2022 (6) TMI 1369 - AT - Income Tax

Capital gain - Transfer of right in asset - land was converted into stock in trade in earlier assessment year - agreement between the assessee and Unitech is not an agreement for sale and there is no consideration - HELD THAT - Where assessee converted his land into stock in trade and thereafter a development agreement was entered into by the assessee with the developer, the capital gain arising from the conversion of land into stock in trade is assessable in the previous order in which the property is sold by the assessee and not in the year of development agreement. We are of the firm belief that the assessee has not transferred his right to Unitech there is no transfer of any right in title or interest in stock in trade during the year under consideration and hence no income accrues to the assessee we, therefore, decline to interfere with the findings of the CIT(A). The appeal filed by the revenue is accordingly dismissed.

Issues:
1. Interpretation of the agreement between the assessee and Unitech.
2. Invocation of provisions of section 45(2) of the Act.
3. Determination of consideration in the agreement.
4. Treatment of land conversion from fixed assets to stock in trade.
5. Assessment of capital gains in the relevant assessment year.

Analysis:

1. The appeal by the revenue challenged the order of the CIT(A) regarding the addition of Rs. 12,27,36,985 made by the AO. The revenue contended that the CIT(A) erred in law and facts by deleting the addition, stating that no capital asset was transferred by the assessee to M/s. Unitech Ltd.

2. The AO believed that a transfer of capital assets occurred due to an agreement between the assessee and Unitech, invoking section 45(2) of the Act. The AO computed the addition based on the perceived reduction of exclusive rights enjoyed by the assessee in favor of Unitech. The AO concluded that an irrevocable transfer of rights had taken place, leading to the addition.

3. The CIT(A), after hearing both sides and examining the facts, determined that the agreement was not an agreement for sale, lacked consideration, and was solely for development and marketing purposes. The CIT(A) emphasized that no income accrued to the assessee during the relevant assessment year, leading to the deletion of the addition.

4. It was established that the conversion of land from fixed assets to stock in trade had occurred in a previous assessment year. The Tribunal noted that the agreement with Unitech did not involve a transfer of rights in stock in trade during the relevant year, and no income arose to the assessee in that year. Therefore, the Tribunal declined to interfere with the CIT(A)'s findings and dismissed the appeal filed by the revenue.

5. The Tribunal's decision was based on the lack of transfer of rights to Unitech during the relevant assessment year, emphasizing that the capital gain would be assessable in the year the property is sold, not in the year of the development agreement. The Tribunal upheld the CIT(A)'s decision, highlighting that no transfer of title or interest in stock in trade occurred during the relevant year, leading to the dismissal of the revenue's appeal.

This detailed analysis showcases the key arguments, interpretations, and conclusions drawn in the legal judgment, addressing each issue comprehensively and maintaining the legal terminology used in the original text.

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