Srinivasan, J.- The assessee, a registered firm of two partners, was doing business in the manufacture and sale of tea in Ceylon. In the assessment year 1955-56, the previous year of which ended on 31st March, 1955, the assessee made a return of income of Rs. 1,74,711. In arriving at its profits it valued the closing stock of tea in a very peculiar manner. It did not adopt either the cost price or the prevailing selling price on the last day of the account year. While the average cost per pound of tea was Rs. 1.27 and the selling price on the last day of the account year ranged between Rs. 1.30 and 1.75, the assessee adopted the value of 50 cents per pound. In addition, a certain stock of tea, which, according to the Income-tax Officer, had actually been sold, was not brought in for the computation of the profits, but treated as part of the closing stock. Taking the abovementioned quantity as actually sold and valuing the remaining quantity of stock of tea at Rs. 1.30 per pound, the Income-tax Officer arrived at a total of Rs. 74,763 as the figure that should have been properly displayed in the accounts. Since the value as shown by the assessee was only Rs. 26,853, he added the difference of Rs. 47,910 to the assessable income On appeal, the Appellate Assistant Commissioner reduced the addition to Rs. 39,125. There was a further appeal to the Tribunal. The Tribunal remanded the matter to the Appellate Assistant Commissioner. As a result of this remand, the Appellate Assistant Commissioner enhanced the addition to Rs. 63,997. On a further appeal, the Appellate Tribunal reduced the addition to Rs. 35,790. In so far as this addition is concerned, that matter has become final, and it is no longer in question. In the assessment order, the Income-tax Officer observed that the assessee had furnished inaccurate particulars of its income and issued a notice under section 28(3) of the Act. This was in due course followed by the levy of a penalty of Rs. 42,000. Against this levy of penalty, an appeal was taken to the Appellate Assistant Commissioner, who agreed that the under-valuation of the closing stock could only have been for the purpose of understating the income and that this conduct of the assessee invoked the penalty under section 28(1)(c) of the Act. 42,000. Against this levy of penalty, an appeal was taken to the Appellate Assistant Commissioner, who agreed that the under-valuation of the closing stock could only have been for the purpose of understating the income and that this conduct of the assessee invoked the penalty under section 28(1)(c) of the Act. He however reduced the quantum of penalty to Rs. 35,000. On further appeal, the Tribunal took the view that the novel method of valuing the closing stock at a ridiculously low price which was attempted by the assessee for the first time in the relevant accounting year was with intent to conceal the income. At the same time, it took the view that the penalty was excessive as “the attempt at concealment was such that can easily be detected by the Income-tax Officer even by a cursory check”. The Tribunal accordingly reduced the penalty to only Rs. 5,000. On the application of the assessee, to this Court, the Tribunal was directed to state a case and refer the following question for the determination of this Court: “Whether on the facts and in the circumstances of the case, the levy of penalty of Rs. 5,000 under section 28(1)(c) of the Act is valid in law ?” Mr K. Srinivasan, learned Counsel for the assessee, concedes that the method of valuation of the closing stock is a new one that was adopted for this year only. Though the claim was initially put forward that this was a method which was followed in previous years as well, that plea was abandoned. Nevertheless, Mr. Srinivasan urges that it cannot be held that in under-valuing the closing stock, the assessee had furnished inaccurate particulars of its income. He also points out that in imposing the penalty, the Tribunal had taken the view that half the closing stock had already been sold previously and urges that this view is inconsistent with the decision of the appropriate appellate authorities in the quantum appeals, where it was held that though that quantity out of the closing stock was under a contract of sale, the sale transaction not having been completed, it was rightly not disclosed in the accounts as a sale. Partly at least, so it is contended, the Tribunal was swayed by a mistaken notion that the assessee had shown a quantity of tea which had already been sold as part of the closing stock. Partly at least, so it is contended, the Tribunal was swayed by a mistaken notion that the assessee had shown a quantity of tea which had already been sold as part of the closing stock. His principal contention is however that even assuming that the valuation of the closing stock was not according to accepted commercial practice, in that neither the cost price nor the prevailing market price was adopted it would still not be a case where the assessee had deliberately furnished inaccurate particulars of its income. In Chhainrup Sampatram v. Commissioner of Income-tax,1the question related to the proper manner in which the valuation of the closing stock should be effected. In that case, a firm, carrying on a business as bullion merchants at Calcutta, transferred some of its stock to Bikaner, and the value at cost price was credited in the books of the firm. It was claimed that