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2017 (11) TMI 1958 - ITAT PUNECapital gain computation - valuation of land adopted by the AO without directing the AO to refer the matter to DVO - deduction of fair market value as on 01.04.1981 - HELD THAT:- Admittedly during the year under consideration had converted his agricultural land into stock in trade and had also entered into development agreement with the said developer for development of the said project. The first step which, assessee had taken, is conversion of land into stock in trade which is deemed transfer as per Section 45(2) of the Act. However, the capital gains arising on such transfer on conversion of agricultural land into stock in trade, would only arise in the year, in which the said asset i.e. stock in trade is sold or otherwise transferred by him i.e. either asset is sold or developed and thereafter, sold. In the present case, assessee has entered into a development agreement of said land and as per agreement to receive 37% of the sale receipts as his share. Admittedly, till 31.03.2010, even the municipal sanction of the plans for the said land for development had not been received by assessee or the said developer. Hence, the property i.e. stock in trade was not even ready for development. CIT(A) referred to the provision of Section 45(2) of the Act but goes on to say, since the assessee has declared income from capital gains, then the same may be assessed in the hands of the assessee. However, such assessment made in the hands of the assessee is against provision of the Act, especially with reference to Section 45(2) of the Act. In view thereof, we find no merit in the findings of CIT(A) in this regard Deduction u/s. 54B(1) and 54B(2) - Since the assessee would be liable to pay tax on the capital gain only, when the stock in trade is sold or otherwise, transferred by him. Then the question which arises is whether entering into development agreement by the assessee would result in otherwise, transferring of the said land by the assessee. We find no merit in the same and hold that the deemed transfer as envisaged under Section 45(2) of the Act, would arise only when stock in trade is sold or otherwise, transferred by him and not in the year, in which he converted his asset into stock in trade and further, entered into development agreement for development of the said land. There is no merit in the findings of CIT(A) and the assessee’s entitlement for claiming deduction u/s. 54B(1) and 54B(2) of the Act, would be seen in the year, in which the deemed transfer is to be taxed in the hands of the assessee. Cost of acquisition as on 01.04.1981 in the hands of the assessee while computing long term capital gain on conversion of agricultural land into stock in trade i.e. deemed transfer - In the present facts of the case, Assessing Officer was of the view that value declared as on 01.04.1981 was higher than the value as on that date. In such circumstances, the provision of Section 55A(1) of the Act cannot invoke. In this regard, we find support in the ratio laid down by the Hon'ble Bombay High Court in the case of CIT Vs. Puja Prints [2014 (1) TMI 764 - BOMBAY HIGH COURT] where it was held that no reference could be made u/s. 55A(1) of the Act to determine fair market value of the property as on 01.04.1981, on the ground value declared by assessee was high. The Hon'ble High Court further held that the amendment brought in by Finance Act, 2012 was prospective. Thus, we hold that there is no merit in the stand of Assessing Officer in adopting value in ad-hoc manner. Accordingly, we hold so. Thus, the order of CIT(A) is confirmed on the first issue and is reversed on the second issue. Hence, grounds of appeal of the revenue are partly allowed.
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