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TMI Blog2016 (3) TMI 1008X X X X Extracts X X X X X X X X Extracts X X X X ..... well as income from business, there won’t be any difference in the area of capital asset converted into stock in trade and stock in trade used for business purpose. In the present case on hand, on perusal of the calculations provided by the A.O., we find that the A.O. has made basic mistake in calculating the proportionate land area for the purpose of computation of income from business, by ignoring the land earmarked for internal roads, drains and other civic amenities. Though assessee could not receive any value for such earmarked land, which is mandatory for any developer to allow setback as per the prevailing laws regulating such activities. Therefore, we are of the opinion that the A.O. was not correct in adopting gross land for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red from time to time and furnished the required information. During the course of assessment proceedings, the A.O. noticed that the assessee has declared long term capital gain from sale of residential sites. When a specific query from A.O., the assessee stated that he has converted agricultural land into non-agricultural purposes, formed residential sites and sold. Since, the assessee converted capital asset into stock in trade, the A.O. was of the opinion that the provisions of section 45(2) of the Act attracts, therefore, issued a show cause notice and asked to explain why the provisions of section 45(2) of the Act shall not be invoked. In response to the show cause notice, the assessee filed a letter on 28.12.2011 and submitted that se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business, thereby excluded 9,778 sq.yds. land which represents easements lay out towards internal roads, drainage and other civic amenities. The assessee further submitted that when a residential layout is formed by conversion of agricultural land into residential layout, one has to necessarily provide setback for internal roads, drainage and other civic amenities, therefore, the A.O. should have allowed the cost of such easement area while computing the income from business. The CIT(A), however after considering the explanations furnished by the assessee directed the A.O. to allow the cost of 9,778 sq.yards. land allowed for setback. The CIT(A) further held that the assessee has allowed necessary setback for internal roads, drainage and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to the computation of capital gain and income from business. There was no dispute with regard to the applicability of the provisions of section 45(2) of the Act and related computation of capital gain as well as income from business. The only dispute would be in respect of computation of income from business and adopting proportionate land area for such computation. The A.O. while computing the long term capital gain has adopted gross area of the land converted into stock in trade and at the same time has considered proportionate developed area of land for the purpose of computation of income from business. 6. We have gone through the method of computation of long term capital gain and income from business, which is extracted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped site area (Actual land sold in terms of site in the financial year 2007-08) for computing the proportionate cost of flat sold of Rs. .1,13,92,700/- to compute the income from business and ignored the proportionate land area of 9,778 sq.yds earmarked for internal roads, drains and other civic amenities, thereby denied cost of such land of ₹ 53,77,900/-. 7. The A.O. has given two separate calculations for computation of income from capital gain and income from business which is extracted at page 3 5 of assessment order. On perusal of such calculations, we find that the A.O. has erred in adopting two different area of land for computation of capital gains and income from business. When a capital asset is converted into stock in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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