TaxTMI 
TaxTMI 
TaxTMI 
2018 (5) TMI 1324
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....ought out by the Ld. CIT(A) at para 5.2.1 and 5.2.2 of his order: "5.2.1 The facts of the case in brief are as follow. The appellant company was engaged in letting out of property, manufacture of cotton yarn, export of C.I. Materials. The Assessing Officer, during the course of assessment proceedings, observed that as per the tax audit report, there was no export of C.I. Materials and manufacture of cotton yarn during the year. The Assessing Officer noticed that this year i.e. in F.Y. 2007-08, the assessee converted 6049 sft. Of space in the building viz. Poddar Court at 18, Rabindra Sarani, Kolkata, as stock in trade and sold 5707 sft. Out of the said converted portion. The sales were made as under: S. No. Name of the party to whom sold Sft. Sale value 1. Dilip Kumar Gupta & Madhumita Gupta 204 4,08,000 2. Kumban Das Mumdra (HUF) 204 4,08,000 3. Mohit Carriers Pvt. Ltd. 2783 69,57,500 4. Vivek Bajaj 933 18,66,000 5. Ashutosh Bajaj 932 18,64,000 6. Bijay Kr. Agarwal & Meena Agarwal 651 16,27,500 Total 5707 1,31,31,000 The Assessing Officer further found that as against the above conversion of space meas....
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....assets to stock-in-trade: The appellant's submission was that the conversion of fixed asset into stock in trade was always permissible in law but provisions of section 45(2) is applicable. In the circumstances, the view that conversion of a portion of building space at Poddar Court into stock in trade was afterthought and to avoid the provision of section 50C of the Act cannot be equated as a reasonable conclusion. According to the appellant, there was no provision in the Act which approved the proposed rejection of conversion of fixed assets to stock in trade. (ii) Regarding applicability of section 50C of the I.T. Act: The appellant submitted that the proposition to substitute the stamp value fixed by the stamp valuation authority in place at actual sale consideration and thereby determining capital gain would be erroneous. The provisions of section 50C which authorizes such substitution, according to the appellant, was applicable only where there is transfer of capital asset being land or building or both. Section 2(14) which defines 'capital asset' excludes from its purview 'any stock in trade, consumable stores or raw materials held for the purpose of business or profess....
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....acts of the case is that the assessee has neither shown any capital gain on sale of office space in Poddar Court building nor claimed any business losses in the return of income filed u/s 139(1) of the I.T. Act, 1961. Even during the course of assessment proceedings, the assessee has never filed any computation of Capital Gains and Business Losses u/s 45(2) of the I.T. Act. iv. That on the facts and circumstances of the case the A.O. has rightly computed the sale consideration by adopting the provision of Section 50C of the I.T. Act, 1961 at Rs. 3,47,03,062/- to arrive at the Long Term Capital Gain of Rs. 3,37,48,776/-." 5. We have heard the learned DR as well as the learned AR at length. We have considered the material on record as well as the case law cited. On a careful consideration on the facts and circumstances of the case and the perusal of the papers on record as well as the orders of the authorities below, we hold as follows. The assessee had converted 21494 sq.ft. of building space into stock-in-trade on 1st April, 2005 at a cost of Rs. 25,55,154/-. This fact was reflected in the final accounts of the assessee for the year ended 31.03.2006 relevant to the Asst. Year 20....
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....een such cost and the sale proceeds received or accrued shall be treated as business income / loss of the assessee. 9. At page 18 and 19, he hold as follows: "Now, reverting to the facts of the present case, it may be seen that the sales of space in Poddar Court building of 5707 sq.ft. during the financial year relevant for assessment year 2008-09 has been effected out of the space converted into stock-in-trade during the financial year 2005-06. The copies of the audited statements of account furnished by the appellant support the submissions of the appellant. Now, whether such a conversion was permissible under the law in the case of the appellant, who is not a dealer is real estate and who has all along been deriving income from investment is clear from overriding provisions of section 45(2) of the Act and the ratio laid down in the case above cited by the Hon'ble ITAT, Mumbai. The decision of the Madras High Court in the case of CIT vs N.S.S. Investments (P) Ltd. reported (2005) 277 ITR 149(Mad) relied upon by the Assessing Officer dealt with sections 28 and 45 and where the case of the assessee was that it dealt with only investment in shares and not trading. The Hon'ble Mad....
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....me Court in the case of CIT vs Groz-Beckert Saboo Ltd. (1979) 116 ITR 125 (SC). Where an assessee converts his capital assets into stock-in-trade and starts dealing in them, the taxable profit on the sale must be determined by deducting from the sale proceeds the market value at the date of their conversion into stock-in-trade and not the original cost to the assessee. In the reported case, the cases of CIT vs Bai Shirinbai K. Kooka (1962) 46 ITR 86 (SC) and CIT vs Hantapara Tea Co. Ltd. (1973) 89 ITR 258 (SC) were also relied on. Therefore, keeping in view the facts of the case, the Assessing Officer was not justified in working out business income by adopting the fair market value of the space sold in Poddar Court building invoking provisions of section 50C after deducting therefrom the cost of acquisition as on 01.04.1996. The Assessing Officer is directed to accept the capital gains and business loss as declared by the appellant under section 45(2) of the Act. These grounds of appeal are accordingly allowed." 10. We find no infirmity in these findings of the Ld. First Appellate Authority. The decision is in line the judgement of the Special Bench of the Tribunal in the case of....