Search penalty immunity under Section 271(1)(c) survives where undisclosed income is admitted, taxed, and substantially disclosed in statement.

Explanation 5 to Section 271(1)(c) creates a deeming fiction of concealment in search cases, but its immunity applies where the assessee admits undisclosed income in a Section 132(4) statement, offers it to tax, and pays tax and interest. The court treated the Revenue's objection that the manner of deriving the income was not specifically stated as hypertechnical, and held that substantial compliance with the disclosure requirement was sufficient. On that basis, the penalty under Section 271(1)(c) was held not sustainable.

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Issues: Whether penalty under Explanation 5 to Section 271(1)(c) of the Income-tax Act, 1961 was leviable where the assessee, in a search case, admitted undisclosed income, offered it in the return, paid tax, but the Revenue contended that the manner of deriving the income was not specifically stated in the statement under Section 132(4).

Analysis: Explanation 5 creates a deeming fiction of concealment in search cases, but its later part grants immunity if the assessee, in the course of search, makes a statement under Section 132(4) admitting that the undisclosed assets represent income not disclosed and specifies the manner in which such income was derived, and thereafter pays tax and interest. The recorded finding was that the assessee had disclosed the income in the search statement and the Revenue's objection regarding non-disclosure of the manner was not sustainable. The principle applied was that the benefit of the exception is not to be denied on a hypertechnical reading of the statement when the disclosure is made and tax is paid, amounting to substantial compliance with the requirement.

Conclusion: The assessee was entitled to the benefit of immunity under Explanation 5 to Section 271(1)(c), and the penalty was not sustainable.

Ratio Decidendi: In a search case, immunity under Explanation 5 to Section 271(1)(c) is available where the undisclosed income is admitted in the statement under Section 132(4), offered to tax, and tax is paid, and the benefit cannot be denied on a merely technical objection if there is substantial compliance with the requirement as to the manner of deriving the income.

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