TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 970
X X X X Extracts X X X X
X X X X Extracts X X X X
....e FY 2010-112 2. Whether on the facts and circumstance of the case. the Ld. CIT(A) has erred in accepting the board resolution dated 04/04/2016 as sufficient document to allow conversion of stock-in-trade to capital asset but ignored the fact that main business of the assessee is development of property? 3. Whether on the facts and circumstance of the case, the Ld. CIT(A) has erred in allowing expenses incurred in FY 2011-12, 2017-18 & 2018-19 against consideration received from property whereas same were incurred in prior period? 4. Whether on the facts of the case, the CIT(A) has ignored the fact that land converted into capital asset was to avoid taxes and there was no change in nature of business of assessee. 5. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing." 3. Both the parties next invite our attention to the CIT(A)/NFAC's detailed discussion reversing the assessment findings inter alia treating the assessee's capital gains/loss; as the case may be, as in the nature of business income in assessment order dated 19.09.2022; reading as under: "7. 7. DECISION: I have duly perused the Order of AO, submiss....
X X X X Extracts X X X X
X X X X Extracts X X X X
....01.2024. 7.2.3 Copy of the sale and purchase deed of this property were filed before the assessing officer in response to notice U/s 142(1) dated 02.12.2021 Reply filed on 23.03.2023 and copy is placed on P. No. 98 to 108 & 128 to 135 of the Paper Book-2 filed on 09.01.2024. 7.2.4 Details of these replies submitted before AO have been filed before me by appellant. However, AO has ignored them. In view of the facts that these expenses are supported by bills, payment has been made by cheque, and TDS has been deducted on the same; I direct the AO to allow the same and delete this addition. This ground of appellant is thus, allowed. 7.3. Ground nos. 1, 3, 3(i) and 4: "1. That the Assessment Unit of Income Tax Department has grossly erred both in law and on facts in making an assessment under section 143(3) r.w 1448 of the Act at an income of Rs. 6,11,19,987/-and short-term capital loss of (-) Rs. 1,45,74,040/- as against returned income filed at Rs. 1,79,25,800/ 3. That on facts and in the circumstances of the case and in law, the Assessment Unit has erred in law and on facts in recomputing income from sale of property on 14.05.2019 for Rs. 10,11,00,000/- as business Income. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.............. ..................................... The appellant company has converted such property into investment and duly disclosed the said facts in financial statement. On conversion of such property into investment, such property became the Capital......" The definition of the Capital Assets as per Section 2(14) of the Act is given as under: Section 2(14) Capital Assets; Capital assets means- (a) property of any kind held by an assessee whether or not connected with his business or profession; (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); [(c) any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth provisos thereof,] but does not include- (i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession; 7.3.3 In view of above legal position and facts that it's clear that this property ceased t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an during F.Y.16-17 i.e. A.Y.17-18 from stock-in-trade to capital asset. The AO has ignored this fact that change in law had come into w.e.f. FY 18- 19 and the sale took place in AY under question. The action of the AO is contrary to the established position of law. Section 28 was amended by Finance Act 2018 to include clause (via) to provide that the fair market value of inventory as on the date on which it is converted into, or treated as, a capital asset determined in the prescribed manner will be treated as "Income" under the head "Profits and gains of business or profession. The conversion was permissible in law and the AO is wrong in denying the appellant's claim of capital gains. 7.3.8 Further, the incidence of levy under Section 45 is on the capital gains to be computed in the manner provided for in Section 48 read with Section 55(2) of the Act. The deduction permissible under Section 48 is the cost of acquisition of the capital asset transferred for consideration, whether or not it was a capital asset on the date of its acquisition. What is taxable under Section 45 are the "profits or gains arising from the transfer of a capital asset" and the charge of income-tax on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fferent account of the assessee himself. The question of gain or loss would arise only in future when, the stock transferred to the investment account might be dealt with by the assessee. If such shares be disposed of at a value other than the value at which it was transferred from the business stock, the question of capital loss or capital gain would arise. In the absence of a specific provision to deal with the present situation, two formulas can be evolved to work out the profits and gains on transfer of the assets. One formula which has been adopted by the Assessing Officer i.e., difference between the book value of the shares and the market value of the shares on the date of conversion should be taken as a business income and the difference between the sale price of the shares and the market value of the shares on the date of conversion, be taken as-a capital gain. The other formula which is adopted by the assessee's i.e., the difference between the sale price of the shares and this cost of acquisition of share, which is the book value on the date of conversion with indexation from the date of conversion, should be computed as a capital gain. In the absence of a specific p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as a capital asset on the date of its acquisition. What is taxable under Section 45 are the "profits or gains arising from the transfer of a capital asset" and the charge of income-tax on the capital gains is on income of the previous year in which the transfer took place. The only condition which must be satisfied in order to attract the charge to tax under Section 45 is that the property transferred must be a capital asset on the date of transfer and that it is not necessary that it should have been capital asset also on the date of its acquisition by the assessee. Thus this decision directly answers the question raised and concluded. This has been followed in a subsequent decision reported in Karvalves Ltd. v. Commissioner of Income-tax ((1992) 197 ITR 95). Therefore, the contention of the assessee was rightly rejected by the tribunal and we find no ground to interfere with the same." 7.3.10 In view of above mentioned factual and legal position, decisions of above mentioned relied upon case laws and explanation along with documentary supporting given by appellant during scrutiny proceedings; I direct the AO to treat the asset in question as capital asset at the time of sale of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....documentary evidence I direct the AO to allow expenses related to payment of additional duty as the same is related to acquisition cost and transfer expenses as I have already held the property in question as capital asset and sale transaction as capital gains. Thus, this ground of appeal raised by the appellant is allowed. 