Capital gain arising from conversion of land into stock in trade is assessable in year of sale

DCIT Vs Karma Lakelands Pvt. Ltd (ITAT Delhi)

The undisputed fact is that practically nothing has occurred throughout the 12 months underneath thought, the impugned land was converted into inventory in trade in previously evaluation 12 months. It is not in dispute that the settlement involving the assessee and Unitech is not an arrangement for sale and it is not in dispute that there is no thought. In our opinion the place assessee transformed his land into stock in trade and thereafter a advancement agreement was entered into by the assessee with the developer, the cash get arising from the conversion of land into stock in trade is assessable in the earlier order in which the home is bought by the assessee and not in the year of enhancement agreement. Contemplating the details of the circumstance in hand in totality, we are of the organization perception that the assessee has not transferred his correct to Unitech there is no transfer of any right in title or curiosity in stock in trade throughout the yr beneath thing to consider and as a result no profits accrues to the assessee we, thus, decrease to interfere with the findings of the CIT(A). The attraction filed by the earnings is appropriately dismissed.

Complete Textual content OF THE Buy OF ITAT DELHI

This enchantment submitted by the profits is favored towards the get of the CIT(A)-1, New Delhi dated 13.08.2010 for A.Y. 2007-08.

2. The grievance of the income browse as underneath :-

1. The buy of the Ld. C1T (Appeal) is not proper in regulation and info.

2. On the facts and in the situation of the scenario, the Ld. C1T(A) has erred in regulation and info in deleting the addition of Rs. 12,27,36,985/- made by the AO by keeping that no cash asset was transferred by the assessee.

3. On the details and in the circumstances of the situation, the Ld. CIT (A) has erred in law and details in inferring that no home is transferred to M/s. Unitech Ltd. but it was only a symbolic possession of a land for unique applications.

4. On the details and in the instances of the circumstance, the Ld. CIT (A) has erred in regulation and details in inferring that the agreement entered into with M/s Unitech was with no thing to consider, inspite of the simple fact that the assessee has taken advances of Rs. 24 Crores sort the collaborator without the need of any curiosity from Golf System Club, duly reflected in Plan-7 of the audited equilibrium sheet.

5. On the facts and in the instances of the circumstance, the Ld. CIT (A) has erred in legislation and details in inferring that no stock in trade is transferred inside the which means of secion 45(2) of the Act, inspite of the fact that the assessee had alone taken the developments from the community amounting to Rs. 4.70 Crores towards reserving of villas and chalets, duly mirrored in program-7 of the audited equilibrium sheet.

6. The appellant craves depart to include, change or amend any/all of the grounds of attractiveness prior to or throughout the class of the hearing of the enchantment.

3. Representatives of the two the sides have been listened to at size. Case report diligently perused.

4. Briefly stated the facts of the scenario are that in the notes to the accounts of F.Y. 2005-06 of the assessee, it is mentioned that out of 221.13 acres of land the firm has revalued 158.04 acres of land and the identical has been converted from set assets to stock in trade and shown in the present-day property. It was also stated that land pertaining to villas and other things to do are revalued and are considered as stock in trade whilst the land pertaining to the Golf study course is not revalued and regarded as as a money asset.

5. During the course of the scrutiny assessment proceedings the AO arrived to know that the assessee and Unitech Limited entered into an settlement on 16.02.2004 for joint enhancement of the home. The AO was of the impression that cash gains accrued to the assessee on account of the conversion of the land from mounted belongings to stock in trade and invoking the provisions of section 45 (2) of the Act. The AO was convinced that a transfer of capital assets has taken place as for each arrangement Unitech has also been offered the correct to create, style and design and manage a retail Mall of 2 lac square ft on earnings sharing foundation with assessee and it has been supplied sole and unique responsibility of the venture such as the Golfing Cottages and finish operational independence for all these, assessee would be paid out a particular sum of revenue according to Revenue sharing formula appended to the settlement.

6. The AO was of the even further belief that special legal rights that the assessee appreciated in the funds assets have been lessened by at least 50% in favour of Unitech and Unitech has taken possession in excess of the land in element of overall performance of this settlement. Therefore, for all useful uses an irrevocable transfer of rights has taken from assessee to M/s. Unitech and the capital property stands, “otherwise transferred” in the which means of Area 45 (2) of the Act. The AO appropriately computed the addition at Rs.12,27,36,985/-.

7. Assessee strongly assailed the assessment prior to the CIT(A). It was strongly contended that the AO has wrongly interpreted the agreement concerning the assessee and Unitech and more erred in invoking the provisions of segment 45 (2) of the Act.

8. Soon after looking at the points and the submissions the CIT(A) was of the belief that no thought is identified for these arrangement and there is no intention of the assessee to make this agreement as arrangement to sale of these types of land. It is only after advertising and acquiring future consumer of the piece of land the sharing of the revenue shall accrue as for each the arrangement. The CIT(A) was convinced that pass only an arrangement to establish and marketplace the challenge and the arrangement is irrevocable in situation the other get together does not satisfy the phrases and conditions as for each settlement and is not in a position to market the job effectively inside of the agreed time framed. The CIT(A) further observed that the settlement is not agreement for sale and is with no consideration and nothing has took place for the duration of the former calendar year relevant to the assessment yr less than thought which can transpire the proposition of normally transferred of the land in inventory in trade and turn into taxable as extended expression money gain u/s.45 (2) of the Act and went on to delete the impugned addition.

9. We have thoroughly perused the orders of the authorities below. The undisputed reality is that absolutely nothing has transpired in the course of the calendar year underneath thing to consider, the impugned land was converted into stock in trade in earlier assessment 12 months. It is not in dispute that the settlement involving the assessee and Unitech is not an settlement for sale and it is not in dispute that there is no thing to consider. In our belief where assessee transformed his land into stock in trade and thereafter a growth settlement was entered into by the assessee with the developer, the funds acquire arising from the conversion of land into inventory in trade is assessable in the preceding purchase in which the house is offered by the assessee and not in the year of enhancement agreement. Thinking about the facts of the case in hand in totality, we are of the business belief that the assessee has not transferred his correct to Unitech there is no transfer of any right in title or fascination in inventory in trade during the calendar year below thing to consider and hence no income accrues to the assessee we, thus, decline to interfere with the findings of the CIT(A). The attractiveness filed by the earnings is appropriately dismissed.

The buy is pronounced in the open courtroom on 16.06.2022.