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2023 (3) TMI 340 - AT - Income TaxPenalty u/s 271AAB(1) - disallowance u/s 14A - Scope of definition of ‘undisclosed income’ as per section 271AAB(3)(c)(ii) - Whether the disallowance of expenditure under Section 14A is covered within the definition of “undisclosed income” for the purpose of levy of penalty under section 271AAB ? - HELD THAT:- Disallowance u/s 14A is not made on account of any additional income found either in cash or in kind or otherwise in respect of any documents or entries in the account book. It has been held that it was a notional disallowance made by the assessee on the footing that out of the total expenditure, some of the expenditure might have been attributable to the activity of making investment from which the assessee has earned tax exempt income. It has been held that it is not the case of the AO that the aforesaid disallowance made by the AO u/s 14A is attributable/relating to the incriminating documents found during the search action or that the aforesaid surrender can be related to part of any other income of the assessee. It has been held that the AO has not recorded any satisfaction from the accounts of the assessee that the contention of the assessee that it has not incurred any expenditure for making investment is not correct. We find that the disallowance of expenditure u/s 14A doesn’t represent any income of the specified previous year by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and which would not have been found to be so had the search not been conducted - there is no legal basis for sustaining the charge of undisclosed income found during the course of search and accordingly, there is no justifiable and legal basis for levy of penalty u/s 271AAB - Decided against revenue.
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