Dhiraj A. Sharma Vs. Income Tax Officer. - Court Judgment

Excerpt:
- article 14: [r.m. lodha, s.a. bobde & s.b. deshmukh, jj] retiral benefit - classification between part time lecturers and full time teachers held, the part-time lecturers form a class by themselves and the said classification between part time lecturers and full-time teachers for purpose of granting retrial benefits cannot be said to be unconstitutional or bad in law -- consumer protection act, 1986 -- article 16; right to pension held, it is true that the pension is neither a bounty nor a matter of grace depending upon the sweet will of the employer. however, the right of pension is always subject to the rules. it is not inherent in the employment. though pension is a payment for a past service rendered and it is a social welfare measure, but it is well settled that an employee is not entitled to pension de hors the rules. in the instant case the government resolution dated 21.7.1983 held that the said pension scheme is only applicable to the employees covered therein. a part time teacher, unfortunately, is not covered by the said scheme and, therefore, not entitled. retirement benefit; differentiation between full time teachers and part-time lecturers government resolution providing for retrial benefits to full-time teaching staff part-time lecturer were not entitled to said benefit held, it is true that the pension is neither a bounty nor a matter of grace depending upon the sweet will of the employer. however, the right of pension is always subject to the rules. it is not inherent in the employment. though pension is a payment for a past service rendered and it is a social welfare measure, but it is well settled that an employee is not entitled to pension de hors the rules. in the instant case the government resolution dated 21.7.1983 held that the said pension scheme is only applicable to the employees covered therein. a part time teacher, unfortunately, is not covered by the said scheme and, therefore, not entitled. - this voluntariness on the part of the assessee clearly indicated that there was no mens rea or intentional concealment by the assessee so as to attract penalties. this clearly indicated that this was a gross and blatant and intentional act of under valuation of stock so as to escape tax liability for the two years under appeal. the decisions relied upon by the appellant are clearly distinguishable as in those cases penalty was not held exigible as the offer of additional income was voluntary on discovery of discrepancy. 271(1) (c) was clearly exigible in the appellants case. this gross disparity between the two rates clearly indicates that the act of the assessee in undervaluing his stock could not be unintentional, inadvertent or bona fide. 271(1) (c) was clearly exigible in the assessees case. 1988-89 as well as the reply given by the assessee in the course of assessment proceedings as well as the penalty proceedings have been incorporated :the assessee is carrying on business as jeweller in the name & style of m/s. 3,54,724 should be distributed over the preceding years as well, the same may kindly be done either as rectification or, if thought necessary by my filing it returns as you may kindly guide. under bona fide belief that stock valuation was done in good faith and acting honestly, there is no gross or wilful neglect on my part. 3,54,724 is required to be distributed over the preceding years as well, the assessee was prepared for it and for that he sought necessary guidance from the assessing officer. a perusal of the trading accounts original as well as revised filed by the assessee for both the assessment years indicate that the assessee was having substantial old jewellery lying in the closing stock at the beginning as well as the end of each of the accounting years under consideration. this process of melting the old jewellery will result into loss of base metal like copper or cadmium, etc. 273(2) (c) are concerned, it is found by the learned first appellate authority that even on the basis of returns filed originally the advance tax paid by the assessee was less than what was required under the relevant provisions and under these circumstance there was a clear failure to discharge the obligation as provided under s. since the penalties levied by the assessing officer as well as confirmed by the first appellate authority are the minimum leviable under the act, we have no hesitation in confirming the order passed by the learned first appellate authority in this regard.orderg. k. israni, j. m. :18th march, 1992.by these four appeals, the assessee has challenged the orders of the learned, cit(a) upholding the penalties levied under ss. 271(1) (c) and 273(2) (c) in relation to the asst. yrs. 1987-88 and 1988-89.2. the assessee, an individual, was carrying on business as a jeweller in the name of m/s. sangeeta jewellers. the return was filed declaring income at rs. 1,22,506 on 14th sept., 1987 for the asst. yr. 1987-88. for the asst. yr. 1988-89, the return was filed on 19th july, 1988 showing income at rs. 1,47,410. during the course of the assessment proceedings for the asst. yr. 1988-89, it was noticed by the ito that the assessee had undervalued the closing stock. the ito required the assessee to furnish the basis and details of valuation of closing stock. compliance was required to be made on 25th sept., 1989. the assessee in terms of the letter purporting to be dt. 16th sept., 1989 offered for revaluation of closing stock and, as a necessary consequence, offered an additional income of rs. 3,54,724 for the asst. yr. 1988-89. the assessee submitted before the ito that the business had come to him only in the asst. yr. 1986-87 on account of the sudden death of his father. the assessee had filed the returns as worked out by his employees/accountant. the working of the closing stock was not available with him. he had, therefore, recalculated the value of closing stock following weighted average method and had offered to be assessed on additional income to avoid litigation any buy peace. the assessee also requested for bifurcation of income for the asst. yrs. 1988-89 and 1987-88. the assessments were completed accordingly.3. proceedings under s. 271(1) (c) were initiated for both the years. since the assessee had not paid the advance tax due commensurate with the income assessed as a result of revaluation of stock, proceedings under s. 273(2) (c) were also initiated. for the two assessment years penalties of rs. 1,14,630 and rs. 65,598 were levied under s. 271(1) (c) and penalties of rs. 9,335 and rs. 5,998 were levied under s. 273(2) (c). the penalties have been confirmed by the learned commissioner(a) giving rise to the present appeals by the assessee.4. the main thrust of the argument of the learned counsel for the assessee was two-fold. the first limb of his argument was that the mistake in the valuation of the closing stock was bona fide and, therefore, no penalty for concealment could be imposed. according to the learned counsel, the assessee, allegedly a young boy of around 18 years, and inherited the business from his father only in the asst. yr. 1986-87. he was not conversant with all the aspects of the return and the valuation of closing stock and filing of business returns. he was not properly guided by his staff. as such, the mistake in the valuation of stock was bona fide one and no penalty for concealment could validly be imposed. the second limb of the argument of the learned counsel was that where the income declared in a return has been found to be low only on account of incorrect valuation of the stock, such case can, in no circumstances, be treated as one of concealment of income so as to attract penalties. in a case involving under valuation of stocks there is never any attempt to avoid tax. the only possible result is that of postponement of payment of tax. therefore, the act of under valuation of the stock should never be visited with penalty for concealment. during the course of his arguments, the learned counsel for the assessee also referred to the fact that the assessee, during the course of the assessment proceedings, on being required to explain the valuation of the stock, had voluntarily filed revised returns declaring additional income. this voluntariness on the part of the assessee clearly indicated that there was no mens rea or intentional concealment by the assessee so as to attract penalties.5. as against the above, it was submitted by the learned departmental representative that although during the two years in question the assessee had made purchases of fresh stock at prices much higher than the rates adopted for opening stock, yet he valued the closing stock at the rates lower than those adopted for the opening stock and those at which the purchases were made during the two years in question. this clearly indicated that this was a gross and blatant and intentional act of under valuation of stock so as to escape tax liability for the two years under appeal. such act of the assessee cannot validly be regarded as bona fide so as to not constitute concealment of income. the revised returns filed by the assessee could not also validly be regarded as voluntary ones inasmuch as they were filed only after the ito had commenced enquiries into the question of valuation of stock and had required the assessee to explain the basis of valuation. in support of his arguments, the learned departmental representative relied upon the decision of the madras high court in the case of ratnam & co. vs . iac : [1980]124itr376(mad) and the decision of the hyderabad bench of the tribunal in