K. Krishnamurthy vs The Deputy Commissioner Of Income Tax

2025 INSC 208 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2411 OF 2025 (Arising out of Special Leave Petition (C)No.943 of 2023)

K. KRISHNAMURTHY ..…. APPELLANT

VERSUS

THE DEPUTY COMMISSIONER OF INCOME TAX ..…RESPONDENT

JUDGMENT

MANMOHAN.J

1. Leave granted.

2. The present appeal has been filed challenging the impugned

judgment and order dated 02nd August, 2022 passed by the High Court of

Karnataka at Bengaluru in I.T.A. No. 125 of 2017 whereby the High Court

dismissed the appeal preferred by the Appellant under Section 260A of the

Income Tax Act, 1961 (for short ‘Act 1961’).

FACTS Signature Not Verified Digitally signed by JATINDER KAUR

3. The facts giving rise to the present appeal are that a Memorandum of Date: 2025.02.13 17:04:57 IST Reason:

Understanding (‘MOU’) dated 19th January, 2009 was entered into between

Special Leave Petition (C)No.943 of 2023 Page 1 of 18 Mr. Hashim Moosa on the one hand and the Appellant as well as Mr.

Surendra Reddy on the other, for procuring lands at a certain price from the

land procurers, i.e. the Appellant and Mr. Surendra Reddy. As per Clause

10 of this MOU, Rs.10,00,000/- (Rupees Ten lakhs only) was paid to the

procurers for arranging facilitation of transfer of land from the landowners

to Mr. Hashim Moosa/his nominees. No other payment, except a

reimbursement under Clause 11, was contemplated under this MOU.

4. A transaction was entered into between Mr.Hashim Moosa and the

Space Employees’ Co-operative Society Ltd. (in short ‘Society’) on 26th

September, 2009. It was in order to facilitate purchase of land for this

transaction that the MOU dated 19th January, 2009 was entered into by the

Appellant with Mr. Hashim Moosa.

5. A search and seizure operation was carried out at the Appellant’s

premises on 25th November, 2010 under Section 132 of the Act 1961. As

recorded in paragraph 4 of the assessment order dated 15th March, 2013, the

Appellant disclosed an income of Rs.2,27,65,580/- (Rupees Two Crores

Twenty Seven Lakhs Sixty Five Thousand Five Hundred Eighty Only) as a

consequence of the search and seizure.

6. A notice dated 21st August, 2012 under Section 142(1) of the Act

1961 was issued to the Appellant calling for return of income for

Assessment Year (‘AY’) 2011-2012. The Appellant filed his return of

income on 05th November, 2012. The Appellant returned a total income of

Special Leave Petition (C)No.943 of 2023 Page 2 of 18 Rs.4,77,11,330/- (Rupees Four Crores Seventy Seven Lakhs Eleven

Thousand Three Hundred Thirty Only) for Previous Year (‘PY’) 2010-

2011, relevant to AY 2011-2012. It is pertinent to mention that the due date

for filing return of income for AY 2010-2011 expired on 31st July, 2010 in

terms of Section 139(1) of the Act 1961.

7. The Respondent issued the Assessment Order dated 15th March, 2013

for PY 2010-2011 relevant to AY 2011-2012, in respect of the Appellant.

The total income assessed was Rs.4,78,02,616/- (Rupees Four Crores

Seventy Eight Lakhs Two Thousand Six Hundred Sixteen Only). The

relevant portion of the Assessment Order, which has attained finality, is

reproduced hereinbelow:-

“4. Declaration before the DDIT(Inv) during search proceedings:

4.1 Space Employees's Co-operative Housing Society Limited entered into an MOU on 26-09-2009 with Mr. Hashim Moosa for acquiring 120 acres (which was further extended to 150 acres) of lands in Hoskote Taluk for a consideration of Rs.74,26,980/- per acre. The Society will pay Mr. Moosa Rs.73,26,980/- per acre of registered land to and the balance Rs.1 lakh per acre shall be deposited in a Joint Escrow Account till the entire extent of 120 acres of land is registered in favour of the Society.

4.2. To procure lands for the Society, Mr. Hashim Moosa had entered into an MOU on 19-01-2009 with Mr. K. Krishna Murthy and P. Surendra Reddy for procuring lands @ Rs.70,00,000/- per acre.

