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Income Tax Appellate Tribunal, ‘ B’ BENCH : CHENNAI
Before: SHRI GEORGE MATHAN & SHRI A.MOHAN ALANKAMONY
आदेश / O R D E R
PER GEORGE MATHAN, JUDICIAL MEMBER
These are the appeals filed by the Revenue against the common order of the Commissioner of Income-tax (Appeals)-11, Chennai in and 24 & 258/CIT(A)- to 1126/Chny/2018 :- 2 -:
11/2016-17 dated 27.12.2017 for the assessment years 2012-13, 2013-14 and 2014-15 respectively.
Mrs.Ruby George represented on behalf of the Revenue, and 2.
Mr.K.M.Mohandass represented on behalf of the Assessee.
As all these three appeals involved identical issue, the same is disposed off by this common order.
It was submitted by ld.D.R that the assessee is a domestic company, which had sold certain lands. It was a submission that the assessee-company was originally incorporated on account of conversion of partnership firm, and the date of conversion into the present assessee company was 18.11.2009. It was a submission that the assessee firm was created and the partners of the assessee firm have brought in the land as their capital. The said firm had re-valued its said lands being the ‘fixed asset’ on 11.05.2009 and was converted into the company on 18.11.2009 taking over all the assets and liabilities of the firm on the date of conversion as a going concern. It was a submission that the fixed assets of the firm consisting of the vacant land were treated as stock-in-trade in the books of the assessee company. On being questioned by the ld. Assessing Officer, to 1126/Chny/2018 :- 3 -:
as to why the capital gains should not be computed on the sale of the land during the assessment years 2012-13, 2013-14 & 2014-15. The assessee had replied that in view of the succession of the firm into a company as per the provisions of the section 47(Xiii) of the Act, there was no transfer within a meaning of Section 47 of the Act subject to condition being fulfilled. It was a submission that on 19.11.2009, the investments in the form of lands have been converted into stock-in- trade and the assessee company had computed the capital gains u/s.45(2) of the Act and the Fair Market Value of the said investments on the date of conversion was treated as sale consideration and for assessment year 2010-11, the capital gains was computed at Nil.
Subsequently, out of the said converted stock-in-trade, the assessee had sold portions of properties during various years being assessment years 2012-13, 2013-14 & 2014-15. It was a submission that the ld. Assessing Officer did not accept the contention of the assessee company and had taken the cost of acquisition of the said land being stock-in-trade at the cost as recorded in the books of the firm as on the date of revaluation, and the difference between cost as per the books of the firm being the previous owners, and the sale price received by the assessee, was treated by the ld. Assessing Officer as short term capital gains. It was a submission that on appeal, the Ld.CIT(A) had deleted the addition made by the ld. Assessing Officer to 1126/Chny/2018 :- 4 -: by following the decision of the Co-ordinate Bench of this Tribunal in the case of ACIT Vs. B.V.Reddy Enterprises Private Limited in & 251/Mds./2011 dated 03.03.2014. It was a prayer that the order of the CIT(Appeals) is liable to be reversed.
In reply, the ld.A.R vehemently supported the order of Ld.CIT(A).
We have considered the rival submissions. At the outset, the determination of the short term capital gains by adopting the cost of the previous owners being partnership firm as done by the ld. Assessing Officer, is prima facie erroneous. Clearly, the partnership firm had appeared being converted into the company, being the assessee herein had already revalued its assets and the consideration on account of the revaluation has been credited to the current account of the partners of the erstwhile firm. Thus, the firm has borne the cost of additions credited in the current account of the partners of erstwhile firm and such revaluation has been done at a cost. The cost of the revaluation being the additional amount of capital is credited in the current account of the partners of the firm. Thus, the partnership firm has incurred the additional incremental liability against the enhanced value reflected in the current account of partners of the firm. Thus, as to 1126/Chny/2018 :- 5 -:
on the date of conversion of erstwhile firm into a company, the cost of the capital asset as per the books had already been revalued from `25.37 crores to `161.72 crores. Now, at the time of takeover of the said lands, which were capital assets in the hands of the firm, the same are taken over by the assessee company as capital assets only.
