Section 271AAA of ITA, 1961 : Section 271Aaa: Penalty Where Search Has Been Initiated

Explanation using Example

Let's consider a hypothetical scenario to understand the application of Section 271AAA of The Income-tax Act, 1961:

Mr. Sharma owns a textile business. On July 10, 2010, the Income Tax Department conducted a search operation at his business premises under Section 132. During the search, they found unaccounted cash and a hidden ledger detailing sales that were not recorded in the official books of account or disclosed to the tax authorities prior to the search.

The undisclosed income for the financial year 2009-2010, which had ended but for which the return filing date had not expired, amounted to INR 50 lakhs as per the hidden ledger.

Under Section 271AAA, the Assessing Officer may impose a penalty on Mr. Sharma for the undisclosed income. However, Mr. Sharma can avoid this penalty if he:

1. Admits the undisclosed income during the search,
2. Explains the source of the income, and
3. Pays the due tax along with interest on the undisclosed income.

If Mr. Sharma meets these conditions, the penalty under Section 271AAA will not be applied, and he will only be liable to pay the tax and interest on the undisclosed income of INR 50 lakhs.