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TMI Blog2015 (5) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITA No. 245/Mds/2015 - - - Dated:- 15-5-2015 - Chandra Poojari (Accountant Member) And Challa Nagendra Prasad (Judicial Member) For the Appellant : R. Vijayaraghavan, Advocate For the Respondent : N. Rengaraj, CIT ORDER Chandra Poojari (Accountant Member) This appeal by the assessee is directed against the order of the Commissioner of Income-tax(Appeals) dated 23.12.2014. 2. The assessee has raised the following grounds: 2. The Commissioner of Income tax (Appeals) ought to have appreciated that Essorpee Holdings Private Limited at the time of transfer treated the land holding as investment and therefore the entire sale consideration should have been considered as capital gains. 3.The Commissioner of Income tax (Appeals) ought to have appreciated that the Appellant has converted the stock of land into investment through the Board's resolution and accordingly the entire profit should be assessed as capital gains. 4.Without prejudice to the above, the Commissioner of Income tax (Appeals) ought to have appreciated that the land was originally converted as stock in trade on 01.04.2007 and therefore as held by the Tribunal, the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l sale of the said converted land. The Real Estate division of EML was demerged into the assessee as per the Scheme of demerger approved by the High Court with effect from 01.01.2009. As per the demerger the land holding of EML amounting to 10.150 acres was demerged and vested with the assessee. The land transferred from EML under demerger was originally shown by the assessee as stock in trade to reflect the treatment given by EML. However, the assessee did not have any intention to deal with the property as its stock in trade. Hence, as soon as the demerger was over, it had converted the land into investments from 1.4.2010 as supported by a resolution of the Board of Directors dated 1.4.2010. During the year the assessee had advised the lenders that they will not be in a position to repay the loan and consequently permitted the lender M/s.Globuse Realtors Private limited, through Mr. Sivakumar, M.D., to utilize the POA granted to him and dispose off the land settle the sale consideration against the loan outstanding. 5.075 acres were transferred by Mr. Sivakumar utilizing the POA granted to him for a consideration of ₹ 15,00,00,000- with which the loan outstanding was settle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the resulting company is an Indian company; Further, he drew our attention to the order of the Tribunal in ITA No.2256/Mds/2012 dated 11th July, 2013 in the case of M/s. Essorpe Mills Ltd. Others, wherein the Tribunal considered the sale of 5.075 acres by the Power of Attorney holder, Shri V. Sivakumar in the assessment year 2009-10 and directed the Assessing Officer to compute the capital gains by applying the provisions of sec.45(2) of the Act on the said land on the date of conversion and only balance amount, if any, computed as business profit on actual sale of capital asset. 6. On the other hand, the ld. DR submitted that the assessee, M/s. Essorpe Holdings Pvt. Ltd.(EHPL) came into existence on 02.07.2007. Prior to that EML has become an BIFR Company in the year 1999. In the year 2007, EML converted an area of 10.150 acres as stock-in-trade as per the Board Resolution. On 28.07.2009, EML applied to the High Court of Madras for demerger with EHPL as real estate division. Before filing the demerger application before the High Court, on 05.01.2009 and 07.01.2009, a part of the land with an area measuring 5.075 acres was sold by Power of Attorney holder Shri V. Siv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before demerger was converted into stock-in-trade by EML and as a result capital gains as accrued u/s 45(2) of the Act, as on the date of conversion, has to be actually charged at the time of actual sale of the land has no merit. The assessee was a new company formed on the basis of demerger approval granted by the High Court of Madras. The accounting treatment given to the land in EML cannot have any bearing to apply the provisions of Section 45(2) of the Act. In the case of the assessee, the provisions of Section 45(2) are not applicable to the sale of land made by the assessee. Accordingly, he submitted that the assessee company was formed after the demerger of real estate division and the provisions of sec.45(2) are not applicable. 7. We have heard both the parties and perused the materials on record. In the case of sale of 50% of the same property out of 10.15 acres of land for the assessment year 2009-10 was considered in the hands of M/s.Essorpe Mills Ltd. in ITA No.2256/Mds/2012 dated 11.7.2013 by the co-ordinate Bench of this Tribunal and it was observed in paragraph 8 9 as follows: 8. Heard both sides. Perused the orders of the lower authorities and records. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial year 2008-09 is 582. It may be noted that there is only 5.6% increase in the cost inflation index for the financial year 2007-08 and 2008-09. 10.The land and building which was sold by the POA holder in the financial year 2008-09 has fetched a sum of ₹ 20,25,00,000/-. Therefore it is most humbly prayed that the fair market value as on the date of conversion of land and building into stock-in-trade i.e. in the financial year 2007-08 may be taken at a value 5% less than the fair market value (i.e. the sale consideration) in the financial year 2008-09 i.e. [Rs.20,25,00,000 - 5% of ₹ 20,25,00,000 = ₹ 19,23,75,000]. 11.For the purpose of computing the long term capital gains on conversion of land into stock in trade, the full value of consideration will have to be arrived at by reducing the value of building from the fair market value as on the date of conversion of land i.e. ₹ 19,23,75,000 (-) ₹ 71,51,725 = ₹ 18,52,23,275/- and the short term capital gains on conversion of building into stock in trade would be as determined by the Assessing Officer which is ₹ 69,26,825/- i.e. ₹ 71,51,725 (-) ₹ 2,24,900/- (WDV of bui ..... X X X X Extracts X X X X X X X X Extracts X X X X
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