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TMI Blog2016 (8) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... d on rent since 1945 and in the year 1994, the impugned land was purchased. The area of the factory land is 36272 sq. mtr. [ i.e. 390000 sq. ft.]. Out of which, land admeasuring 25282 sq. mtr. [ i.e. 272000 sq. ft.] was converted into stock-in-trade on 10.04.2006. Subsequently, the assessee entered into agreement with Spun Conart Developers for the development of the land so converted into stock-in-trade. 5. During the Assessment Year 2008-09, 42 plots admeasuring 1,64,619 sq. ft. were sold for a consideration of Rs. 5,77,81,269/-. The assessee computed the capital gains as under:- Sale Price 57781269 Less: index cost [cost price Rs. 5,20,193 index of the year of sale of Rs. 551, index of the year of purchase of Rs. 259 1106665 56674604 Less:- Invested as per section 54EC 5000000 Less:- the amount utilized in investment in plant and machinery, land and building at Duttpura, Waghodia on shifting of factory building at Jamuna Baug i.e. Urban Area to Duttpura, Waghodia as per section 54G [as per the fixed asset schedule to the balance sheet as on 31.03.2008] 29769530 34769530 Long term capital gain offered for taxation 21905070 Lon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed statement, invoices for building, plant and machinery are filed. 7. The reply filed by the assessee did not find any favour with the A.O. The A.O. was of the firm belief that the land sold by the assessee was not a land used by the assessee for the purpose of its business of industrial undertaking but was converted into stock-in-trade in respect of its business as developer. 8. The A.O. further observed that out of capital gains, the assessee ought to have purchased new machinery or plant or building or land etc. for the purpose of shifting of industrial undertaking to new area and such acquisition has to be within a period of one year before or three years after the date on which the transfer took place and since the assessee has not fulfilled these conditions, it is not eligible for deduction u/s. 54G of the Act and accordingly the A.O. denied the claim. 9. Assessee carried the matter before the ld. CIT(A) but without much success. After considering the facts and the submissions and the resolution of the Board of Director, the ld. CIT(A) was of the opinion that the assessee has not transferred the original assets to the new place rather original assets had been demolished. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertaking situate in an urban area, effected in the course of, or in consequence of, the shifting of such industrial undertaking (hereinafter in this section referred to as the original asset) to any area (other than an urban area) and the assessee has within a period of one year before or three years after the date on which the transfer took place,- (a) purchased new machinery or plant for the purposes of business of the industrial undertaking in the area to which the said undertaking is shifted; (b) acquired building or land or constructed building for the purposes of his business in the said area; (c) shifted the original asset and transferred the establishment of such undertaking to such area; and (d) incurred expenses on such other purpose as may be specified in a scheme framed by the Central Government for the purposes of this section. then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,- (i) if the amount of the capital gain is greater than the cost and expenses incurred in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for all or any of the purposes aforesaid together with the amount, so deposited shall be deemed to be the cost of the new asset: Provided if the amount deposited under this sub-section is not utilized wholly or partly for all or any of the purposes mentioned in clauses (a) to (d) of sub-section (1) within the period specified in that sub-section, then,- (i) the amount not so utilized shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires ; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid. 15. A perusal of the aforementioned Section shows that capital assets should be machinery or plant or building or land used for the purpose of business of industrial undertaking situate in an urban area and the transfer should be effected in the course of, or in consequences of, the shifting of such industrial undertaking to non-urban area and the long term capital gain should be utilized before one year from the date of transfer or within three years from the date of transfer. 16. The bone of contention is the date of transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year of date of transfer. The assessee has utilized the LTCG for the period from 06.08.2006 to 31.03.2008 as under:- (i) Purchase of New Plant and Machinery Rs. 1,93,94,933/- (ii) Construction of New Factory Building Rs. 1,03,74,597/- Total Rs. 2,97,69,530/- 22. Since the first sale deed was executed on 06.08.2006, it is this date which has to be taken into consideration and not the date of conversion as held by the lower authorities. It would be worth mentioning here, the CBDT Circular No. 791, dated 02.06.2000. To All CCITs and DGITs Subject: Tax exemption on the sale of capital assets converted into stockin- trade- Clarification regarding section 45(2) read with sections 54E, 54EA, 54EB and 54EC of the Income-tax Act, 1961 Sir, Section 2(47) of the Income-tax Act provides that any conversion of capital assets into stock-in-trade shall be regarded as a transfer. This transfer arises in the year in which such conversion takes place and, accordingly, capital gain would normally arise in that very year. However, section 45(2) of the Act postpones the assessment of such capital gains to the year in which the stock-intrade is actually sold or otherwise trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to relief under section 54 of the Act in respect of the long term capital gains which they had earned in pursuance of transfer of their residential property and used for purchase of a new asset/residential house. Decision of the Punjab and Haryana High Court (printed below) reversed. A purposive interpretation should be given to the provisions of the Act while considering a claim for exemption from tax. " 24. Assuming, yet not accepting, that the date of transfer is 10.04.2006 as held by the lower authorities:- Presuming that the date of transfer is 10-04-2006 as held by CIT(A) than the cost of acquisition of plant & machinery and construction of factory building made up to 10-04-2009 are eligible for deduction under Section 54G. The assessee has utilized Rs. 2.97 Crore during A.Y. 2008-2009 in acquiring new plant and machinery and cost of construction of factory building. Similarly the assessee has incurred expenditure of Rs. 65,85,913 in acquiring plant and machinery and construction of factory building for the period from 01-04-2008 to 31-03-2009. The said amount is utilized within three years from the date of transfer i.e. from 10-04-2006 to 31-03- 2009. Therefore, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act to the assessee. The common grievance in both these appeals is allowed in favour of the assessee and against the revenue. ITA No. 2482/Ahd/2012 pertaining to A.Y. 2009-10. 29. One more grievance of the assessee relates to the additions made u/s. 14A of the Act. While scrutinizing the return of income, the A.O. noticed that the assessee has earned tax exempted income of dividend Rs. 77,211/-, Share of income from partnership firm of Rs. 31,94,459/- and tax free interest from US-64 Bond of Rs. 5,996/-. The A.O. found that the assessee has suo motu disallowed a sum of Rs. 1,81,902/- u/s. 14A of the Act. 30. The assessee was asked to show cause as to why the disallowance u/s. 14A read with Rule 8D should not be made. The assessee claimed that it has not incurred any expenses on borrowing from the investment as the investments have been made out of own funds. Therefore, there cannot be any disallowance u/s. 14A of the Act, the A.O. denied the claim of the assessee and proceeded by computing the disallowance u/s. 14A read with Rule 8D of the Act. The disallowance so computed was at Rs. 2,42,237/- and after deducting the suo motu disallowance of the assessee at Rs. 1,81,902/-, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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