2015 (2) TMI 197 - AT - Income Tax

Conversion of capital asset to stock in trade - date of conversion - admission of additional evidence - market value adopted by AO for the purpose of calculation of capital gains by invoking the provisions of section 50C - Held that - Ld. CIT(A) had forwarded the documents/evidences sought to be produced by the assessee during appellate proceedings to the Ld. AO and called for his comments and has given a categorical finding that the AO neither had put a specific query regarding the date of conversion and even had not given proper opportunity to the assessee to produce the necessary evidences on the file. Even the AO had been given opportunity to rebut the evidences but the AO could not point out any defects in the evidences/accounts of the assessee. Hence, we do not find any infirmity in the order of the Ld. CIT(A) so far the question as to admission of additional evidence is concerned. The Ld. CIT(A), after detailed discussion and appreciation of evidence on file, has held that the date of conversion of capital asset into stock in trade was 01.04.2001. The land in question was not actually transferred and hence no value was adopted by the Stamp Duty Authorities as the matter never went to Stamp Duty Authorities. Thus provisions of section 50C were not applicable. The Ld. CIT(A) has given a well reasoned finding regarding the non application of section 50C of the Act to the assessee s case. The Ld. CIT(A) has also discussed that the Hon ble High Court has decreed the plaint holding the assessee to be owner on the basis of agreement of the year 1973. Thus no infirmity in the order of the Ld. CIT(A) on the above issues. - Decided against revenue. Wrong offer to tax on capital gains on the conversion of capital asset to stock in trade by wrongly applying the provisions of section 45(2) - cross objection by assessee - Held that - The Ld. CIT(A), after going through the evidences, has held that the assessee had entered into a development agreement on 28.06.04 with Shree Balaji Developers and thereby had conveyed the land for the purpose of development to the developer. He has held that such conveyance of land very much falls within the meaning of transfer under section 2(47) of the Act and the capital gains arising as per the provisions of section 45(2) were taxable in the instant year. Without further going into this controversy, we find that the assessee itself had offered the tax on capital gains under section 45(2) treating the conveyance of the land to the developer vide development agreement dated 28.06.04. Now, the assessee, in our view, is estoped from his own act and conduct to dispute the date of transfer. Thus find no merit in the cross objections and the same are accordingly dismissed. - Decided against assessee.

Summary

Issues involved:
Admission of additional evidences during appellate proceedings, Date of conversion of capital asset to stock in trade, Applicability of section 50C, Taxability of capital gains on conversion, Cross objections by the assessee.

Admission of Additional Evidences:
The Revenue appealed against the admission of additional evidences by the Ld. CIT(A) during appellate proceedings. The AO did not specifically request proof of the conversion date from the assessee, and the AO's query on the revised return validity was raised late. The Ld. CIT(A) found the AO did not grant sufficient opportunity for the assessee to present evidence. The Ld. CIT(A) allowed the additional evidences, considering the lack of opportunity and the genuineness of entries showing conversion on 01.04.01.

Date of Conversion of Capital Asset:
The Ld. CIT(A) determined that the capital asset was converted to stock in trade on 01.04.01 based on accounting entries and evidence of land development activities. The Ld. CIT(A) noted approvals and formalities indicating the conversion date, disagreeing with the AO's view of conversion on 30.09.03. The Ld. CIT(A) held that the revised return was valid, and section 50C did not apply as no sale occurred, and stamp duty authorities did not assess the land value.

Applicability of Section 50C:
The Ld. CIT(A) reasoned that since no value was assessed by Stamp Duty Authorities and no stamp duty was imposed, section 50C did not apply. The Ld. CIT(A) also considered the High Court's decree on property ownership to determine the fair market value as of 01.04.81. The Ld. CIT(A) concluded that section 50C was not applicable, and the fair market value on 01.04.81 was valid for computing capital gains.

Taxability of Capital Gains on Conversion:
The assessee's cross objections challenged the tax on capital gains from converting the capital asset to stock in trade. The Ld. CIT(A) upheld tax liability as the land was conveyed for development, constituting a transfer under section 2(47) of the Act. The cross objections were dismissed as the assessee had voluntarily offered tax on capital gains, estopping them from disputing the transfer date.

In conclusion, the ITAT Mumbai upheld the Ld. CIT(A)'s decision on the admission of additional evidences, date of conversion, and the non-applicability of section 50C. The tax liability on capital gains was affirmed, and the cross objections by the assessee were dismissed. The appeal by the Revenue and the cross objections were both dismissed by the tribunal.