Section 271AAB of ITA, 1961 : Section 271Aab: Penalty Where Search Has Been Initiated

Explanation using Example

Imagine a business owner, Mr. Sharma, who has not declared a certain amount of income earned in the previous financial year. The Income Tax Department conducts a search at his premises on 15th September 2015 and discovers Rs. 50 lakhs of undisclosed income in the form of cash and false entries in his books of account.

Under Section 271AAB, Mr. Sharma now faces potential penalties for his undisclosed income. If he admits to the undisclosed income during the search, provides an explanation for it, and pays the due tax and interest before the due date of filing the return, he would be liable to pay a penalty at the rate of 10% of the undisclosed income, which would be Rs. 5 lakhs.

If Mr. Sharma does not admit the undisclosed income during the search but declares it in his return before the due date and pays the tax and interest, he would face a penalty at the rate of 20%, amounting to Rs. 10 lakhs.

However, if Mr. Sharma's case does not fall under the above scenarios, for instance, if he neither admits the income nor declares it in his return, he would face a penalty at the rate of 60% of the undisclosed income, which would be Rs. 30 lakhs.

It's important to note that no other penalty under the provisions of section 270A or clause (c) of sub-section (1) of section 271 can be imposed on him for this undisclosed income, and the usual procedures for imposing penalties would apply.