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TMI Blog2018 (12) TMI 1325X X X X Extracts X X X X X X X X Extracts X X X X ..... Claim u/s 80IA - Held that:- Velayudhaswamy Spinning Mills (P.) ltd. Vs. ACIT (2010 (3) TMI 860 - MADRAS HIGH COURT) and on the basis of said decision CBDT had issued Circular No.1 of 2016, dated 15.02.2016 clarifying term 'initial assessment year' in section 80IA(5), order of Tribunal holding that assessee was entitled to deduction under section 80IA without setting off losses/unabsorbed depreciation pertaining to windmill, which were set off in earlier year against other business income was deserved to be upheld. The CBDT vide Circular No.1/2016, dated 1502.2016 has also clarified situation of claim of deduction under section 801A(4) of the Act by any concern by adopting initial assessment year as the first year of claim, irrespective of the fact that the windmill was installed and started functioning in any of the earlier years. Following the same parity of reasoning, we hold that the assessee is entitled to claim deduction u/s.80IA(4) of the Act. The ground of appeal No.4 raised by the assessee is thus, allowed. Penalty u/s.271(1)(c) - claim of deduction under section 80IA - Held that:- Interpretation along with guidance taken from the decision of Hon'ble Apex Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 5,28,64,636/- earned out of sale of shares as business income and not as capital gains as returned by the assessee. On perusal of the Audit Report, Assessing Officer noticed that the assessee was trading in shares. It started investing its surplus funds in stock in trade. At the beginning of the F.Y.2004-05, the assessee company converted some of the shares held as stock in trade into capital assets. Later on these shares were sold in the F.Y.2005-06 and the capital gain was worked out as a result of such sales. As per the assessee s calculation, short term capital gain was worked out at ₹ 14,61,538/- and long term capital gain was worked out at ₹ 5,14,03,097/-. On being required by the Assessing Officer to explain as to why the short term and long term capital gains shown by the assessee be not treated as business income , an elaborate submission was made by the assessee before the Assessing Officer and relevant parts of the submission needs to be mentioned herein below. There are no such specific provisions for conversion of stock-in-trade into capital assets. Position, however, is now fairly clear due to a few recent decisions. The Pune Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime . There can be only one acquisition of the asset and that is when the assessee acquires it for the first time , irrespective of its character at that point of time . Therefore what is relevant for the purpose of capital gains is when the asset was acquired , and not when it became a capital asset . The Tribunal also noted the fact that there is no specific provision for tax treatment of conversion of stock-in-trade into investment, similar to the provisions of section 45(2) which provide for the manner of taxation of the capital gains arising on conversion of investment i nto stock-in - trade . This decision of the Tribunal has been upheld by the Bombay High Court in the case of CIT vs . Jahnavi Investments (P) Ltd . 215 CTR (Bom) 72 . The High Court has confirmed the fact that even after the s cheme of cost inde x ation has been introduced , the principles laid down by the Gujarat and Bombay High Courts in the context of agricultural land still hold good . Therefore , on the ba s i s o f v e nous d e cision s of court s and discus s ion above , the effect of such conversion of stock-in-trad e into inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the action of conversion of stock-in-trade of shares to investment was specifically prohibited or not or from any legal parameters where such action of the assessee could be accepted so far as the Income Tax Act is concerned. The ld. CIT(A) merely disposed of the issue upholding the version of Assessing Officer. That being further aggrieved, the assessee carried the matter in appeal before us. 7. At the time of hearing, Ld. AR vehemently argued that nowhere in the Income Tax Act prohibits conversion from stock-in-trade of shares to investments. There is no direct embargo restricting the assessee from converting stock-in-trade of shares to investments. The only point is once converted the pattern is to be maintained. Such conversions have been allowed by various judicial pronouncements. The Ld. AR has placed reliance on the following decisions: i) ITA No.4208/Mum/2007 in the case of ACIT-1(3) Vs. M/s. Superior Financial Consultancy Services Pvt. Ltd. ii) Sir Kikabhai Premchand Vs. CIT, reported as 24 ITR 506 (SC) 8. On the other hand, Ld. DR has strongly placed reliance on the order of sub-ordinate Authorities and submitted that whereas intention was to keep the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In effect, there should not be any action of the assessee by which any loss arises to the Revenue. In the instant case, it is not disputed that conversion has taken place from stockin- trade to investment and also that the Hon'ble Apex Court has observed that such conversion has no legal bar. Therefore, in view of the matter, we set aside the order of CIT(Appeals) on this issue. Accordingly, ground of appeal No.1 raised in appeal by assessee is allowed. 11. Ground No.2 relates to disallowance of claim of ₹ 44,95,264/- under section 80IA of the Act. 12. At the time of hearing, Ld. AR of the Assessee appraised the Bench that the issue is squarely covered by the assessee s own case in ITA No.937/PUN/2008 for the assessment year 2005-06. 13. On the other hand, Ld. D.R very fairly conceded to this submission of the ld. AR. 14. We have perused the case record and heard the rival contentions. In ITA No. 937/PUN/2008 for assessment year 2005-06, on the similar issue of claim of deduction u/s.80IA of the Act, it was held and observed by the Pune Bench of the Tribunal as under: 38. We find that the issue raised in the present appeal is squarely covered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2010-11 which was the preceding year to the instant assessment year. The claim of deduction has been allowed in the hands of assessee. It may also be pointed out herein itself that the assessee was running civil construction activity from which it was showing profits from year to year and the losses arising from windmill in the earlier years have already been set off against the said income and the balance income had been assessed in the hands of assessee. It is not case of Revenue that after adjustment of losses in the respective years the assessee had shown any losses. There is no merit in the order of Assessing Officer in holding that deemed losses have to be adjusted against profits of undertaking. In view thereof, we hold that the assessee was entitled to the claim of deduction under section 80IA(4)(iv)(a) of the Act. The grounds of appeal raised by the Revenue are thus, dismissed. 39. The issue raised in the present appeal is identical to the issue before the Tribunal. Further, the Hon'ble Supreme Court dismissed the Special Leave Petition filed in the case of CIT Vs. Best Corporation Ltd.(supra.), wherein the High Court held that since it had consistently follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(Appeals) as follows: 5.5.4 The Apex Court in the case of Liberty India categorically held that the eligible profits are to be computed as if such eligible business is the only source of income of the assessee. However, the ITAT Pune in the case of Serum International Ltd. in ITA Nos. 290 to 292/PN/2010 dated 28.09.2011 for the A.Ys. 2004-05 to 2006-07, following the decision of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P.) Ltd. 38.DTR 57 held that when the assessee exercising the option, only the losses of the year beginning from the initial asst. year (A.Y.2005-06 in the instant case) are to be brought forward and not the losses of the earlier year, which has been already set off against the other income of the assessee. In view of the decision of the Apex Court in Liberty India s case, decision of Bombay High Court in the case of Cipla Ltd., decision of ITAT, Special Bench and other decision of ITAT, Pune in the cases referred (supra.) and the explicit provisions of section 80IA(5), with great respect, I am not able to persuade myself to subscribe to the view of the ITAT, Pune on this issue rendered in the case of Serum Internat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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