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TMI Blog2018 (5) TMI 1324X X X X Extracts X X X X X X X X Extracts X X X X ..... eparate orders of CIT (Appeals) XII, Kolkata dated 30.09.2013 for the Assessment Years 2008-09 2010-11 under section 143(3) of the Income Tax Act, 1961 ( the Act ). As the issues arising in both the appeals are common, for the sale of convenience, they are heard together and disposed off by way of this common order. 2. Facts in brief. The assessee, M/s. Poddar Projects Ltd., and is in the business of letting out of property, manufacturing of cotton yarn, export of C.I. materials. The facts relating to the first issue before us i.e. whether the income arising out sale of space is to be assessed under the head long term capital gain or under the head business income are brought out by the Ld. CIT(A) at para 5.2.1 and 5.2.2 of his order: 5.2.1 The facts of the case in brief are as follow. The appellant company was engaged in letting out of property, manufacture of cotton yarn, export of C.I. Materials. The Assessing Officer, during the course of assessment proceedings, observed that as per the tax audit report, there was no export of C.I. Materials and manufacture of cotton yarn during the year. The Assessing Officer noticed that this year i.e. in F.Y. 2007-08, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been shown as income from Long Term Capital Gains instead of Business Income. Further, on examination of the sale deeds, the Assessing Officer found that the Registration Authority determined the fair market value of the property @ ₹ 6100/- per sft. Except in the case of sale made to M/s. Mohit Carriers Pvt. Ltd. where the value was adopted at the rate of ₹ 6,026/- per sft. By the Registrar., whereas the sales of the space were made by the appellant company at the rate of ₹ 2500/- per sft. In the case of Mohit Carriers Pvt. Ltd. Bijay Kr. Agarwal Meena Agarwal, while in respect of the other cases the spaces were sold at the rate of ₹ 2000/- per sft. 5.2.2. In view of the above observations, the Assessing Officer asked the appellant to show cause as to why the conversion of 6049 sft. Of space into stock in trade should not be rejected and why not the profit arising out of the sale of a portion of space should not be treated as income from capital gains. It was also asked to show cause as to why the fair market value determined by the registrar should not be treated as consideration price received against the sales made to 6 purchasers as mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed to have converted certain portions of the premises, as stock-in-trade, but the auditor in his tax audit report in Sr. No. 28(a) mentioned the opening stock purchase, sale and closing stock as Nil. Hence the claim is not certified by the auditor. (e) In the schedule of depreciation, it is seen that the assessee has not claimed any depreciation on the building. (f) The assessee had converted a part of the building as stock-in-trade only when the tenants surrendered the tenancy rights. This is nothing but an afterthought to avoid applicability of provisions of section 50C. 4. Aggrieved the assessee carried the matter in appeal. The First Appellate Authority granted relief. Aggrieved the revenue before us on the following revised grounds of appeal for A.Y. 2008-09: i. That on the facts and circumstances of the case Ld. CIT(A) erred in allowing the capital gain and business loss as computing by the assessee without appreciating the findings of the A.O. ii. That on the facts and circumstances of the case Ld. CIT(A) erred in directing to accept the capital gains and business loss as declared by the appellant under section 45(2) of the Act. However, the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and and building from capital asset to stock-in-trade, the assessee obtained a report from registered valuer and converted the stock at the rate mentioned. Copy of the valuation report placed on record. The undisputed fact of the case is that, the sale of building space during the assessment year 2008-09 as well as assessment year 2010-11, was out of the opening stock of land and building. On these facts the issue to be determined is whether the directions of the Ld. CIT(A) to treat the profit on sale of building space as long term capital gain, for the period upto the date of conversion of capital asset as stock in trade and as business income thereafter, under the provisions of section 45(2) of the Act correct or not. 7. The Ld. CIT(A) held that the capital gain arising from such a conversion of capital asset into stock-in-trade shall be charged to capital gain tax in the year in which the closing stock in question is actually sold and for this purpose indexation of cost of acquisition shall be done till the date of conversion. The fair market value of the asset as on the date of conversion shall be considered as the full value of consideration received for the purpose of comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer that it was business income. The reported case did not deal with conversion of investment into stock-in-trade. Therefore, that case is not at all applicable to the facts of the present case to hold that the case of the appellant of conversion of part of investment into stock-in-trade is not permissible under the law. On the other hand, the ratio laid down in the judgment supports the case of the appellant. Therefore, having regarding to the facts and circumstances of the case, I am of the considered view that provisions of section 45(2) of the Act applied in this case. The appellant has also correctly disclosed capital gains on the conversion of the investment into stock-in-trade in the assessment year under consideration adopting the cost of acquisition as on 01.04.2005 i.e., the year in which such asset had been converted into stock-in-trade particularly when such cost as worked out by the appellant is supported by the reports of approved chartered valuers for the purpose. Now, coming to the working of the business income/loss on the sale of space, since this is a case of sale of stock-in-trade and the same is outside the purview of the capital asset under section 2(47 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2009-10, we find that ground no 1 and 2 are on the same issue as to whether, the profits earned on sale of building space, is assessable under the head income from business or under the head capital gain. As the facts are identical with the facts of the case for the assessment year 2008-09, consistent with the view taken by us for the assessment year 2008- 09, we dismiss these grounds in the revenue s appeal. 13. The second issue that arises are adjudication for the assessment year 2010-11 is whether the Ld. CIT(A) was right in allowing speculation loss of ₹ 3,17,26,872/- as trading loss of the assessee. The loss in question was incurred by the assessee on future trading in forex. The Ld. CIT(A) referred to the CBDT instruction no 3/2010 dated 23.03.2010 reported in Taxman (ST) page 160 and 162 and held that the loss is allowable as business loss. We find that this order of the First Appellate Authority is in line with the principles of law laid down by Mumbai I Bench of Tribunal in ITA No.4798/Mum/2012 Assessment Year 2009-10 in the case of IVF Advisors Pvt. Ltd. vs ACIT order dated 13.02.2015, wherein at para 7.5 held as follows: To sum up, the deriv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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