s.271AAB — Penalty in search cases
Penalty on income admitted or found following a search, and the separate limbs on which it is contested.
Applies to searches initiated on or after 1 July 2012 and up to 31 August 2024 (searches from 1 June 2007 to 30 June 2012 fell under section 271AAA). Under block assessment the penalty is 50 per cent of the tax on undisclosed income of the block period, subject to the proviso to section 158BFA(2), and the Income-tax Act, 2025 contains no equivalent of section 271AAB.
Income-tax Act, 1961
s.271AAB
Income-tax Act, 2025
No equivalent — block penalty is s.298(2)
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 271AAB of the Income-tax Act, 1961 provided for penalty on undisclosed income of the specified previous year where a search was initiated under section 132, at rates depending on whether the income was admitted in the statement under section 132(4), substantiated as to the manner in which it was derived, and disclosed in the return with the tax paid — 30 per cent and 60 per cent for searches from 15 December 2016, and 10, 20 and 30 to 90 per cent for searches from 1 July 2012 to 14 December 2016. Because it is triggered by the initiation of the search rather than by the assessment scheme used, it governs searches across both the section 153A era and the reassessment era — every search initiated on or after 1 July 2012 and up to 31 August 2024. Each condition is a separate contest, and the threshold question is whether the amount is undisclosed income as defined at all — an addition made on estimate, or on income already recorded in the books before the search, may fall outside the definition. Section 271AAB has no equivalent under the Income-tax Act, 2025.
What the provision does
Imposed penalty specifically in search cases, on a scheme separate from the general penalty provisions, keyed to admission and substantiation.
Threshold questions
- Was the search initiated between 1 July 2012 and 31 August 2024 — earlier searches fall under section 271AAA, later ones under the block scheme
- Is the amount undisclosed income within the statutory definition
- Was it recorded in the books or documents before the date of search
- Was it admitted in the statement under section 132(4)
- Was the manner of its derivation substantiated, and was tax with interest paid
- Does the penalty notice specify the limb relied on
In practice
The recurring disputes.
Whether the amount is undisclosed income at all
The definition is specific. Income already recorded in the books before the search, or an addition arrived at by estimate rather than referable to identified undisclosed income, may not answer it — which takes the penalty outside the section entirely.
Substantiating the manner of derivation
The lower rate depends on the manner in which the income was derived being substantiated. What amounts to substantiation, particularly where the statement itself is brief, is frequently in issue.
A notice that does not specify its limb
Penalty provisions with alternative limbs require the assessee to know the case being met. A notice that does not identify which limb is relied on is challenged on that footing.