Penalty u/s 271AAB(1A) can’t be levied on income offered during search in the absence of any incriminating material, as such income does not qualify as “undisclosed income” under the statutory definition.

Levy of Penalty under Section 271AAB(1A)

Scope of “Undisclosed Income” – Absence of Incriminating Material

Case:  Shri Srinivas Chowdary Vallabhaneni

Forum:  ITAT Hyderabad

Appeal No.:  ITA No. 1461/Hyd/2025

Date of Order:  19 December 2025

Core Issue: Whether penalty under section 271AAB(1A) of the Income-tax Act, 1961 can be levied on income offered during search proceedings, which was subsequently taxed at normal rates, in the absence of any incriminating material found during the course of search, having regard to the definition of “undisclosed income” contained in clause (c) of the Explanation to section 271AAB.

Statutory Provisions Involved

Section 271AAB(1A) – Levy of penalty in cases where search is initiated under section 132 on or after 15.12.2016.

Explanation (c) to Section 271AAB – Defines the expression “undisclosed income”.

Section 69B – Unexplained investment.

Section 115BBE – Tax on income referred to in sections 68 to 69D at special rates.

Facts of the Case: The assessee, an individual deriving income from remuneration, house property and other sources, was subjected to a search under section 132 on 05.10.2018. During the search, cash of ₹7,00,000 was found and seized. No other incriminating material, document or evidence was found.

For Assessment Year 2019-20, the assessee filed the return of income under section 139(1) declaring total income of ₹98,03,260, which included an additional income of ₹35,00,000 offered during the course of search.

In the assessment proceedings, the Assessing Officer taxed the entire amount of ₹35,00,000 by invoking section 69B read with section 115BBE. In appeal, the Tribunal, in the quantum proceedings, held that section 69B read with section 115BBE was applicable only to the cash component of ₹7,00,000 found during search, and directed that the balance amount of ₹28,00,000 be taxed at normal rates, recording a categorical finding that no incriminating material was found in respect of the said amount.

Pursuant thereto, the Assessing Officer passed a consequential order and thereafter initiated penalty proceedings under section 271AAB(1A) on the sum of ₹28,00,000 and levied penalty of ₹9,60,960. The penalty was confirmed by the Commissioner (Appeals), leading to the present appeal before the Tribunal.

Finding of the Tribunal: The Tribunal noted that, in the quantum proceedings, it had already recorded a clear and categorical factual finding that no incriminating material whatsoever was found in respect of the amount of ₹28,00,000.

On examining clause (c) of the Explanation to section 271AAB, the Tribunal observed that income can be regarded as “undisclosed income” only if it is represented by money, bullion, jewellery or other valuable article or thing, or by an entry in books of account or other documents or transactions found during the course of search.

The statutory definition makes the existence of incriminating material found during search a mandatory precondition for treating any income as “undisclosed income” for the purposes of section 271AAB.

In the present case, the amount of ₹28,00,000 was neither represented by any asset found during search nor supported by any incriminating document or evidence. The mere fact that the assessee had offered the income during search proceedings to buy peace of mind could not, by itself, bring the income within the statutory definition of “undisclosed income”.

The Tribunal rejected the contention of the Revenue that the disclosure was search-driven, holding that penalty under section 271AAB cannot be sustained merely on the basis of voluntary disclosure, in the absence of incriminating material.

Conclusion: The Tribunal held that the amount of ₹28,00,000 did not fall within the definition of “undisclosed income” as provided in clause (c) of the Explanation to section 271AAB. Consequently, the foundational requirement for levy of penalty under section 271AAB(1A) was not satisfied.

Accordingly, the penalty levied under section 271AAB(1A) in respect of ₹28,00,000 was directed to be deleted, and the appeal of the assessee was allowed.

By,