the case of katika ramulu & bros. vs . ito reported in .6. now, so far as the penalties under s. 271(1) (c) are concerned, the learned commissioner(a) has dealt with the issue in paragraph 5 of his impugned order relating to those penalties, which reads as under :'5. i have considered the submissions on behalf of the appellant carefully. i have also looked into the facts of the case. in asst. yr. 1987-88 the assessment was completed on a total income of rs. 3,51,770 as against returned income of rs. 1,22,506. the variation was mainly attributable to the addition of rs. 2,29,265 based on revaluation of closing stock. in asst. yr. 1988-89 the total income determined was rs. 2,95,430 as against returned income of rs. 1,47,410. in this also assessed income was higher mainly on account of the additions towards under valuation of stock at rs. 1,25,449. appellants main crux of argument to exclude his case from the penal consequences of s. 271(1) (c) is that the discrepancy in valuation of stock was bona fide and that the order of additional income based on correct valuation was voluntary. the claim, however, is not found to be correct on scrutiny of assessment order and consideration of the sequence of events. firstly, it is seen that in asst. yr. 1987-88 the opening stock was valued at the rate of rs. 1,536 per 10 gms. whereas the closing stock was valued at rs. 1,200 per 10 gms. this was in spite of the fact that the average purchase price was rs. 1,728 per 10 gms. in asst. yr. 1988-89 the closing stock was valued at the rate of rs. 1,116 per 10 gms. as against opening stock at the rate of 1,240 per 10 gms. and the average purchase price at rs. 2,135 per 10 gms. thus it would be seen that in asst. yrs. 1987-88 and 1988-89 the closing stock valuations were made at rates lower than the rates adopted in the opening stock and that at which purchases were made during the year. there is no ostensible explanation for this practice other than the desire to understate the income. when the price had gone up at a rapid rate there was no bona fide explanation for valuing the closing stock at rates lower than the opening stock and purchase price. in the circumstances, i am of the view that the discrepancy in valuation of closing stock was not bona fide. further, even the offer of revaluation and additional income could not be accepted as voluntary. as stated by the assessing officer she had already taken note of the discrepancy in the closing stock and had required the appellant to furnish the basis of valuation on 25th sept., 1989. the appellant made the offer to be assessed at higher income vide a letter dt. 16th sept., 1989. however, this letter was filed before the assessing officer only on 11th oct., 1989. obviously the date of letter was advisedly typed as 16th sept., 1989 to project the claim that the offer was voluntary. as the letter was filed before the assessing officer only or 11th oct., 1989 it would be difficult to accept that the offer was made before the department became aware about it. as a matter of fact, it was clear from the order-sheet notings that the assessing officer had already taken note of the discrepancy and was trying to offer an opportunity to the appellant to explain his case. in the circumstances when neither the discrepancy was bona fide nor the offer of additional income was voluntary there was nothing to take away the case of the appellant from the applicability of provisions of s. 271(1) (c). the assessment order has become final as no appeals were filed against them. the additions have also in the circumstances, became final. the decisions relied upon by the appellant are clearly distinguishable as in those cases penalty was not held exigible as the offer of additional income was voluntary on discovery of discrepancy. as discussed earlier the facts of the appellants case were entirely different. in the above circumstances, i am of the view that penalty under s. 271(1) (c) was clearly exigible in the appellants case. as the assessing officer levied the penalty at the minimum there is no reason to modify her orders. both the penalties are accordingly approved and the appeals are dismissed.'7. it would be seen from the aforesaid that whereas for the asst. yr. 1987-88, the opening stock was valued at the rate of 1,536 per 10 gms. the closing stock was valued at rs. 1,200 per 10 gms. this was inspite of the fact that the average purchase price was rs. 1,728 per 10 gms. for the asst. yr. 1988-89, the closing stock was valued at the rate of rs. 1,116 per 10 gms. as against the opening stock at the rate of rs. 1,240 per 10 gms. although the average purchase price during the year was rs. 2,135 per 10 gms. thus the closing stock valuations were made at the rates much lower than the rates adopted for the opening stock and the rates at which the purchases were made during the two years. the adopting of this manner of valuation by the assessee cannot be held to be tenable either under the fifo (first in first out) method or under the weighted average method of valuation. in the asst. yr. 1988-89, the average purchase price was at as high a rate as rs. 2,213 per 10 gms. yet the assessees chose to value his closing stock at such a low rate as rs. 1,116 per 10 gms. which is almost 50 per cent of the rate of purchase price. this gross disparity between the two rates clearly indicates that the act of the assessee in undervaluing his stock could not be unintentional, inadvertent or bona fide. this is a blatant and intentional act of gross under valuation of closing stock so as to escape tax liability for the two years. as regards the voluntary nature of the disclosure of additional income, here again, it would be difficult to accept the argument of the learned counsel that the revised returns were filed voluntarily and before the detection of the concealment by the ito. it was only when the ito found that the closing stock was not properly valued and required him to explain the basis thereof that the assessee, in compelling circumstances, chose to file revised returns. filing of revised returns in such circumstances cannot be held to be voluntary so as to allow the assessee to escape the consequences of a previous act of concealment. the fact of the assessee being a young man and of his having taken over the business on the death of his father in the asst. yr. 1986-87 cannot, in the circumstances of the case, be held to be of a material significance so as to warrant a conclusion that the mistake was unintentional and bona fide and, therefore, could save the assessee from the consequences of the provisions of s. 271(1) (c). we, therefore, conclude that the learned commissioner(a) was eminently justified in coming to the conclusion that penalty under s. 271(1) (c) was clearly exigible in the assessees case. as the ito, had levied the penalties at the minimum, there was no case to modify her penalty orders passed under s. 271(1) (c) of the act.8. as regards the penalties levied under s. 273(2) (c), it was urged by the learned counsel that the higher estimate could not be filed as the obligation to file the higher estimate arose on account of the offer of additional income on the basis of revised valuation of closing stock. here again, similar contentions were made, which have been rejected by us in relation to the penalties levied under s. 271(1) (c). for the similar reasons, we hold that the penalties under s. 273(2) (c) have been properly levied and confirmed. no case for our interference therein is made out.9. in the result, all four appeals by the assessee are found to be having no merit and shall, therefore, stand dismissed.r. k. bali, a. m. :10. i have carefully and respectfully gone through the judgment proposed by my learned brother, jm, in this appeal. however, with great respect, i find myself unable to agree with the decision arrived at by him relating to the confirmation of penalties levied under s. 271(1) (c) although with regard to the penalties levied under s. 273(2) (c), i am in agreement with my learned brother that the order passed by the first appellate authority relating to the confirmation of penalties under s. 273(2) (c) relating to asst. yrs. 1987-88 & 1988-89 deserves to be upheld.11. with regard to the penalties levied under s. 271(1) (c), the facts of the case have been discussed broadly in para 2 of the proposed order of my learned brother, the jm, and the legal arguments raised on behalf of the assessee have been summarised in para 4. it is undisputed that there has been an under valuation of closing stock for both the assessment years under consideration and this fact was noticed by the assessing officer during the course of assessment proceedings for the asst. yr. 1988-89. it will be pertinent to refer to the penalty order passed by the assessing officer under s. 271(1) (c) for the asst. yr. 1988-89 in which the relevant portion of assessment order for the asst. yr. 1988-89 as well as the reply given by the assessee in the course of assessment proceedings as well as the penalty proceedings have been incorporated :'the assessee is carrying on business as jeweller in the name & style of m/s. sangeeta jewellers as a proprietary concern. during the course of assessment proceedings, it is noticed that the assessee has undervalued closing stock. it was noticed that for asst. yr. 1987-88, the assessee valued opening stock at rs. 1,536 per 10 gms. the average purchase price during the year was rs. 1,728 per 10 gms. the valuation of closing stock was adopted at rs. 1,200 per 10 gms. which amounted to under valuation of stock. for asst. yr. 1988-89 the assessee valued opening stock at