4.3. Consequent to search action in your case, the assesse had admitted income for the Asst. Years 2010-11 and 2011-12 before the DDIT(Inv.) as under:

Special Leave Petition (C)No.943 of 2023 Page 3 of 18 For the Asst. Year 2011-12

Total area registered during the FY 2010-11 41 acres and Amount (in 36 guntas Rs.)

Net Income from other sources 2,27,65,580

5. Transaction of lands belonging to Mr. Sharab Reddy and NHR Prasad Reddy:

5.1 Mr. Krishnamurthy and Mr. Ananda Reddy have transferred 16.25 acres of lands which are in the names Mr. NHR Prasada Reddy and Mr. Sharab Reddy in favour of the Society.

5.2 On the basis of the copies of sale deeds collected from the Society, it was seen that Mr. N.H.R. Prasad Reddy sold 7 acres and 36 guntas of land to the Society and received total sale consideration of Rs.4,34,50,000/-. Similarly, his brother Mr. N.H.Sharaba Reddy sold 10 acres and 33 guntas of lands to the Society and received sale consideration of Rs.5,95,37,500/-. Overall they had sold 18 acres and 29 guntas of land and received total sale consideration of Rs.10,29,87,500/-. The consideration received by them works out to Rs.55,00,000/- per acre.

5.3 Though, the assessee had admitted that he had undertaken transaction and had promised to get alternative lands to Mr. NHR Prasad Reddy & Sharab Reddy, he had not offered any income on this count before the DDIT (Inv.) The assessee has offered an amount of Rs.2,49,90,000/- during the course of assessment proceedings under the head income from other sources (income from assignment of rights) being the difference between the cost of lands which he has acquired on behalf of the brothers and cost of lands at which it is transferred to society.” (emphasis supplied)

8. On 30th September, 2013, an order imposing penalty under Section

271AAA of the Act 1961 was passed against the Appellant for AY 2011-

2012. The Respondent imposed penalty on the Appellant solely on the

ground that the Appellant did not make payment of tax and penalty in terms

of Section 271AAA(2) of the Act 1961 after receipt of Show Cause Notice

and considering the entire received income as the undisclosed income.

Special Leave Petition (C)No.943 of 2023 Page 4 of 18

9. On the same day, another order imposing penalty under Section

271AAA of the Act 1961 was passed in respect of AY 2010-2011. Penalty

at the rate of 10% (Ten per cent) was imposed on the entire returned income

i.e. Rs.4,78,02,616/- (Rupees Four Crores Seventy Eight Lakhs Two

Thousand Six Hundred Sixteen Only) amounting to Rs.47,80,261/- (Rupees

Forty Seven Lakhs Eighty Thousand Two Hundred Sixty One Only).

10. The CIT (Appeals)-4 Bangalore allowed ITA No.119 preferred

against the Penalty Order dated 30th September, 2013 in respect of AY 2010-

2011 while accepting the submission of the Appellant that 2009-10 cannot

be the ‘specified previous year’ for the purpose of Section 271AAA of the

Act 1961 and observing:-

“5.1 It is very evident from the facts of the case that the penalty cannot be levied for AY 2010-11 and the action of the AO struck down”

11. ITA No.120 preferred against the Penalty Order dated 30th

September, 2013 in respect of AY 2011-2012 was however rejected while

solely relying on Section 271AAA(2) of the Act 1961 to hold:

“8. With respect to penalty for AY 2011-12, it is very clear that the basic condition existing in the section has not been fulfilled i.e. to say the assessee has not met up with the liability prescribed under the section despite the time limits set by the AO……..since the basic requirement of section 271AAA has not been satisfied, as the assessee has not met the liability after notices were issued and sufficient opportunities were granted. If the contention of the assessee is accepted then the penalty will never be leviable and the section 271AAA will have no meaning at all. Thus, I hold that the assessee is liable to be penalized u/s. 271AAA of the Act”.

Special Leave Petition (C)No.943 of 2023 Page 5 of 18 12. The Income Tax Appellate Tribunal (‘ITAT’) vide order dated 17 th

October, 2016 rejected the Appellant’s appeal against the order dated 04th

March, 2013 again on the ground of non-compliance with Section

271AAA(2) of the Act 1961.

13. The Appellant preferred an appeal under Section 260A of the Act

1961, on the following substantial questions of law:-

“1. Whether the compliance with all the three conditions mentioned in Sub- section (2) of Section 271AAA mandatory or not?

