CONVERSION OF CAPITAL ASSET INTO STOCK, Income Tax

[SARVESH BALDI]

SIR

AN INDIVIDUAL ENGAGED IN REAL ESTATE BUSINESS PURCHASED A LAND AS AN INVESTMENT IN THE MID OF YEAR SAY SEPT. LAND WAS PURCHASED IN CASH.HOWEVER, ON CLOSURE OF ACCOUNTS HE REVIEWED AND CONVERTED CAPITAL ASSET PURCHASED INTO STOCK.

CASH WAS WITHDRAWN FROM BANK ON DATE OF PURCHASE OF LAND ADN INTENTION WAS INVESTMENT.

NOW CAN AO DISALLOW SUCH PURCHASES ON HOLDING THAT IT WAS BUSINESS ASSET AND PURCHASE IN CASH WAS DISALLOWABLE??

PLZ GUIDE

Posts / Replies

[Rama Krishana]

In tax laws it is well established that Substance is more relevant over form.

As long as it is on record you have purchased the Land as capital asset, the event of conversion the same as Stock in trade later would not entitle the AO to disallow the same as Cash Purchase exceeding ₹ 20,000.