1. We propose to dispose of both these appeals filed by the revenue, with this common order as they arise out of the single order passed by the CIT(A) and further because the grounds of appeal taken by the revenue in both the appeals are also the same.
2. The revenue has filed both these appeals against the order of the CIT(A), Bhatinda in appeal No. CIT(A)/IT/BTI/750,751/88-89 dated 29-1-1990, as these appeals pertain to the first period starting from 1-4-1981 to 15-8-1981 and the second period starting from 17-8-1981 to31-3-1982, on the following effective common ground :- On the facts and in the circumstances of the case, the ld. CIT(A) has earned in deleting the penalty imposed under Section 271(1)(c) amounting to Rs. 44,090 and Rs. 1,92,600 for the first period and second period respectively.
4. A perusal of the penalty orders show that during the year under consideration, two separate assessments had been framed - first for the first period and second combined for the second and third period. The constitution of the firm during the year under consideration was as under :----------------------------------------------------------------Period Name of the partners Remarks---------------------------------------------------------------1-4-1981 to (a) Sh. Praduman Singh s/o Sh. Sh.15-8-1981 Sh. Sadhu Singh - (b) Sh. Joginder Singh s/o (b) Sh. Parduman Singh S/o He left the part- Sh. Sadu Singh nership on31-3-1982 Sh. Labh Singh - (b) Sh. Joginder Singh S/o Sh. Joginder Singh, partner also died subsequently. The ITO has worked output the suppression of closing stock for the first period at Rs. 36,536 and for the second period at Rs. 1,01,970. In the first period, the stock shown in the return of income and as per the books of accounts was as under:-----------------------------------------------------Item Value as per return Value as per books of account----------------------------------------------------Iron 23240-00 28500-00 Thus, the difference in stock has been worked out at Rs. 36,536 in the second period, the difference in stock has been worked out to Rs. 1,15,050 as under:----------------------------------------------------Item Value as per return Value as per books of account----------------------------------------------------Iron 11580-00 35000-00 However, since an uniform rate of 2296 was shown by the assessee in the revised return, the income for the third period was accordingly reduced by approximately Rs. 13,000 and, therefore, for the purposes of levy of penalty, the difference of stock of the second period has been taken by the ITO at Rs. 1,01,970.
5. During the course of assessment proceedings, the Assessing Officer also came to the conclusion that there was deposits of Rs. 80,000 by the assessee besides cash credit of Rs. 26,000 with the assessee and the same were also treated as income from the undisclosed sources of the assessee and then penalty was also imposed upon him.
6. In this manner, the Assessing Officer imposed a penalty of Rs. 44,090 for the first period and jointly for second and third period imposed a penalty of Rs. 1,92,680 at the rate of 200% of the tax alleged to have been evaded by the assessee on account of difference in valuation of stocks.
7. The assessee went in appeal against the orders of the Assessing Officer before the CIT(A) and the CIT(A) by his detailed order deleted the penalties levied against the assessee by the Assessing Officer.
Aggrieved with the order of the CIT(A), now the revenue is in appeal before us with the prayer that the order of the CIT(A) be set-aside and that of the Assessing Officer be restored.
8. We have heard the learned D.R. for the revenue and perused the records and gone through the orders of the lower authorities. None appeared on behalf of the assessee and hence we proceed to dispose of these appeals on merits under Rule 24 of the I.T. (A.T.) Rules, 1963.
9. The first relevant and material point requires to be decided by this Bench is whether the penalty is attracted in the case of the assessee because the difference in valuation of closing stock at a higher valuation was simply adopted due to the insistence between the partners of the assessee-firm, namely, Shri Parduman Singh and whether the same was not properly explained by the assessee and whether on the facts and the circumstances of the case, the penalty imposed by the Assessing Officer was exigible.
10. The assessee's case before the lower authorities was that S/Shri Joginder Singh and Parduman Singh are real brothers and after the death of their mother Smt. Harbans Kaur on 15-8-1981, there were differences amongst the partners although they continued as partners in the second period i.e., upto 30-11-1981. Shri Parduman Singh wanted to retire and, therefore, insisted on higher valuation of stock which was taken on theoretical basis in the books of account as per the direction of Sh.
Parduman Singh. That Shri Joginder Singh, the continuing partner, when came to know about the hypothetical valuation of closing stock adopted in the books of account, he insisted that actual valuation should be taken after examining the material at site. That this was the reason that valuation was subsequently reduced in the books of account itself.
That the valuation taken originally was struck out and valuation on actual basis was adopted. That there was no guilty conscious or mala fide intention in adopting the actual valuation of stock as on 15-8-1981 and 30-11-1981. That this fact is clearly borne out from the fact that books of account were voluntarily produced before the ITO during the course of hearing on 4-4-1985. That no effort was made to erase these cuttings. That had there been any guilty mind, the books of account would not have been produced on 4-4-1985. That in any case the cuttings and revaluation of closing stock was due to sharp differences of opinion amongst the partners and there was no mens rea. That penalty proceedings under Section 271(1)(c) are not at all attracted and in any case the amount has already been treated as income of the assessee and the assessee has suffered tax on this amount. That during the course of hearing when the ITO pointed out that GP rate for the second and third period was low, the assessee immediately agreed to an application of aflat rate of 22% and, accordingly, filed revised returns for the second and third period subject to no penalty under Section 271(1)(c) (Photostat copies filed). That as per the revised return, the valuation of closing stock at the end of the second period by application of flat rate of 22% came to Rs. 2,36,544 and at the end of the third period came to Rs. 1,57,688. That this shows that this is a case of low GP and not suppression of closing stock and the value of stock increased with the application of higher rate of GP. That the ITO after receiving the revised return did not frame the assessment on the basis of revised returns and referred the matter to the IAC in contravention of the earlier understanding given to the assessee that revised return would be accepted subject to no penalty under Section 271(1)(c). That the assessment on the basis of which the impugned penalty has been levied is an assessment barred by limitation and the appeal is pending before the ITAT. That in the given circumstances the Department should have honoured its understanding in response to which revised returns were filed subject to no penalty.
