Assessee's appeal allowed, land converted to stock-in-trade in 2006-07. FMV to be re-determined as of 01.04.1981.

The Tribunal allowed the appeals of the assessee, determining that the industrial land was converted into stock-in-trade in the financial year 2006-07. The Assessing Officer was directed to re-determine the Fair Market Value (FMV) of the land as of 01.04.1981, considering the valuation report and additional evidence. The department's appeals were dismissed.

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Issues Involved:
1. Conversion of industrial land into stock-in-trade.
2. Determination of Fair Market Value (FMV) of land as on 01.04.1981.

Issue-wise Detailed Analysis:

1. Conversion of Industrial Land into Stock-in-Trade:

The primary issue was whether the industrial land was converted into stock-in-trade on 01.04.2002 (as held by the Assessing Officer) or on 01.04.2006 (as contended by the assessee). The assessee argued that the industrial land was held as a capital asset till the assessment year 2006-07 and was converted into stock-in-trade only in the financial year 2006-07. The following facts supported the assessee's claim:
- The land was held since 1940-41 and housed the Ghaziabad Vanaspati Unit, indicating it was not acquired for sale but for use as a capital asset.
- The sale of land was part of a rehabilitation scheme framed by the Board for Industrial Finance and Reconstruction (BIFR).
- Financial statements from 2003 to 2006 showed the land as a capital asset.
- Wealth tax returns filed for assessment years 2003-04 to 2006-07 showed the land as a taxable asset, with substantial wealth tax paid.
- The Memorandum of Association was amended in September 2005 to include real estate as one of the main objects.
- The audited financial statements for 2007-08 showed separate results for real estate for the first time.

The Tribunal concluded that the industrial land was indeed held as a capital asset until the assessment year 2006-07 and was converted into stock-in-trade in the financial year 2006-07, not in 2002-03 as held by the Assessing Officer. This conclusion was supported by a judgment from the Hon’ble Allahabad High Court in the assessee’s own case, which held that there was no conversion of the capital asset into stock-in-trade in the financial years 2002-03 to 2005-06.

2. Determination of Fair Market Value (FMV) of Land as on 01.04.1981:

The second issue was the determination of the FMV of the land as on 01.04.1981. The assessee had claimed the FMV at Rs. 190 per sq. yard based on a valuation report from a registered valuer. The Assessing Officer rejected this valuation and adopted Rs. 20 per sq. yard as intimated by the Uttar Pradesh State Industrial Development Corporation (UPSIDC). The CIT (A) determined the FMV at Rs. 100 per sq. yard based on the existing circle rate.

The Tribunal noted that the Assessing Officer's adoption of Rs. 20 per sq. yard was not applicable as the land did not fall under the jurisdiction of UPSIDC. The Tribunal agreed with the principle that the FMV should be proportionately enhanced due to the reduction in the saleable area of the land. The saleable area was only 46,232 sq. yards out of the total 77,638 sq. yards, with the remaining area occupied by parks, roads, pavements, drains, and public utility services which were to be transferred to the Ghaziabad Development Authority (GDA) without consideration.

The Tribunal directed the Assessing Officer to re-examine the issue of FMV, taking into account the valuation report submitted by the assessee and the additional evidence provided. The Tribunal emphasized that the FMV should be appropriately enhanced to reflect the reduced saleable area.

Conclusion:

The Tribunal allowed the appeals of the assessee, holding that the industrial land was converted into stock-in-trade in the financial year 2006-07 and directed the Assessing Officer to re-determine the FMV of the land as on 01.04.1981 after considering the additional evidence and the valuation report. The appeals of the department were dismissed.

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