the silver bars in question had been sold to the partners for their domestic use, but the Department declined to accept this version and purported to hold that this quantity still formed part of closing stock which had to be valued. They valued it at market price on the closing day, and deducting the cost price, took the difference as taxable profits. The Appellate Tribunal accepted the correctness of the stand taken by the Department and thought that the manner in which the transaction was put through was intended to reduce artificially the profit of the year of account by a substantial amount. The question arose whether the sum in question was assessable to tax, and the High Court on a Reference, answered it in the affirmative, and the matter came up in appeal. ‘Their Lordships of the Supreme Court pointed out that the valuation of the closing stock of the market rate does not have as its object the bringing to charge any appreciation in value of such stock. ‘Their Lordships of the Supreme Court pointed out that the valuation of the closing stock of the market rate does not have as its object the bringing to charge any appreciation in value of such stock. They observe: “The true purpose of crediting the value of unsold stock is to balance the cost of those goods entered on the other side of the account at the time of their purchase, so that the cancelline out of the entries relating to the same stock from both sides of the account would leave only the transactions on which there have been actual sales in the course of the year showing the profit or loss loss actually realised on the year’s trading.” They point out that on prudent grounds, it is fully sanctioned by custom that it is open to the dealer to adopt the market price as on the date of making up the accounts, if that value is less than the cost. If the market price so entered should be less than the cost, it would result in a greater profit in the following year’s results of trading. The principle underlying the valuation is, according to their Lordships that if the market price, as at the closing date of the year, should be less than the cost price the trader would necessarily anticipate a loss and would be justified in adopting such lower price in his account at the time of closing. The anticipated loss could thus be taken into account while an anticipated profit in the shape of an appreciated value of closing stock is not brought into account. They say clearly that “this is the theory underlying the rule that closing stock has to be valued at cost or market price, whichever is the lower, and it is now generally accepted as an established rule of commer-cial practice and accountancy”. They further point out that no profit can arise out of the valuation of the closing stock. In another judgment in Commissioner of Income-tax v. A. Krishnaswami Mudaliar1, the following observations are made: “The Income-tax Act makes no provision with regard to the valuation of stock. It charges for payment of tax the income, profits and gains which have to be computed in the manner provided by the Income-tax Act. In another judgment in Commissioner of Income-tax v. A. Krishnaswami Mudaliar1, the following observations are made: “The Income-tax Act makes no provision with regard to the valuation of stock. It charges for payment of tax the income, profits and gains which have to be computed in the manner provided by the Income-tax Act. In the case of a trading venture, these profits have to be adjusted in the light of the provisions of the Income-tax Act, permitting allowances prescribed thereby. For that purpose, it is the duty of the Income-tax Officer to find out what profits the business had made according to true accountancy practice in the light of the system adopted and thereafter to make the requisite adjustments and even appropriate modification of the rule suggested by Fletcher Moultan, L.J., in In re Spanish Prospecting Company, Limited2, to ascertain the taxable profits .................. Adjustments have to be made in the principle having regard to the special character of the assets, the nature of the business and the appropriate allowances permitted in order to arrive at the taxable profits. They do not support the proposition that, in the case of a trading venture you can arrive at the true profits of a year by ignoring altogether the valuation of the stock-in-trade at the end of the year, while debiting its value at the commencement of the year as an outgoing; for deter-mination of the profits by ignoring the valuation of the stock at the end of the year and debiting the value of the assets at the commencement of the year would not give a true picture of the profit for the year of account.” This decision stresses the importance of a proper valuation of the closing stock. The further question nevertheless is whether by the method of the valuation of the closing stock adopted by the assessee in the present case, it deliberately furnished inaccurate particulars, justifying the imposition of the penalty under section 28(1)(c) of the Act. Mr. Srinivasan’s argument is that the method adopted by the assessee in the valuation of the closing stock was transparent on the face of the accounts and that therefore it could not be said that there was concealment of the profits or deliberate furnishing of inaccurate particulars. Mr. Srinivasan’s argument is that the method adopted by the assessee in the valuation of the closing