rs. 1,200 per 10 gms. the closing stock is at 4,610.904 gms. valued at rs. 1,116 per 10 gms. during the year it has effected purchase of 6,198.348 gms. of an average of rs. 2,135 per 10 gms. he sold 6,531.625 gms. of gold at an average rate of rs. 2,533 per 10 gms. therefore in this year also, the assessee undervalued the closing stock.during the course of assessment proceedings for asst. yr. 1988-89, a question was raised about the valuation of closing stock in that year at rs. 5,35,964 i.e., 1,162 per 10 gms. of gold. it was pointed out on the order sheet as under :that the assessee is having closing stock of gold amounting to rs. 5,35,964. the method is adopted as base method of asst. yr. 1980-81 and remaining at the rate of average method. the assessee will furnish the complete details of this and also method adopted in earlier years. in absence of any proper adopted/accepted method why closing stock should not be calculated at the current rates? the assessee will furnish the above details possibly by 25th sept., 1989 at 11.00 a. m.as a result of above enquiries the assessee vide his letter dt. 16th sept., 1989 revised the value of closing stock at rs. 8,90,688 as per the weighted average method as against rs. 5,35,964 declared earlier and filed revised return of income on 23rd oct., 1989 disclosing income of rs. 5,02,135 as against rs. 1,47,412 originally shown, the contents of the assessees letter are reproduced below :i am carrying on business in jewellery in the name and style of m/s. sangeeta jewellers, my proprietary concern. asst. yr. 1986-87 was the first year in which the profits of this business were offered for tax by me. since prior to that the income had been offered for tax in the hands of my father late achalchand sharma. after his death, the business has come to me.since i was only beginner in the jewellery business, i had a lot of difficulties and had to place reliance on the old staff and accountant of my father. on the basis of accounts prepared by them, i had filed my returns for asst. yrs. 1986-87, 1987-88 and 1988-89. the old accountant is no longer with me.while going through my accounts for the various years with the help of my new accountant and consultant i have been unable to so far determine the basis of valuing the closing stock of gold from year to year since the working papers apparently have not been preserved by the old accountant. faced with this difficulty i have started afresh. i have been advised that the adopting of the weighted average method for valuing closing stock would be an appropriate method. hence regardless of method adopted in the past. since i am not in a position to presently explain or comment upon the same. i have prepared afresh working on the basis of my performances and applying the weighted average method, derived the closing stock value of gold ornaments in accordance with the said method.for this purpose i have taken my purchases at a uniform 24 ct. by converting purchases of all categories of different caratage into corresponding 24 carat figures.as a result of these working, i find that as against the closing stock of rs. 5,35,964 as on sy 2043 (relevant to asst. yr. 1988-89) my closing stock should be valued at rs. 8,90,688 as per the weighted average method. the closing stock value of may gold ornaments as on sy 2043 (23rd oct., 1987) may be revised accordingly. you are requested to kindly treat my return for asst. yr. 1988-89 as amended accordingly i.e., the income be increased by rs. 3,54,724. however, if it is thought necessary that this difference in stock i.e., rs. 3,54,724 should be distributed over the preceding years as well, the same may kindly be done either as rectification or, if thought necessary by my filing it returns as you may kindly guide.i respectfully submit that this declaration and offer of additional income being made by me should be treated as being fully voluntary having been made suo motu and prior to detection by the department.in view of the circumstances explained above, you are requested to kindly treat this most sympathetically and refrain from charging any interest or levying any penalties in connection with this declaration.the assessees contention that the additional income offered for taxation should be treated as being fully voluntary having been made suo motu and prior to detection by the department is not accepted. as substantial portion of income concealed pertained to asst. yr. 1987-88, this assessment was also taken up for scrutiny after obtaining previous approval of the dy. cit, range 22, bombay. notice under ss. 143(2) and 142(1) of the it act, 1961 were issued and sent to the assessee along with a latter dt. 26th oct., 1989 which reads as under :'i am enclosing notices under ss. 143(2) and 142(1) of it act for asst. yr. 1987-88. under the provisions of s. 142(1) of the it act, you are requested to make your submissions on the following :the opening stock of gold ornaments as worked out by you after conversion into 24 carat is 4182 grams valued at rs. 6,29,715 i.e., at rs. 1,505 per 10 gms. the closing stock of same assessment year of 4622 grams was originally valued at rs. 7,09,999 i.e., at rs. 1,536 per 10 gms. prima facie the valuation of closing stock at rs. 1,536 as against the valuation of opening stock at rs. 1,505 cannot be considered as gross under valuation of stock. thus, i do not find any substantial ground for revaluation of stock of asst. yr. 1986-87. as regards asst. yr. 1987-88 it is seen that the opening stock on hand is valued at rs. 1,536 per 10 gms. the average purchase price during the year was rs. 1,728 per 10 gms. in the circumstances, the valuation of closing stock at rs. 1,200 per 10 gms. amounts to gross under valuation of stock resulting in deliberate concealment of income. the assessee being a proprietary concern he had notice to bring down the income from around 5 lakhs to around rs. 2,25,000. in the asst. yr. 1987-88, it is seen that the closing stock is valued at rs. 1,212 per 10 gms. which has no relevance to the value of opening stock or the average purchase price of the current year. there is no substance in your contention that you are not aware of the method of valuation of closing stock. your attempt to pass on the liability to accountant is equally unacceptable. then the closing stock of 4266 gms. is valued at rs. 7,09,999. the gross under valuation of stock is apparent on records and it could not have escaped your attention. you are therefore, aware of the gross under valuation of stock.in the course of assessment proceedings for asst. yr. 1988-89, i have raised the question of valuation of closing stock in that year by you at rs. 5,35,964 i.e., rs. 1,162 per 10 gms. of gold. it has been pointed out in the order sheet that the assessee is having closing stock of gold amounting to rs. 5,35,964. the method is adopted as base method. the assessee will furnish the above details positively by 25th sept., 1989 at 11 a. m.prima facie it is a result of these enquiries that you have revised the value of closing stock in the revised trading account of asst. yr. 1987-88 revised by you in which closing stock is now valued at rs. 8,28,942 as against the original value of rs. 5,99,478. you will please explain why your assessment could not be completed by taking the closing stock value at rs. 8,28,942 and why penalty proceedings under s. 271(1) (c) should not be initiated. on this basis the addition to the trading account of revaluation of closing stock will be rs. 2,29,269.after taking into all the facts of the case and discussions made with the assessees representative income of rs. 2,29,265 was added for asst. yr. 1987-88 and rs. 1,25,449 was added for asst. yr. 1988-89 treating it as income from undisclosed sources.the assessee has not filed appeal against the above order and accepted the entire addition and taxes have also been paid except interest under s. 217 for which decision is still awaited from higher authorities.in response to show cause notice under s. 271(1) (c) the assessee replied vide letters dt. 14th feb., 1990 and 11th april, 1990 stating as under :i had revalued the closing stock of asst. yr. 1988-89 at rs. 8,90,688 as against rs. 5,35,964 as per declaration letter dt. 16th sept., 1989. thus the difference of rs. 4,54,724, i offered as income being fully voluntary having been suo motu and prior to detection by the department.my father late shri achalchand sharma was expired suddenly before one and half year leaving me in dark about the business activity, accounts, family affairs, social obligations, etc. in view of the above fact, i had lot of difficulties and placed reliance on the old staff and accountant of my father. i had filed my return for asst. yrs. 1986-87 to 1988-89 according to accounts prepared by them since the working papers apparently have not been preserved by the old accountant on records, therefore, i was unable to say about the stock valuation method. as per para no. 3 on page no. 2 of my said letter, i made by request before you as 'regardless of method adopted in the past, and not in a position to presently explain or comment upon the same, i have been advised and prepared fresh working applying the weighted average method of stock valuation.madam, on inquiry being made with old accountant and staff member, i came to know that the stock was valued on the basis of cost or market price whichever is lower, followed by the last in first out method. i have gone through the working of the closing stock valuation and to state that the valuation is done on the basis of the above method. this method is accepted accounting method and the