Section 271AAB Mandatory for Search Case Penalties | ITAT Jaipur Clarifies Penalty Provisions : ITAT Jaipur

The Income Tax Appellate Tribunal, Jaipur Bench, has clarified that in cases where a search is initiated under Section 132 of the Income Tax Act, 1961, penalty proceedings must be conducted under the special provision of Section 271AAB and not under the general provision of Section 271(1)(c). The Tribunal held that the mandatory nature of Section 271AAB overrides the general penalty provision, and any penalty levied under Section 271(1)(c) in such cases is unsustainable in law. This decision reinforces the statutory scheme governing penalty in search cases and provides clarity on the interplay between Section 271AAB and Section 271(1)(c).

Background & Facts

The Genesis

The assessee, Dr. Anurag Tomar, was subjected to a search action under Section 132(1) of the Income Tax Act, 1961 on 30.10.2014. The search was conducted as part of a larger operation targeting the NIMS Group, which included the assessee. The search led to the discovery of Pattas (land records) of two plots of land that were not recorded in the assessee’s books of account. The assessee had acquired these plots as unapproved land and later converted them into urban plots through the Jaipur Development Authority (JDA).

Key Facts

• The search was conducted on 30.10.2014, which falls within the period specified under Section 271AAB (i.e., searches initiated on or after 01.07.2012 but before the Taxation Laws (Second Amendment) Bill, 2016 received the assent of the President).
• The Pattas of the two plots were found during the search, revealing unrecorded investments made by the assessee in the land.
• The assessee filed a return of income for the assessment year 2013-14 on 30.05.2014, and the search took place on 30.10.2014. The assessment was abated as it was pending on the date of the search.
• The Assessing Officer (AO) framed an assessment under Section 153A and made an addition of Rs.17,59,239/- on account of undisclosed investment in property. This addition was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] and the ITAT in its order dated 20.08.2019, reducing the addition to Rs.17,13,576/-.
• Penalty proceedings were initiated under Section 271(1)(c) of the Act for furnishing inaccurate particulars of income, and a penalty of Rs.5,29,495/- (100% of the tax sought to be evaded) was levied on the confirmed addition.

Procedural History

• 30.10.2014: Search action under Section 132(1) conducted on the assessee’s premises.
• Assessment Year 2013-14: Return of income filed on 30.05.2014.
• 20.08.2019: ITAT passed an order in quantum proceedings, confirming the addition of Rs.17,13,576/- and noting that the Pattas of the land found during the search constituted incriminating material.
• 29.10.2025: CIT(A) confirmed the penalty of Rs.5,29,495/- levied under Section 271(1)(c) of the Act.
• 15.07.2026: Appeal filed before the ITAT, Jaipur Bench.
• 22.07.2026: ITAT pronounced its order allowing the appeal.

Relief Sought

The assessee sought deletion of the penalty of Rs.5,29,495/- levied under Section 271(1)(c) of the Act, contending that the penalty ought to have been levied under Section 271AAB of the Act, as the search was conducted within the specified period.

The Legal Issue

The central question was whether penalty proceedings in cases where a search is initiated under Section 132 of the Income Tax Act, 1961 must be conducted under the special provision of Section 271AAB, and whether the general penalty provision under Section 271(1)(c) can be invoked in such cases.

Arguments Presented

For the Appellant

The assessee’s counsel argued that:

• The search was conducted on 30.10.2014, which falls within the period specified under Section 271AAB (i.e., searches initiated on or after 01.07.2012 but before the Taxation Laws (Second Amendment) Bill, 2016 received the assent of the President).
• The addition of Rs.17,13,576/- confirmed by the ITAT constituted undisclosed income as defined under Explanation (c) to Section 271AAB, as the Pattas of the land found during the search revealed unrecorded investments not recorded in the assessee’s books of account.
• The penalty ought to have been levied under Section 271AAB, which prescribes a specific rate of penalty (10%, 20%, or 60% of the undisclosed income) based on the assessee’s conduct during the search.
• The penalty levied under Section 271(1)(c) was unsustainable in law, as it contravened the mandatory provisions of Section 271AAB.
• The assessee relied on the ITAT’s order in the case of his wife, Dr. Swati Tomar v. DCIT (ITA No.1345/JP/2024, dated 30.06.2025), where identical penalty was deleted on the same grounds.

