Search penalty deeming fiction cannot extend to estimated income additions; penalty under section 271(1)(c) was deleted.

Penalty under section 271(1)(c) was held unsustainable where no return had been filed for the relevant assessment year and the additions were made on estimated income. Explanation 5 could not be invoked because it is a deeming provision confined to money, bullion, jewellery or other valuable article or thing found in search, and it cannot be extended to estimated additions that do not involve such search assets. The legal fiction was required to operate strictly within its statutory scope, so the penalty was deleted.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was sustainable when no return had been filed for the assessment year concerned and the additions were made on estimated income, and whether Explanation 5 to section 271(1)(c) applied to such estimated additions.

Analysis: The penalty was based on the assessee's alleged concealment, but the assessee had not filed a return for the relevant year. The additions made by the Assessing Officer were founded on estimation of income from various sources and did not represent money, bullion, jewellery or other valuable article or thing found in the course of search. Explanation 5 is a deeming provision confined to the specific situation of assets found in a search and cannot be extended beyond its language or purpose to estimated income additions. The legal fiction created by the Explanation could not be enlarged to cover the facts of this case.

Conclusion: Explanation 5 was not applicable, and the penalty under section 271(1)(c) was not sustainable.

Final Conclusion: The assessee was entitled to deletion of the penalty, and the appellate challenge succeeded.

Ratio Decidendi: A deeming provision for penalty in search cases applies only within the precise statutory conditions for which it is enacted and cannot be extended to estimated additions not representing assets found during search.

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