AI Drafter 
TaxTMI 
TaxTMI 
2022 (2) TMI 770
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....rom partnership firm engaged in real estate business and interest income from bank. During the financial year 2011-12 relevant to assessment year 2012-13, the assessee was engaged in the business of layout development under the name 'Modern City' as a proprietary concern. The layout comprises of agricultural lands in Melpettai Village, Pachalam Village, Salvathi Village and Vittalaburam village. The extent of the layout is 29.67 acres in the following manner:- S. No. Date Extent in Acres & Rs. Consideration in Rs. Lakhs Mode of acquisition 1 20.02.2012 7.54 acres @ Rs. 27 lakhs per acres 203.58 Conversion of own agricultural land held as capital asset in the name of your appellant into Stock-in-trade 2 20.02.2012 10.45 acres @ Rs. 27 lakhs per acres 282.15 Purchase of agricultural land as stock-in-trade from Mrs.T. Premakumari through Agreement for sale deed dated 20.02.2012. 3 20.02.2012 5.62 acres @ Rs. 27 lakhs per acres 151.74 Purchase of agricultural land as stock-in-trade from Mr.T. Venkatesan through Agreement for sale deed dated 20.02.2012 4 20.02.2012 6.06 acres @ Rs. 27 lakhs per acre 163.62 Purcha....
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....t as per section 45(2), only fair market value of the land needs to be considered and the guideline value, is not correct. As noted by the AO, Section 45(2) is applicable only in the case of a capital asset and agricultural land is not a capital asset. Even otherwise, in such transactions as that of the appellant, the value has to be arrived at only based on the notified guideline value which is treated as scientifically computed value based on various facts and circumstances. As per the guideline value notified by the registration authorities, the value for the subject property is Rs. 51,500/-. Therefore, AO has correctly adopted the same. However, the AO has considered the entire layout of 29.67 acre for application of guideline value for conversion. Out of the above 29.67 acres, only 7.54 acre is conversion of capital asset into stock in trade. Rest was purchased as stock in trade. For the purchase of stock in trade, the actual consideration was rightly considered by the appellant. Therefore, the AO shall compute the value based on guideline value only for 7.54 acres. Interest under 234A, B and C may be computed as per law." Aggrieved now assessee is in appeal before the Trib....
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.... 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. The fair market value of the asset as on the date of conversion is to be ascertained as per the provisions of section 45(2) of the Act. The fair market value has been defined in the provisions of section 2(22)(B) of the Act, in relation to a capital asset and which means the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date. 7.1 We noted from the case law of Hon'ble Supreme Court relied on by the assessee in the case of CIT vs. Bai Shirinbai K. Kooka, (1962) 46 ITR 0086, wherein the issue of adoption of fair market value is discussed by the majority view as under:- 11. In an earlier part of this judgment we h....
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....g the facts held as under:- 2. It was found as a fact by the Tribunal, and indeed there was no dispute about it, that the raw materials and semifinished needles were received by the assessee from the West German collaborators free of cost by way of gift. These raw materials and semi-finished needles were received some time in April, 1961, and it was only on 30th Sept., 1961, that they were for the first time introduced in the books of account of the business. There can, therefore, be no doubt that these raw materials and semi- finished needles were received by the assessee as capital assets and subsequently on 30th Sept., 1961, they were transferred to the business as part of its stock. If that be so, the cost of these raw materials and semi-finished needles to the business could not be said to be nil, but, on the principle laid down by this Court in CIT vs. Bai Shirinbai K. Kooka (1962) 46 ITR 86 (SC) : TC14R.129, and subsequently followed in CIT vs. Hantapara Tea Co. ~td. (1973) 89 ITR 258 (SC) : TC17R.1227, it would be the market value of these raw materials and semi-finished needles as on 30th Sept., 1961. It is now well settled by these decisions that where an assesse....
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....y of the view that the cost of these raw materials and semifinished needles to the business represented by the sums of Rs. 44,448.20 and Rs. 30,000 debited in the respective accounts of "Wire and Strip" and "Semi- Processed Needles" was liable to be deducted from the sale proceeds of the finished products in arriving at the profit of the business. It is true that initially on 30th Sept., 19061, the credit entries for the sums of Rs. 44,448.20 and Rs. 30,000 were made in "Wire and Strip Gift Account" and "Semi- Processed Needles Gift Account", respectively, and it was only on the last date of the account year, namely, 31st March, 1962, that these amounts were transferred to the credit of the capital reserve account. But that cannot make any difference to the correct legal inference to be drawn from the proved facts because the nomenclature of the account or accounts in which the credit entries were made is not material but what is really decisive is that these amounts were debited to the respect accounts of "Wire and Strip" and "Semi Processed Needles" as representing their real value on 30th Sept., 1961. These raw materials and semi-finished needles were introduced in the business ....