Stock variation tax and penalty applicable

Both answers will depend on the reason for stock variations

There are many options
stock difference may be due to unrecorded purchase or due to dummy sales or unrecorded sales return.

the accounting entry and consequent tax effect would depend upon the facts of the case

Yes Tax, Interest & penalty can be imposed if proceedings u/s 74 is initiated.

If proof , that stock variations is just due some procedural lapse in book keeping , means , any entries of inward or outward supply was not recorded without intention to evade tax , then penalty is not imposed.
Generally, department invokes the Section 74 which attracts penalty also.

Department can invoke tax in other cases