2011 (1) TMI 879

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....ting normal rate of tax. 2. Whether AO was justified in imposing penalty under Section 271(1)(c) as the income derived by the assessee was taxable at the normal rate of tax i.e. 35% under short terms capital gain, whereas in the return of income the assessee declared this income as Long Terms Capital Gain, and paid tax at a lower rate i.e. 20% and thus furnished inaccurate particulars of its income. 2. Since counsel for the parties were ready to argue the matter finally, we heard their arguments as well and reserved the judgment. 3.  We now proceed to answer the aforesaid questions of law which has the following factual edifice. 4. The assessee company filed its return on 10th November, 2003 for the assessment years 2003-04....

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....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 and taxed as such by the Assessing Officer. The Assessing Officer also made one more addition, rejecting the claim of the assessee. However, since this appeal concerning the penalty order is admitted only on the aforesaid addition made by the Assessing Officer, we need not spell out the other aspect. 6. While making this addition, along with other addition, the Assessing Officer also initiated penalty proceedings by issuing show cause notice under Section 271 (1)(c) of the Income-Tax Act (hereinafter referred to as the "Act"). After giving opportunity to the assessee to show cause thereagainst and he....

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....tock 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". Obviously, this change in the books of accounts, just before the sale of the property, was made to avoid payment of full taxes by changing the complexion of the earnings made on the sale of the property. The Assessing Officer, however, still allowed the change but then was right in holding that the period of holding the asset was reckoned from the date when it was converted as "investment" from "stock in trade‟ and not from the date when the land was purchased. Therefore, the gain was to be treated as short term capital gain. The assessee, under the garb "long ....