K.R.Jagannathan, CHENNAI V. ITO, CHENNAI

MA 99/CHNY/2017

• Counselvise Citation: [2017] 124 COUNSELVISE.COM (IT) 5673 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 09-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 06-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MURALI MOHAN ACIT
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Capital asset; Business income; Rectification of order; Date of conversion
• Section: 45(2)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , ! ' ! # . $% & '( BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER M.P. NO.99/MDS./2017 ( I.T.A.NO.2256/MDS/2016, ASSESSMENT YEAR:2012-13 ) SHRI K.R.JAGANNATHAN , NEW NO.4, OLD NO.33, KRISHNA STREET, T. NAGAR, CHENNAI-17. VS. THE INCOME TAX OFFICER, INTERNATIONAL TAXATION-1(2), CHENNAI-34. [PAN:AHMPJ0881H] ( )* / APPELLANT) ( +,)* /RESPONDENT) / APPELLANT BY : MS. B. RAMAKRISHNAN, CA /RESPONDENT BY : MR.MURALI MOHAN, ACIT, D.R / DATE OF HEARING : 02.06 .201 7 / DATE OF PRONOUNCEMENT : 09 .06 . 201 7 - / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS MISCELLANEOUS PETITION FILED BY THE ASSESSEE SEEKING RECTIFICATION OF THE ORDER OF TRIBUNAL IN ITA NO.2 256/MDS./2016 VIDE ORDER DATED 25.01.2017 FOR ASSESSMENT YEAR 2012-13. 2. BEFORE US, THE LD.A.R SUBMITTED THAT THE ASSESS EE CAME IN APPEAL BEFORE THIS TRIBUNAL WITH REGARD TO NON-GIVI NG EFFECT TO PROVISIONS OF THE SECTION 45(2) OF THE ACT WHILE CO MPUTING THE GAIN ON TRANSFER OF LANDED PROPERTY, WHICH WAS EARLIER CONV ERTED INTO STOCK-IN- MP NO.99/MDS/2017 :- 2 -: TRADE IN THE ASSESSMENT YEAR 2011-12. THE TRIBUNAL AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES OBSERVED IN PARA-7 AS FOLLOWS:- 7. IN THE PRESENT CASE, IF THE ASSESSEE, THE O WNER OF THE CAPITAL ASSET CONVERTED THE SAME INTO STOCK-IN-TRADE IN THE FINANCIAL YEAR 2010-2011 WHILE CARRYING ON BUSINESS OF ASSESSEE, T HE COMPUTATION OF INCOME TO BE DONE AS PER PROVISIONS OF SECTION 45(2) OF THE IT ACT. IN OUR OPINION, THE ASSESSING OFFICER HAS TO COMPUTE THE INCOME UNDER TWO HEADS BY APPLYING SEC. 45(2) THOUGH THE ASSESSEE HAS RAISED A GROUND RELATING TO APPLICABILITY OF PROVISIONS OF SEC. 45(2) BEFORE THE CIT(A). THE CI T(A) WRONGLY OBSERVED THAT THE INCOME GENERATED FROM TRANSFER OF THE ASSET TO BE CONSIDERED AS CAPITAL GAINS WHICH IS NOT APPROPR IATE. IN OUR OPINION, THE ENTIRE ISSUE HAS TO BE RELOOKED BY THE ASSESSING OFFICER SO AS TO APPLY THE PROVISIONS OF SEC. 45(2) OF THE ACT AND HE HAS TO COMPUTE THE INCOME UPTO THE DATE OF CONVE RSION AS INCOME FROM CAPITAL GAINS AND THEREAFTER INCOME HAS TO BE COMPUTED AS INCOME FROM BUSINESS. THE ASSESSEE, IF HE HAS CONVERTED THE PROPERTY AS STOCK-IN-TRADE WHILE CARR YING ON HIS BUSINESS IN THE FINANCIAL YEAR 2010-2011, HE SHALL LEAD EVIDENCE TO THAT EFFECT. IF THE ASSESSING OFFICER SATISFIED THAT THE ASSESSEE HAS RIGHTLY CONVERTED THE FIXED ASSETS AS STOCK IN TRADE AS DISCUSSED ABOVE WHILE CARRYING ON HIS BUSINESS, THE ASSESSING OFFICER FROM THAT DATE OF CONVERSION, THE ASSE SSEES LANDED PROPERTY