Penalty on disputed capital gains from a development agreement was deleted because the issue was highly debatable.

Penalty exposure under section 271(1)(c) was examined in the context of short-term capital gains arising from a development agreement. The text notes that the capital gains issue was highly debatable at the relevant time because judicial views differed on when a transfer occurs under section 2(47) read with section 53A of the Transfer of Property Act, 1882. Mere confirmation of the addition in quantum proceedings was not enough, by itself, to establish concealment of income or furnishing of inaccurate particulars for penalty purposes. On that basis, the penalty was held unsustainable and was deleted.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the addition towards short-term capital gains arising from a development agreement had been confirmed in quantum proceedings.

Analysis: The capital gains issue arising from a development agreement was found to be highly debatable at the relevant time, with divergent judicial views on when a transfer under section 2(47) read with section 53A of the Transfer of Property Act, 1882 is completed. The mere confirmation of the addition in quantum proceedings was held not to be sufficient, by itself, to establish concealment of particulars of income for penalty purposes.

Conclusion: Penalty under section 271(1)(c) was not sustainable and had to be deleted.

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