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Penalty on Undisclosed Income – Sec 271AAB



Penalty on Undisclosed Income Found during Search Section- 271AAB. This major amendment proposed in the penal provisions under the Direct Taxes through Finance Bill-2012 is in the form of newly-introduced Section 271AAB, which is related to the penalty imposable on the undisclosed income, found during the course of search initiated under Section 132 of the Income tax Act, 1961which pertains to a specified previous year. The provisions in this respect are still there in the form of Section 271AAA. But it is proposed to insert a new and stringent Section 271AAB, which will be applicable in the cases where search has been initiated on or after 1st July, 2012.

The newly-introduced penal provision (Penalty on undisclosed income as per sec 271AAB) has been introduced by our Hon’ble Finance Minister Shri Pranab Mukherjee in his Finance Bill-2012.

The intention behind this can be well explained by the immortal words of Shakespeare’s. “I must be cruel only to be kind.”

In this context some relevant definitions are as follows –

  • Specified Date – It 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.
  • Specified Previous Year – It means the previous year –

1)      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;

2)      In which search was conducted

  • Undisclosed Income – It refers to -

1)      Any income of the specified previous year represented, either wholly or partly, by any money, billion, jewellery, vehicles, air craft’s or other valuable articles or things 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 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

2)      Any income of the specified precious year represented, either wholly or partly, by any entry in respect of any 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 false and would not have been found to be so had the search not been conducted.

 

The attraction of Penalty as per sec 271AAB can be well understood by the following slab given below:

TIME OF DISCLOSURE OF UNDISCLOSED INCOME BY THE ASSESSEE

RATE OF PENALTY

At any time during the course of Search 10% of the un-disclosed income.
Between any time from the date of termination of search to date of Return Filing 20% of the un-disclosed income.
At any time after the Return Filing Date Min 30% – Max 90% of the un-disclosed income as per the discretion of Income-tax Officer.

Here, undisclosed income does not only mean the disclosure of income, but the assessee is also required to admit & substantiate the manner in which such income is derived. Also, the assessee is required to pay tax along with the interest leviable thereon.

There should not be any confusion among the taxpayers regarding Section 271AAA & Section 271AAB. But since, there has been de-facto confusion among taxpayers regarding leviability of these two sections taxmantra provides you with a comprehensive tabular difference presentation between them.

 Sec 271AAA Vs. Sec 271AAB

TIME OF DISCLOSURE OF UNDISCLOSED INCOME BY THE ASSESSEE

PENALTY U/S 271AAA

PENALTY U/S 271AAB

At any time during the course of Search NIL 10% of the un-disclosed income.
Between any time from the date of termination of search to date of Return Filing 10% of the un-disclosed income. 20% of the un-disclosed income.
At any time after the Return Filing Date 20% of the undisclosed income. Min 30% -Max 90% of the undisclosed income as per the discretion of Income-Tax Officer

Let us be very clear that Sec 271AAA and Sec 271AAB are mutually exclusive. Both cannot be levied upon the assessee simultaneously. The sole purpose of Sec 271AAB is to fasten the loops of Sec 271AAA and to forbid the defaulter to escape by any means whatsoever without paying taxes on unexplained moneys.

About: 

Alok Patnia founded Taxmantra.com, an expert in tax advisory & compliance. He is a Chartered Accountant having prior exposure with Ernst & Young & KPMG.

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