TMI Blog1988 (2) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer found that the opening stock was not valued by the assessee on the same basis as was adopted by the Income-tax Officer for valuing the closing stock. He accordingly valued the opening stock also on the same basis and found that the value of the opening stock was required to be increased by Rs. 44,414. Deducting the adjustments made on account of opening stock valuation, eventually , the Income-tax Officer arrived at the undervaluation of closing stock at Rs. 36,799. He added this to the income returned by the assessee. It would appear that the assessment made by the Income-tax Officer making the above adjustments was accepted by the assessee without filing an appeal. Before completing the assessment, the Income-tax Officer issued a notice under section 274 of the Income-tax Act requiring the assessee to show cause why penalty should not be levied for concealment of income or for furnishing inaccurate particulars of such income. The assessee sent a detailed reply to the Income-tax Officer's show-cause notice. It was found that statutorily the penalty in this case had to be levied by the Inspecting Assistant Commissioner of Income-tax. Consequently, the record wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal is justified in holding that the assessee had concealed the particulars of its income by deliberately furnishing inaccurate particulars of closing stock and, therefore, was liable to penalty under section 27](1)(c) of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in its finding that the assessee bad concealed the particulars of its income when the authority levying the penalty held that the assessee was deemed to have concealed income or furnished inaccurate particulars of income in terms of the Explanation to section 271(1)(c) of the Income-tax Act for the reason that the income returned was less than 80% of the income assessed ?" That is how this reference is laid before us for consideration. We have heard learned counsel, Sri A. Satyanarayana, for the assessee, and learned standing counsel for the Revenue, Sri M.S.N. Murthy. The main thrust of the argument of Mr. Satyanarayana is that in the facts and circumstances of the case, it is impossible to state that the Revenue has established concealment so as to justify the levy of penalty under section 27](1)(c) of the Act. Learned counsel points out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation given by the assessee that the old jewellery which forms part of the closing stock does not move fast in view of the changing trends in fashion and sooner or later all the old jewellery would have to be melted and remade into new jewellery which would result in loss of weight in the process of melting and also result in loss of value of precious stones embedded in the gold jewellery. Learned counsel submits that all the above factors were taken into consideration in valuing the gold jewellery and also the standard gold. There was not the slightest endeavour on the part of the assessee to deliberately undervalue the closing stock. Learned counsel pointed out that as the support to levy the penalty with reference to the Explanation under section 271(1)(c) of the Act is discarded by the Revenue, the validity or otherwise of the penalty levied would have to be determined keeping in mind the principles governing the levy of penalty for escapement of income under the substantive provision of section 271(1)(c) of the Act. Learned counsel reiterated that in order to justify the levy of penalty, the burden heavily lies on the Revenue to show that there was deliberate and consc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation to section 271(1)(c) of the Act, the Revenue discarded that stand before the tribunal and even before us, the Revenue did not urge that the Explanation is applicable. If the correctness or otherwise of the levy of penalty has to be examined with reference to the fulfilment of the conditions prescribed by section 271(1)(c) of the Act, we have no doubt whatsoever that the Revenue failed to establish these ingredients in the present case. It should not be forgotten that this is a case where the Revenue had been making flat rate assessments in the past years. Some kind of enquiry was made in the assessment year 1971-72 regarding the mode of closing stock valuation and when the assessee gave the necessary particulars and explanation, the Revenue did not think it necessary to pursue the matter and verify whether the closing stock was properly valued but was content by rejecting the assessee's accounts and making a best judgment assessment under the proviso to section 145 of the Act. Obviously, therefore, the assessee did not attach great significance to evolving a very systematic and scientific method of valuation of closing stock. Some rough and ready method was evolved by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed against the assessment for a variety of reasons. It is not necessary to seek what these reasons are ; the best guess is that the assessee wanted to make peace by accepting the assessment without further appeal. That, in our opinion, does not entitle the Tribunal to draw a conclusion that the assessee necessarily accepted the estimate of the closing stock valuation by the Income-tax Officer. On almost identical system of accounting adopted in the past years, the Income-tax Officer thought it fit to make assessments by estimating gross profits and did not think it necessary to put the assessee on the alert to evolve a scientific and systematic method of valuing the closing stock. The assessee cannot, therefore, be blamed for not evolving any such method when the Revenue itself discarded the accounts of the assessee in the past years as not being trustworthy and estimated the profits at a flat rate. There is force in the submission of Mr. Satyanarayana that while valuing the closing stock for ascertaining the profits, the assessee went by his usual method adopted in the past years and did not think that the Income-tax Officer would act in a manner different from what he did in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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