A search action under section 132 of the Act was carried out at the premises of the assessee on August 07, 2014. During the search action jewellery in the shape of gold bars, coins was found from the locker of the assessee. The assessee could explain about the source of investment in respect of the part of the said bullion and jewellery. The assessee could not explain the source of assets worth Rs. 21,97,221/- with bills and vouchers. The assessee, however, explained that the said jewellery was accumulated out of gifts received by the assessee on the eve of marriage and other ceremonies/occasions from time to time. The assessee, thereafter, included the value of the above stated jewellery in the computation of income and offered the same for taxation.   The Assessing Officer in the assessment proceedings noted that the assessee in the return of income has disclosed income of Rs.21,79,222/- on account of undisclosed jewellery. He, therefore, initiated penalty proceedings under section 271AAB of the Act and levied the minimum penalty at 10 per cent of the said declared income of the assessee. The  CIT(A), however, observed that the levy of penalty under the provisions of section 271AAB of the Act was mandatory and accordingly confirmed the penalty so levied by the AO. The Tribunal relied on the decision of Co-ordinate Chandigarh Bench of the Tribunal in the case of  SEL Textiles Ltd.v  DCIT ITA No. 695/Chd/2018 order dated April 18, 2019 wherein it was held that levy of penalty u/s 271AAB of the Act is not mandatory. It has also been noted that the Legislature has consciously used the word ‘may’ in contradistinction to the word ‘shall’ in the opening words of Section 271AAB of the Act. That the choice of the expression ‘may’ and not ‘shall’ in the opening Section of 271AAB shows that the Legislature did not intend to make the levy of penalty statutory, automatic and binding on the Assessing Officer but the Assessing Officer has been given discretion in the matter of levy of penalty. It has also been held that the penalty u/s 271AAB will not be attracted if the surrendered income would not fall in the definition of ‘undisclosed income’ as defined under explanation to Section 271AAB of the Act. Therefore, from plain reading of section 271AAB of the Act, it is evident that the penalty cannot be imposed unless the assessee is given a reasonable opportunity and assessee is being heard. Further, the provisions of section 271AAB of the Act are self-contained and are not dependent upon commencement or finalization of the assessment proceedings. Since, the assessee has neither made any surrender of any undisclosed income during the search action nor the penalty has been initiated on the basis of undisclosed income found during such search action, the appeal of the assessee stands allowed. (ITA No.194/Pat/2019 dated February 11, 2021 )