The Chennai Bench of Income Tax Appellate Tribunal ( ITAT ) has held that Section 50C of the Income Tax Act is not applicable to the transfer of property which is held as “stock-in-trade”.
The AO during the scrutiny assessment noted that the assessee, Jesu Rajendran, sold a property in the financial year relevant to the assessment year 2007-08, for a consideration of Rs. 95 lakhs, but admitted a sum of Rs. 47 lakhs under the head ‘profits and gains from businesses.
The assessee submitted that he had purchased a property for the purpose of commercial exploitation and thus, the same had been treated as stock in trade in the books of accounts of the assessee. Therefore, consideration received towards the sale of the property had been offered to tax on the cash system of accounting. Therefore, submitted that the question of computation of capital gains on the transfer of property would not arise.
The AO opined that the claim of the assessee was unsubstantiated and rejected the arguments of the assessee and computed short-term capital gains from the transfer of property by adopting the full value of consideration in terms of provisions of section 50C of the Act and determined short-term capital gains
K.G. Raghunath, on behalf of the appellant submitted that the fact that the assessee had declared the impugned property as stock in trade in the books of accounts and further, the assessee had explained reasons for not developing the property, even though the said property had been purchased for the purpose of commercial exploitation was not been appreciated.
V Sreenivasan, on behalf of the revenue, supported the order of the lower authorities.
The provisions of section 50C deal with deeming consideration in place of actual consideration received towards the transfer of property being land and building, in a case where the transfer of capital asset being land or building and consideration received for transfer of property is less than the guideline value of the property assessable by stamp duty authorities, then the difference between the consideration received and actual value of the property will be treated as the full value of consideration. In this case, what was transferred by the assessee is a stock in trade, but not a capital asset.
The Division Bench of V. Durga Rao, (Judicial Member) and Manjunatha. G (Accountant Member) allowed the appeal observing that, “We are of the considered view that provisions of section 50C cannot be applied when an asset transferred is not a capital asset. Thus, we are of the considered view that the AO and CIT(A) erred in applying provisions of section 50C of the Act and determination of full value consideration to compute short-term capital gains from the transfer of property. Thus, we direct the AO to delete additions made towards computation of short-term capital gains from transfer of property.”
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
