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ACIT, Circle-4, Kolkata Versus M/s. Kankani Construction Pvt. Ltd.

2016 (2) TMI 732 - ITAT KOLKATA

Sale of land - nature of transaction - capital gain u/s.45(2) read with 2(47)(iv) or business income - whether land shown as investment was converted into stock-in-trade? - Held that:- In the present case since the property has been transferred in the relevant assessment year, the capital gain which arose in the year of its conversion i.e assessment year 2004-05 becomes taxable in the relevant asst year 2007-08. Further as per sec 45(2) the full value of consideration for computing capital gain .....

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the u/s 45(2) read with section 2(47)(iv) and to delete the addition made by the AO by treating the same as business income. - Decided against revenue - ITA No. 553/Kol/2012 - Dated:- 15-1-2016 - Shri P. M. Jagtap, A.M. & Shri S.S.Viswanethra Ravi, J.M. For The Appellant : Shri Tanuj Niogi, JCIT, Sr.DR For The Respondent : Shri Somnath Ghosh, Advocate ORDER Per Shri S.S.Viswanethra Ravi, J.M. This appeal is filed by the Revenue having aggrieved by the order dated 16.12.2011 passed by the CI .....

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the property became flat. 3. The brief facts of the case are that the assessee is a company and its nature of business is construction and acquired land time to time during the period 1988-89 to 1998-99. The said land was held by the assessee as investment and the same appeared under the head investment in the books of accounts. In the assessment year 2004-05, the said capital asset was converted into stock in trade and thereafter, flats were constructed on the said land and said flats were sold .....

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, computed capital gain for transfer of land. 4. During the assessment proceedings, the AO was of the view that the provisions of sec 45(2) read with sec 2(47)(iv) are not applicable to the assessee company for the reason that the assessee did not sell the land as it is and it sold the same after constructing a building and treated the entire income as business income and also observed that the assessee did not compute the capital gain in the original return, but, it did compute the same in its .....

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land as per the approved valuer's valuation report dated 23.10.2003 was ₹ 10 lakh per cottah. Copy of valuation report is enclosed.As per the provisions of sec 45(2) read with sec 2(47)(iv) no capital gain is payable at the time of transfer of conversion of capital asset into stock in trade. The said capital gain becomes payable at the time when stock is sold. Accordingly no capital gain arose in the year of transfer, i.e. in the financial year 2003-04 relevant to Asst Year 2004-05. Af .....

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rket value of land on the date of conversion of the same into stock in trade was treated as business income which works out to ₹ 203,059/- However the AO did not take cognizance of long term capital gain and assessed the same as business income on the ground that the assessee was not trading in land but it was in development and construction business. As such no capital gain arose. 6. Before the Ld.CIT-A, The assessee also relied on the Calcutta Special Bench in the case of Octavis Steel a .....

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e order of Ld. CIT-A, the Revenue is in appeal before us challenging the same. The Ld.DR submitted that the assessee purchased lands only for the 10 years and it is not in trading of lands. The assessee claimed exemption U/s 80IB of the Act. All the flats sold are more than 1000 sft and the asseessee is not entitled to claim exemption U/s 80 IB of the Act. The assessee has shown the value of the land at ₹ 60 laks, but, however the valuation report of the concerned Sub Registrar showed S .....

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year 2003-04 relevant to Assessment year 2004-05 the said capital asset was converted into stock in trade, thus the assessee is entitled to compute the capital gain section 45(2) read with sec 2(47)(iv) of the Act and the CIT-A passed a well considered order and relied on the same and placed reliance on a special Bench of Kolkata in the case of Octavis Steel and Co. Ltd. v. ACIT reported in 83 ITD 87 (KOL.) (SB) and Mumbai D Bench in the case of Ramesh Abaji Walwaval kar vs ACIT, Range-3 reporte .....

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rsion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset .....

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D 87 (KOL.)(SB) held as below On a plain reading of the aforesaid section 45(2) it is clear that this provision was enacted for computing capital gains in respect of transfer of converted asset into stock-in-trade of a business. It has been provided therein that such profit arising from the transfer by way of conversion stock-in-trade shall be chargeable to income-tax as income of the previous year in which such stock-in-trade is sold or otherwise transferred Section 45(2) starts with a non obst .....

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was justified in holding that capital gain was to. be computed in the previous year even though that conversion was effected before 1-4-1985. This sub-section supersedes provision of sub-section (1) and provides for charging of capital gain in the year when the converted stock-in-trade is sold or otherwise transferred For the purpose of section 48 also this section has provided the method for computing capital gain in such circumstances, i.e., the fair market value of the asset on the date of su .....

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i D Bench in the case of Ramesh Abaji Walwaval kar vs ACIT, Range-3 held as below: Coming to the issue relating to determination of cost of acquisition of 'S' land for the purpose of computing long-term capital gains, as already noted that there was a conversion of capital asset of land into stock in trade by the assessee for the business of real estate development and capital gain arising from the transfer of land by way of such conversion was chargeable to tax in the previous year rele .....

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