Conversion of property to stock-in-trade defeats capital gains treatment where no completed transfer is shown.

Property converted into stock-in-trade on 25.03.2016 could not continue to be assessed under the head capital gains once that conversion was not displaced. On the facts, the absence of a registered sale deed meant the transaction was not completed as a transfer merely because of an agreement, GPA arrangement, or possession claim, and part performance under section 2(47)(v) did not override the changed character of the asset. Reliance on the arbitral award also did not sustain the capital gains addition. The addition under the head capital gains was therefore held unsustainable.

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Issues: Whether the property, having been converted into stock-in-trade, could still be assessed under the head capital gains on the basis of part performance and transfer under section 2(47)(v), and whether the addition sustained by the first appellate authority on 40 grounds and 1,896 sq.ft. for Rs.170 crores was sustainable.

Analysis: The property was found to have been converted into stock-in-trade with effect from 25.03.2016, and that conversion was not displaced by the Revenue. Once the asset stood converted, its taxation could not continue under the head capital gains. The Tribunal also noted that the sale transaction had not been completed by execution of a registered sale deed, and that mere agreement, GPA arrangements, and possession claims did not by themselves justify treating the transaction as a completed transfer for capital gains purposes on the facts of the case. The reliance placed on part performance and on the arbitral award did not overcome the changed character of the asset as stock-in-trade.

Conclusion: The addition under the head capital gains was not sustainable. The assessee succeeded and the Revenue's challenge failed.

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