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2022 (12) TMI 1126 - AT - Income TaxAddition under the head ‘income from capital gains’ - business of real estate development had converted her land into stock-in-trade in terms of provisions of Sec.45(2) - assessee has formed a layout as per approved plan from the local municipal authorities - AO has computed long term capital gains in terms of Sec.47(iii) of the Act, on land earmarked for road, on the ground that when the assessee has converted her own land into public roads, there is an extinguishment of right in the land which amounts to transfer within the meaning of Sec.47(iii) - HELD THAT:- We ourselves do not subscribe to the reasons given by the AO for the simple reason that the land earmarked for public utility purpose in terms of municipal regulations while forming residential lay out, cannot be brought to tax either u/s.47(iii) of the Act or u/s.45(2) of the Act, because, relinquishment of right in land earmarked for common utility purpose, cannot be considered as extinguishment of any right in property which can be considered as transfer within the definition of Sec.47(iii) - the provisions of Sec.45(2) of the Act, also cannot be invoked to compute business profits when the land has been converted into stock-in-trade, because, the assessee has not transferred the land for a consideration. We are of the considered view that when the assessee has relinquished her right in the land earmarked for common utility purpose in terms of regulatory requirements and also executed Gift Deed in favour of the Commissioner, Virudhachalam, without any consideration, then, the question of computing long term capital gains on such land and also business profit in terms of Sec.45(2) of the Act, does not arise. In this case, the assessee has executed a Gift Deed dated 22.03.2019 and handed over the land in favour of the Commissioner, Virudhachalam Municipality. In our considered view, said transaction neither attracts capital gains as per Sec.47(iii) of the Act, nor business profit as per Sec.45(2) - We are of the considered view that the AO is completely erred in taxing deemed long term capital gains and deemed book profit in respect of 40,386.81 sq.ft. land earmarked for public utility purpose and handed over to local municipal authorities. CIT(A) after considering relevant facts has rightly deleted the additions made by the AO and thus, we are inclined to uphold the order of the Ld.CIT(A) and dismiss the appeal filed by the Revenue.
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