IS TO BE CONSIDERED AS STOCK-IN-TRADE AND INCOME GENERATED FROM THE TRANSFER THEREAFTER HAS TO BE CO NSIDERED AS BUSINESS INCOME ONLY. ACCORDINGLY, WE SET ASIDE THE ORDER OF LOWER AUTHORITIES AND REMIT THIS ISSUE TO THE FILE OF TH E ASSESSING OFFICER FOR RECONSIDERATION OF THE ISSUE IN DISPUTE AND TO DECIDE THE ISSUE AS INDICATED ABOVE. ACCORDINGLY, THIS GROUND OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES MP NO.99/MDS/2017 :- 3 -: 3. NOW, THE CONTENTION OF THE LD.A.R IS THAT THE TR IBUNAL DIRECTED THE AO TO CONSIDER AS BUSINESS INCOME ONLY AND NOT GIVEN T HE DIRECTION TO ALLOW THE BUSINESS LOSS ARISE OUT OF TRANSACTIONS. ACCORDING LY, HE PRAYED FOR RECTIFICATION OF ORDER OF THE TRIBUNAL. 4. ON THE OTHER HAND, LD.D.R RELIED ON THE ORDER O F TRIBUNAL. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE HAVE CAREFULLY GONE THROUGH PARA-7 OF EARLIER OR DER OF TRIBUNAL. IN THAT PARA, THE AO HAS TO GIVE IMPORTANCE TO THE FOLLOWI NG THE FINDINGS IN THAT PARA. IF THE AO SATISFIED THAT THE ASSESSEE HAS RIGHTL Y CONVERTED THE FIXED ASSETS AS STOCK IN TRADE AS DISCUSSED ABOVE W HILE CARRYING ON HIS BUSINESS, THE ASSESSING OFFICER FROM THAT D ATE OF CONVERSION, THE ASSESSEES LANDED PROPERTY IS T O BE CONSIDERED AS STOCK-IN-TRADE AND INCOME GENERATED F ROM THE TRANSFER THEREAFTER HAS TO BE CONSIDERED AS BUSINES S INCOME ONLY. 5.1 IN OTHER WORDS, THE AO HAS TO SEE THE ASSESSEE HAS RIGHTLY CONVERTED THE FIXED ASSETS AS STOCK-IN-TRADE WHILE CARRYING O N HIS BUSINESS AND CARRYING ON HIS BUSINESS IS VERY SIGNIFICANT HEREIN. FURTHE R, U/S.28 OF THE ACT, IT IS DISCERNIBLE THAT THE WORDS INCOME OR PROFIT AND GAINS SHOULD BE UNDERSTOOD AS INCLUDING LOSSES ALSO, SO THAT INE ON E SENSE, PROFIT AND GAINS REPRESENTS PLUS INCOME WHEREAS LOSS REPRESENTS M INUS INCOME AS HELD BY THE SUPREME COURT IN THE CASE OF CIT VS. KARAMCHAND PREMCHAND LTD., REPORTED IN [1960] 40 ITR 106 (SC) AND CIT VS. ELPHINSTONE SPINNING AND MP NO.99/MDS/2017 :- 4 -: WEAVING MILLS CO. LTD. VS. SOUTH MADRAS ELECTRIC SUPPLY CORPORATION LTD. REPORTED IN [1960] 40 ITR 142 (SC). 5.2 IN OTHER WORDS, LOSS IS A NEGATIVE PROFIT. BOT H THE NEGATIVE AND POSITIVE PROFITS ARE OF THE REVENUE CHARACTER. BOTH MUST ENTER INTO THE COMPUTATION, WHEREVER IT BECOMES MATERIAL IN A SAME MODE OF THE TAXABLE INCOME OF ASSESSEE. ACCORDINGLY, WE MAKE IT CLEAR T HAT THE AO HAS LOOKED INTO WHETHER THE ASSESSEE CONVERTED THE FIXED ASSET S INTO STOCK-IN-TRADE WHILE CARRYING ON THE BUSINESS OF THE ASSESSEE. WI TH THIS OBSERVATION, WE DISPOSE OFF THIS MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE. ORDERED ACCORDINGLY. 6 . IN THE RESULT, THE MISCELLANEOUS APPLICATION FILE D BY THE ASSESSEE IS ALLOWED.. ORDER PRONOUNCED ON 09 TH JUNE, 2017, AT CHENNAI. SD/ - SD/ - . ! '# $ ( DUVVURU RL REDDY ) ) & / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER %& / CHENNAI '() / DATED: 09 TH JUNE, 2017. K S SUNDARAM (*++,-.+/. / COPY TO: + 1 . / APPELLANT 3. + 0+$ / CIT(A) 5. .12+,,3 / DR 2. / RESPONDENT 4. + 0 / CIT 6. 2#4+5 / GF