same was adopted from year to year also. to avoid the litigation with the department and to keep peace in mind once again, i keep my own words and paying the taxes accordingly.there is no change so far as the physical quantity of the closing stock is concerned, the under valuation of the closing stock was due to bona fide change in method of valuation of stock. as i found that the weighed average method is more scientific and systematic method of valuing the closing stock and keep peace in mind, i have not appealed against the assessment for these reasons. under bona fide belief that stock valuation was done in good faith and acting honestly, there is no gross or wilful neglect on my part.the assessee has also relied on judgment in the following cases :1. k. p. kandasami mudaliar & sons vs. cit (1984) 34 ctr (mad) 3032. lakshmi jewellery vs. cit (1988) 37 taxman 239 (ap)3. cit vs. dr. kum m. dubey (1987) 35 taxman 323 (mp)i have gone through the contentions of the above judgment. the facts of the assessees case are not similar to the above. as already held in earlier paragraph i.e., concealment is detected by the department and it cannot be said as voluntary declaration. the gross under valuation is apparent from record and could not have escaped the attention of the assessee. therefore prima facie it is as a result of the enquiries of closing stock made by the department that the assessee has come forward with a disclosure and offered rs. 3,54,723 as additional income. therefore, it is deliberate concealment. i, therefore, levy penalty of rs. 65,598 being minimum penalty at 100% of the concealed income. this order has been passed with the prior approval of the dy. cit, range 22, bombay vide his order no. dcr22/approval/90-91 dt. 26th june, 1990.'12. a perusal of the order-sheet entry whose compliance was required by the assessing officer by 25th sept., 1989, which has been reproduced in the penalty order at a above, will indicate that the method of valuation as explained by the representative of the assessee to the assessing officer was claimed to be 'as base method of asst. yr. 1980-81 and remaining at the rate of average method'. the expression used (as noted by the assessing officer in the order-sheet) does not refer to any proper method of valuation. however, the fact remains that there was definite under valuation and this fact was pointed out by the assessing officer to the assessee. the assessee, vide his letter dt. 16th sept., 1989, which was, however, filed in the office of the ito on 11th oct., 1989, enhanced the valuation of closing stock for the asst. yr. 1988-89 to rs. 8,90,688 instead of rs. 5,35,964 on the basis of weighted average method and thus offered additional income of rs. 3,54,724 for assessment in the asst. yr. 1988-89. in the above letter, offer was made that if the difference in closing stock of rs. 3,54,724 is required to be distributed over the preceding years as well, the assessee was prepared for it and for that he sought necessary guidance from the assessing officer. in the letter dt. 16th sept., 1989, which has been reproduced in the penalty order and which has been incorporated in para 11 of this order also, at the portion marked b it is mentioned that for the purpose of preparing the trading account the assessee has taken the purchases at a uniform 24 carat by converting purchases of all categories of different cartage into corresponding 24 carats. this practice of the assessee naturally will effect the valuation of purchases of gold ornaments. a perusal of the trading accounts original as well as revised filed by the assessee for both the assessment years indicate that the assessee was having substantial old jewellery lying in the closing stock at the beginning as well as the end of each of the accounting years under consideration. it is common knowledge that old jewellery lying in a gold shop does not move fast and eventually it has to be re-made into new jewellery conforming to the changed trends in fashion. this process of melting the old jewellery will result into loss of base metal like copper or cadmium, etc., used in the manufacturing of jewellery. apart from this, old jewellery bought during the accounting period will also undergo same process, which will also effect the valuation eventually. the question of valuation of old jewellery in the closing stock cannot be scientifically determined as it will be difficult to categorically state as to whether the old jewellery relates entirely to the purchases made during the assessment years under consideration or only a part of it related to the years in dispute and part of it was brought forward from the previous years. as such the fact remains that the valuation of stock has to be determined on a rough and ready basis without reference to the market value. the argument taken by the assessee that valuation was done on a mixed basis being the cost or market price, whichever is lower together with principle of lifo (last in first out) was adopted as a consequence of which the valuation of closing stock was at a much lesser figure than the average purchase price or for that matter even the opening stock, has to be considered in the context of purchases of different carats of gold ornaments being converted into 24 carats and then taken into the trading account. the assessee himself realised the incorrectness of this method and accordingly when confronted by the assessing officer during the course of assessment proceedings for asst. yr. 1988-89, he offered to increase the valuation of the closing stock by adopting the weighted average method and offered additional income for taxation. however, this action alone of the assessee will not make him guilty of deliberate concealment of income particularly so as the assessee inherited the business only about 1-1/2 years prior to the commencement of the assessment proceedings as a result of the death of his father sh. achal nath sharma on account of heart attack, which fact has been conveyed to the assessing officer vide letters dt. 14th feb., 1990 and 11th april, 1990 in response to penalty notices under s. 271(1) (c), which have been incorporated in the penalty order passed under s. 271(1) (c) and marked c in the reproduced portion of the penalty order in earlier paragraph.13. it is undisputed that the alleged concealment of income for both the years is due to valuation of closing stock only. there is no suppression of sales of enhancement of purchases or inflation of other expenses. it has been held by the honble supreme court in the case of chainrup sampatram vs . cit : [1953]24itr481(sc) that 'it is a misconception to think that any profit arises out of the valuation of the closing stock.... valuation of unsold stock at the close of the account period is a necessary part of the process of determining the trading results of that period and can in no sense be regarded as the source of such profits'. thus it has to be held that in a case involving under valuation of stock, there is never a conscious attempt to evade tax as the only possible result of under valuation is that of postponement of tax - particularly so as the quantity of gold ornaments in the closing stock have not been disputed by the assessing officer and the addition is made only on account of the under valuation of the accepted quantity of gold ornaments. the fact that the assessee has accepted the additions made by the assessing officer and has not filed any appeals will not be sufficient to hold the assessee guilty of concealment of income as held by the honble supreme court in the case of sir shadi lal sugar & general mills ltd. vs . cit cited as : [1987]168itr705(sc) wherein it is held at page 706 (headnote) of itr that from the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. there may be hundred and one reasons for such admission i.e., when the assessee realises true position, it does not dispute certain disallowance but that does not absolve the revenue from proving the mens rea of quasi-criminal offence.14. keeping in view the totality of facts and circumstances of the case, i am of the opinion that if the assessee has, in his endeavour to buy peace, offered for taxation enhanced valuation of the stock on the basis of weighted average method as suggested by the assessing officer he has suffered taxation for his negligence in accepting the acts of omission/commission by his earlier accountant - may be as instructed by his late father sh. achal nath sharma, he should not be further penalised by holding him quality of conscious and deliberate concealment. accordingly the penalties under s. 271(1) (c) levied by the assessing officer for both the assessment years under consideration are directed to be deleted.15. as regards the penalties levied under s. 273(2) (c) are concerned, it is found by the learned first appellate authority that even on the basis of returns filed originally the advance tax paid by the assessee was less than what was required under the relevant provisions and under these circumstance there was a clear failure to discharge the obligation as provided under s. 209a(4) of the it act by the assessee. since the penalties levied by the assessing officer as well as confirmed by the first appellate authority are the minimum leviable under the act, we have no hesitation in confirming the order passed by the learned first appellate authority in this regard.16. in the result the appeals relating to penalties under s. 271(1) (c) in ita nos. 6063 and 6064 (bom) /1991 are allowed whereas the appeals relating to penalties under s. 273(2) (c) in ita nos. 6065 & 6066 (bom) /1991 are dismissed.

