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2011 (10) TMI 240 - ITAT MUMBAIConversion of land into Stock in Trade - Ao is of opinion that no business of real estate development actually carried on by the assessee - Held that:- Assessee took number of steps such as passing special resolution to commence the said business - redevelopment of the land owned by the assessee company, taking such steps makes land fit for redevelopment. - we are of the view that the business of real estate development was duly carried on by the assessee and the conversion of its property by the assessee into stock in trade of the said business as per the resolution passed by the Board of Directors on 29th May, 2004 was as per the provisions of section 45(2). Computation of profit on conversion - held that:- The profit or gains arising from the transfer by way of such conversion thus was chargeable to tax as the income of the assessee under the head "Capital Gains" of the year under consideration since the said stock in trade was admittedly sold by him in that year. - AO directed to recompute the capital gain by adopting the fair market value of the said property on the date of such conversion as full value of the consideration received or accruing as a result of transfer of the capital asset. Payment for change of user of land from Industrial to Commercial - Business Expenditure or Cost of Cost of Improvement - Since the expenditure was incurred prior to to date of conversion of land into stock in trade therefore it shall be allowed as Cost of Improvement. Set off of unabsorbed depreciation against the income of the current year - Held - Since the business of the assessee as carried on in the earlier years had been discontinued and the same was not carried on in the current year, the claim of the assessee for set off of unabsorbed depreciation pertaining to earlier years cannot be allowed. Interest payment by Assessee Co. to its Holding Co.- Held that:- the activity of closing down of earlier business had taken place in the earlier year and not in the year under consideration and its claim for deduction on account of interest paid to holding company, therefore, cannot be allowed in the year under consideration. - Decided against the assessee. Loan taken from Holding Company and advancing it to group concerns - Assessee cannot be held to be in the business of finance or money lending - Net Income to be taxed under "Other Source". Set off of brought forward losses - assessee contended that he was entitled for set off of carried forward business losses against the said profit. In support of this contention, he relied on the decision of Hon'ble Supreme Court in the case of CIT v. Cocanada Radhaswami Bank Ltd. (1965 -TMI - 49308 - SUPREME Court). - held that:- the land undisputedly was the capital asset of the assessee and the profit arising from transfer of the said capital asset by conversion into stock in trade cannot be treated as in the nature of profits of business of the assessee as sought to be contended by the learned counsel for the assessee. It was only the profit arising from sale of stock in trade that could be treated as profits of the business of the assessee of real estate development to the extent of difference between the sale price and fair market value of the land on the date of conversion as already held by us and to that extent only the assessee would be entitled to claim the set off of carried forward business losses. - matter remanded back to AO with direction. Claim of interest on the ground that loan amount offered to be taxes u/s 41(2) as deemed income - held that:- disallowance made by the AO on account of interest and other expenses on the ground that the business in respect of which they had been incurred was not in existence in the year under consideration upheld.
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