AAA as a complete code and construed it strictly, as a penal provision must be. Sub-section (1) says the Assessing Officer "may" direct payment of penalty, so the levy is discretionary, not automatic; but the discretion is not unfettered and must be exercised according to law rather than humour. The charge is fastened only on "undisclosed income of the specified previous year" as defined in the Explanation, and the onus of demonstrating that the amount answers that definition rests on the Assessing Officer. A surrender made during a search, or income emerging from statements recorded during a search, is not by itself enough. Turning to sub-section (2), the Court noted that clause (iii) prescribes no period within which the tax and interest must be paid. Where the assessee has admitted the income and substantiated the manner of earning it, payment made with delay still attracts the exception, so penalty is normally not leviable. On the Rs.2,49,90,000 the position was different: it was never admitted before the DDIT (Investigation) during the search and surfaced only when the Assessing Officer called for the sale deeds. The assessee's plea that those deeds came from the society and not from his premises was rejected — the search caused their collection, and "found in the course of search" is of wide amplitude, extending to searches of other persons and to interrogation of third parties that follow from it.
The onus is on the Assessing Officer to satisfy the condition precedent stipulated in the said Explanation, before the charge for levy of penalty is fastened on the assessee.
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Handle my notice → Ask a CA on WhatsAppIt depends on how each slice of income came to light. The Supreme Court held on 13 February 2025 that penalty under section 271AAA is not automatic: the Assessing Officer must first show that the amount is undisclosed income of the specified previous year found in the course of the search. On the Rs.2,27,65,580 the assessee had admitted in his section 132(4) statement, explained the manner of earning and on which he paid tax with interest — late, but paid — the immunity in section 271AAA(2) applied and no penalty was leviable. Penalty at 10% survived only on Rs.2,49,90,000 offered later, during assessment. This was decided by the Supreme Court (Supreme Court of India; J.B. Pardiwala and Manmohan JJ, judgment delivered by Manmohan J) and bears on section 271AAA, section 271AAA(2), section 132(4) of the Income Tax Act 1961. It is reported as 2025 INSC 208; Civil Appeal No. 2411 of 2025 (arising out of SLP (C) No. 943 of 2023). This is the Supreme Court's own reading of section 271AAA, and it settles two points that were being decided both ways by Tribunals. First, sub-section (1) uses "may": the levy is discretionary and the Assessing Officer carries the burden of demonstrating that the sum is undisclosed income found in the search, so a bare surrender in a search statement is not by itself a penalty base. Second, sub-section (2) does not fix a time limit for paying the tax and interest, so payment made belatedly still earns immunity. The Court also read "found in the course of search" widely — material gathered from a third party because of the search counts — which cuts against the assessee on income he discloses only once the Assessing Officer starts asking. If it applies to you, the first step is this: Split the assessed income line by line into what was admitted in the section 132(4) statement and what was offered only later, and argue penalty only on the second bucket.
A search under section 132 was carried out at the assessee's premises on 25 November 2010. He was a land procurer under a memorandum of understanding of 19 January 2009 with one Hashim Moosa, who in turn had contracted to supply land to a co-operative society. In his statement during the search he admitted income of Rs.2,27,65,580 for assessment year 2011-12. His return for that year, filed in November 2012, showed Rs.4,77,11,330; the assessment of 15 March 2013 put the total at Rs.4,78,02,616. That figure included Rs.2,49,90,000 on the Sharab Reddy and NHR Prasad Reddy land transactions, which he offered only during assessment, after the Assessing Officer obtained sale deeds from the society. Penalty at 10% was levied on the whole Rs.4,78,02,616 on the footing that the tax and interest had not been paid in time. The Commissioner (Appeals), the Tribunal and the Karnataka High Court all upheld it. The matter was decided on 2025-02-13 by the Supreme Court (Supreme Court of India; J.B. Pardiwala and Manmohan JJ, judgment delivered by Manmohan J). On those facts the Supreme Court held as follows. The appeal was disposed of by restricting the penalty. Penalty at 10% under section 271AAA(1) is leviable on Rs.2,49,90,000 only, not on Rs.4,78,02,616. On the Rs.2,27,65,580 admitted in the search statement, all three conditions in section 271AAA(2) were satisfied — admission with the manner of earning, substantiation of that manner, and payment of tax with interest, although belated — so sub-section (1) did not apply at all. The Court also held that assessment year 2011-12, the year of the search, was the specified previous year, because the section 139(1) due date for the earlier year had already expired on 31 July 2010 and Explanation (b)(i) therefore could not be attracted.
