TaxTMI 
TaxTMI 
TaxTMI 
2022 (1) TMI 1151
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.... Aahagan Properties Pvt Ltd., on 21.1.2015 registered with SRO, Bhogapuram. He observed that the above land sold was actually converted into stock in trade from fixed assets during the financial year 2013-14 valued at Rs. 6,55,16,976/- and included in the closing stock as on 31.3.2014. As per section 45(2) of the Act, wherever a capital asset is converted into stock in trade by an assessee, it is deemed as transfer of capital asset and capital gains on such transfer is chargeable to tax in the year in which such stock in trade is sold or otherwise transferred. As the assessee has sold the stock in trade during the financial year 2014-15, the assessee is liable for capital gains on conversion of capital asset to stock in trade in assessment year 2015-16. Since the assessee sold the stock in trade acquired at a cost of Rs. 6,55,16,976/- for a consideration of Rs. 11,92,18,880/-, the assessee is also liable to offer income on the difference amount of Rs. 5,37,01,904/- (Rs. 11,92,18,880 - Rs. 6,55,16,976) under the head "income from business or profession". He observed that although the above issues were available on record, the Assessing Officer did not examine the same while completi....
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.... held under stock in trade: In this connection, it is further submitted that in the present case the assessee has incurred loss on sale of part of the land and thereby no gain arose during the AY 2015-16, this being the fact the assesee has not offered the loss. Further, the Ld. PCIT has erred in invoking the provisions of capital gain without considering the fact that tire order passed by the Ld. AO U/s 143(3) is neither prejudicial to the revenue nor the same is erroneous. The Id. PCIT ought to have considered that provisions of section 263 cannot be invoked in a case where there is no loss to the revenue. In the present case, it can be duly established that there is no loss to the revenue and hence the order made U/s 263 is void ab initio. In this regard, we would further like to submit that as per section 45(2) of the Act, when asset is converted by its owner as stock-in-trade, the Capital gain on the same will arise only when the entire stock-in-trade is sold. For your kind reference, we hereby enclosing the extract of section 45(2) of the Act: "Section 45(2) of the Act": "Notwithstanding anything contained in sub-section (1), the profits or gains arising from the tr....
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....e following reasons:- a) That as per the provisions of section 45(2) of the Act, there is no mention about the sale of part of the capital asset converted into stock-in-trade to be considered as income towards capital gains, arising from transfer of asset by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him; b) That the first ingredient to charge capital gains under section 45(2) of the Act is that there has to be the element of the profits or gains arising from the transfer by way of conversion of capital asset or its treatment by him as stock-in-trade of his business; c) That the asset - viz., pooling of lands the asset was accounted as stock-in-trade during the assessment year 2014-15; d) That, during the AY 2015-16, the Assessee has actually incurred loss on the sale of part of land, the same be tabulated below, as follows: Statement of Gain / Loss Particular Total Amounts(86.39acres) Per acre Amount Land (86.39 acres ) Rs. 6,55,16,976 Rs. 7,58,....
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....der of the Ld Pr. CIT. Ld CIT DR submitted that as per provisions of section 45(2) of the Act, the profits or gains arising from the transfer of property by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. Therefore, ld. Pr. CIT was right in invoking the revisional provisions u/s.263 of the Act. Ld CIT DR strenuously contended that the assessee is misleading and misguiding the revenue authorities by stating that only a part of land converted was sold during the relevant financial period, therefore, the provisions of section 45(2) of the Act cannot be applied to the case of the assessee because although sub-section(2) of section 45 of the Act does not explain a situation when a part of land is sold but it is also not mentioned ....
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....to him from such conversion of capital asset into stock in trade. It has also been provided that for the purpose of calculation of capital gains u/s48 of the Act, the fair market value of the assessee on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. This provision does not provide a situation where the assessee has sold a part of converted capital asset into stock in trade but at the same time, we also observe that it is also not the intention of the legislature that if the assessee is transferring a part of converted capita assets during preceding financial period, then the revenue authorities has to wait till the transfer of entire converted stock in trade for the purpose of taxing capital gains accrued to the assessee on conversion of capital asset into stock in trade. Therefore, respectfully following the principles that the right income should be taxed in the right hands in the relevant financial period, we are of the considered view that in a case also where the assessee transfers a part of converted capital asset then also profits or capital gain would ....