11. In this case, it has been observed by the CIT(A) that there is no quantitative suppression of stocks by the assessee but the difference in valuation of stocks has been detected only because of the lower G.P.It has also been observed by the CIT(A) that no sales or purchase outside the books of account have been detected by the Assessing Officer. Guilty conscious or the mala fide intention also cannot be attributed to the assessee as he has not made any effort to erase the cuttings occurring in the books of account; rather the assessee voluntarily produced these books of account before the Assessing Officer during the course of hearing. Even pending the finalisation of the assessment, the assessee voluntarily came forward for the application of higher rate of G.P. by filing a revised return accordingly for the second and third party subject to no penalty under Section 271(1)(c) of the Income-tax Act, 1961. Even these observations of the CIT (A) that the revised return was filed by the assessee in response to an undertaking given by the Assessing Officer have not been assailed by the D.R. during the course of arguments.
12. We also find from the observation of the CIT (A) that specific addition has been made by the Assessing Officer on the basis of difference in valuation of closing stock. Although the stock at the second period as per the revised return was to the tune of Rs. 2,36,544 as against shown in the books of account originally by the assessee at Rs. 2,21,250 and it shows that, in fact, the valuation of closing stock varied due to the application of higher rate of G.P. and consequently this was the case of the lower G.P. shown by the assessee rather than the case of suppression of stock by the assessee. By filing the revised return and showing the value of closing stock at higher figure of Rs. 2,36,554 as against original valuation taken at Rs. 2,21,250 the assessee has simply corrected the error, if any, in the valuation of closing stock and, in our opinion, the assessee was fell within his legal rights to make such correction at any time before the assessment was completed as has been held by the Punjab and Haryana High Court in the case of CIT v. Sardar Singh Sachdeva  86 ITR 387 (Punj. and Har.). In the case of Sir Shadilal Sugar and General Mills Ltd. v. CIT  168 ITR 705/33 Taxman 460A, the Hon'ble Supreme Court observed that where the assessee agrees to addition to his income, it does not follow that amount agreed to be added was concealed income of the assessee. Our above detailed discussion brings us to the conclusion that the CIT (A) in his well-reasoned order was fully justified in holding that on account of difference in the valuation of stocks in the case of the assessee, the penalty was not exigible.
13. Next we take up the deposit of Rs. 80,000 which was treated as income of the assessee from undisclosed sources by the Assessing Officer. The penalty order shows that the Assessing Officer has treated this deposit in S.B.I. on 7-12-1981 as concealed income of the assessee because this amount did not figure in the books of account of the assessee. Though the assessee offered an explanation that this amount was withdrawn from the books of account of M/s. Joginder Singh and Parduman Singh, income-tax assessees and the same was wrongly credited to the bank account of the assessee-firm due to wrong entry made in the deposit slips. Similarly, we find that the Assessing Officer has treated cash credits in the names of Shri Narinder Singh, Ravinder Pal Singh and Sh. Tarlochan Singh totalling of Rs. 26,000 as undisclosed income of the assessee being income from undisclosed sources. However, the necessary evidence and explanation was duly given by the assessee before the Assessing Officer but the same was rejected by the Assessing Officer and treated this as an income of the assessee from his undisclosed sources.
14. Now the simple question requires to be resolved by this Bench is that when the assessee had given necessary evidence to the best of his capability and also tries to properly explain to the Assessing Officer regarding the deposit and cash credit but the same does not find favour with the Assessing Officer and the Assessing Officer rejects that evidence as well as explanation given by the assessee and also treats that income of the assessee as income from his undisclosed sources, then whether the Assessing Officer is justified in imposing penalty upon such income of the assessee treating the same to be the concealed income of the assessee. We are of the considered opinion that in such facts and the circumstances of the case the Assessing Officer is not justified in imposing penalty upon such income of the assessee because the same cannot be treated to be the concealed income of the assessee as he disclosed all the material facts and the circumstances before the Assessing Officer prior to the assessment. More so, when the Assessing Officer is not able to bring on record any sufficient material to establish that this amount, treated by him to be the concealed income of the assessee, in fact represented the concealed income of the assessee. In our opinion, the CIT (A) was fully justified in deleting the penalty imposed by the Assessing Officer in respect of the deposits of Rs. 80,000 as well as the amount of the cash credit involved in this case. Hence, we hold that the ground taken by the Revenue has no merits and the same is hereby rejected.
15. In the result, the order of the CIT (A) is upheld and the appeals of the Revenue in ITA Nos. 467 & 468 (ASR)/90 are dismissed.