DCIT Vs Cyberwalk Tech Park Pvt. Ltd. (ITAT Delhi)
The Income Tax Appellate Tribunal, Delhi examined whether the Assessing Officer could apply two different values to the same land converted from a capital asset into stock-in-trade under Section 45(2) of the Income-tax Act. The assessee had converted 50% of its land into stock-in-trade at cost, as the fair market value (FMV) on the date of conversion was equal to the original cost, and later sold constructed units by applying the percentage completion method, offering the resulting income as business income. The Assessing Officer computed long-term capital gains by adopting FMV at conversion but, while computing business income, continued to apply the book value as cost, thereby inflating total taxable income. The Tribunal upheld the CIT(A)’s decision deleting the addition, holding that Section 45(2) is a self-contained provision requiring consistent application of FMV both for capital gains and for determining the cost of stock-in-trade. Selective or hybrid valuation was held to be impermissible, and the Revenue’s appeal was dismissed.
Whether, upon conversion of land held as a capital asset into stock-in-trade, the Assessing Officer can lawfully adopt the fair market value for computing capital gains under Section 45(2), while simultaneously adopting book value/original cost for computing business income on sale of such stock-in-trade, thereby applying two different values to the same asset under the same statutory provision.
