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7. Oral arguments on behalf of the petitioner were advanced by Mr.A.S.Sriraman, learned counsel, and on behalf of the revenue by Mr.A.P.Srinivas, learned senior standing counsel.

https://www.mhc.tn.gov.in/judis ( Uploaded on: 06/02/2026 07:57:15 pm )

8. Although objections were raised against the proposed imposition of penalty under Section 271AAB on multiple grounds, both in the reply to the notice under Section 274 read with Section 271AAB and in the grounds herein, learned counsel confined the challenge before this Court to the ground of limitation. By referring to Section 275(1) of the I-T Act, learned counsel contended that clause (a) thereof is not applicable when the appeal against the assessment order does not relate to the imposition of penalty under Section 271AAB. According to him, clause (c) thereof is applicable not only in cases where no appeal is filed against the assessment or other order, but also to cases where the appeal does not relate to the penalty proposed to be issued.

https://www.mhc.tn.gov.in/judis ( Uploaded on: 06/02/2026 07:57:15 pm ) Section 271AAB

31. Section 271AAB, as it stood during the relevant period, is set out below:

“Penalty where search has been initiated.
271AAB.(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 July, 2012 but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,-

32. From the text of Section 271AAB, the following aspects are noticeable. First, it only applies to a case where a search was initiated under Section 132 after 01.07.2012. Secondly, as the provision stood at the relevant time, only the assessing officer could direct that penalty be paid by the assessee. Thirdly, as pre-conditions for limiting penalty to 10% of the https://www.mhc.tn.gov.in/judis ( Uploaded on: 06/02/2026 07:57:15 pm ) undisclosed income under Section 271AAB(1)(a), the assessee should have admitted the undisclosed income in the course of the search; and paid the tax along with interest and filed the return of income before the due date (i.e. specified date). If such return were to be accepted, there would be no assessment order under Section 143(3) and, consequently, no scope for the initiation of action for the imposition of penalty in the assessment order. Action for the initiation of penalty proceedings could, however, be taken independently. In that situation, limitation for the imposition of penalty under Section 271AAB would be determined as per Section 275(1)(c). On the other hand, if an assessment order were to be issued, such order would take within its fold the undisclosed income admitted in course of search proceedings and included in the return of income. It also becomes possible to initiate action for the imposition of penalty in such assessment order.

36. Both the assessee and the revenue agree that only clause (a) of Section 271AAB(1) is relevant for present purposes. It follows from the text of Section 271AAB(1), as applicable to this dispute, that penalty under this provision may be imposed by the assessing officer and not by any other person. It is also evident that this provision is only applicable to cases where a search was initiated under Section 132 of the I-T Act. The assessment order, in this case, makes reference to the initiation of a search. It also records that penalty proceedings under Section 271AAB would be initiated separately. Therefore, in this case, the action for the imposition of penalty was initiated in the course of assessment proceedings. https://www.mhc.tn.gov.in/judis ( Uploaded on: 06/02/2026 07:57:15 pm )