7.6. Ground no. 3(iii): 3(iii) That the learned AO has also erred in law and on fact in allowing brokerage amounting to Rs. 52,50,000/- against 61,00,000/- claimed. The invoices and bank details of payment and TDS deducted and paid by the appellant has not been examined. 7.6.1 In this ground, appellant has contended that the AO has allowed brokerage only Rs. 52.50 lacs as against 61 61 lacs claimed in respect of sale of property at Jhandewalan Extension, New Delhi. However, as can be seen from page number 5 of AO's order in respect of calculation of income from sale of this property, AO has allowed 61 lacs rupees as transfer expenses fully as claimed by the appellant. Hence, contention of the appellant in this respect is factually incorrect. Hence, this specific ground raised by the appellant is dismissed. 7.7. Ground no. 3(iv): 3(iv) That the lear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that assets. Considering the ICDS-IX, appellant has capitalized the interest paid and deduction of such interest paid has not been claimed under head profit and gain from business or profession or any other head of income. Copy of financial statement showing such interest capitalized to cost of property and not claimed as expenses was also submitted to the AO during assessment proceedings. 7.7.3 Considering the aforesaid facts, that such interest expense is required to be capitalized to cost of property in accordance with ICDSIX and benefit of such interest expenses was not claimed by the assessee company. Such expenses should be allowed under the head Capital Gain as development cost. 7.7.4 Further, a copy of certificate from Chartered Accountant certifying that such interest is not claimed as expenses or deduction under PGBP or any other head was also submitted to AO during assessment proceedings. However same is not considered by the AO stating that asset in question is not capital asset and the claim of the appellant was not accepted by the AO. 7.7.5 In view of above factual and legal position, interest expenses need to be capitalised and are to be allowed while computing....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ative, i.e., in favour of the assessee and against the revenue." 7.7.6 Further, in the case of Parwati Devi Totlani Vs ITO (ITAT Jaipur) Appeal Number: ITA No. 120/JP/2019 Date of Judgement/Order: 28/02/2020 it is held that, Interest paid on the borrowing made for acquiring Capital Asset is part of the cost of acquisition and therefore eligible for indexation and deduction from the Sale Consideration for computation of capital gains the relevant portion of the same is reproduced as under: "11. We have heard the rival contentions and perused the material available on record. The Coordinate Bench in case of Gayatri Maheshwari vs. ITO (supra) has considered the decision of Hon'ble Delhi High Court in case of CIT Mlithilesh Kumari (1973) 92 ITR 9 and also the decision of Hon'ble Karnataka High Court in case of CIT vs. Shri Hariram Hotels (Purchase) Ltd. (2010) 188 taxman 170 (Kar) and has held as under:- 9. We have perused the case records, analysed the facts and circumstances of the case and considered the judicial pronouncements, which was placed before us. In the case of CIT Vs. Mithilesh Kumari (supra), the Hon'ble High Court has held as under:- "(13) We are in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... answered against the revenue." In the case, of ACIT Vs C.Ramabrahmam, the ITAT Chennai Bench 'C' in ITA No. 943/Mds/2012 has held that the assessee had purchased house property, availing loan. The house property was subsequently sold and assessee Included interest paid on housing loan while computing capital gains u/s 48. The Assessing Officer::as of opinion that since interest in question on housing loan, had already been claimed as deduction u/s 24(b), the same could not be taken into consideration for computation u/s 48 and interest amount was added to income of assessee. The CIT(A) reversed the findings of A and held deduction u/s. 24(b) and computation of capital gains u/s 48 were altogether covered by different heads of income i.e., income from 'house. property' and 'capital gains: None of them excludes operative of the other. The interest in question was indeed expenditure in acquiring asset. Since both provisions were altogether different, assessee was entitled to include interest paid on housing loan for computation of capital gains u/s 48 despite the fact that same had been claimed u/s 24(b) while computing income from house property; The revenue&....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1 relevant to assessment year 2011-12 which was taken as its inventory/stock-in-trade. And that the assessee later on converted/transferred the same from its inventory to investment in financial year 2016-17 relevant to assessment year 2017-18 followed by its sale/transfer in the relevant previous year giving rise to treatment of the profits derived therefrom as capital gains. It is in this factual backdrop that the learned departmental representative invites our attention to the Assessing Officer's first/foremost as well as the main reasoning that the assessee's stand to convert its above inventory to capital asset in financial year 2016-17 could not be accepted as the corresponding provision to this effect in section 28(via) of the Act came to be inserted by Finance Act, 2018 w.e.f. 01.04.2019 only. The Revenue's case in other words is that such a conversion before insertion of the above provision does not entitle the assessee to get assessed for corresponding capital gains as the Assessing Officer has rightly recharacterized the same as it's business income in very terms. 5. We have given our thoughtful consideration to the department's foregoing vehement contention and the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the said Section was inserted, the assessee on noticing the tax benefit, was entitled to convert and change his holding from stock in trade into investment. Such conversion cannot be dealt with and rejected on the ground that Section 10(38) of the Act was introduced with effect from the said date. Conversion may be rejected for other reasons and grounds like the intention was not to convert and the assessee still continued to treat and regard the shares as stock in trade and not investment. But there is hardly any discussion in the assessment order in this regard. Justification and reasons have not been elucidated and brought on record to uphold the contention of the Revenue that the shares were continued to be held as stock in trade and not as an investment. 5. The Commissioner (Appeals) noticed that the shares in question as held on 31st March, 2004 and their book value was as under: - Scrip name Quantity Book value as on 31.03.2004 Global Tele 3,35,000 2,09,14,050 Himachal Futuristic 6,15,000 73,27.600 NIIT 20,000 33,97,200 6. The Commissioner (Appeals) has observed that in the balance sheet as on 31st March, 2005 the shares were shown under the head "in....