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2022 (10) TMI 539 - AT - Income TaxCapital gain - income arising from sale of impugned property - Addition applying provisions of section 50C - valuation done to arrive at the fair market value of the impugned land property - HELD THAT:- AO and CIT(A) left the calculation of income on the sale transaction of impugned land property midway, owing to non-availability of fair market value of impugned land property on the date of conversion i.e. as on 31.03.2008. CIT(A) while giving relief to the assessee has accepted the income from the sale transaction of the impugned land as business income as claimed by the assessee in its return. By accepting such a claim of the assessee by the CIT(A), it implies that provisions of section 45(2) have been applied which is without verifying and examining the veracity of the claim of conversion itself. It is pertinent to note that assessee itself made a submission before the ld. AO vide its letter dated 09.03.2016, contents of which are reproduced in para 2.2 above, whereby assessee had discontinued its business and had no staff and also that the impugned property is the only property which it held as stock in trade. As already noted that there are two components of income which are brought to tax when the provisions of section 45(2) are applied, viz., capital gains on the conversion and business income on the sale of converted stock in trade. In the present case, the business income is subjected to tax as claimed by the assessee and allowed by the Ld. CIT(A). However, the other component of capital gains on the conversion of capital asset into stock in trade has been assumed to be forming part of the business income itself, which to our mind is not a correct application of the provisions of section 45(2) of the Act. It is proper to set aside the order of ld. CIT(A) on the issue of income from sale transaction of land property and remit the matter back to the file of CIT(A) to call for and obtain the pending valuation report from the DVO for which he had directed the Ld. AO as stated - We also direct to conduct due verification and examination of the claim of conversion made by the assessee in terms of our above observations for which, if deem fit, a remand report may be called from the ld. AO. Based on the valuation report of the DVO, examination of the veracity of claim of conversion and the remand report from the ld. AO, if any, Ld. CIT(A) is directed to arrive at both the components of income from sale transaction of the impugned land property by applying the provisions of section 45(2) of the Act and decide the issue accordingly. The assessee is also directed to cooperate with the Ld. DVO and Ld. CIT(A) in having the valuation done to arrive at the fair market value of the impugned land property as on 31.03.2008 i.e. the date of conversion. Needless to say that the assessee be given a reasonable opportunity of the heard before disposal of the appeal by the Ld. CIT(A). In the result, ground taken by the Department in this respect is partly allowed for statistical purposes. Disallowance u/s 14A - sufficiency of own funds - HELD THAT:- As undisputed facts are that own funds available with the assessee are much more than the investments made by the assessee. Accordingly, respectfully following the decisions referred by the Ld. Counsel in the case of South Indian Bank [2021 (9) TMI 566 - SUPREME COURT] by the Hon’ble Supreme Court, we direct to delete the disallowance made by the ld. AO under section 14A of the Act. Thus, ground taken by the Department in this respect is dismissed.
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