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2018 (12) TMI 457

d that:- The provisions of section 45(2) make it clear that even if there is conversion of capital asset into stock in trade, the capital gains shall arise to an assessee only in the year in which such converted stock in trade is sold. Admittedly the alleged stock in trade was not sold by the assessee in Asst Year 2007-08. It is not the case of the revenue also that any stock in trade was sold by the assessee in Asst Year 2007-08. Hence there cannot be any capital gains in Asst Year 2007-08 even on alleged conversion of capital asset into stock in trade. Hence we hold that the basis of reopening pursuant to reasons recorded, fails on all force of law. The reopening was made in the instant case based on incorrect assumption of facts by the AO. - Even on merits, AO estimated the value of 5500 sq.yard of land at ₹ 5,50,00,000/- based on estimated value quoted by the DVO on an interim basis. The ld AO failed to appreciate that ultimately some portion of land was even held by the assessee. In any case, 5500 sq.yard of land was never sold in full by the assessee. - The total value determined by the DVO at a later stage i.e during first appellate stage was fixed at ₹ .....

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essee or the shops. Accordingly, the grounds raised by the assessee are allowed. - I. T. A No. 2353/Kol/2016 AND I. T. A. No. 910/Kol/2018 - 5-12-2018 - Shri S. S. Godara, JM And Shri M. Balaganesh, AM For The Appellant : Shri S. M. Surana, Advocate And Shri D. K. Maroti, FCA For The Respondent : Shri Saurabh Kumar, Addl. CIT Sr. DR ORDER Per M. Balaganesh, AM 1. These appeals by the assessee arise out of the separate order of the Learned Commissioner of Income Tax(Appeals)-13, Kolkata [in short the ld CIT(A)] in Appeal No.93/CIT(A)-13/Kol/2015-16 dated 06.09.2016 and Appeal No. 97/CIT(A)-13/W- 44(4)/Kol/2015-16 dated 18.01.2018 against the separate order passed by ITO, Ward- 44(4), Kolkata [ in short the ld AO] under section 147 / 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 25.03.2015 and 30.03.2015 respectively for the Assessment Years 2007-08 and 2009-10 respectively. both the appeals are taken together and disposed off by this common order for the sake of convenience. ITA No. 2353/Kol/2016 - Asst Year 2007-08 2. The preliminary issue raised by the assessee in this appeal is as to whether the ld CITA was justified in upholding the validity of reopening of assess .....

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ed as to why the difference amount of ₹ 3,51,63,820/- ( ₹ 5,50,00,000 - ₹ 1,98,36,180) or the valuation of the said property valued by the district valuation officer is not treated as your income from long term capital gains for the financial year 2006-07 relating to assessment year 2007- 08. The assessee objected to the determination of valuation of property at ₹ 5.5 crores which was only based on an estimate and also informed the ld AO that the valuation officer of income tax department had visited the premises in Bhiwani on 19.3.2015 and all the documents and information on facts and findings were provided to him as per his requirements and satisfaction and that he had assured that the final report would be submitted by him in due time. Accordingly, it was pleaded by the assessee before the ld AO to keep the reassessment proceedings in abeyance till the receipt of the report from district valuation officer. 4. The ld AO observed in his order as under:- Since this is a time barring case and the assessment proceedings have to be completed within the stipulated time. Rather depending on the assessee's submission, it is inevitable to substantiate with the .....

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ar 2007-08 and consequently there cannot be any income escaping assessment for the Asst Year 2007-08. The assessee further submitted that balance land out of total land around 5500 sq.yard as per development agreement dated 13.9.2006 was not constructed and was under possession of land owner and with mutual consent, no further construction would be made due to some unavoidable circumstances and development agreement dated 13.9.2006 stood complied to the extent of 2271.19 sq.yard only. 5.1. The assessee further submitted that it is generally accepted perception that land pertaining to construction portion allotted to developer would be considered as transfer and sale consideration of such land would be cost of construction of constructed area allotted to the land owner. Here when land appurtenant to constructed portion allotted to developer is sold, there will be long term capital gain when land is ancestral, value as on 1.4.1981 will be the original cost and indexation cost to be arrived at on sale of land to developer which is appurtenant to his constructed area. Sale consideration will be cost of construction of constructed portion allotted to land owner and difference will be lo .....

