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Tribunal upholds CIT(A)'s decision, directs AO to verify capital gains calculation The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision, directing the Assessing Officer to verify if the assessee computed capital ...
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Tribunal upholds CIT(A)'s decision, directs AO to verify capital gains calculation
The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision, directing the Assessing Officer to verify if the assessee computed capital gains correctly. If the Fair Market Value at the time of conversion was used as the sale consideration and indexed cost of acquisition was deducted, the addition should be deleted. The judgment was pronounced on August 24, 2023.
Issues involved: The judgment deals with the issue of whether the profit on the sale of stock in trade, which was converted from agricultural land into plots and subsequently sold, should be assessed as business income or capital gains. It also addresses the question of whether the assessee is entitled to exemption under section 54F of the Income Tax Act, 1961.
Issue 1: Assessment of Profit on Sale of Stock in Trade The Assessing Officer concluded that the profit on the sale of stock in trade should be assessed as business income, based on the activities of converting agricultural land into plots and selling them. The Revenue contended that the entire income from the sale of plots should be considered income from capital gains, limited to the Fair Market Value as on the date of conversion. The assessee argued that the capital gains were computed in the year the plots were sold, based on the Fair Market Value at the time of conversion. The CIT(A) accepted the assessee's contention and allowed exemption under section 54F of the Act.
Issue 2: Computation of Capital Gains The assessee acquired 6.55 acres of land, converted it into stock in trade, and sold plots between financial years 2012-13 and 2015-16. The assessee claimed to have computed capital gains by taking the Fair Market Value at the time of conversion as the cost of acquisition. The Revenue argued that the assessee should only be entitled to exemption under section 54F to the extent of the Fair Market Value at the time of conversion. The Tribunal found that if the capital gains were computed based on the Fair Market Value at the time of conversion and indexed cost of acquisition, the addition could not be sustained.
Decision: The Tribunal dismissed the appeal of the Revenue, confirming the order of the CIT(A). It directed the Assessing Officer to verify if the assessee computed the capital gains by taking the Fair Market Value at the time of conversion as the sale consideration and deducting the indexed cost of acquisition applicable to the year of sale. If so, the addition should be deleted. The judgment was pronounced on August 24, 2023.
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