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2018 (1) TMI 130 - AT - Income TaxCapital gain - effective date of Conversion of capital asset into stock in trade - whether the industrial land held by the assessee was converted into stock-in-trade on 1st April 2002 (as held by the Assessing Officer) or on 1st April 2006 (as contended by the assessee) - Held that:- It was only in financial year 2000-01 that the assessee had sought permission for converting the said land from industrial to residential but this does not imply that the assessee had converted the land into stock-in-trade during the financial year 2000-01. We find merit in the contention of the assessee that the land was converted from capital asset to stock-in-trade only during the year under consideration i.e. FY 2006-07 and not any time before that, because the language of section 45(2) of the Act provides that capital asset held by the owner is converted by him into stock-in-trade or capital asset is treated as stock-in- trade by the owner and in both the situations, the emphasis is on the treatment given by the owner of the capital asset. Thus, till the time the owner himself either converts the capital asset into stock-in-trade, the provisions of section 45(2) of the Act will not be attracted. Thus, what is provided is that only positive act/conduct of the owner assessee in applying/treating a capital asset into stock-in-trade is relevant to determine the applicability of section 45(2) of the Act. We also agree with the assessee’s contention that since the assessee had applied for obtaining permission from the Ghaziabad Development Authority (GDA), Ghaziabad for conversion of industrial land into residential land during financial year 2002-03, the land cannot be treated as converted in the financial year 2002-03 as in terms of section 45(2) of the Act, the conversion takes place only by the voluntary act of the assessee for such conversion and a mere act of seeking permission for conversion of land use will not come within the definition of ‘transfer’. Therefore we hold that the industrial land was held as capital asset till assessment year 2007-08 and the same was converted into stock-in-trade only in the financial year 2006-07 and not in assessment year 2003-04 as contended by the department. Determination of Fair Market Value of the industrial land as on 01.04.1981 - Held that:- Assessing Officer adopted value of ₹ 20/- per sq yd which the Ld. CIT (A) himself has rejected on the ground that the value of ₹ 20/- per sq yd as intimated by the UPSIDC was not applicable to the assessee’s case as the assessee’s land did not fall under the UPSIDC area. We find no reason to interfere with the findings of the Ld. CIT (A) in this regard as this finding is duly supported by letter from the UPSIDC dated 17.12.2009 addressed to the ACIT, Ghaziabad which mentions that the assessee’s land did not come under the jurisdiction of the UPSIDC. Thus, the sole ground in department’s appeals in both the years stands dismissed. Computation of long term capital gain - whether the figure of ₹ 100/- sq yd, being the circle rate, as adopted by the ld. CIT (A) is to be sustained or the value of ₹ 190/- per sq yd, as contended by the assessee - Held that:- Although the assessee has duly been following up the matter pertaining to the issuance of completion certificate, the transfer of ownership of the open areas/facilities in terms of clause (iv) of the agreement is still not complete as per the letter dated 25.09.2012 issued by the GDA. It is also pertinent that these additional evidences filed by the assessee have not been examined by the lower authorities. Therefore, while we do agree with the assessee’s contention that the Fair Market Value as on 1.4.1981 should be enhanced so as to include the cost of unsaleable area in terms of open space/facilities etc., the issue will necessarily have to be decided by the Assessing Officer after duly considering the valuation report submitted by the assessee supporting the Fair Market Value of ₹ 190/- per sq yd as neither the Assessing Officer nor the Ld. CIT (A) have commented upon the same. We also hold that should the assessee be able to demonstrate before the Assessing Officer that the transfer of ownership of unsaleable area has taken place, as contemplated in clause (iv) of the agreement, the assessee should be allowed due weightage of the same while computing the market value of the same as on 1.4.1981. Accordingly, ground nos. 2, 2.1 and 2.2 for both the years in assessee’s appeal stand allowed for statistical purposes.
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