2. Whether penalty prescribed @ 10% of undisclosed Income under Section 271AAA of the Act can be reduced if the tax together with interest on the undisclosed income as declared by the Assessee in the course of search in a statement under Section 132(4) is partly complied with, with a delay, in the absence of specific period for such compliance specified in the Sub-clause (iii) of Section 271AAA of the Act?”

14. Vide the impugned judgment dated 02nd August, 2022, the High

Court dismissed the appeal of the Appellant. The relevant portion of the

impugned judgment is reproduced hereinbelow:-

“10. Undisputed facts of the case are, according to the learned advocate for the assessee, the assessee had admitted an undisclosed income of 2,27,65,580/- and filed returns showing income of Rs.4,78,02,616/-. The principal argument is that nothing was found during the course of search; assessee had voluntarily filed return of income more than what he had admitted before the DDIT. According to him, machinery Section has thus failed and therefore, penalty cannot be imposed.

11. Sub-section (1) of Section 271-AAA of the Act reads as follows:

“The assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007 [but before the 1st day of July, 2012], the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year.”

Special Leave Petition (C)No.943 of 2023 Page 6 of 18

12. Sub-section (2) makes it clear that Sub-section (1) shall not apply if three conditions mentioned therein are fulfilled.

13. Admittedly, as recorded by the Tribunal, third condition namely, the payment of tax, together with interest, if any, has not been fulfilled by the assessee.

14. In view of the above, first substantial questions raised by the appellant is answered in favour of the Revenue holding that compliance of all three conditions in Sub-clause (2) of Section 271AAA of the Act are mandatory.

15. Second question with regard to reduction of penalty commensurate with quantum of tax which the appellant has deposited, is also answered against the assessee and in favour of the revenue, because, admittedly, appellant had not disclosed the income at all. But for search, the same could not have been unearthed. Having filed the returns, the assessee did not comply with condition No.3 in Sub-Section (2). If the second question were to be answered in favour of assessee, it will amount to placing premium on a person w ho does not abide by law.

16. In view of the above, this appeal must fail and it is accordingly dismissed.”

15. On 06th January, 2023, this Court was pleased to issue notice

confined to the second question urged before the High Court.

ARGUMENTS ON BEHALF OF THE APPELLANT

16. Learned counsel for the Appellant submitted that the Revenue

Authorities as well as the High Court, without expressly stating so, have

proceeded on the erroneous presumption that the levy of penalty under

Section 271AAA(1) of the Act 1961 is automatic and that the only

exception thereto was sub-clause (2) of Section 271AAA of the Act 1961.

17. He stated that the Revenue Authorities without satisfying themselves

as to the satisfaction of ‘undisclosed income’ as stipulated in Section

271AAA(1) of the Act 1961, levied the penalty. He pointed out that in a

Special Leave Petition (C)No.943 of 2023 Page 7 of 18 similar situation, in Ajay Kumar Sood Engineers And Contractors K N

Kandla & Co. vs. DCIT [MANU/IG/0095/2024] the ITAT Chandigarh

Bench has held as under:-

“9. ……It seems to us that the ld CIT(A) was swayed by the contention of the assessee in seeking immunity from levy of penalty u/s 271AAA(2) of the Act and in that context, he apparently held that it is for the assessee to demonstrate that income so surrendered falls in the definition of undisclosed income as so defined. As we have held earlier, it is for the Assessing Officer to record a specific finding that undisclosed income as so defined has been found based on tangible verifiable material found during the course of search and the onus is thus on the Assessing officer (and not on the assessee) to satisfy the conditions before the charge for levy of penalty is fastened on the assessee. The assessee might be seeking immunity under section 271AAA(2) but before that the charge for levy of penalty has to be satisfied by the AO and for that, it for the AO to record a specific finding as to the fulfillment of conditions specified therein and which apparently has not been fulfilled in the instant case….” (emphasis supplied).

18. He submitted that the authorities and the High Court ignored the law

laid down by this Court in Dilip N. Shroff vs. CIT [(2007) 6 SCC 329],

wherein it was held that the imposition of penalty is not mandatory. He

pointed out that in the context of Section 271AAB, analogous to the

provision in question, i.e. Section 271AAA, the aforesaid proposition of

law was applied by the ITAT, Kolkata Bench in DCIT vs. Aryan Mining &

Trading Corporation Ltd. [2019 SCC OnLine ITAT 4649]. The use of the

word ‘may’ in the provision (as is the case in Section 271AAA) was held

critical in that decision.

