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2020 (6) TMI 325 - HC - Income TaxReopening of assessment u/s 147 - stock-in-trade had to be valued at the present market value - HELD THAT:- The true purpose of crediting the value of unsold stock is to balance the cost of those goods entered on the other side of the account so that the cancelling out of the entries relating to the same stock from both sides of the account would leave only the transactions on which there had been actual sales in the course of the year showing the profit or loss actually realised on the year’s trading. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into the account as no prudent trader would care to show increased profit before its actual realisation. This is the theory underlying the rule that the closing stock has to be valued at cost or market price whichever is lower and it is now generally accepted as an established rule of commercial practice and accountancy. Taking the view that profits for income tax purposes are to be computed in conformity with the ordinary principles of commercial accounting unless such principles have been superseded or modified by legislative enactments, it would be a misconception to think that any profit arises out of valuation of the closing stock. Computation of ‘capital gains’ - stand of the assessee is that it had rightly deducted the cost incurred in acquiring the property from the fair market value of the land converted into stock-in-trade - HELD THAT:- For computing the income under the head ‘capital gains’, the full value of consideration received as a result of transfer of the capital asset shall be deducted by the expenditure incurred in connection with such transfer, cost of acquisition of the asset and the cost incurred in improvement of the asset. The expression ‘the full value of the consideration’ would mean the fair market value of the asset on the date of such conversion. The meaning of the expressions ‘cost of improvement’ and ‘cost of acquisition’ are explained in Sections 55(1) and 55(2) of the Act respectively. In the case of Miss Piroja C. Patel [1999 (3) TMI 38 - BOMBAY HIGH COURT] the question before this Court was whether the Tribunal was justified in holding that the amount in question being compensation paid by the assessee to the hutment dwellers for vacating the land was an allowable expenditure within the meaning of Section 48 read with Section 55 of the Act. This Court held that on eviction of the hutment dwellers from the land in question, the value of the land increases and therefore, the expenditure incurred for having the land vacated would certainly amount to cost of improvement. Third ground is concerned, we do not find any rationale in the view taken by the Assessing Officer. The cost incurred on stamp duty etc. together with the cost incurred in carrying out eviction of the hutment dwellers would certainly add to the value of the asset and thus amount to cost of improvement which is an allowable deduction from the full value of consideration received as a result of the transfer of the capital asset for computing the income under the head ‘capital gains’. AO has taken the view that long term capital gains arising out of sale or transfer of land would be assessed to tax only in the year in which the land is sold or otherwise transferred by the assessee? - What the partner gets upon dissolution of the partnership or upon retirement from the partnership is the realisation of a pre-existing right or interest - There was nothing strange in the law that a right or interest should exist in praesenti but its realisation or exercise should be postponed. Applying the above principle, it can certainly be said that upon purchase of the flat, the purchaser certainly acquires a right or interest in the proportionate share of the land but its realisation is deferred till formation of the co-operative society by the flat owners and transfer of the entire property to the co-operative society. There was no basis or justification for respondent No.1 to form a belief that any income of the assesee chargeable to tax for the assessment years under consideration had escaped assessment within the meaning of Section 147 - reasons rendered could not have led to formation of any belief that income had escaped assessment within the meaning of the aforesaid provision. Therefore impugned notices issued under Section 148 of the Act cannot be sustained. - Decided in favour of assessee.
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