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2014 (6) TMI 1017 - AT - Income TaxCapital gain - anticipated profit to tax - assessment in which year - land held by the assessee as stock in trade - Held that:- The conceptual foundation for this stock valuation principle are accounting principle of conservatism and business considerations of prudence, which have been noticed and approved by Hon'ble Courts above. It is for these reason that when market price of an item in the closing stock is less than its cost price to the business, the notional loss is allowed as a deduction but when market price of an item in the closing stock is more than its cost price to the business, the notional profit is not brought to tax. However, by giving the impugned directions, learned CIT(A) has ended up bringing that anticipated profit to tax. What the assessee has got today is only a right to sell the 1,28,940.26 fts of constructed area in the Alexandria project and the profits, howsoever certain they may appear to be, will only fructify and be realized, and can even be quantified, only when this right is exercised in part or in full. That stage has not yet come, and until that stage comes, in our considered view, such profit cannot be taxed. Unlike in a case of a capital gain which arises on parting the capital asset at the first stage itself, it is a case of business transaction which is completed when the rights so acquired by the assessee are exercised; none can make profits by dealing with himself, as is the settled legal position in the light of the settled legal position in the case of Sir Kikabhai Premchand v. CIT[1953 (10) TMI 5 - SUPREME COURT]. It is for this reason that we are unable to uphold the action of the authorities below on the facts of this case. The authorities below indeed erred in bringing to tax the anticipated business profits on assessee's entering into a development agreement with Menorah Realties Pvt Ltd in respect of the land held by the assessee as stock in trade - Decided in favour of assessee.
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