Stock-in-Trade can be considered as Transferred only in year in which Assessee had ‘executed the Sale Deed Transferring the Stock-in-Trade’: ITAT [Read Order]

reduction - business income - itat - Stock-in-Trade -Taxscan

The Hyderabad Bench of Income Tax Appellate Tribunal (ITAT) in the case of Shri Challa Ramakrishna Anantapur v. ACIT held that under Section 45(2) stock-in-trade can be considered as transferred only in the year in which the assessee had ‘executed the sale deed transferring the stock-in-trade’.

Assessing Officer (AO) brought to assessment Short Term Capital Gain, Income from Other Sources and Long Term Capital Gain. An appeal was preferred before the Commissioner of Income Tax (Appeals) (CIT (A)) who held that capital asset converted into stock-in-trade attracts the provisions of Section 45(2). Further that the assessee in possession of vacant flats held as stock in trade did not offer the assessee any income from house property. According to Pr. CIT (PCIT) the order passed under Section 143(3) is erroneous and prejudicial to the interest of revenue and issued SCN to the assessee for the same.

PCIT relying upon Section 45(2) held that since the assessee has entered into JDA in the same financial year in which the capital asset was converted into stock in trade, the assessee ‘transferred’ the rights related to the stock in trade in the previous year relevant to the assessment year in present case.

It was contended by the assessee that the PCIT failed to consider that the Capital Gains on conversion of capital Asset into Stock in Trade are chargeable to tax in the year in which such converted Stock in Trade was ‘sold’ as per Section 45(2) of the Act.

The Bench constituting of Smt. P. Madhavi Devi and Shri. S. Rifaur Rahman as members of the bench relying upon precedents held that stock-in-trade can be considered as transferred only in the year in which the assessee had ‘executed the sale deed transferring the stock-in-trade’ for joint development to the builder. On the basis of the same, the Authority held that the stock-in-trade was not transferred in the relevant financial year and business income on accrual basis also cannot be brought to tax in the relevant A.Y. The order was hence rendered in favor of the assessee.

Subscribe Taxscan Premium to view the Judgment
taxscan-loader