Judgment:
ORDER

G. K. ISRANI, J. M. :

18th March, 1992.

By these four appeals, the assessee has challenged the orders of the learned, CIT(A) upholding the penalties levied under Ss. 271(1) (c) and 273(2) (c) in relation to the asst. yrs. 1987-88 and 1988-89.

2. The assessee, an individual, was carrying on business as a jeweller in the name of M/s. Sangeeta Jewellers. The return was filed declaring income at Rs. 1,22,506 on 14th Sept., 1987 for the asst. yr. 1987-88. For the asst. yr. 1988-89, the return was filed on 19th July, 1988 showing income at Rs. 1,47,410. During the course of the assessment proceedings for the asst. yr. 1988-89, it was noticed by the ITO that the assessee had undervalued the closing stock. The ITO required the assessee to furnish the basis and details of valuation of closing stock. Compliance was required to be made on 25th Sept., 1989. The assessee in terms of the letter purporting to be dt. 16th Sept., 1989 offered for revaluation of closing stock and, as a necessary consequence, offered an additional income of Rs. 3,54,724 for the asst. yr. 1988-89. The assessee submitted before the ITO that the business had come to him only in the asst. yr. 1986-87 on account of the sudden death of his father. The assessee had filed the returns as worked out by his employees/accountant. The working of the closing stock was not available with him. He had, therefore, recalculated the value of closing stock following weighted average method and had offered to be assessed on additional income to avoid litigation any buy peace. The assessee also requested for bifurcation of income for the asst. yrs. 1988-89 and 1987-88. The assessments were completed accordingly.

3. Proceedings under S. 271(1) (c) were initiated for both the years. Since the assessee had not paid the advance tax due commensurate with the income assessed as a result of revaluation of stock, proceedings under S. 273(2) (c) were also initiated. For the two assessment years penalties of Rs. 1,14,630 and Rs. 65,598 were levied under S. 271(1) (c) and penalties of Rs. 9,335 and Rs. 5,998 were levied under S. 273(2) (c). The penalties have been confirmed by the learned Commissioner(A) giving rise to the present appeals by the assessee.

4. The main thrust of the argument of the learned counsel for the assessee was two-fold. The first limb of his argument was that the mistake in the valuation of the closing stock was bona fide and, therefore, no penalty for concealment could be imposed. According to the learned counsel, the assessee, allegedly a young boy of around 18 years, and inherited the business from his father only in the asst. yr. 1986-87. He was not conversant with all the aspects of the return and the valuation of closing stock and filing of business returns. He was not properly guided by his staff. As such, the mistake in the valuation of stock was bona fide one and no penalty for concealment could validly be imposed. The second limb of the argument of the learned counsel was that where the income declared in a return has been found to be low only on account of incorrect valuation of the stock, such case can, in no circumstances, be treated as one of concealment of income so as to attract penalties. In a case involving under valuation of stocks there is never any attempt to avoid tax. The only possible result is that of postponement of payment of tax. Therefore, the act of under valuation of the stock should never be visited with penalty for concealment. During the course of his arguments, the learned counsel for the assessee also referred to the fact that the assessee, during the course of the assessment proceedings, on being required to explain the valuation of the stock, had voluntarily filed revised returns declaring additional income. This voluntariness on the part of the assessee clearly indicated that there was no mens rea or intentional concealment by the assessee so as to attract penalties.

5. As against the above, it was submitted by the learned Departmental Representative that although during the two years in question the assessee had made purchases of fresh stock at prices much higher than the rates adopted for opening stock, yet he valued the closing stock at the rates lower than those adopted for the opening stock and those at which the purchases were made during the two years in question. This clearly indicated that this was a gross and blatant and intentional act of under valuation of stock so as to escape tax liability for the two years under appeal. Such act of the assessee cannot validly be regarded as bona fide so as to not constitute concealment of income. The revised returns filed by the assessee could not also validly be regarded as voluntary ones inasmuch as they were filed only after the ITO had commenced enquiries into the question of valuation of stock and had required the assessee to explain the basis of valuation. In support of his arguments, the learned Departmental Representative relied upon the decision of the Madras High Court in the case of Ratnam & Co. vs . IAC : [1980]124ITR376(Mad) and the decision of the Hyderabad Bench of the Tribunal in the case of Katika Ramulu & Bros. vs . ITO reported in .

6. Now, so far as the penalties under S. 271(1) (c) are concerned, the learned Commissioner(A) has dealt with the issue in paragraph 5 of his impugned order relating to those penalties, which reads as under :

'5. I have considered the submissions on behalf of the appellant carefully. I have also looked into the facts of the case. In asst. yr. 1987-88 the assessment was completed on a total income of Rs. 3,51,770 as against returned income of Rs. 1,22,506. The variation was mainly attributable to the addition of Rs. 2,29,265 based on revaluation of closing stock. In asst. yr. 1988-89 the total income determined was Rs. 2,95,430 as against returned income of Rs. 1,47,410. In this also assessed income was higher mainly on account of the additions towards under valuation of stock at Rs. 1,25,449. Appellants main crux of argument to exclude his case from the penal consequences of S. 271(1) (c) is that the discrepancy in valuation of stock was bona fide and that the order of additional income based on correct valuation was voluntary. The claim, however, is not found to be correct on scrutiny of assessment order and consideration of the sequence of events. Firstly, it is seen that in asst. yr. 1987-88 the opening stock was valued at the rate of Rs. 1,536 per 10 gms. whereas the closing stock was valued at Rs. 1,200 per 10 gms. This was in spite of the fact that the average purchase price was Rs. 1,728 per 10 gms. In asst. yr. 1988-89 the closing stock was valued at the rate of Rs. 1,116 per 10 gms. as against opening stock at the rate of 1,240 per 10 gms. and the average purchase price at Rs. 2,135 per 10 gms. Thus it would be seen that in asst. yrs. 1987-88 and 1988-89 the closing stock valuations were made at rates lower than the rates adopted in the opening stock and that at which purchases were made during the year. There is no ostensible explanation for this practice other than the desire to understate the income. When the price had gone up at a rapid rate there was no bona fide explanation for valuing the closing stock at rates lower than the opening stock and purchase price. In the circumstances, I am of the view that the discrepancy in valuation of closing stock was not bona fide. Further, even the offer of revaluation and additional income could not be accepted as voluntary. As stated by the Assessing Officer she had already taken note of the discrepancy in the closing stock and had required the appellant to furnish the basis of valuation on 25th Sept., 1989. The appellant made the offer to be assessed at higher income vide a letter dt. 16th Sept., 1989. However, this letter was filed before the Assessing Officer only on 11th Oct., 1989. Obviously the date of letter was advisedly typed as 16th Sept., 1989 to project the claim that the offer was voluntary. As the letter was filed before the Assessing Officer only or 11th Oct., 1989 it would be difficult to accept that the offer was made before the Department became aware about it. As a matter of fact, it was clear from the order-sheet notings that the Assessing Officer had already taken note of the discrepancy and was trying to offer an opportunity to the appellant to explain his case. In the circumstances when neither the discrepancy was bona fide nor the offer of additional income was voluntary there was nothing to take away the case of the appellant from the applicability of provisions of S. 271(1) (c). The assessment order has become final as no appeals were filed against them. The additions have also in the circumstances, became final. The decisions relied upon by the appellant are clearly distinguishable as in those cases penalty was not held exigible as the offer of additional income was voluntary on discovery of discrepancy. As discussed earlier the facts of the appellants case were entirely different. In the above circumstances, I am of the view that penalty under S. 271(1) (c) was clearly exigible in the appellants case. As the Assessing Officer levied the penalty at the minimum there is no reason to modify her orders. Both the penalties are accordingly approved and the appeals are dismissed.'

