2013 (7) TMI 996 - AT - Income Tax

Whether there is transfer u/s 2(47) - conversion of land and building into stock in trade - Held that the gain on transfer of property up to the date of conversion into stock-in-trade has to be assessed under the head capital gains and the gain in respect of property i.e. after the date of conversion into stock-in-trade has to be assessed as business income - Decided partly in favour of assessee.

Summary

Issues involved:
1. Delay in filing cross appeals by the assessee and the Revenue.
2. Assessment of income for the assessment year 2009-10 in relation to property transfer.
3. Determination of business income and capital gains in the case of the assessee.
4. Discrepancy in the sale consideration amount between the Revenue and the assessee.
5. Addition made in respect of transfer of property under the head business income protectively.

Issue 1: Delay in filing cross appeals
The ITAT Chennai considered the delay of 11 days by the Revenue and 129 days by the assessee in filing cross appeals. Both parties provided reasonable causes for the delay, leading to the condonation of the delay by the tribunal in the interest of justice. Consequently, the appeals and cross objections were admitted for disposal.

Issue 2: Assessment of income for the assessment year 2009-10
The appeal by the assessee contested the transfer of property under section 2(47) of the Income Tax Act, 1961, and the subsequent assessment of capital gains. The tribunal upheld the Commissioner of Income Tax (Appeals) decision that there was a transfer, resulting in income chargeable to tax for the assessment year 2009-10. The tribunal directed the Assessing Officer to calculate business income based on the sale of land by the assessee company, considering the conversion of the asset into stock-in-trade.

Issue 3: Determination of business income and capital gains
The tribunal considered the alternative submission by the assessee regarding the assessment of income under the head "income from business" and "long term capital gains." It was decided that the gain up to the date of conversion into stock-in-trade should be assessed as capital gains, while post-conversion gain should be treated as business income. The tribunal directed the Assessing Officer to compute business income in accordance with section 45(2) of the Act after providing a hearing to the assessee.

Issue 4: Discrepancy in sale consideration amount
In the Revenue's appeal, it was argued that the sale consideration should be assessed at Rs. 20,25,00,000, while the Commissioner of Income Tax (Appeals) restricted it to Rs. 17,62,50,000. The assessee did not object seriously to this discrepancy, leading to the allowance of the Revenue's appeal by the tribunal.

Issue 5: Addition made protectively under the head business income
The tribunal dismissed the appeal of the Revenue and the Cross Objection filed by the assessee regarding the addition made protectively in relation to the transfer of property under the head business income, as a substantial addition was upheld in the case of M/s. Essorpe Mills Ltd.

In conclusion, the tribunal partially allowed the appeal of the assessee in ITA No.2256/Mds/2012 for statistical purposes, allowed the appeal of the Revenue in ITA No.76/Mds/2013, and dismissed the appeal of the Revenue in ITA No.79/Mds/2013 and the Cross Objection No.108/Mds/2013 of the assessee.