The Court read section 271AAA as a complete code and construed it strictly, as a penal provision must be. Sub-section (1) says the Assessing Officer "may" direct payment of penalty, so the levy is discretionary, not automatic; but the discretion is not unfettered and must be exercised according to law rather than humour. The charge is fastened only on "undisclosed income of the specified previous year" as defined in the Explanation, and the onus of demonstrating that the amount answers that definition rests on the Assessing Officer. A surrender made during a search, or income emerging from statements recorded during a search, is not by itself enough. Turning to sub-section (2), the Court noted that clause (iii) prescribes no period within which the tax and interest must be paid. Where the assessee has admitted the income and substantiated the manner of earning it, payment made with delay still attracts the exception, so penalty is normally not leviable. On the Rs.2,49,90,000 the position was different: it was never admitted before the DDIT (Investigation) during the search and surfaced only when the Assessing Officer called for the sale deeds. The assessee's plea that those deeds came from the society and not from his premises was rejected — the search caused their collection, and "found in the course of search" is of wide amplitude, extending to searches of other persons and to interrogation of third parties that follow from it. In the words reproduced by the source cited on this page: "The onus is on the Assessing Officer to satisfy the condition precedent stipulated in the said Explanation, before the charge for levy of penalty is fastened on the assessee."
It was decided by the Supreme Court on 2025-02-13 and is reported as 2025 INSC 208; Civil Appeal No. 2411 of 2025 (arising out of SLP (C) No. 943 of 2023). Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 271AAA, section 271AAA(2), section 132(4), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The appeal was disposed of by restricting the penalty. Penalty at 10% under section 271AAA(1) is leviable on Rs.2,49,90,000 only, not on Rs.4,78,02,616. On the Rs.2,27,65,580 admitted in the search statement, all three conditions in section 271AAA(2) were satisfied — admission with the manner of earning, substantiation of that manner, and payment of tax with interest, although belated — so sub-section (1) did not apply at all. The Court also held that assessment year 2011-12, the year of the search, was the specified previous year, because the section 139(1) due date for the earlier year had already expired on 31 July 2010 and Explanation (b)(i) therefore could not be attracted. It arises in Penalty and Search, Survey & Block Assessment matters, on section 271AAA, section 271AAA(2), section 132(4) of the Income Tax Act 1961, and was decided by Supreme Court of India; J.B. Pardiwala and Manmohan JJ, judgment delivered by Manmohan J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Point to the assessment order's own language to show which figures were surrendered during the search and which came out during assessment. Where tax and interest on the surrendered income were paid late, rely on this judgment: section 271AAA(2)(iii) prescribes no deadline, so delay alone does not destroy the immunity. Do not argue that documents gathered from a third party fall outside the search — the Court has rejected that; attack the Assessing Officer's failure to record a finding of undisclosed income instead.
Still good law. A Supreme Court judgment of 13 February 2025; on its own terms it is the apex court's ruling on section 271AAA and binding. No citator or later-authority check was carried out — only the judgment text was before me. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
No reporter citations were harvested; the neutral citation 2025 INSC 208 and the appeal number are taken from the judgment's own first page. The source page's header names Dipankar Datta as author and sole judge, which the judgment itself contradicts — it is signed by Pardiwala and Manmohan JJ and authored by Manmohan J; I have followed the judgment. Section 271AAA applies only to searches initiated between 1 June 2007 and 1 July 2012, so the ruling reaches later searches only by analogy to section 271AAB; the Court did not decide that point. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was disposed of by restricting the penalty. Penalty at 10% under section 271AAA(1) is leviable on Rs.2,49,90,000 only, not on Rs.4,78,02,616. On the Rs.2,27,65,580 admitted in the search statement, all three conditions in section 271AAA(2) were satisfied — admission with the manner of earning, substantiation of that manner, and payment of tax with interest, although belated — so sub-section (1) did not apply at all. The Court also held that assessment year 2011-12, the year of the search, was the specified previous year, because the section 139(1) due date for the earlier year had already expired on 31 July 2010 and Explanation (b)(i) therefore could not be attracted.
TaxSphere, “K. Krishnamurthy v DCIT”, https://taxnotice.vittsphere.com/caselaw/case/k-krishnamurthy-v-dcit/ (validity last checked 2026-08-29)
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The officer never asked me how I earned the surrendered income. Can he still levy s.271AAA penalty because I did not substantiate the manner?
I told the search party the money was my unaccounted income. Is that enough to escape s.271AAA penalty?
They recorded your statement in a survey. Can the addition rest on that alone?
Can papers seized in a search be presumed true against me in the regular assessment?
