TMI Blog2022 (1) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... rsion of capital asset into stock in trade. Respectfully following the principles that the right income should be taxed in the right hands in the relevant financial period, we are of the considered view that in a case also where the assessee transfers a part of converted capital asset then also profits or capital gain would be chargeable to tax in the hands of the assessee partially pertaining to part of land or property sold during relevant financial period and same shall be chargeable to tax in the previous year in which if such part of stock in trade is sold or otherwise transferred by taking a fair market value on the date of such transfer or treatment shall be deemed to be full value of the consideration received or accrued to the assessee, as a result of transfer of capital asset. In the present case, undisputedly rather admittedly, the assessee has transferred part of converted capital asset into stock in trade during the relevant financial period and the AO has failed to make any enquiry in this regard and to tax the same in the hands of the assessee partially pertaining to the part of land sold during the year. No enquiry has been conducted by the AO during the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,880/-, the assessee is also liable to offer income on the difference amount of ₹ 5,37,01,904/- (₹ 11,92,18,880 ₹ 6,55,16,976) under the head income from business or profession . He observed that although the above issues were available on record, the Assessing Officer did not examine the same while completing the assessment u/s.143(3) of the Act. This action of the AO has led to the assessment order erroneous and prejudicial to the interest of the revenue. 4. Accordingly, Pr. CIT issued show cause notice u/s.263 dated 14.1.2020 was issued to the assessee proposing to set aside/revise the assessment order. In response to show cause notice, the assessee has challenged the jurisdiction of CIT for revision under both legal grounds and factual grounds. The Pr. CIT observed that the Assessing Officer has never called for or examined the issues i.e. chargeability of capital gains as per section 45(2) of the Act. Therefore, the Pr. CIT set aside the assessment order and directed the AO to pass fresh assessment order after taking into account the followings: i) To compute capital gains on conversion of capital asset into stock in trade @₹ 6,55,16,976/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 45(2) of the Act, when asset is converted by its owner as stock-in-trade, the Capital gain on the same will arise only when the entire stock-in-trade is sold. For your kind reference, we hereby enclosing the extract of section 45(2) of the Act: Section 45(2) of the Act : Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion 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, Die 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. A plain reading of the provisions of section 45(2) of the Act, it is clear that the profits and gains arising from the transfer by way of conversion of a capital asset into stock-in-trade of a business carried on by him shall be chargeable to income tax as his income of the previo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness; c) That the asset - viz., pooling of lands the asset was accounted as stock-in-trade during the assessment year 2014-15; d) That, during the AY 2015-16, the Assessee has actually incurred loss on the sale of part of land, the same be tabulated below, as follows: Statement of Gain / Loss Particular Total Amounts(86.39acres) Per acre Amount Land (86.39 acres ) ₹ 6,55,16,976 ₹ 7,58,386.11 Cost of further Improvements for 86.39 acres ₹ 52,86,58,606 ₹ 61,19,442.13 total cost ₹ 59,41,75,582 ₹ 68,77,828.24 Less: sale proceeds (30.79 ACRES) ₹ 11,92,18,880 ₹ 38,72,000.00 Gain / Loss Rs.-30,05,828.24 In our case the provision u/s.45(2) cannot be applicable because die each acre land sold at capital loss of ₹ 30,05,828.24/-th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Therefore, ld. Pr. CIT was right in invoking the revisional provisions u/s.263 of the Act. Ld CIT DR strenuously contended that the assessee is misleading and misguiding the revenue authorities by stating that only a part of land converted was sold during the relevant financial period, therefore, the provisions of section 45(2) of the Act cannot be applied to the case of the assessee because although sub-section(2) of section 45 of the Act does not explain a situation when a part of land is sold but it is also not mentioned thereon that in case of conversion of a capital asset into stock in trade of a business carried on by the assessee chargeable to income tax as his income of previous year in which such stock-in-trade is sold or otherwise transferred. Therefore, in a situation, when a part of stock has been sold then the calculation of profit or gains arising from transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transfer of the capital asset. This provision does not provide a situation where the assessee has sold a part of converted capital asset into stock in trade but at the same time, we also observe that it is also not the intention of the legislature that if the assessee is transferring a part of converted capita assets during preceding financial period, then the revenue authorities has to wait till the transfer of entire converted stock in trade for the purpose of taxing capital gains accrued to the assessee on conversion of capital asset into stock in trade. Therefore, respectfully following the principles that the right income should be taxed in the right hands in the relevant financial period, we are of the considered view that in a case also where the assessee transfers a part of converted capital asset then also profits or capital gain would be chargeable to tax in the hands of the assessee partially pertaining to part of land or property sold during relevant financial period and same shall be chargeable to tax in the previous year in which f such part of stock in trade is sold or otherwise transferred by taking a fair market value on the date of such transfer or treatment sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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