2020 (5) TMI 568

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....eturn of income on 12/05/2014 admitting loss of Rs. 1,44,670/-. 2.1 During the course of assessment proceedings u/s 143(3) rws 153C of the Act, the AO observed that the assessee along with another had entered into a MoU with Ramky Estates & Farms Ltd. for construction of Villas on the assessee's own land admeasuring acres 2 and 33 guntas at Chikkigubbi Village, Bidarahallibobli, Bangalore East Taluk, Bangalore and that the assessee was entitled to 30.71% of the total saleable super built up area constructed/to be constructed on the schedule property and the assessee had also received security deposit for the same. The AO observed that the assessee has treated the land as stock-in-trade in its books of account and since the assessee had handed over same for development, the AO held that the assessee transferred its portion of the land and the assessee is liable to offer the business income on the share of land which is transferred. He observed that since the assessee is following mercantile system of accounting, the assessee has to offer the business income on transfer of stock-in-trade to tax in the relevant AY. Accordingly, the AO computed the business income of the assessee at....

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.... the provisions of section 2(47), coupled with handing over of possession of the capital asset, capital gain is to be offered on mercantile basis in the year in which the possession is given. As rightly pointed out by the ld. CIT(A) in the case of the assessee, the land has been treated as stock-in-trade and the assessee has only contributed its portion of land to the JDA and is liable to offer business income in the year in which the stock-in-trade is sold. The CIT(A) has observed that the assessee has offered business profits in the AYs 2015-16 and 2016-17 i.e. the years in which the Villas have been sold. Since the stock-in-trade has only been contributed and has not been sold during the relevant AY, there is no receipt or accrual of business receipt during the relevant AY. Further, such position has been confirmed by the coordinate bench of Tribunal at Bangalore in the case of Dheeraj Amin Vs. ACIT in ITA No. 1709/Ban/2013 dated 30/06/2014 (to which of one us i.e. the JM is signatory). For the purpose of ready reference, the relevant paragraphs are reproduced hereunder: "7. In view of the uncontroverted findings by the learned CIT(A), it is now a settled position th....

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....eement and reading together transfer of Property Act and Sale of Goods Act, I am in agreement with the AO that the transfer and the consequent sale has taken place in the year when JDA has been entered". (Emphasis by underlining supplied by us). 11. Learned CIT(A) was completely in error in coming to these conclusions. Relevance of Section 55A of the Transfer of Property Act, at the cost of repetition, is only for the purpose of transfer under section 2(47) which, in turn, is relevant, as it states in so many words by using the expression "transfer", in relation to a capital asset, includes", only for the purposes of capital assets under the Income Tax Act. An asset included in the stock in trade, as we have seen a short while ago and in view of the specific provisions of Section 2 (14), cannot be included in the scope of the "capital asset". What holds good for transfer of a capital asset, for the purposes of triggering taxability of capital gains, is in the context of a specific legal fiction, which is introduced in the Act for a limited purpose, cannot be treated as omnibus in effect. Learned CIT(A)'s inference about "transfer" of the asset, on the facts of this case, w....

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....stock from both sides of the account would leave only the transactions on which there have been actual sales in the course of the year showing the profit or loss actually realised on the year's trading. As pointed out in paragraph 8 of the Report of the Committee on Financial Risks attaching to the holding of Trading Stocks, 1919, "As the entry for stock which appears in a trading account is merely intended to cancel the charge for the goods purchased which have not been sold, it should necessarily represent the cost of the goods. If it is more or less than the cost, then the effect is to state the profit on the goods which actually have been sold at the incorrect figure......From this rigid doctrine one exception is very generally recognised on prudential grounds and is now fully sanctioned by custom, viz., the adoption of market value at the date of making up accounts, if that value is less, than cost. It is of course an anticipation of the loss that may be made on those goods in the following year, and may even have the effect, if prices rise again, of attributing to the following year's results a greater amount of profit than the difference between the actual sale price....