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ITO, Ward-2, Eluru Versus P. Krishnam Raju and vica-Versa

2016 (3) TMI 1008 - ITAT VISAKHAPATNAM

Computation of income from business u/s 45(2) when a capital asset converted into stock in trade - A.O. computed long term capital gain for conversion of capital asset into stock in trade as on the date of conversion and also computed income from business proportionately to the area of site sold during the year under consideration - Held that:- When a capital asset is converted into stock in trade, as per section 45(2) of the Act, it is certain that the assessee needs to compute long term capita .....

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pose of computation of income from business, by ignoring the land earmarked for internal roads, drains and other civic amenities. Though assessee could not receive any value for such earmarked land, which is mandatory for any developer to allow setback as per the prevailing laws regulating such activities. Therefore, we are of the opinion that the A.O. was not correct in adopting gross land for computing long term capital gain and only saleable land for the purpose of income from business. The C .....

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Appellant : Smt. D. Komali Krishna for Shri M.N. Murthy Naik, DR For The Respondent : Shri G.V.N. Hari, AR ORDER PER V. DURGA RAO, Judicial Member: This appeal filed by the revenue and cross objection filed by the assessee are directed against the order of CIT(A), Guntur dated 9.10.2012 and it pertains to the assessment year 2009-10. 2. The brief facts of the case are that the assessee is an individual filed his return of income for the assessment year 2009-10 on 31.7.2011 declaring a total inc .....

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the assessee has declared long term capital gain from sale of residential sites. When a specific query from A.O., the assessee stated that he has converted agricultural land into non-agricultural purposes, formed residential sites and sold. Since, the assessee converted capital asset into stock in trade, the A.O. was of the opinion that the provisions of section 45(2) of the Act attracts, therefore, issued a show cause notice and asked to explain why the provisions of section 45(2) of the Act s .....

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stock in trade. The A.O. after considering the explanations furnished by the assessee held that the assessee has converted capital asset into stock in trade and hence, the provisions of section 45(2) of the Act are applicable. Accordingly, computed long term capital gain for conversion of capital asset into stock in trade as on the date of conversion and also computed income from business proportionately to the area of site sold during the year under consideration and determined total income of .....

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f computation of long term capital gain, whereas adopted 20,714 sq.yards. for the purpose of computation of income from business, thereby excluded 9,778 sq.yds. land which represents easements lay out towards internal roads, drainage and other civic amenities. The assessee further submitted that when a residential layout is formed by conversion of agricultural land into residential layout, one has to necessarily provide setback for internal roads, drainage and other civic amenities, therefore, t .....

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come from business. Aggrieved by the CIT(A) order, the revenue is in appeal before us. 4. The Ld. D.R. submitted that the CIT(A) was erred in directing the A.O. to delete the additions made towards cost of 9,778 sq.yds land allowed for internal roads, drainage and other civic amenity purposes. The Ld. D.R. further submitted that the A.O. has rightly calculated the capital gain by taking the agricultural land conerted into stock in trade and computed income from business by taking the area of dev .....

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hen a capital asset converted into stock in trade. In the present case, the assessee has converted 21.2 acres of agricultural land into non agricultural purposes and formed residential layout. As stated by the A.O., the assessee has converted 1,02,608 sq.yds land and developed 69,646 sq.yds residential sites. The A.O. has given the detailed calculations with regard to the computation of capital gain and income from business. There was no dispute with regard to the applicability of the provisions .....

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hrough the method of computation of long term capital gain and income from business, which is extracted by the A.O. at page 3 & 5 of assessment order. On perusal of both the calculations, we find that the A.O. has adopted 1,02,608 sq.yds. for computation of capital gain and 69,646 sq.yds. for computation of income from business. The A.O. has given his own reasons for adopting such values for calculation of capital gain and income from business. As per the A.O., the assessee has developed 696 .....

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uld be allowed for internal roads, drains and other civic amenities. The A.O. has not disputed the fact with regard to the developed area, which is evident from the assessment order, wherein he has rightly arrived land developed in to residential sites. But, while computing the capital gain of ₹ 1,64,51,958/- he has taken 30,492 sq.yds. land (proportionate agricultural land converted into developed site area of 20,714 sq.yds.) for computing the FMV on 1.4.2008 at ₹ 1,67,70,600/- @ &# .....

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two separate calculations for computation of income from capital gain and income from business which is extracted at page 3 & 5 of assessment order. On perusal of such calculations, we find that the A.O. has erred in adopting two different area of land for computation of capital gains and income from business. When a capital asset is converted into stock in trade, as per section 45(2) of the Act, it is certain that the assessee needs to compute long term capital gains as on the date of conv .....

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