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Facts
The assessee, a builder and developer, converted capital assets into stock-in-trade and sold them. The AO reopened the assessment and added back the entire capital gains earned from these sales, alleging non-compliance with Section 45(2) of the Income Tax Act and claiming it was not offered for taxation.
Held
The Tribunal held that the addition made by the AO was a duplicate addition, as the profits from the sale of properties were already accounted for in the assessee's profit and loss account and offered for taxation. The AO was not justified in making the addition.
Key Issues
Whether the AO was justified in adding back the capital gains already offered by the assessee, leading to a double addition, and if Section 45(2) was correctly applied.
Sections Cited
147, 143(3), 148, 151, 139(1), 142(1), 45(2), 115JB
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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI M. BALAGANESH
O R D E R PER M. BALAGANESH, A. M.: for AY 2012-13, arise out of the order of the Commissioner of Income Tax (Appeals)-31, Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No.29/10491/2019-20 dated 30.01.2025 against the order of assessment passed u/s 147 r.w.s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 18.12.2019 by the Deputy Commissioner of Income Tax, Central Circle-26, New Delhi (hereinafter referred to as ‘ld. AO’).
2. The revenue has raised the following grounds of appeal before us:- I. Whether on the facts and in the circumstances of the case, the Id CIT(A) was not justified in upholding the decision of the AO without considering the provision of Section 45(2) of the Act that speak about the fair market value of the asset on the date of such conversion or treatment as full value of consideration. II. Whether on the facts and in circumstances of the case, the Id. CIT(A) was justified that computation of income made by the AO while framing the assessment tantamounts to double addition.
3. None appeared on behalf of the assessee despite issuance of notice. Hence we proceed to dispose of the appeal on hearing the learned DR and based on materials available on record. The assessment originally was completed under section 143(3) of the Act on 31.3.2012 determining total income at Rs 14,37,30,269/- which was wholly adjusted against brought forward losses. The book profit under section 115JB of the Act was determined at Rs 10,48,797/-. The case of the assessee was reopened under section 147 of the Act after duly recording the reasons for reopening the assessment for assessment year 2012-13. Notice under section 148 of the Act stood issued to the assessee on 28.3.2019 after taking prior approval or sanction of the competent authority under section 151 of the Act. The assessee vide letter dated 13.12.2019 submitted that the return already filed under section 139(1) may be considered as a return in response to notice under section 148 of the Act. The learned AO noted that the sub-registrar Sardana Meerut had shared an information and sent a copy of registered deed for Rs 2,72,01,000/- executed on 3.10.2011 by Mr. Harshvardhan Agarwal who is the Director of the assessee. To verify the gains arising there on and the taxability thereon, notice under section 142(1) of the Act stood issued to the assessee on 1.12.2019. In response to the said notice, the assessee replied that it is a builder and developer. The assessee submitted that during the year the property was converted from capital asset to stock in trade and the same was sold for Rs 2,72,01,000/- earning a profit of Rs 1,98,90,950/- which has been already offered for taxation. The assessee also drew the attention of the learned AO to the notes on accounts to the audited financial statements in this regard. The assessee submitted that when a capital asset is converted into stock in trade, the capital gain shall be calculated when the said asset is sold on the value at which the capital asset is converted into stock in trade.In the present case, the property was converted in the same year when it was sold. The assessee submitted that for calculating the capital gain, the same shall be after giving the benefit of indexation. The gain was to be set off against the business loss. Instead of showing capital gain separately, the assessee has shown the entire profit of Rs 1,98,90,950/- in the profit and loss account, thereby causing no loss to the revenue.
The learned AO however did not agree to the said contentions and noted that the act of the assessee is not in compliance with the provisions of section 45(2) of the Act. The learned AO issued further notice to the assessee in this regard. The learned AO ultimately noted that the assessee company sold three capital assets during the year which were converted into stock in trade during the year for Rs. 1,32,51,000 costing to it Rs.9,65,94,182 at the time of conversion and which resulted into profit of Rs. 3,66,56,818/- at the time of conversion. As per the profit and loss account, the assessee has shown business profit of Rs. 9,44,857 only and after appropriations, it has shown loss of Rs. 1,50,775. The entire capital gain of Rs. 3,66,56,818 which arose to the assessee at the time of conversion should have been shown under the head income from capital gains in accordance with section 45(2) of the Act. There was no business profit from sale of these properties as the same were at the same value determined for the purpose of capital gain. Thus, booking business expenses against capital gain income is incorrect. Accordingly, a sum of Rs. 3,66,56,818 was added back to the total income of the assessee as capital gains earned during the year under consideration. The assessee preferred an appeal before the learned CITA.
The Learned CITA noted that the main ground relating to the addition of Rs. 3,66,56,818 is arising from the sale of the following properties:-
a) Profit on sale of property at Pallav Tower, Meerut –Rs 1,98,90,950 which is sold for Rs. 2,72,01,000. b) Profit on sale of agriculture land at Jaipur - Rs. 1,40,64,354 which is sold for Rs. 10,00,00,000. c) Profit on sale of agriculture land at Jaipur- Rs. 27,01,514 which is sold for Rs. 50,50,000.
Total profit Rs. 3,66,56,818.
The Learned CITA duly considered the detailed written submissions filed by the assessee together with the computation of gains thereon by referring to the relevant pages of the paper book filed by the assessee. The observations made by the Learned CITA in this regard are reproduced here under:-
“12. In the written submission of the appellant and also in the paper book filed along with written submission, the details of total sale of properties at page no. 94 of the said paper book have been given as follows: Property Sale amount 1. SUG 30 Mrs. Archana Kumar 47,00,055
Jaipur Land sold to Rajat Gupta 10,00,00,000 3. Jaipur Land sold to Precious 50,50,000 Mohali 4. Dipinpreet Singh/Meenu Chhabra C- 13,25,000 44 5. Bobby Sharma C-43 13,25,000 6. Mrs. Dhiraj Nandan C-42 13,25,000 7. Shri Radhey 63,64,308 8. Sale of Pallav Tower 2,72,01,000 Total Sale 14,82,90,363
Upon careful consideration of the audited profit & loss account filed by the appellant, it is seen that the amount of Rs. 14,82,90,363/- has been credited to profit and loss account as Revenue from Operations. In the facts and circumstances of the case, I find force in the contention of appellant that the sale of properties sold during the year have been duly accounted for in the books of accounts of the appellant and the three properties, which were held by the AO as not accounted for also form part of total sale at Sl. No. 2, 3 and 8 of total sale mentioned above.
In view of the above, I am of the considered view that the addition of Rs.3,66,56,818/- made by AO is nothing but the duplicate addition since all these transactions were duly reflected in the profit and loss account and thereby accounted for by the appellant. It is trite that the same income cannot be doubly taxed. The law does not permit double taxation of the same income. In this factual background, I find that the AO is not justified in making the said addition to the total income of the appellant. The said addition therefore is liable to be deleted being unsustainable on facts as well as in law. I hold accordingly. Hence, the said addition made by the AO is hereby deleted.” 7. We find that the Learned CITA had duly appreciated the contentions of the assessee by duly appreciating the entire facts placed on record before him and concluding that there was indeed a double addition made by the Learned AO. The Learned CITA noted that assessee had duly offered to tax the gains arising on sale of property in the return of income itself. We are in total conformity with the findings of the Learned CITA that there is indeed double addition made by the Learned AO. Since this has been duly rectified by the Learned CITA in his order, we do not find any infirmity in the order of the Learned CITA. Accordingly, the grounds raised by the revenue are dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 03/09/2025.