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n any other manner, a capital asset held by him, he may take full advantage of the full provisions of section 45(2) of the Act. Such a person or the assessee may convert the capital asset into stock in trade and thereafter, he may either develop it or exploit in any other manner. Such a course of action will be very useful in the case of a person who desires to develop a plot of land, which he is holding as a capital asset. He may convert such a plot of land into stock in trade and thereafter, by way of development of plot of land, he may construct residential or commercial building units on the sae. Such a course of action will provide an advantage to such a person, because he will not be required to pay capital gains tax immediately on the date of conversion of capital asset into stock in trade. He may, in view of provisions of section 45(2) of the Act make payment of capital gains tax at the time of sale of such capital asset, after its conversion into stock in trade. Besides, such an assessee will have another advantage by way of reduction of his tax liability in respect of the gains resulted by him, by way of difference between the market value of capital asset on the date of .....

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and start construction thereon does not fall within the ambit of possession as contemplated in section 53A of the Transfer of Property Act, 1882. Hence we hold that there was no transfer in Asst Year 2007-08 in the facts of the instant case. We find that the ld AO had recorded reasons for reopening the assessment on the ground that the assessee by entering into development agreement dated 13.9.2006 had converted his capital asset (i.e land) into business asset and accordingly assessee is liable for capital gains u/s 45(2) of the Act. Since no capital gains was disclosed by the assessee for Asst Year 2007-08, his income had escaped assessment for which assessment was reopened. At the outset, we hold that there is no conversion of capital asset into stock in trade by the assessee pursuant to development agreement dated 13.9.2006. The possession of the land is to be transferred only after obtaining the sanction of the building plan which happened on 29.10.2007 falling in Asst Year 2008-09. Even otherwise, the provisions of section 45(2) of the Act make it clear that even if there is conversion of capital asset into stock in trade, the capital gains shall arise to an assessee only in .....

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he ld CITA was justified in deleting the business income added by the ld AO in the sum of ₹ 26,60,000/- and on the contrary directing the ld AO to compute the long term capital gains on transfer of land by the assessee to the developer, in the facts and circumstances of the case. 13. The brief facts of this issue are that the assessee entered into a development agreement dated 13.9.2006 with Kokra Developers Pvt Ltd for construction of multi storied building on assessse s ancestral land. It was agreed that assessee and developer will share 50% each of constructed portion and all construction and other related costs would be borne by the developer. On the basis of aforesaid development agreement dated 13.9.2006, the developer could not complete the construction during the year and only some shops were constructed. 4 shops were allotted to the developer and land appurtenant thereto of 253.33 sq.yards was transferred to developer out of total 2550 sq.yards, originally agreed as his share and construction was not fully complete on balance land. The assessee executed transfer deeds for 4 shops to the developer in consequence of the development agreement with the developer for tota .....

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AY 2006-07 at ₹ 34,87,820/- on 5500 square yard . As regard the cost of construction for remaining shops which are left with the appellant will be treated as NIL and the market value as on date of sale will be reduced by the stamp value of land on the date of conversion of assets into stock in trade as mentioned in AY 2006-07 and differential will be the business profit of the appellant. Therefore except capital gain on this transfer of land no business profit was to be charged. Therefore, the addition made as a business profit in the hands of the appellant is hereby deleted and the AO is directed to compute the LTCG and tax it to the portion of land transferred to the developer. The ground of appeal is partly allowed. It is further seen that the building is completed in the year itself as it has been transferred to the developer but the appellant has not shown sale of any shop of his share, therefore neither capital gain has been paid nor business profit has been given. The AO is directed to ascertain the ALV of the constructed shop which are in the share of the appellant as per amended provision and deemed rental income may be worked out and taxed accordingly. The business .....

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