COMMISSIONER OF INCOME TAX Vs. C. RAMAIAH REDDY

JUDGEMENT

(1.) This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act', for short) has been filed by the revenue. The subject matter of appeal pertains to Assessment year 2006- 07. The appeal was admitted by a bench of this court vide order dated 08.07.2013 on the following substantial questions of law:

(2.) Facts giving rise to filing of the appeal in nutshell are that assessee is an individual engaged in the real estate business. The assessee filed return of income on 20.11.2006 declaring total income of Rs.1,37,71,300/-. The case was selected for scrutiny and a notice under Section 143(2) of the Act was issued. The assessee in the profit and loss account had shown purchase and sale of sites and net profit of Rs.1,13,18,182/- was shown and was declared as income from business. Thereupon a query was made as to how the cost of the site was worked out and the assessee was asked to submit relevant documents. The assessee vide communication dated 18.12.2008 submitted copy of memorandum of family arrangement and oral partition dated 06.03.2004 wherein the details of assets and properties, which devolved upon the assessee were mentioned.

(3.) The assessee filed an appeal before Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide order dated 26.11.2010 upheld the order passed by the assessing officer and dismissed the appeal. Being aggrieved, the Income Tax Appellate Tribunal by an order dated 25.05.2012 inter alia held that properties, which were held as stock in trade by the joint family before they were allotted to the respondent on partition. It was further held that the respondent continued to carry on real estate business even after partition. Thus, it was held that there was no conversion of capital assets to stock in trade either by the assessee or the joint family and therefore, the provisions of Section 45(2) of the Act were not attracted to the fact situation of the case. Accordingly, the order passed by the assessing officer was set aside and the appeal preferred by the assessee was allowed. Being aggrieved, the revenue is in appeal before us.