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2020 (4) TMI 778 - AT - Income TaxReopening of assessment - assessment after 04 years - whether any new material or information so as to hold that the assessee has failed to disclose fully and truly all the facts necessary for assessment ? - audit objections - Transfer as per Section 2(47) of the Act while making treatment of its capital asset i.e. land of Cinema Hall into stock in trade of the business of selling of shops u/s 45(2) - HELD THAT:- Bare reading of the assessment order dated 3-12-2010 does not reveal that any enquiry was conducted by the AO on the issue of nature of income arising from the arrangement of development of commercial complex after demolition of Cinema Hall Building on the land in question. CIT(A) has decided this issue by presuming the fact that reassessment proceedings were initiated on the basis of re-appreciation of the same set of facts available on record and is nothing but merely change of opinion whereas the facts regarding the audit objections pointing out certain facts based on the enquiry as well as the enquiry conducted by the AO by issuing notices u/s 133(6) of the Act were not considered by the ld. CIT(A). Therefore, ignoring the relevant facts which are necessary to arrive to the conclusion whether subsequent enquiry and audit objection would constitute a tangible material to form the belief that income assessable to tax has escaped assessment, would render the impugned order of the ld. CIT(A) as not sustainable. Accordingly we set aside this issue to the record of the ld. CIT(A) to re-adjudicate the same after considering the audit objection as well as enquiry conducted by the AO by issuing notices u/s 133(6) of the Act. Ground No. 1 and 2 of the Revenue are allowed for Statistical purposes. Addition u/s 45(2) - conversion of capital asset into stock in trade - assessee was having the business assets in the form of Cinema Hall and was engaged in exhibiting the films then the decision taken by the assessee to discontinue the earlier business by dismantling the cinema hall building and converting the land use for development of commercial complex amounts to conversion of capital asset into stock in trade - Addition deleted by the ld. CIT(A) - HELD THAT:- It was a case of conversion of business asset into stock in trade and thereby the profit on sale of the said land and shops / offices contains two components of income i.e. one is capital gain on account of conversion of capital asset into stock in trade u/s 45(2) of the Act and another is business income on account of sale of stock in trade. The computation of capital account would be based on the consideration being fair market price as on the date of conversion being in the year 2001 though the same will be assessed to tax in the year under consideration when the assessee has finally sold the stock in trade. Therefore, the said finding of the ld. CIT(A) is contrary to the undisputed material facts of discontinue the existing business of exhibiting films in the cinema hall, demolition of cinema hall building and conversion of land use to commercial complex for sale constitute a positive act on the part of the assessee to establish the conversion of capital asset into stock in trade. We find that even if it is presumed for the sake of argument that the assessee company has acquired the land on dissolution of the partnership firm, the same does not fall in the modes of acquisition as specified u/s 49(1) so as to deem the cost of acquisition of the asset in the hands of the previous owner of the property. However, without going into the merit of the issue, we note that this fact was not at all brought into the notice of the authorities below and therefore, for the purpose of computing the capital gain the actual date of acquisition is required to be determined by considering all these facts as well as claim of the assessee. Indexed cost of acquisition - AO has not disturbed the indexed cost of acquisition as claimed by the assessee, however, it is a matter of fact that as per Development Agreement the assessee has claimed to have acquired the land in the year 1995. When this is part and parcel of subject matter of assessment of capital gains which is the subject matter of the appeal filed by the Revenue then the issue of computation of capital gains is required to be decided based on true and correct facts. Since we have already set aside the issue of reopening to the record of the ld. CIT(A), therefore, this issue is also set aside to the record of the ld. CIT(A) and consequently the ld. CIT(A) is directed to compute the capital gains by taking the correct indexed cost of acquisition. Ground No. 3 of the Revenue is partly allowed for Statistical purposes. Non Service of notice issued u/s 148 - HELD THAT:- As far as the issuance of notice is concerned, the same is not in dispute when the AO has issued the said notice and sent the same through Regd.Post on 31-03-2015. Only dispute is regarding service of notice. Parties have taken their respective stands on this issue. However, there is no dispute that the assessee in response to said notice has filed the return of income and also participated in the reassessment proceedings, therefore, the issue has to be decided after considering the provisions of Section 292BB of the Act. Since the ld. CIT(A) has not adjudicated upon both these issues, therefore, the grounds raised by the assessee in the C.O. are set aside to the record of the ld. CIT(A) for adjudication after providing adequate opportunity of hearing to the assessee
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