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Issues Involved:
1. Levy of penalty u/s 271(1)(c) of the Income-tax Act, 1961. 2. Applicability of Explanation 5 to section 271(1)(c). Summary: Issue 1: Levy of Penalty u/s 271(1)(c) The assessee, a partnership firm, faced penalty proceedings u/s 271(1)(c) for the assessment years 1984-85 and 1985-86. The firm filed returns admitting incomes of Rs. 1.5 lakhs and Rs. 2.5 lakhs respectively after a search u/s 132. The Income-tax Officer (ITO) accepted these returns but initiated penalty proceedings, alleging concealment of income or furnishing inaccurate particulars. The assessee contended that the returns were filed to purchase peace with the department and that some liabilities were omitted and asset costs overstated. The ITO rejected these contentions as afterthoughts and imposed penalties. The CIT(A) confirmed the penalties, leading to further appeals by the assessee. The Tribunal held that no penalty would lie against the agreed addition, citing the Supreme Court decision in Sri Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705. The Tribunal noted that the assessee had not deliberately furnished inaccurate particulars or concealed income, and the addition was made on an agreed basis. Therefore, the penalty imposed u/s 271(1)(c) was liable to be cancelled. Issue 2: Applicability of Explanation 5 to Section 271(1)(c) Explanation 5 to section 271(1)(c) deems an assessee to have concealed income if, during a search, they are found to own assets not recorded in their books of account. The assessee argued that the seized documents, being title deeds of immovable properties, did not fall under Explanation 5 or section 132(4) as they were not "valuable articles." The Tribunal agreed, citing Bhagwandas Narayandas v. CIT [1975] 98 ITR 194 (Guj.), which held that documents of title are not "valuable articles" as they do not possess intrinsic market value. The Tribunal concluded that the expressions "money, bullion, jewellery or other valuable article or thing" in Explanation 5 do not include documents of title. Therefore, the omission of the word "other document" in Explanation 5, unlike in section 132(4), meant that title deeds were outside its purview. The Tribunal upheld the assessee's contention and applied strict construction to the penal section. Conclusion: The appeals were allowed, and the order of the CIT(A) was cancelled.
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