7. It would be seen from the aforesaid that whereas for the asst. yr. 1987-88, the opening stock was valued at the rate of 1,536 per 10 gms. the closing stock was valued at Rs. 1,200 per 10 gms. This was inspite of the fact that the average purchase price was Rs. 1,728 per 10 gms. For the asst. yr. 1988-89, the closing stock was valued at the rate of Rs. 1,116 per 10 gms. as against the opening stock at the rate of Rs. 1,240 per 10 gms. although the average purchase price during the year was Rs. 2,135 per 10 gms. Thus the closing stock valuations were made at the rates much lower than the rates adopted for the opening stock and the rates at which the purchases were made during the two years. The adopting of this manner of valuation by the assessee cannot be held to be tenable either under the FIFO (first in first out) method or under the weighted average method of valuation. In the asst. yr. 1988-89, the average purchase price was at as high a rate as Rs. 2,213 per 10 gms. Yet the assessees chose to value his closing stock at such a low rate as Rs. 1,116 per 10 gms. which is almost 50 per cent of the rate of purchase price. This gross disparity between the two rates clearly indicates that the act of the assessee in undervaluing his stock could not be unintentional, inadvertent or bona fide. This is a blatant and intentional act of gross under valuation of closing stock so as to escape tax liability for the two years. As regards the voluntary nature of the disclosure of additional income, here again, it would be difficult to accept the argument of the learned counsel that the revised returns were filed voluntarily and before the detection of the concealment by the ITO. It was only when the ITO found that the closing stock was not properly valued and required him to explain the basis thereof that the assessee, in compelling circumstances, chose to file revised returns. Filing of revised returns in such circumstances cannot be held to be voluntary so as to allow the assessee to escape the consequences of a previous act of concealment. The fact of the assessee being a young man and of his having taken over the business on the death of his father in the asst. yr. 1986-87 cannot, in the circumstances of the case, be held to be of a material significance so as to warrant a conclusion that the mistake was unintentional and bona fide and, therefore, could save the assessee from the consequences of the provisions of S. 271(1) (c). We, therefore, conclude that the learned Commissioner(A) was eminently justified in coming to the conclusion that penalty under S. 271(1) (c) was clearly exigible in the assessees case. As the ITO, had levied the penalties at the minimum, there was no case to modify her penalty orders passed under S. 271(1) (c) of the Act.

8. As regards the penalties levied under S. 273(2) (c), it was urged by the learned counsel that the higher estimate could not be filed as the obligation to file the higher estimate arose on account of the offer of additional income on the basis of revised valuation of closing stock. Here again, similar contentions were made, which have been rejected by us in relation to the penalties levied under S. 271(1) (c). For the similar reasons, we hold that the penalties under S. 273(2) (c) have been properly levied and confirmed. No case for our interference therein is made out.

9. In the result, all four appeals by the assessee are found to be having no merit and shall, therefore, stand dismissed.

R. K. BALI, A. M. :

10. I have carefully and respectfully gone through the judgment proposed by my learned brother, JM, in this appeal. However, with great respect, I find myself unable to agree with the decision arrived at by him relating to the confirmation of penalties levied under S. 271(1) (c) although with regard to the penalties levied under S. 273(2) (c), I am in agreement with my learned brother that the order passed by the first appellate authority relating to the confirmation of penalties under S. 273(2) (c) relating to asst. yrs. 1987-88 & 1988-89 deserves to be upheld.

11. With regard to the penalties levied under S. 271(1) (c), the facts of the case have been discussed broadly in para 2 of the proposed order of my learned Brother, the JM, and the legal arguments raised on behalf of the assessee have been summarised in para 4. It is undisputed that there has been an under valuation of closing stock for both the assessment years under consideration and this fact was noticed by the Assessing Officer during the course of assessment proceedings for the asst. yr. 1988-89. It will be pertinent to refer to the penalty order passed by the Assessing Officer under S. 271(1) (c) for the asst. yr. 1988-89 in which the relevant portion of assessment order for the asst. yr. 1988-89 as well as the reply given by the assessee in the course of assessment proceedings as well as the penalty proceedings have been incorporated :

'The assessee is carrying on business as jeweller in the name & style of M/s. Sangeeta Jewellers as a proprietary concern. During the course of assessment proceedings, it is noticed that the assessee has undervalued closing stock. It was noticed that for asst. yr. 1987-88, the assessee valued opening stock at Rs. 1,536 per 10 gms. The average purchase price during the year was Rs. 1,728 per 10 gms. The valuation of closing stock was adopted at Rs. 1,200 per 10 gms. which amounted to under valuation of stock. For asst. yr. 1988-89 the assessee valued opening stock at Rs. 1,200 per 10 gms. The closing stock is at 4,610.904 gms. valued at Rs. 1,116 per 10 gms. During the year it has effected purchase of 6,198.348 gms. of an average of Rs. 2,135 per 10 gms. He sold 6,531.625 gms. of gold at an average rate of Rs. 2,533 per 10 gms. Therefore in this year also, the assessee undervalued the closing stock.

During the course of assessment proceedings for asst. yr. 1988-89, a question was raised about the valuation of closing stock in that year at Rs. 5,35,964 i.e., 1,162 per 10 gms. of gold. It was pointed out on the order sheet as under :

that the assessee is having closing stock of gold amounting to Rs. 5,35,964. The method is adopted as base method of asst. yr. 1980-81 and remaining at the rate of average method. The assessee will furnish the complete details of this and also method adopted in earlier years. In absence of any proper adopted/accepted method why closing stock should not be calculated at the current rates? The assessee will furnish the above details possibly by 25th Sept., 1989 at 11.00 a. m.

