2011 (1) TMI 879 - HC - Income Tax

Penalty u/s 271(1)(c) - Long Terms Capital Gain which was actually the short terms capital gain attracting normal rate of tax - land in question was purchased Thereafter, it was shown in the balance sheet as stock in trade‟. However, during the financial year in question when the land was sold, the same have been converted by the assessee from stock in trade to investment - The difference of sale consideration and the cost of purchase of the impugned land was declared as long term gains - AO contended that period of holding the asset was reckoned from the date when it was converted as investment from stock in trade and since it was less than three years, the gain was treated as short term capital gain - Held that assessee has clearly furnished inaccurate particulars of income - Decided in favour of Revenue

Summary

Issues involved:
1. Whether the treatment of short term capital asset as a long term capital asset by the assessee was a colorable device to pay lower tax rates.
2. Whether the Assessing Officer was justified in imposing a penalty under Section 271(1)(c) for inaccurate income particulars declared by the assessee.

Analysis:
1. The appeal was admitted based on the question of law regarding the treatment of short term capital asset as a long term capital asset by the assessee. The assessee had converted land from "stock in trade" to "investment" before selling it, claiming long term gains. However, the Assessing Officer considered the gain as short term capital gain due to the period of holding. The Tribunal held that the issue was debatable, but the High Court disagreed, stating that the change in asset classification was a tactic to pay lower taxes. The Court ruled in favor of the Revenue, setting aside the Tribunal's decision and restoring the Assessing Officer's order on the penalty issue.

2. The Assessing Officer imposed a penalty under Section 271(1)(c) for inaccurate income particulars declared by the assessee. The Tribunal had earlier deleted the penalty, considering the issue debatable as an appeal was admitted. However, the High Court found that the issue was not debatable, as all authorities upheld the Assessing Officer's decision, and the Court dismissed the appeal at the admission stage. The Court ruled in favor of the Revenue, setting aside the Tribunal's decision on the penalty issue and restoring the Assessing Officer's order.