Girdharbhai Haribhai Gajera Vs ITO (ITAT Surat)
Summary: The assessee, a non-resident individual, challenged the addition of Rs.2,44,28,561 as long-term capital gains for AY 2015-16 arising from transfer of two parcels of land to Shanti Integrated Textile Park Pvt. Ltd. The assessee claimed that the lands, acquired in 1992 and originally held as agricultural land outside the scope of “capital asset” under section 2(14), had been converted into stock-in-trade on 02.07.2011 pursuant to an MoU entered into with the co-owners. According to the assessee, the conversion preceded the subsequent conversion of the land into non-agricultural land and, since the land was agricultural land when converted into stock-in-trade, no capital gain arose under section 45(2). The assessee further contended that the Jantri value adopted for the conversion was Rs.1,800 per sq. mt., which was also the relevant value for determining business income.
The Assessing Officer rejected the alleged conversion into stock-in-trade. The AO noted that the MoU dated 02.07.2011 was not notarized, accounting entries reflecting conversion into stock-in-trade were not produced, the land was not disclosed as stock-in-trade in subsequent returns or balance sheets, and the assessee had not demonstrated any corresponding business activity. The AO also relied upon the fact that applications for conversion of the agricultural land into non-agricultural land had been made on 07.02.2011, before the alleged MoU. The AO consequently treated the transferred land as a capital asset and, relying on the stamp authority’s valuation, computed long-term capital gains of Rs.2,44,28,561.
