9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (5) TMI 568 - AT - Income TaxBusiness income taxability - year of assessment - land held by the assessee as stock in trade - as per CIT-A it is taxable only in the year of sale of Villas and not in the relevant AY - HELD THAT - In the case of a capital asset, if it is transfer under any of the provisions of section 2(47), coupled with handing over of possession of the capital asset, capital gain is to be offered on mercantile basis in the year in which the possession is given. As rightly pointed out by the CIT(A) in the case of the assessee, the land has been treated as stock-in-trade and the assessee has only contributed its portion of land to the JDA and is liable to offer business income in the year in which the stock-in-trade is sold. The CIT(A) has observed that the assessee has offered business profits in the AYs 2015-16 and 2016-17 i.e. the years in which the Villas have been sold. Since the stock-in-trade has only been contributed and has not been sold during the relevant AY, there is no receipt or accrual of business receipt during the relevant AY. Further, such position has been confirmed by the coordinate bench of Tribunal at Bangalore in the case of Dheeraj Amin Vs. ACIT 2014 (6) TMI 1017 - ITAT BANGALORE the authorities below indeed erred in bringing to tax the anticipated business profits on assessee s entering into a development agreement in respect of the land held by the assessee as stock in trade - Decided against revenue.
Issues Involved:
1. Taxability of business income on the transfer of stock-in-trade. 2. Applicability of Section 2(47) of the Income Tax Act to stock-in-trade. 3. Timing of recognizing business income in the context of a Joint Development Agreement (JDA). 4. Relevance of accounting principles in valuing closing stock. Detailed Analysis: 1. Taxability of Business Income on the Transfer of Stock-in-Trade: The primary issue revolves around whether the assessee should recognize business income in the year of transferring stock-in-trade to the developer under a Joint Development Agreement (JDA). The Assessing Officer (AO) contended that the assessee transferred its portion of the land and should therefore recognize business income in the relevant assessment year (AY). The AO computed the business income at ?9,29,92,155/- and brought it to tax. 2. Applicability of Section 2(47) of the Income Tax Act to Stock-in-Trade: The CIT(A) and the Tribunal found that Section 2(47) of the Income Tax Act, which pertains to the transfer of a capital asset, does not apply to stock-in-trade. The Tribunal emphasized that the land in question was treated as stock-in-trade by the assessee and not as a capital asset. Therefore, the provisions of Section 2(47) would not trigger the recognition of business income in the year of transfer to the developer. 3. Timing of Recognizing Business Income in the Context of a Joint Development Agreement (JDA): The Tribunal upheld the CIT(A)'s decision that business income should be recognized in the year of the actual sale of Villas, not in the year of the transfer of stock-in-trade to the developer. The Tribunal referred to the case of Dheeraj Amin Vs. ACIT, which established that anticipated profits should not be taxed until realized. The assessee had offered business profits in the AYs 2015-16 and 2016-17, corresponding to the years when the Villas were sold. 4. Relevance of Accounting Principles in Valuing Closing Stock: The Tribunal discussed the principles of conservatism and prudence in accounting, which dictate that anticipated profits should not be recognized until realized. The Tribunal cited the Supreme Court's judgment in Chainrup Sampatram Vs. CIT, which supports the principle that closing stock should be valued at cost or market price, whichever is lower. The Tribunal concluded that the anticipated business profits from the JDA should not be taxed until the actual sale of the constructed area. Conclusion: The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order that business income should be recognized in the year of the actual sale of Villas and not in the year of the transfer of stock-in-trade to the developer. The decision was based on the principles of conservatism and prudence in accounting, and the specific provisions of the Income Tax Act regarding the transfer of stock-in-trade versus capital assets.
|