19. He further submitted that Section 271AAA(1) of the Act 1961

enables the Assessing Officer to issue a direction for imposition of penalty

being a sum “computed at the rate of ten per cent of the undisclosed income

Special Leave Petition (C)No.943 of 2023 Page 8 of 18 of the specified previous year”. According to him, the two terms

‘undisclosed income’ and ‘specified previous year’ are defined in the

Explanation appended to Section 271AAA. Therefore, he submitted that

unless there is undisclosed income in terms of the said provision in the

specified previous year an order of levy of penalty cannot be issued by the

Assessing Officer.

20. He submitted that the MOU dated 19th January, 2009 at the highest

set out payments of Rs.10,00,000/- (Rupees Ten Lakhs Only) to the

Appellant and therefore by itself could not have formed the basis for the

Penalty Order dated 30th September, 2013.

21. He further submitted that the declaration before the DDIT(Inv.)

during search proceedings was made voluntarily. There was no

demonstrable, direct co-relation between the declaration in paragraph 4 of

the Assessment Order and the MOU dated 19th January, 2009. Moreover,

paragraph 5 of the Assessment Order also most certainly has no co-relation

with the MOU dated 19th January, 2009 since as recorded in paragraph 5.2

itself, the transactions referred to therein have been found in “copies of sale

deeds collected from the Society” and not the Appellant. Therefore, on both

counts, he stated that a sum of Rs.4,78,02,616/- (Rupees Four Crores

Seventy Eight Lakhs Two Thousand Six Hundred Sixteen Only) was not

the undisclosed income of the Appellant for Financial Year (‘FY’) 2010-

2011.

Special Leave Petition (C)No.943 of 2023 Page 9 of 18

22. In the context of the meaning of ‘undisclosed income’, the Appellant

relied upon DCIT vs. Aryan Mining & Trading Corporation Ltd., 2019

SCC Online ITAT 4649 wherein it has been held:-

"21. …..From bare perusal of the definition of the word "undisclosed income"

we find that in order to bring a receipt or specie of income within the meaning of the said expression, it is obligatory for the AO to demonstrate and prove that the income is represented either wholly or partly by any money, bullion, jewellery or other valuable article or thing found in the course of search u/s 132 and which was not recorded on or before the date of search in the books of accounts or other documents maintained in the normal course relating to such previous year or otherwise not disclosed to the Commissioner before the date of search…..

22. We however find that nothing has been brought on record by the AO which in any manner even suggested let alone proved with cogent material that the said income was actually represented either wholly or partly by any sum of money, bullion, jewellery or other valuable article or thing and which was found as a result of search......"

23. Without prejudice to the above submissions, he stated that the

penalty could not have been imposed on the entire returned income for FY

2010-2011. At the highest, and without prejudice to the submission that the

Declaration in paragraph 4 of the assessment order had no co-relation to the

documents seized during search, he submitted that penalty could have been

imposed on the alleged undisclosed income of Rs.2,27,65,580/- (Rupees

Two Crores Twenty Seven Lakhs Sixty Five Thousand Five Hundred

Eighty Only) referred to in the said declaration at paragraph 4 of the

Assessment Order.

Special Leave Petition (C)No.943 of 2023 Page 10 of 18 ARGUMENTS ON BEHALF OF THE RESPONDENT

24. Per contra, learned counsel for Respondent-Income Tax Department

submitted that there were concurrent findings of all the authorities below

against the Appellant upholding the Penalty amount on the entire income

returned as he had failed to meet the conditions of the section.

25. He emphasised that there was a search and the assessment was

completed at Rs.4,78,02,616/- (Rupees Four Crores Seventy Eight Lakhs

Two Thousand Six Hundred Sixteen Only). He submitted that the charging

section is attracted as the assessee/Appellant had failed to comply with the

mandatory conditions of Section 271AAA (2) of the Act 1961.

26. He submitted that the assessee had failed to adhere to any of the

conditions specified under the aforesaid Section as the assessee had never

admitted to any undisclosed income and the income was detected only after

a search and the assessee never disclosed or explained the manner in which

that income was derived/earned and lastly, he did not pay the tax and the

interest thereon until 2016 i.e. after three years of the assessment order.