As a result of above enquiries the assessee vide his letter dt. 16th Sept., 1989 revised the value of closing stock at Rs. 8,90,688 as per the weighted average method as against Rs. 5,35,964 declared earlier and filed revised return of income on 23rd Oct., 1989 disclosing income of Rs. 5,02,135 as against Rs. 1,47,412 originally shown, the contents of the assessees letter are reproduced below :

I am carrying on business in jewellery in the name and style of M/s. Sangeeta Jewellers, my proprietary concern. Asst. yr. 1986-87 was the first year in which the profits of this business were offered for tax by me. Since prior to that the income had been offered for tax in the hands of my father late Achalchand Sharma. After his death, the business has come to me.

Since I was only beginner in the jewellery business, I had a lot of difficulties and had to place reliance on the old staff and accountant of my father. On the basis of accounts prepared by them, I had filed my returns for asst. yrs. 1986-87, 1987-88 and 1988-89. The old accountant is no longer with me.

While going through my accounts for the various years with the help of my new accountant and consultant I have been unable to so far determine the basis of valuing the closing stock of gold from year to year since the working papers apparently have not been preserved by the old accountant. Faced with this difficulty I have started afresh. I have been advised that the adopting of the weighted average method for valuing closing stock would be an appropriate method. Hence regardless of method adopted in the past. Since I am not in a position to presently explain or comment upon the same. I have prepared afresh working on the basis of my performances and applying the weighted average method, derived the closing stock value of gold ornaments in accordance with the said method.

For this purpose I have taken my purchases at a uniform 24 Ct. by converting purchases of all categories of different caratage into corresponding 24 carat figures.

As a result of these working, I find that as against the closing stock of Rs. 5,35,964 as on SY 2043 (relevant to asst. yr. 1988-89) my closing stock should be valued at Rs. 8,90,688 as per the weighted average method. The closing stock value of may gold ornaments as on SY 2043 (23rd Oct., 1987) may be revised accordingly. You are requested to kindly treat my return for asst. yr. 1988-89 as amended accordingly i.e., the income be increased by Rs. 3,54,724. However, if it is thought necessary that this difference in stock i.e., Rs. 3,54,724 should be distributed over the preceding years as well, the same may kindly be done either as rectification or, if thought necessary by my filing IT returns as you may kindly guide.

I respectfully submit that this declaration and offer of additional income being made by me should be treated as being fully voluntary having been made suo motu and prior to detection by the Department.

In view of the circumstances explained above, you are requested to kindly treat this most sympathetically and refrain from charging any interest or levying any penalties in connection with this declaration.

The assessees contention that the additional income offered for taxation should be treated as being fully voluntary having been made suo motu and prior to detection by the Department is not accepted. As substantial portion of income concealed pertained to asst. yr. 1987-88, this assessment was also taken up for scrutiny after obtaining previous approval of the Dy. CIT, Range 22, Bombay. Notice under Ss. 143(2) and 142(1) of the IT Act, 1961 were issued and sent to the assessee along with a latter dt. 26th Oct., 1989 which reads as under :

'I am enclosing notices under Ss. 143(2) and 142(1) of IT Act for asst. yr. 1987-88. Under the provisions of S. 142(1) of the IT Act, you are requested to make your submissions on the following :

The opening stock of gold ornaments as worked out by you after conversion into 24 carat is 4182 grams valued at Rs. 6,29,715 i.e., at Rs. 1,505 per 10 gms. The closing stock of same assessment year of 4622 grams was originally valued at Rs. 7,09,999 i.e., at Rs. 1,536 per 10 gms. Prima facie the valuation of closing stock at Rs. 1,536 as against the valuation of opening stock at Rs. 1,505 cannot be considered as gross under valuation of stock. Thus, I do not find any substantial ground for revaluation of stock of asst. yr. 1986-87. As regards asst. yr. 1987-88 it is seen that the opening stock on hand is valued at Rs. 1,536 per 10 gms. The average purchase price during the year was Rs. 1,728 per 10 gms. In the circumstances, the valuation of closing stock at Rs. 1,200 per 10 gms. amounts to gross under valuation of stock resulting in deliberate concealment of income. The assessee being a proprietary concern he had notice to bring down the income from around 5 lakhs to around Rs. 2,25,000. In the asst. yr. 1987-88, it is seen that the closing stock is valued at Rs. 1,212 per 10 gms. which has no relevance to the value of opening stock or the average purchase price of the current year. There is no substance in your contention that you are not aware of the method of valuation of closing stock. Your attempt to pass on the liability to accountant is equally unacceptable. Then the closing stock of 4266 gms. is valued at Rs. 7,09,999. The gross under valuation of stock is apparent on records and it could not have escaped your attention. You are therefore, aware of the gross under valuation of stock.

In the course of assessment proceedings for asst. yr. 1988-89, I have raised the question of valuation of closing stock in that year by you at Rs. 5,35,964 i.e., Rs. 1,162 per 10 gms. of gold. It has been pointed out in the order sheet that the assessee is having closing stock of gold amounting to Rs. 5,35,964. The method is adopted as base method. The assessee will furnish the above details positively by 25th Sept., 1989 at 11 a. m.

Prima facie it is a result of these enquiries that you have revised the value of closing stock in the revised trading account of asst. yr. 1987-88 revised by you in which closing stock is now valued at Rs. 8,28,942 as against the original value of Rs. 5,99,478. You will please explain why your assessment could not be completed by taking the closing stock value at Rs. 8,28,942 and why penalty proceedings under S. 271(1) (c) should not be initiated. On this basis the addition to the trading account of revaluation of closing stock will be Rs. 2,29,269.

After taking into all the facts of the case and discussions made with the assessees representative income of Rs. 2,29,265 was added for asst. yr. 1987-88 and Rs. 1,25,449 was added for asst. yr. 1988-89 treating it as income from undisclosed sources.

The assessee has not filed appeal against the above order and accepted the entire addition and taxes have also been paid except interest under S. 217 for which decision is still awaited from higher authorities.

In response to show cause notice under S. 271(1) (c) the assessee replied vide letters dt. 14th Feb., 1990 and 11th April, 1990 stating as under :

I had revalued the closing stock of asst. yr. 1988-89 at Rs. 8,90,688 as against Rs. 5,35,964 as per declaration letter dt. 16th Sept., 1989. Thus the difference of Rs. 4,54,724, I offered as income being fully voluntary having been suo motu and prior to detection by the Department.

My father Late Shri Achalchand Sharma was expired suddenly before one and half year leaving me in dark about the business activity, accounts, family affairs, social obligations, etc. In view of the above fact, I had lot of difficulties and placed reliance on the old staff and accountant of my father. I had filed my return for asst. yrs. 1986-87 to 1988-89 according to accounts prepared by them since the working papers apparently have not been preserved by the old accountant on records, therefore, I was unable to say about the stock valuation method. As per para No. 3 on page No. 2 of my said letter, I made by request before you as 'regardless of method adopted in the past, and not in a position to presently explain or comment upon the same, I have been advised and prepared fresh working applying the weighted average method of stock valuation.

Madam, on inquiry being made with old accountant and staff member, I came to know that the stock was valued on the basis of cost or market price whichever is lower, followed by the last in first out method. I have gone through the working of the closing stock valuation and to state that the valuation is done on the basis of the above method. This method is accepted accounting method and the same was adopted from year to year also. To avoid the litigation with the Department and to keep peace in mind once again, I keep my own words and paying the taxes accordingly.

There is no change so far as the physical quantity of the closing stock is concerned, the under valuation of the closing stock was due to bona fide change in method of valuation of stock. As I found that the weighed average method is more scientific and systematic method of valuing the closing stock and keep peace in mind, I have not appealed against the assessment for these reasons. Under bona fide belief that stock valuation was done in good faith and acting honestly, there is no gross or wilful neglect on my part.