For the Respondent

The Departmental Representative (DR) supported the orders of the authorities below, confirming the levy of penalty under Section 271(1)(c). However, the DR was unable to controvert the assessee’s contention that the issue was covered in his favor by the ITAT’s order in Dr. Swati Tomar’s case.

The Court's Analysis

The ITAT, Jaipur Bench, examined the provisions of Section 271AAB and Section 271(1)(c) of the Income Tax Act, 1961, and the interplay between the two provisions. The Tribunal noted that:

• Section 271AAB is a special provision applicable to cases where a search is initiated under Section 132 on or after 01.07.2012 but before the Taxation Laws (Second Amendment) Bill, 2016 received the assent of the President. The provision mandates that penalty in such cases must be levied under Section 271AAB and not under the general penalty provision of Section 271(1)(c).
• The Explanation (c) to Section 271AAB defines undisclosed income as 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 during the search, which has not been recorded in the books of account or disclosed to the Principal Chief Commissioner or Chief Commissioner before the date of search.
• In the present case, the Pattas of the land found during the search constituted incriminating material, revealing unrecorded investments in the land. The addition of Rs.17,13,576/- confirmed by the ITAT was held to constitute undisclosed income under Explanation (c) to Section 271AAB.
• The Tribunal relied on the decision of the Hon’ble Jharkhand High Court in PCIT v. Jai Maa Jagdamba Flour (P) Ltd. (150 taxmann.com 26), which held that when a search is initiated under Section 132(1) of the Act on or after 01.07.2012, the penalty, if any, must be levied under Section 271AAB and not under Section 271(1)(c) of the Act.

"When the assessment has completed pursuant to search u/s. 153A of the Act penalty cannot be levied u/s. 271(1)(c) of the Act. We get strength of this view from the decision of Hon’ble Jharkhand High Court in the case of PCIT Vs. Jai Maa Jagdamba Flour (P) Ltd. [ 150 taxmann.com 26 (Jharkhand) ] wherein the Hon’ble High Court held as under :"

• The Tribunal also noted that the ITAT’s order in Dr. Swati Tomar’s case squarely applied to the facts of the present case, as the search was conducted on the same date (30.10.2014) and the facts were identical.

The Verdict

The ITAT, Jaipur Bench, allowed the assessee’s appeal and held that:

• The penalty of Rs.5,29,495/- levied under Section 271(1)(c) of the Act was unsustainable in law and was accordingly quashed.
• The penalty ought to have been levied under Section 271AAB of the Act, as the search was conducted within the specified period and the addition constituted undisclosed income under Explanation (c) to Section 271AAB.
• The order passed under Section 271(1)(c) was set aside, and the appeal was allowed.

What This Means For Similar Cases

Mandatory Application of Section 271AAB in Search Cases

• Section 271AAB is a special provision that overrides the general penalty provision under Section 271(1)(c) in cases where a search is initiated under Section 132 on or after 01.07.2012 but before the Taxation Laws (Second Amendment) Bill, 2016 received the assent of the President.
• Practitioners must ensure that penalty proceedings in search cases are conducted under Section 271AAB and not under Section 271(1)(c), as the former is the mandatory provision for such cases.

Undisclosed Income Must Be Established Under Explanation (c) to Section 271AAB

• Undisclosed income under Section 271AAB includes any income represented by incriminating material found during the search, such as unrecorded investments in property or false entries in books of account.
• The Pattas of land or other documents found during the search that reveal unrecorded investments or transactions constitute undisclosed income under Explanation (c) to Section 271AAB.

Precedential Value of ITAT’s Order in Dr. Swati Tomar’s Case

• The ITAT’s order in Dr. Swati Tomar v. DCIT (ITA No.1345/JP/2024, dated 30.06.2025) is binding precedent for cases involving identical facts, such as searches conducted on 30.10.2014 and additions based on Pattas of land found during the search.
• Practitioners should rely on this precedent to challenge penalties levied under Section 271(1)(c) in search cases where Section 271AAB applies.