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2018 (12) TMI 457 - AT - Income TaxValidity of reopening of assessment - assessee had not disclosed any capital gain on conversion of his capital asset into business asset in the relevant financial year - reasons to believe - Held that:- The provisions of section 45(2) make it clear that even if there is conversion of capital asset into stock in trade, the capital gains shall arise to an assessee only in the year in which such converted stock in trade is sold. Admittedly the alleged stock in trade was not sold by the assessee in Asst Year 2007-08. It is not the case of the revenue also that any stock in trade was sold by the assessee in Asst Year 2007-08. Hence there cannot be any capital gains in Asst Year 2007-08 even on alleged conversion of capital asset into stock in trade. Hence we hold that the basis of reopening pursuant to reasons recorded, fails on all force of law. The reopening was made in the instant case based on incorrect assumption of facts by the AO. Even on merits, AO estimated the value of 5500 sq.yard of land at ₹ 5,50,00,000/- based on estimated value quoted by the DVO on an interim basis. The ld AO failed to appreciate that ultimately some portion of land was even held by the assessee. In any case, 5500 sq.yard of land was never sold in full by the assessee. The total value determined by the DVO at a later stage i.e during first appellate stage was fixed at ₹ 2,33,24,000/- for entire 5500 sq.yard of land. The ld CITA having agreed to the said consideration value for the purpose of computing capital gains at ₹ 34,87,820/- by considering full value of consideration figure at ₹ 2,33,24,000/-, made totally unwanted and irrelevant observations in his appellate order by observing that the assessee shall be liable for business income at ₹ 5,15,12,180/- ( 5,50,00,000 – 34,87,820) in the year in which land is sold. In any case on merits, we hold that the capital gains arise only in the year in which possession of the land was handed over to the developer pursuant to the provisions of section 2(47)(v) r.w.s. 53A of the Transfer of Property Act, 1882. Reliance in this regard is placed on the decision of Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay vs CIT [2003 (2) TMI 62 - BOMBAY HIGH COURT ] Hence we hold that the reopening made by the AO based on absolute incorrect assumption of facts deserves to be quashed. - Decided in favour of assessee. Land held by the assessee or the shops - capital gains or business income - Held that:- Admittedly the sanction of the building plan was obtained on 29.10.2007 and the possession of land (after retaining the land which was not the subject matter of development agreement) was handed over by the assessee to the developer in Asst Year 2008-09. This tantamounts to transfer u/s 2(47)(v) of the Act read with section 53A of the Transfer of Property Act, 1882 and capital gains, if any, on transfer of land, should be considered only in Asst Year 2008-09. Reliance in this regard is placed on Chaturbhuj Dwarkadas Kapadia of Bombay vs CIT [2003 (2) TMI 62 - BOMBAY HIGH COURT]. We hold that pursuant to the development agreement dated 13.9.2006 and handing over of possession of land in Asst Year 2008-09 by the assessee to the developer, the developer has already been entitled to 50% superstructure portion together with ownership of land thereon in Asst Year 2008-09 itself. Title is already held with developer in Asst Year 2008-09 itself. The Transfer deeds executed on 17.11.2008 in respect of lands proportionate to 4 shops were only for betterment of existing title to the developer. Hence there cannot be any capital gains or business income in the hands of the assessee for Asst Year 2009-10 in respect of the land held by the assessee or the shops. Accordingly, the grounds raised by the assessee are allowed.
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