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2016 (7) TMI 513 - AT - Income TaxAddition u/s. 69C - determination of value - sale of capital asset after conversion into stock in trade - applicability of section 50C - Held that - While computing the business income, assessee has claimed certain cost of construction and most of the amounts were spent in earlier years. Instead of verifying the expenditure incurred during the year, the AO undertook the exercise of referring the cost of construction to valuation itself which indicated certain differences in valuation. As rightly opined by the Ld. CIT(A) as against the books values shown by assessee, the total valuation by the Valuation Officer on all the three projects has resulted in a difference of 0.1% which is very negligible considering the ₹ 27 Crores value shown by assessee. - Decided against revenue Determination of cost of acquisition - capital gains computation - Held that - Assessee has made an agreement with the parties for acquisition of the undivided portion of the share from two different unrelated parties at a value which is not disputed. Since the sale occurred during the year, assessee has offered Long Term Capital Gain and business profits on the total project including the portions which are acquired to fulfill the sale and the assessee has reduced the values correspondingly to arrive at the market value on the day of offering the gains. As seen from the agreement of sale and the amounts paid by assessee which are not disputed by the Revenue for the purpose of determination of capital gains, we are of the opinion that the rates adopted by assessee are reasonable. Moreover, in determining the value at ₹ 550/-, the AO adopted only the value of cost of construction on the structure, ignoring the corresponding land value. Therefore, the very premise on which AO has restricted the amount is not correct. As seen from the order of the CIT(A) also, he has determined the amount of ₹ 625/- without any justification which the Revenue is also contending in its appeal. After considering the evidences placed on record and the working as adopted by assessee, we are of the opinion that the rate 2,000/- and 1100/- adopted by assessee in arriving at the cost of acquisition for the purpose of capital gains is reasonable and accordingly, the grounds raised by assessee are allowed - Decided against revenue Revision u/s 263 - Non consideration of provisions of Section 50C while determining the capital gain - Held that - As noticed in the appeals considered earlier on the orders u/s. 143(3), AO was very much aware that assessee has converted the fixed asset into stock-in-trade as on 01-01-2008 and he has computed the Long Term Capital Gain on that day by making certain adjustments to the cost claimed by assessee. Not only that, AO also has brought to tax the business profits of subsequent sale and in doing so, he has restricted the cost of the building. Even though those issues were subject matter of earlier appeals, it is noticed that AO is very much aware about the conversion of fixed assets to work-in-progress on 01-01-2008 and subsequent sale on 31-03-2008, consequently the transaction does not attract the provisions of Section 50C as directed by Ld.CIT. It is also to be noted that assessee adopted the valuation as certified by the authorities in taking the sale consideration on the date of conversion which was accepted by the AO. In view of this, question of invoking the provisions of Section 50C as on 31- 03-2008 does not arise. Moreover, as seen from the registered document, the value of ₹ 14.51 Crores pertain to the date of registration which was in the year 2009 but not on 31-03-2008. On that fact also, the valuation of ₹ 14.51 Crores cannot be adopted as on 31-03-2008. Since the asset sold on 31-03-2008 is no longer a fixed asset and being stock-in-trade, the Ld. CIT erred in invoking the provisions of Section 50C. We are of the opinion that it is the CIT who erred in considering the facts and therefore, we have no hesitation in setting aside the order of the CIT as the order of AO is not erroneous and prejudicial to the interest of Revenue - Decided in favour of assessee
Issues Involved:
1. Determination of cost of construction and business income. 2. Re-determination of Long Term Capital Gains. 3. Invocation of Section 263 by CIT. 4. Application of Section 50C for capital gains computation. Detailed Analysis: 1. Determination of Cost of Construction and Business Income: The assessee, engaged in real estate, filed its return for AY 2008-09 declaring an income of ?2,20,88,896/-. The AO, upon assessment, re-determined the cost of construction for various projects (Ellareddyguda, Chirag Ali Lane, and Himayathnagar) by referring the properties for valuation by the DVO. The AO found discrepancies in the cost of construction and made additions accordingly. The CIT(A) deleted these additions, stating that the differences in valuation were negligible (0.1% cumulatively). The Tribunal upheld the CIT(A)’s decision, finding no merit in the Revenue’s appeal regarding the deletion of ?25,27,561/- and the addition of ?30,03,740/- under Section 69C. 2. Re-determination of Long Term Capital Gains: The AO re-worked the Long Term Capital Gains on the sale of land and built-up area at Ellareddyguda, adopting a lower cost of acquisition than claimed by the assessee. The CIT(A) adjusted the cost of acquisition to ?625 per Sq. ft. instead of ?550 per Sq. ft. The Tribunal found the AO and CIT(A)’s restrictions on the cost of acquisition unjustified. It accepted the rates of ?2,000/- and ?1,100/- per Sq. ft. claimed by the assessee, allowing the assessee’s appeal and rejecting the Revenue’s contention. 3. Invocation of Section 263 by CIT: The CIT invoked Section 263, questioning the AO’s non-application of Section 50C for determining capital gains. The CIT proposed using the stamp valuation of ?14,15,60,000/- instead of ?12,51,00,000/- declared by the assessee. The Tribunal found that the AO was aware of the conversion of fixed assets to stock-in-trade and had computed the gains accordingly. The Tribunal held that Section 50C was not applicable as the sale was a business transaction, and the valuation pertained to a subsequent year. Thus, the Tribunal set aside the CIT’s order under Section 263, allowing the assessee’s appeal. 4. Application of Section 50C for Capital Gains Computation: The CIT’s invocation of Section 50C was contested by the assessee, arguing that it did not apply to the conversion from fixed assets to stock-in-trade. The Tribunal agreed, noting that the AO had accepted the valuation on the date of conversion and that the higher valuation pertained to a later registration date. Consequently, the Tribunal ruled that Section 50C did not apply, and the CIT’s order was erroneous. Conclusion: The Tribunal allowed the assessee’s appeals (ITA No. 190/Hyd/2012 & ITA No. 1218/Hyd/2013) and dismissed the Revenue’s appeals (ITA No. 305/Hyd/2012 & ITA No. 1602/Hyd/2014), upholding the CIT(A)’s decisions and setting aside the CIT’s order under Section 263. The Tribunal pronounced the order in the open court on 05th July, 2016.
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