27. He pointed out that the Delhi High Court in the case of PCIT vs.

Amul Gabrani (ITA No.1251 of 2018 dated 24th July, 2024) has held that

to claim the benefit of the Section 271AAA(2) of the Act 1961, the assessee

has to satisfy the requirements/conditions of the said sub-Section. He

pointed out that the judgment of the Delhi High Court in Amul Gabrani

(supra) was carried in Appeal before this Court by the assessee vide Special

Special Leave Petition (C)No.943 of 2023 Page 11 of 18 Leave Petition (Civil) Dy. No.43696 of 2024, wherein this Court upholding

the High Court judgment and while dismissing the Special Leave Petition

observed as under:-

“We concur with the view taken by the Delhi High Court about the interpretation of sub-section 2 of Section 271AAA of the Income Tax Act, 1961”.

28. He, therefore, prayed that the impugned judgment be upheld.

REASONING

29. Having heard learned counsel for the parties, this Court is of the view

that the present case revolves around the interpretation of Section 271AAA

of the Act 1961. Since the said Section is a complete code in itself, the

relevant portion of the said Section is reproduced hereinbelow:-

“271AAA. Penalty where search has been initiated.—(1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007, [but before the 1st day of July, 2012], the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year.

(2) Nothing contained in sub-section (1) shall apply if the

assessee, —

(i) in the course of search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived;

(ii) substantiates the manner in which the undisclosed income was derived; and

Special Leave Petition (C)No.943 of 2023 Page 12 of 18

(iii) pays the tax, together with interest, if any, in respect of the undisclosed income.”

xxx xxx xxx

Explanation.—For the purposes of this section,—

(a) “Undisclosed income” means—

(i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing 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 of search in the books of account or other documents maintained in the normal course relating to such previous year; or…….

(b) “specified previous year” means the previous year—

(i) which has ended before the date of search, but the date of filing 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 said date; or

(ii) in which search was conducted.”

SECTION 271AAA(1)

30. This Court is of the view that Section 271AAA(1) of the Act 1961

stipulates that the Assessing Officer may, notwithstanding anything

contained in any other provisions of the Act 1961, direct the Assessee, in a

case where search has been carried out to pay by way of a penalty, in

addition to the tax, a sum computed at the rate of 10% (Ten per cent) of the

Special Leave Petition (C)No.943 of 2023 Page 13 of 18 undisclosed income of the specified previous year. However, the imposition

of penalty is not mandatory. Consequently, penalty under this Section may

be levied if there is undisclosed income in the specified previous year.

31. This Court is of the view that though under Section 271AAA(1) of

the Act 1961, the Assessing Officer has the discretion to levy penalty, yet

this discretionary power is not unfettered, unbridled and uncanalised.

Discretion means sound discretion guided by law. It must be governed by

rule, not by humour, it must not be arbitrary, vague and fanciful. [See: Som

Raj and Others vs. State of Haryana and Others, (1990) 2 SCC 653].

SECTION 271AAA(2)

32. Section 271AAA(2) of the Act 1961 stipulates that Section

271AAA(1) shall not be applicable if the assessee–(i) in a statement under

sub-section (4) of Section 132 in the course of the search, admits the

undisclosed income and specifies the manner in which such income has

been derived; (ii) substantiates the manner in which the undisclosed income

was derived; and (iii) pays the tax, together with interest, if any, in respect

of the undisclosed income. (See: Chaturvedi & Pithisaria’s Income Tax

Law Seventh Edition).

33. Consequently, if the aforesaid conditions (i) and (ii) are satisfied and

the tax together with interest on the undisclosed income is paid upto the

date of payment, even with delay, in the absence of specific period of

Special Leave Petition (C)No.943 of 2023 Page 14 of 18 compliance, then penalty at the rate of 10% (Ten per cent) under Section

271AAA of the Act 1961 is normally not leviable.

EXPRESSION ‘UNDISCLOSED INCOME’

34. The expression ‘Undisclosed Income’ has been defined in

Explanation (a) appended to Section 271AAA of the Act 1961. This Court

is of the view that as Section 271AAA is a penalty provision, it has to be

strictly construed. The fact that the assessee has surrendered some

undisclosed income during the course of search or that the surrender is

emerging out of the statements recorded during the course of search is not

sufficient to fasten the levy of penalty. The onus is on the Assessing Officer

to satisfy the condition precedent stipulated in the said Explanation, before

the charge for levy of penalty is fastened on the assessee.

35. Consequently, it is obligatory on the part of the Assessing Officer to

demonstrate and prove that undisclosed income of the specified previous

year was found during the course of search or as a result of the search.

