Explanation 5A deems concealment for bogus purchases in search cases, while a new notice-defect ground may be remanded.

In a search case covered by Explanation 5A to section 271(1)(c), booking bogus purchases in the books was treated as deemed concealment or furnishing of inaccurate particulars, and later reversal of the entries did not neutralise the deeming fiction. The Tribunal therefore sustained penalty on merits because the undisclosed income arose from entries relating to a prior year and remained within the scope of the search-based provision. It also noted that a newly raised objection to the penalty notice for not striking off the irrelevant limb had not been adjudicated below, so that contention was remanded to the first appellate authority for fresh consideration after hearing the assessee.

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Issues: (i) Whether penalty under section 271(1)(c) of the Income-tax Act was leviable where, pursuant to search, bogus purchases were found to have been booked and the case was covered by Explanation 5A; (ii) Whether the assessee's additional ground that the penalty notice did not strike off the irrelevant limb under section 271(1)(c) required adjudication by the first appellate authority.

Issue (i): Whether penalty under section 271(1)(c) of the Income-tax Act was leviable where, pursuant to search, bogus purchases were found to have been booked and the case was covered by Explanation 5A.

Analysis: The search was conducted after 1 June 2007 and the assessee was found, on the basis of entries in its books, to have booked bogus purchases which inflated work-in-progress. The Managing Director admitted the entries in the search statement, and the later reversal of those entries did not dilute the effect of the deeming provision. Explanation 5A applies where income based on entries in books or documents relates to a previous year ending before the search date and was not disclosed, and it deems concealment or furnishing of inaccurate particulars notwithstanding subsequent disclosure. The Tribunal distinguished the MAT-based decision relied on by the assessee and held that the normal-computation case before it was squarely governed by Explanation 5A.

Conclusion: Penalty under section 271(1)(c) was upheld on merits and the issue was decided against the assessee.

Issue (ii): Whether the assessee's additional ground that the penalty notice did not strike off the irrelevant limb under section 271(1)(c) required adjudication by the first appellate authority.

Analysis: The additional ground had not been raised before the Assessing Officer or the first appellate authority, and that authority had recorded no finding on the point. In the interests of justice, the Tribunal considered it appropriate to send the matter back so that the first appellate authority could examine the contention after giving the assessee an opportunity of being heard.

Conclusion: The additional ground was remanded to the first appellate authority for fresh adjudication, in favour of the assessee.

Final Conclusion: The penalty was sustained on merits, but the newly raised notice-defect contention was restored for fresh consideration, so the appeals were disposed of with partial relief to the assessee.

Ratio Decidendi: In a search case covered by Explanation 5A to section 271(1)(c), booking undisclosed bogus purchases in the books constitutes deemed concealment or furnishing of inaccurate particulars, and subsequent disclosure or the accounting method followed does not prevent penalty; a new legal ground not previously adjudicated may be remanded for consideration by the appropriate authority.

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