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TMI Blog2025 (5) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... -09 on improvement of the said property. Assessee company further purchased another property at Indira Nagar, Lucknow in financial year 2007-08 for a total consideration of Rs. 4,46,520. Both of these properties were shown in the Balance Sheet as stock in trade till FY 2009-10. In FY 10-11, the assessee has converted the stock in trade in these two properties into the capital assets and accordingly shown them under the head "Long terms investments" in the Balance Sheet from FY 20010-11 and onwards. Thereafter, in the year under appeal both the properties were sold at Rs. 7,09,50,000/- (Shiva Market property for Rs. 7,00,00,000/- and Indira Nagar property for Rs. 9,50,000/-). The assessee after claiming the indexed cost of acquisition and improvement on both the properties, declared long- term capital gain at Rs. 2,68,24,236/-. The AO by holding that the assessee has converted the stock in trade to the capital asset with the primary motive of tax evasion and thus after disallowing the benefit of indexation towards cost of acquisition and cost of improvement and further by disallowing the deduction towards commission paid on sale, hold the profits of Rs. 4,93,99,480/- as business pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion relating to the business of the assessee amounting to Rs. 4,93,99,480/- (ii) On the facts and circumstances of the case, theNFAC has erred both on facts and in law in confirming the said action of the Ld. AO ignoring the fact that it is only the intention of the assessee which is relevant to find out whether a transaction is that of sale of capital asset or business of the assessee. (iii) That the stock in trade having been converted into capital asset cannot be taxed in the absence of provisions of section 28(via) 49(9), which were inserted in the statute with effect from 01.04.2009 (iv) That the assessee having never done in business in real estate, one off transaction of sale of investment cannot be treated as business. 7.(i) On the facts and circumstances of the case, the NFAC has erred both on facts and in law in confirming the action of Ld. AO innot allowing the assessee the benefit of indexation by holding the income to be taxed under the head business income and not under the head capital gain. (ii) On the facts and circumstances of the case, the NFAC has erred both on facts and in law in confirming the action of Ld. AO innot allowing the assessee the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the books of accounts. Further in the Balance Sheets as at 31.03.2011, the same were disclosed under the head 'long term investments". It is further submitted by ld. AR that assessee company had incurred cost of Rs. 61,21,258/- in FY 2008-09 towards the improvement of the property situated at Shiva market and the same was added to the purchases cost as recorded in the books of accounts which was duly appearing in the financial statements made on regular basis. However, the AO solely for the reason that assessee could not be able to produce the evidences for such improvement, has disallowed the same. In this regard, it was submitted by ld. AR that the improvement was taken place in financial year 2008-09 and the AO asked to produce the evidences in 2019 i.e. after the expiry of more than 10 years. As per the provisions of Income Tax Act, an assessee should maintain and kept the books of accounts and other details for a period not more than 7 years and therefore, the precise details like bills etc. were not available. However, the fact that the work was carried out and duly recorded in the books of account is verifiable from the financial statements of the assessee company which wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y tax at lower rate of tax. For this he placed reliance on the judgment of hon'ble Apex court McDowell & Company Limited vs. Commercial Tax Officer wherein the Hon'ble Supreme Court held that "tax planning" is acceptable if it is within the bounds of the law. However, the court strongly disapproved of "colorable devices" or "dubious methods" used to avoid tax liabilities, even if disguised as tax planning. He further placed reliance on the judgement of Hon'ble Bombay high court in the case of Killick Nixon Ltd. Vs. DCIT in ITA No.5518 of 2010 as relied by ld. CIT(A) and prayed for the confirmation of the order of the lower authorities. 11. After hearing both the parties and considering the material available on records, we find that in the instant case, assessee company has initially purchased these properties for the purpose of its business of construction. However, after passing of more than 5 years, when it was found that development of such properties for business purposes was not commercially viable, in the interest of business it was decided to hold these properties as long- term investments and to be sold as and when good opportunity come. From the perusal of the financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t provide for its taxability. In order to provide symmetrical treatment and discourage the practice of deferring the tax payment by converting the inventory into capital asset, it is proposed to amend the provisions of - (i) Section 28 so as to provide that any profit or gains arising from conversion of inventory into capital asset or its treatment as capital asset shall be charged to tax as business income. It is also proposed to provide that the fair market value of the inventory on the date of conversion or treatment determined in the prescribed manner, shall be deemed to be the full value of the consideration received or accruing as a result of such conversion or treatment; (ii) clause (24) of section 2 so as to include such fair market value in the definition of income; (iii) section 49 so as to provide that for the purposes of computation of capital gains arising on transfer of such capital assets, the fair market value on the date of conversion shall be the cost of acquisition; (iv) clause (42A) of section 2 so as to provide that the period of holding of such capital asset shall be reckoned from the date of conversion or treatment. These amendments will take effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngwith the benefit of indexation available as per law. 16. Regarding the Payment of Commission, we find that a sum of Rs. 9,00,000 was paid to the director of the assessee company and the payment was made after deduction of tax at source through banking channel. The necessary confirmation of the director was also submitted before the lower authorities which is available in the paper book page 248. Further the copies of the Ledger accounts of other two persons namely Shri Ram Singh and Shri Muni Singh to whom Commission of Rs. 5.00 lacs each paid after TDS were also filed. From the perusal of the same, it is evident that the payments were made to them through banking channel and TDS was also deducted and the copy of TDS certificates containing their PAN details were also filed by the assessee, therefore, the payments made to these persons as Commission cannot be disallowed. Accordingly, we direct to allow the same to the assessee. 17. In view of the above discussions, grounds of appeal No. 6 to 8 taken by assessee are allowed. 18. Ground of appeal No. 9 taken by the assessee is in relation to disallowance of capital loss of Rs. 1,36,59,617/- claimed on the transfer of shares. 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss so made by the lower authorities. 23. We have heard the rival submissions and perused the material available on record. In the instant case, the assessee company has purchased shares of Ashutosh Paper Mills Ltd. which is a company listed with stock exchange limited and these shares were purchased through a member broker via online system portal of stock exchange. The assessee to prove the genuineness of the transaction as submitted the following documents: (i) contract notes for purchase of shares. (ii) contract notes for sale of shares. (iii) copy of ledger account of the assessee in the books of the trading M/s MSB e-Traders Securities Pvt. Ltd. (iv) Copy of the ledger account of broker in the books of the assessee company. (v) copy of bank statements, evidence of payments made and letter received of demat account of the assessee. (vi) Copy of DMAT account statement regarding holding of shares 24. From the details filed by the assessee and perusal of the assessment order, we find that nowhere in the order, it is alleged by the AO that some information was available that the assessee had entered into the sham transaction of bogus short terms capital loss in the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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