The assessee has also relied on judgment in the following cases :

1. K. P. Kandasami Mudaliar & Sons vs. CIT (1984) 34 CTR (Mad) 303

2. Lakshmi Jewellery vs. CIT (1988) 37 Taxman 239 (AP)

3. CIT vs. Dr. Kum M. Dubey (1987) 35 Taxman 323 (MP)

I have gone through the contentions of the above judgment. The facts of the assessees case are not similar to the above. As already held in earlier paragraph i.e., concealment is detected by the Department and it cannot be said as voluntary declaration. The gross under valuation is apparent from record and could not have escaped the attention of the assessee. Therefore prima facie it is as a result of the enquiries of closing stock made by the Department that the assessee has come forward with a disclosure and offered Rs. 3,54,723 as additional income. Therefore, it is deliberate concealment. I, therefore, levy penalty of Rs. 65,598 being minimum penalty at 100% of the concealed income. This order has been passed with the prior approval of the Dy. CIT, Range 22, Bombay vide his order No. DCR22/Approval/90-91 dt. 26th June, 1990.'

12. A perusal of the order-sheet entry whose compliance was required by the Assessing Officer by 25th Sept., 1989, which has been reproduced in the penalty order at A above, will indicate that the method of valuation as explained by the representative of the assessee to the Assessing Officer was claimed to be 'as base method of asst. yr. 1980-81 and remaining at the rate of average method'. The expression used (as noted by the Assessing Officer in the order-sheet) does not refer to any proper method of valuation. However, the fact remains that there was definite under valuation and this fact was pointed out by the Assessing Officer to the assessee. The assessee, vide his letter dt. 16th Sept., 1989, which was, however, filed in the office of the ITO on 11th Oct., 1989, enhanced the valuation of closing stock for the asst. yr. 1988-89 to Rs. 8,90,688 instead of Rs. 5,35,964 on the basis of weighted average method and thus offered additional income of Rs. 3,54,724 for assessment in the asst. yr. 1988-89. In the above letter, offer was made that if the difference in closing stock of Rs. 3,54,724 is required to be distributed over the preceding years as well, the assessee was prepared for it and for that he sought necessary guidance from the Assessing Officer. In the letter dt. 16th Sept., 1989, which has been reproduced in the penalty order and which has been incorporated in para 11 of this order also, at the portion marked B it is mentioned that for the purpose of preparing the trading account the assessee has taken the purchases at a uniform 24 carat by converting purchases of all categories of different cartage into corresponding 24 carats. This practice of the assessee naturally will effect the valuation of purchases of gold ornaments. A perusal of the trading accounts original as well as revised filed by the assessee for both the assessment years indicate that the assessee was having substantial old jewellery lying in the closing stock at the beginning as well as the end of each of the accounting years under consideration. It is common knowledge that old jewellery lying in a gold shop does not move fast and eventually it has to be re-made into new jewellery conforming to the changed trends in fashion. This process of melting the old jewellery will result into loss of base metal like copper or cadmium, etc., used in the manufacturing of jewellery. Apart from this, old jewellery bought during the accounting period will also undergo same process, which will also effect the valuation eventually. The question of valuation of old jewellery in the closing stock cannot be scientifically determined as it will be difficult to categorically state as to whether the old jewellery relates entirely to the purchases made during the assessment years under consideration or only a part of it related to the years in dispute and part of it was brought forward from the previous years. As such the fact remains that the valuation of stock has to be determined on a rough and ready basis without reference to the market value. The argument taken by the assessee that valuation was done on a mixed basis being the cost or market price, whichever is lower together with principle of LIFO (Last in first out) was adopted as a consequence of which the valuation of closing stock was at a much lesser figure than the average purchase price or for that matter even the opening stock, has to be considered in the context of purchases of different carats of gold ornaments being converted into 24 carats and then taken into the trading account. The assessee himself realised the incorrectness of this method and accordingly when confronted by the Assessing Officer during the course of assessment proceedings for asst. yr. 1988-89, he offered to increase the valuation of the closing stock by adopting the weighted average method and offered additional income for taxation. However, this action alone of the assessee will not make him guilty of deliberate concealment of income particularly so as the assessee inherited the business only about 1-1/2 years prior to the commencement of the assessment proceedings as a result of the death of his father Sh. Achal Nath Sharma on account of heart attack, which fact has been conveyed to the Assessing Officer vide letters dt. 14th Feb., 1990 and 11th April, 1990 in response to penalty notices under S. 271(1) (c), which have been incorporated in the penalty order passed under S. 271(1) (c) and marked C in the reproduced portion of the penalty order in earlier paragraph.

13. It is undisputed that the alleged concealment of income for both the years is due to valuation of closing stock only. There is no suppression of sales of enhancement of purchases or inflation of other expenses. It has been held by the Honble Supreme Court in the case of Chainrup Sampatram vs . CIT : [1953]24ITR481(SC) that 'it is a misconception to think that any profit arises out of the valuation of the closing stock.... Valuation of unsold stock at the close of the account period is a necessary part of the process of determining the trading results of that period and can in no sense be regarded as the source of such profits'. Thus it has to be held that in a case involving under valuation of stock, there is never a conscious attempt to evade tax as the only possible result of under valuation is that of postponement of tax - particularly so as the quantity of gold ornaments in the closing stock have not been disputed by the assessing officer and the addition is made only on account of the under valuation of the accepted quantity of gold ornaments. The fact that the assessee has accepted the additions made by the Assessing Officer and has not filed any appeals will not be sufficient to hold the assessee guilty of concealment of income as held by the Honble Supreme Court in the case of Sir Shadi Lal Sugar & General Mills Ltd. vs . CIT cited as : [1987]168ITR705(SC) wherein it is held at page 706 (headnote) of ITR that from the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. There may be hundred and one reasons for such admission i.e., when the assessee realises true position, it does not dispute certain disallowance but that does not absolve the Revenue from proving the mens rea of quasi-criminal offence.

14. Keeping in view the totality of facts and circumstances of the case, I am of the opinion that if the assessee has, in his endeavour to buy peace, offered for taxation enhanced valuation of the stock on the basis of weighted average method as suggested by the Assessing Officer he has suffered taxation for his negligence in accepting the acts of omission/commission by his earlier accountant - may be as instructed by his late father Sh. Achal Nath Sharma, he should not be further penalised by holding him quality of conscious and deliberate concealment. Accordingly the penalties under S. 271(1) (c) levied by the Assessing Officer for both the assessment years under consideration are directed to be deleted.

15. As regards the penalties levied under S. 273(2) (c) are concerned, it is found by the learned first appellate authority that even on the basis of returns filed originally the advance tax paid by the assessee was less than what was required under the relevant provisions and under these circumstance there was a clear failure to discharge the obligation as provided under S. 209A(4) of the IT Act by the assessee. Since the penalties levied by the Assessing Officer as well as confirmed by the first appellate authority are the minimum leviable under the Act, we have no hesitation in confirming the order passed by the learned first appellate authority in this regard.

16. In the result the appeals relating to penalties under S. 271(1) (c) in ITA Nos. 6063 and 6064 (Bom) /1991 are allowed whereas the appeals relating to penalties under S. 273(2) (c) in ITA Nos. 6065 & 6066 (Bom) /1991 are dismissed.