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2016 (3) TMI 1008 - AT - Income TaxComputation of income from business u/s 45(2) when a capital asset converted into stock in trade - A.O. computed long term capital gain for conversion of capital asset into stock in trade as on the date of conversion and also computed income from business proportionately to the area of site sold during the year under consideration - Held that:- When a capital asset is converted into stock in trade, as per section 45(2) of the Act, it is certain that the assessee needs to compute long term capital gains as on the date of conversion and pay tax as and when such capital asset is sold. But, when it comes to calculation of capital gain as well as income from business, there won’t be any difference in the area of capital asset converted into stock in trade and stock in trade used for business purpose. In the present case on hand, on perusal of the calculations provided by the A.O., we find that the A.O. has made basic mistake in calculating the proportionate land area for the purpose of computation of income from business, by ignoring the land earmarked for internal roads, drains and other civic amenities. Though assessee could not receive any value for such earmarked land, which is mandatory for any developer to allow setback as per the prevailing laws regulating such activities. Therefore, we are of the opinion that the A.O. was not correct in adopting gross land for computing long term capital gain and only saleable land for the purpose of income from business. The CIT(A) rightly deleted the addition. We do not see any error in the order of CIT(A). Hence, we inclined to upheld the order of CIT(A) and direct the A.O. to allow the cost of 9,778 sq.yds. land which is earmarked for roads, drains, parks and other civic amenities for the purpose of computation of income from business. - Decided against revenue
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