2022 (12) TMI 428 - AT - Income Tax

Long term capital gain - year of assessment - As argued that the impugned capital gains ought not to have been assessed in the year when the assessee had converted his capital asset(s) to stock-in-trade - HELD THAT - Assessee s argument fails to inspire any acceptance as section 45(2) is a specific provision wherein capital gains arising from such a conversion are assessed in the year of actual transfer of the stock-in- trade. We thus uphold the learned lower authorities action; more, particularly the CIT(A) s action assessing the impugned long term capital gains in assessee s hand to the tune of Rs.8,64,068/- than the entire sale consideration amounting to Rs.74,55,088/- (supra). CIT(A) s jurisdiction in arriving at the correct computation of an assessee s taxable income - Bifurcation of long term capital gains computation to business income to the extent of business profits - We find no merit in the Revenue s instant arguments in light of CIT vs. Shapoorji Pallonji Mistry 1962 (2) TMI 12 - SUPREME COURT , CIT vs. Union Tyers 1999 (9) TMI 81 - DELHI HIGH COURT and CIT vs. M/s. Sardari Lal Company 2001 (9) TMI 1130 - DELHI HIGH COURT that the CIT(A) s jurisdiction does not extend to introducing an altogether new source of income as it has been done in the facts of the instant case. Faced with this situation, we accept the assessee s vehement arguments challenging business profits addition.

Summary

Issues:
1. Validity of section 148/147 proceedings for non-filing of return after selling capital/business asset.
2. Assessment of long-term capital gains on the sale of a capital asset converted into stock-in-trade.
3. Bifurcation of long-term capital gains into business income by the CIT(A).

Issue 1:
The first issue revolves around the validity of section 148/147 proceedings due to the non-filing of a return after selling a capital/business asset. The Appellate Tribunal upheld the lower authorities' decision, stating that the taxpayer did sell the asset and failed to file a return, thus finding no merit in the argument against the proceedings.

Issue 2:
Regarding the assessment of long-term capital gains on the sale of a capital asset converted into stock-in-trade, the Tribunal analyzed the CIT(A)'s order modifying the initial assessment. The CIT(A) considered various factors like the fair market value of the land, cost inflation index, and acquisition cost to arrive at a revised long-term capital gain amount of Rs. 8,64,068. The Tribunal upheld this decision, emphasizing the specific provision of section 45(2) for such assessments.

Issue 3:
The final issue concerns the CIT(A)'s bifurcation of the Assessing Officer's computation of long-term capital gains into business income. The Tribunal, citing legal precedents, noted that the CIT(A) cannot introduce a new source of income beyond the Assessing Officer's findings. As a result, the Tribunal accepted the taxpayer's argument against the addition of business profits amounting to Rs. 65,58,156. The Tribunal directed for necessary computations to be carried out as per law.

In conclusion, the Appellate Tribunal partially allowed the taxpayer's appeal, addressing the issues related to the validity of proceedings, assessment of capital gains, and the bifurcation of income. The Tribunal's detailed analysis and reliance on legal provisions and precedents ensured a comprehensive and fair resolution of the case.