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TMI Blog2017 (11) TMI 1072X X X X Extracts X X X X X X X X Extracts X X X X ..... for conversion purposes in order to determine Short Term Capital Gains. Therefore, rejecting the stand of the assessee, the Assessing Officer is not justified to determine the Short Term Capital Gains at a figure of ₹ 19,30,779/-. Particularly when the converted price of mould as effected by the assessee is the book value of impugned assets. As the Stock-in-Trade has been exported by the assessee and export realization in foreign exchange has come to India, the claim of the assessee on the profit earned on such export u/s. 80HHC deserves to be allowed. What the assessee had sold is its Stock-in-Trade and not the assets which had been converted from his investment. As it is not a case of investment conversion and the present case being the saleable capacity of the fixed assets which the assessee had commercially exploited to its full extent by finding a suitable market abroad. Therefore, the action of the Assessing Officer to treat the business income of the assessee as Capital Gains and consequently determining Short Term Capital Gains within the meaning of Section 45(2) r.w.s 50 at a figure of ₹ 19,30,779/- is not at all justified. Assessing Officer was not just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same is adjudicated separately for ease of convenience as there is a direction of the Hon'ble Tribunal on the issue. The Hon'ble Tribunal has directed the AO to determine the fair market value of the asset as per provision of the Act. The AO in his order has held that the determination of the fair value is to be based on some evidence of market price and the appellant has furnished any supporting evidence to arrive on the fair market value of the asset while conversion to the stock in trade. The AO worked out the value of the asset on the basis that the asset was sold within three months of the conversion to stock in trade, hence, the value fetched by the asset is equivalent market value of the asset against the book value of the asset shown by the appellant. The appellant has rebutted the stand of the AO by reiterating that it has sold stock in trade and not the fixed asset, hence, there is no question of calculating the FMV u/s 45(2} of the Act. I have considered the rival arguments and before proceeding further, it will be pertinent to note the provisions of section 45(2) of the Act, which is as under:- ( 2) Notwithstanding anything contained in sub-section (1), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dards in the matter of retirement and disposal of Fixed Assets in the following manner:- a. Clause 14.2 of AS 10 i. Items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realizable value and are shown separately in the financial statement. b. Clause 24 of AS 10 i. Material items retired from active use and held for disposal should be stated at the lower of their net book value and net realizable value and shown separately in the financial statements. c. Assessee in compliance with the requirement of AS 10, removed retired moulds out of block of fixed assets at book value at the time of conversion of Moulds from Fixed Assets to Stock in trade. 7. It was further argued that the Ld. CIT (A) erred in estimating and determining the fair market value of the Moulds at the date of its conversion from Fixed Assets into stock in trade being ₹ 34,56,581 and instead counted it as ₹ 71,11,978/- being the Actual Export sale value of the moulds being sale of stock in trade realized by the assessee and counted it as deemed fair market value at the date of its conversion from Fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val contentions and carefully gone through the orders of the authorities below and found from record that the assessee is a Registered Firm with three partners and is involved in the business of manufacturing and marketing of Plastic Moulded Articles. During the relevant year the Assessing Officer finds that the assessee had converted its fixed assets from the Block of assets into Stock-in-Trade. The assets converted were the injection moulds. Those moulds numbering 22 have been exported by the assessee and the export proceeds realized have been considered as business income by the assessee while filing its Return of income. And the assessee had claimed the deductions u/ss. 80HHC and 80IB. 13. The Assessing Officer observed that the assessee had claimed depreciation on the moulds which had hitherto been reflected in its Balance Sheet as fixed asset. As moulds are part of the Capital Assets with his block of assets on which depreciation has been claimed, section 50 is clearly attracted. The proceeds received from the sale fixed assets should not be treated as business income but it liable to tax as capital gains. Therefore, the claim of deduction u/s. 80HHC as claimed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the depreciation has been claimed on the fresh purchase of mould forming part of block of assets and not on the mould which had been converted into Stock-in-Trade. Therefore, the disallowance of depreciation u/s. 32 is uncalled for. 15. I also found that the assessee had claimed deduction u/s. 80IB for an amount of ₹ 9,74,142/- which the Assessing Officer has allowed the reduced claim for ₹ 2,33,741/- as the result of which the difference amount of ₹ 7,40,401/- has been disallowed. The action of the Assessing Officer is not justified since the deduction u/ss.80HHC and 80IB are independent; AO was not justified to deduct the amount of deduction u/s 80HHC from the eligible profits while computing deduction u/s 80IB. This view finds the support of the following decisions:- 248 ITR 29 (Bom) Nima Specific Family Trust Vs. CIT. 229 ITR 123 (MP) J.P, Tobacco Products Pvt. Ltd., Vs. CIT 251ITR 587 (Guj) CIT Vs. Chokshi Contracts Pvt. Ltd. 252 ITR 777 (Guj) CIT V/s. Sidhpur Isabgul Processing Company Ltd. 16. In view of the above, I direct the AO to recompute the deduction claimed u/s.80IB. 17. In the result, appeal of the assessee is allowed in terms i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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