Immediately thereafter being on 19.11.2009, the said lands were converted into stock-in-trade and consequent to the conversion of the lands into stock-in-trade, capital gains had been computed in regard to the provisions of the section 45(2) of the Act for assessment year 2010-11 and while computing capital gains on conversion of the said land into stock-in-trade as on 19.11.2009 relevant to assessment year 2010-11, the assessee had adopted the Fair Market Value as the value of conversion into stock-in-trade, and the value on which the assessee company took over the assets from the erstwhile firm as the cost of acquisition. Thus, computation for assessment year 2010-11 wherein the capital gains has been determined at Nil, has not been dislodged by the Revenue and that position continues to remain. As long as this position continues, the cost of acquisition in the hands of the assessee company for the purpose of computing the profits or gains on the sale of the said converted stock-in-trade being land during the years only same are sold cannot be disturbed. An example will make it clear more. Suppose X purchased a plot in the year 1981 for `1/- lakh and to 1126/Chny/2018 :- 6 -: converted it into stock in trade of his business of Real Estate in the year 2009-10. The Fair Market Value of such plot on the date of conversion is `10/- lakhs. Such Plot after conversion is sold for `12/- lakhs in the year 2010-11. The capital gains and business income shall be computed in the following manner.
Capital Gain Computation:
Sale consideration (F.M.V) `10,00,000/- Less Indexed cost of acquisition `6,32,000/- (1,00,000 * 632/100) CAPITAL GAINS for A.Y 2009-10- LTCG- `3,68,000/- Business Income Calculation: Sale consideration of converted plot `12,00,000/- Less cost of such plot ( treated stock after conversion) `10,00,000/- (FMV) 10,00,000 /- Business Income for A.Y 2010-11 - ` 2,00,000/- Obviously what has been sold by the assessee is stock-in-trade and its business is the sale of the land represented as stock-in-trade.
Obviously, the business income would be the difference between the sale consideration received by the assessee on the transfer of the said stock-in-trade being the land and the cost as disclosed by the assessee in respect of the said land for assessment year 2010-11 being the year in which the conversion was done and the capital gains disclosed. If at all the A.O wanted to adopt the cost of the asset as recorded in the books of the previous owner, he could have done so when computing the capital gains for the assessment year 2010-11 when the asset was to 1126/Chny/2018 :- 7 -: converted from investment to stock-in-trade. The A.O having missed the bus for assessment year 2010-11 cannot make the said adjustment during the impugned assessment years. Perusal of the order of the CIT(Appeals) in paras 4.1.2 to 4.1.4 clearly shows that the Ld.CIT(A) has taken this issue into consideration when deciding the appeal.
Further, perusal of the decision of the Co-ordinate Bench of this Tribunal in the case of ACIT Vs. B.V.Reddy Enterprises Private Limited referred to supra, which has been relied upon by the Ld.CIT(A) for the purpose of giving relief to the assessee, also clearly shows that this is the view that has been expressed by the Co-ordinate Bench of this Tribunal in para Nos.48 to 54 of the said decision, which has been extracted at page-17 of the order of the CIT(Appeals). The only difference between the assessee’s case and the ACIT Vs. B.V.Reddy Enterprises Private Limited case is that in the case of ACIT Vs. B.V.Reddy Enterprises Private Limited, it was shares, which were the assets, whereas in the assessee’s case, the assets are land. This being so, and on account of the fact that the Revenue has not been able to dislodge these findings on facts as arrived at by the Ld.CIT(A), we are of the view that the Ld.CIT(A) is right in law in so far as he has considered all the facts, as also the decision of Co-ordinate Bench of this Tribunal in the case of ACIT Vs. B.V.Reddy Enterprises Private Limited referred to supra and we do not find any reason to interfere in to 1126/Chny/2018 :- 8 -: the same. In these circumstances, the findings of the Ld.CIT(A) on this issue stands confirmed.
In the result, all the appeals of the Revenue are dismissed.
Order pronounced in the open court on 03rd October, 2018, at Chennai.