EXPRESSION ‘SPECIFIED PREVIOUS YEAR’

36. Further, the expression ‘specified previous year’ has been defined in

Explanation (b) appended to Section 271AAA of the Act 1961. Since in the

present case, the search was conducted on 25 th November, 2010 and as the

year for filing returns under Section 139(1) of the Act 1961 which ended

prior to that date had expired on 31st July, 2010, Explanation b(i) is not

Special Leave Petition (C)No.943 of 2023 Page 15 of 18 applicable so as to make AY 2010-11 the specified previous year.

Consequently, by virtue of Explanation b(ii), AY 2011-12 (the year in which

the search was conducted) is the specified previous year in the present case

for the purpose of Section 271AAA(1) of the Act 1961.

NO PENALTY IS ATTRACTED ON Rs.2,27,65,580/-.

37. In the present case, the Appellant admitted Rs.2,27,65,580/-(Rupees

Two Crores Twenty Seven Lakhs Sixty Five Thousand Five Hundred

Eighty Only) as income for AY 2011-12 during the search before DDIT

(Inv.) as well as substantiated the manner in which the said undisclosed

income was derived and paid tax together with interest thereon, albeit

belatedly.

38. Consequently, all the conditions precedent mentioned in Section

271AAA(2) stand satisfied and, therefore, penalty under Section

271AAA(1) is not attracted on the said amount of Rs.2,27,65,580/- (Rupees

Two Crores Twenty Seven Lakhs Sixty Five Thousand Five Hundred

Eighty Only).

HOWEVER, PENALTY AT THE RATE OF 10% IS LEVIABLE ON Rs.2,49,90,000/-

39. However, in the assessment order dated 15th March, 2013 passed

under Section 143(3) of the Act 1961, which has attained finality, it is an

admitted position that the Appellant had not offered in the declaration

Special Leave Petition (C)No.943 of 2023 Page 16 of 18 before the DDIT(Inv.) any income on land transactions belonging to Mr.

Sharab Reddy and Mr. NHR Prasad Reddy. From the assessment order

dated 15th March, 2013 (reproduced hereinabove), it is apparent that the

Appellant offered Rs.2,49,90,000/- (Rupees Two Crores Forty Nine Lakhs

Ninety Thousand Only) under the head income from other sources on

account of these land transactions during the course of assessment

proceedings only and not at any time during the search.

40. The argument that the said transactions had not been found in the

search at the Appellant’s premises but had been found due to ‘copies of sale

deeds collected from the society’ cuts no ice with this Court as the sale deeds

had been collected as a result of the search and in continuation of the search.

This Court is of the view that as the causation for collecting the sale deeds

from the Society was the search at the Appellant’s premises, it cannot be

said that the said documents were not found in the course of the search.

41. Further, this Court is of the opinion that the expression ‘found in the

course of search’ is of a wide amplitude. It does not mean documents found

in the assessee’s premises alone during the search. At times, search of an

assessee leads to a search of another individual and/or further

investigation/interrogation of third parties. All these steps and recoveries

therein would fall within the expression ‘found in the course of search’.

42. Since income of Rs.2,49,90,000/- (Rupees Two Crores Forty Nine

Lakhs Ninety Thousand Only) constitutes undisclosed income found during

Special Leave Petition (C)No.943 of 2023 Page 17 of 18 the search, penalty under Section 271AAA(1) of the Act 1961 is leviable

on the said amount. Also, as the said amount was not admitted in the

declaration before the DDIT(Inv.) during the course of search but was

disclosed by the Appellant only during the assessment proceedings, and that

too, after the Assessing Officer had asked for copies of the sale deeds from

the Society, this Court is of the view that the exception carved out in Section

271AAA(2) is not attracted to the said portion of the income.

CONCLUSION

43. Keeping in view the aforesaid, the present appeal is disposed of with

a direction to the Appellant to pay penalty at the rate of 10% (Ten per cent)

on Rs.2,49,90,000/- (Rupees Two Crores Forty Nine Lakhs Ninety

Thousand Only) and not Rs.4,78,02,616/- (Rupees Four Crores Seventy

Eight Lakhs Two Thousand Six Hundred Sixteen Only). Pending

applications, if any, also stand disposed of.

…...……………….J. [J.B. PARDIWALA]

……………….J. [MANMOHAN] New Delhi;

February 13, 2025

Special Leave Petition (C)No.943 of 2023 Page 18 of 18