Conversion of Stock in Trade based on Development Agreement without consideration not accrues Income: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that Conversion of stock in trade based on a development agreement without consideration does not accrue income.

The appellant revenue challenged the order of C1T(A) deleting the addition of Rs. 12,27,36,985/- made by the Assessing Officer (AO).

The assessee converted fixed assets to stock in trade and shown in the current assets and AO found that the assessee and Unitech Limited agreed on joint development of the property. The AO viewed that capital gains accrued to the assessee on account of the conversion of the land from fixed assets to stock in trade and invoking the provisions of section 45 (2) of the Act. The AO computed the addition at Rs.12,27,36,985/-. 

The respondent-assessee contended that the AO has wrongly interpreted the agreement between the assessee and Unitech and erred in invoking the provisions of section 45 (2) of the Act. The CIT(A) observed that the agreement was not for sale and was without consideration.

It was observed that the assessee converted his land into stock in trade and thereafter a development agreement was entered into by the assessee with the developer, the capital gain arising from the conversion of land into stock in trade is assessable in the previous order in which the property is sold by the assessee.

Sh. N K Billaiya, AM and Sh.Yogesh Kumar U S, JM observed that the assessee has not transferred his right to Unitech and no income accrues to the assessee. The Tribunal upholds the order of the CIT(A) and dismissed the appeal filed by the revenue. The appellant was represented by Sh. Surender Pal and the respondent were represented by Sh. Ashok Khurana.

To Read the full text of the Order CLICK HERE

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