What the courts have decided on section 271AAA(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
-
K. Krishnamurthy v DCIT
Supreme CourtCuts both ways
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.
-
PCIT v Ritu Singal
High CourtHelps departmentValidity unconfirmed
I told the search party the money was my unaccounted income. Is that enough to escape s.271AAA penalty?
No, not by itself. The Delhi High Court held that all three conditions in s.271AAA(2) must be fulfilled before the escape route opens. The assessee had said the amounts advanced were her unaccounted income for the year, but did not specify how she had derived that income or what head it fell under - rent, capital gain, professional income, business income out of money lending, or the source of the money. Unless such facts are given with some specificity the requirement of substantiating the manner is not met. The appellate authorities had misdirected themselves and the penalty was restored.
-
PCIT v Mukeshbhai Ramanlal Prajapati
High CourtHelps taxpayerValidity unconfirmed
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?
No. The Gujarat High Court held that the requirement in s.271AAA(2)(ii) to substantiate the manner in which the undisclosed income was derived is consequential to, or a corollary of, the base requirement in clause (i) to specify that manner in the s.132(4) statement. The duty to substantiate begins only when the officer recording the statement elicits a response on the point. Where the Revenue failed to question the assessee at all about how the income was derived, it cannot jump to the later requirement, and when the base requirement itself fails the question of denying the immunity does not arise. The Tax Appeal was dismissed and the deletion of the penalty stood.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.