Bona fide stock valuation error defeats concealment penalty where undervaluation was inadvertent and unsupported by evidence.

Penalty under section 271(1)(c) was held unsustainable where the assessee's understatement of closing stock arose from an inadvertent double deduction of excise duty in valuation. The quantity of stock was not in dispute; only the valuation method was questioned. As there was no material showing deliberate undervaluation or conscious concealment, the mistake was treated as bona fide and computational in nature. The fact that the error was detected when particulars were called for did not convert it into concealment, and the possibility of higher tax in the subsequent year also supported the bona fides of the explanation. The penalty was cancelled.

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Issues: Whether penalty under Section 271(1)(c) of the Income-tax Act, 1961 was justified for understatement of closing stock where the assessee claimed the error was inadvertent and bona fide.

Analysis: The closing stock quantity was not in dispute and the controversy related only to valuation. The assessee explained that the error arose from an inadvertent double deduction of excise duty while valuing the stock. There was no material to show any deliberate attempt to undervalue the stock or any conscious concealment. The circumstance that the mistake was detected when particulars were called for did not by itself convert a bona fide computational error into concealment. The fact that continuance of the error would have led to higher tax in the subsequent year also supported the bona fides of the explanation.

Conclusion: The penalty was not sustainable and was cancelled.

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