1999 (10) TMI 733 - AT - Income Tax

Summary

Issues Involved:
1. Whether the land sold by the assessee is a capital asset or a business asset (stock in trade).
2. Whether the assessee could bifurcate the sale consideration into capital receipt and business receipts, claiming deductions accordingly.
3. Whether the penalty u/s 271(1)(c) was rightly imposed for furnishing inaccurate particulars of income.

Summary:

Issue 1: Nature of Asset
The assessee, a partnership firm, declared a loss under "business income" and a profit under "capital gains" from the sale of land to MTNL. The AO treated the entire receipt as a composite receipt from the transfer of a capital asset. The CIT(A) found that the receipt was not a 'capital receipt' as it did not emanate from the transfer of a capital asset, treating it instead as business income.

Issue 2: Bifurcation of Sale Consideration
The assessee bifurcated the receipt from MTNL into Rs. 3,23,00,469 as 'capital receipt' and the balance as trading receipt, based on land valuation by the Director of Town Planning. The AO treated the entire receipt as a composite capital receipt, while the CIT(A) treated it as a composite business receipt. The Tribunal upheld the CIT(A)'s view, and the assessee's reference application u/s 256(2) is pending before the Bombay High Court.

Issue 3: Imposition of Penalty u/s 271(1)(c)
The CIT(A) initiated penalty proceedings u/s 271(1)(c) and imposed a penalty of Rs. 1.30 crores, stating that the assessee furnished inaccurate particulars of income. The CIT(A) held that the assessee's claim of selling land was false as it never purchased the land. The bifurcation of receipts was deemed unjustified and intended for tax evasion. The Tribunal found that the assessee's interpretation of the transactions as involving capital gains was bona fide, supported by the AO's initial acceptance of this view. The Tribunal concluded that the penalty was not justified as the assessee had not concealed income or furnished inaccurate particulars, and deleted the penalty.

Conclusion:
The Tribunal allowed the appeal, holding that the penalty u/s 271(1)(c) was not justified, as the assessee's interpretation of the transactions was bona fide and all necessary documents were furnished. The enhancement in assessment was due to a change in the interpretation of the nature of the receipts, not due to any concealment or furnishing of inaccurate particulars by the assessee.