stock was transparent on the face of the accounts and that therefore it could not be said that there was concealment of the profits or deliberate furnishing of inaccurate particulars. It is not the attempt of the learned Counsel for the assessee to establish that the method adopted by the assessee was in conformity with any known mercantile practice. As their Lordships of the Supreme Court point out in the decision cited, the object of valuing the closing stock is to balance the entry that appears as the opening entry in respect of the opening stock, so that only the true results of the trading activities in the course of the year might appear. Such balancing is done either by valuing the closing stock at cost price, so that the initial entry of the valuation of the opening stock is offset, or where the ruling selling price at the close of the year is less than the cost price and there is reasonable anticipation of loss when the closing stock comes to be sold, the mercantile practice authorises the valuation of the closing stock at the market price when it is lower. This will be the price at which the closing stock of one year will appear and the price of the opening stock of the succeeding year, and if the tea is eventually sold at a profit, there will be a greater profit assessable to tax in the succeeding year. It seems to us that mercantile practice cannot be ignored and an assessee which is a trading concern cannot possibly be permitted to adopt any freakish method that suggests itself to it as suitable for the occasion. In the present case, as against the selling price of tea per pound between Rs. 1.30 and 1.75, the assessee adopted 50 cents. It could not really explain how it arrived at this figure. In the present case, as against the selling price of tea per pound between Rs. 1.30 and 1.75, the assessee adopted 50 cents. It could not really explain how it arrived at this figure. According to the letter of the Auditor, which was sent in response to the notice under section 29(3) of the Act, the method was explained thus: "In this case, the usual method of stock valuation, that is, the accounting adopted by the assessee is to take the sale price on the last date and allow a margin of profit and reduce it by 50 cents per pound." That is to say, the sale price on the last date is taken and whatever margin of profit is usually derived by the assessee is deducted therefrom and this is further reduced by 50 cents per pound. Mr. Srinivasan, learned Counsel, does not attempt to justify this method of valuation of the closing stock, nor does he support the claim that was made by the Auditor in his letter that this method was adopted and accepted by the Income-tax Officer in the previous years. The question then is, what was the purpose that underlay this wholly unauthorised method of valuation of the closing stock Undoubtedly the right which the assessee had to value the closing stock at a price lower than the cost price is circumscribed by the requirement that the prevailing selling price on the last day of the accounting year should in fact be lower than the cost price. If it is not lower than the cost price, he is not entitled to value the closing stock at any figure lower than the cost price. His right as a prudent businessman is to anticipate losses, and if the selling price should be lower than the cost price, he is permitted by normal mercantile practice to value it in that manner. If on the other hand, he does not value the closing stock at the selling price, if such selling price should be higher than the cost price, he is enabled to value the closing stock at the cost price, so that the initial entry relating to the opening stock may be cancelled by the closing entry. If on the other hand, he does not value the closing stock at the selling price, if such selling price should be higher than the cost price, he is enabled to value the closing stock at the cost price, so that the initial entry relating to the opening stock may be cancelled by the closing entry. But no known mercantile practice permits the trader to value the closing stock at an imaginary figure far lower than the selling price on the last day of the account year or the cost price of the stock. By adopting this method, undoubtedly, the assessee introduced an imaginary loss which it took in reduction of the profits of the trading activities during the year. We have given careful consideration to the question and we are unable to agree that this was not a devise adopted by the assessee for concealing the particulars of its income. Mr. Srinivasan urges that it has concealed no "particulars" or furnished inaccurate" particulars". By emphasising the word ‘ ‘particulars" learned Counsel suggests that it is only in cases where any detail concerned with the trading activity is not disclosed or is inaccurately disclosed, the section could be attracted. We are by no means convinced that this is the proper explanation. The expression " particulars of his income" does not signify any individual detail. It includes also the overall effect achieved by any improper method adopted by the assessee. We are accordingly satisfied that the Tribunal cannot be said to have erred in law in holding that the circumstances brought the case within the scope of section 28(1)(c) of the Act. The question is answered accordingly. The assessee will pay the costs of the Department. Counsel’s fee Rs. 250. V. S. ----- Answered accordingly.