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2015 (10) TMI 526 - AT - Income TaxConversion of capital assets into stock in trade - colourable device - short term capital loss v/s business loss on sale transaction of gold - Why conversion of investment in shares into stock in trade should not be considered as colourable device so as to make it eligible for setting off against other income because if it would have been sold as an investment, then the assessee would have incurred capital loss and as per the provisions of Income-tax Act, capital loss can be set off against capital gains? Held that:- The assessee is legally entitled to convert this capital asset into stock in trade and the taxability of the same is to be determined as per section 45(2) of the I.T. act. Section 45(2) clearly mandates that the chargeability will be determined in the year in which the converted stock in trade is sold and not in the year in which it is actually converted into stock in trade. Therefore, ld. CIT(A) has rightly observed that the issue is premature at this stage and, therefore, he should have dismissed the assessee’s ground of appeal instead of allowing the same because in the year under consideration the assessee could not treat it as a short term capital loss to be carried forward to subsequent years. The short term capital loss/ gain will also be incurred in the year in which the transfer takes place and the computation will have to be made accordingly. The assessee could only keep this amount in the books of a/c under the head ‘miscellaneous assets’ in the balance-sheet and, therefore, we partly modify the ld. CIT(A)’s conclusion and hold that the ground raised before ld. CIT(A) by assessee had to be dismissed and the assessee will be entitled to determine the tax liability as per sec. 45(2) in respect of stock in trade in the year in which it is sold. - Decided partly in favour of revenue.
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