Status of capital gain whether long term or short term

This query is : Resolved

CHANDRA SHEKHAR AGARWAL (Querist)
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30 May 2012 The assessee Company was made a application on 10/02/05 and plot was alloted from state Goverment authority on 20/02/05.On 20/05/05 Lease deed was executed and on 30/05/05 the possession of the plot.The plot was taken for installation of Factory.but the auditor by mistaken during the year 31/03/05 to 31/03/06 shown in the current assets as plot at X Place and from 01/04/06 to 31/03/07 it was shown as Stock In Trade.
On 01/04/07 it was rectified by the Board of Directors that it is a fixed assets not a Stock In Trade and thereafter on 31/03/08 it was shown as fixed assets and this fixed assets was sold on 24/02/09.
The main object of the company to dealing Real estates Business but the plot was taken for carrying for manufacturing activity by construction of factory buildings so the plot was taken for the construction of the factory and the construction was made from 01/04/08 to 31/01/09 and Functional Certificate from the Concern authority also been obtained from the authority..
The detail of payment was as under
Rs.6000 On 10/02/05
Rs.10000/- On 20/02/05
Rs.6000/- On 01/03/05
Rs.5000/- On 01/03/05
Rs.40000/- On 06/04/05
Rs.50000/- On 31/03/07
Rs.40000/- On 31/03/08
Rs.40000/- On 07/10/08
Rs.1500/- On 11/11/08
Rs.8000/- On 11/12/08
Rs.2500/- On 25/02/09
Rs.50000/- spend on construction from
01/08/08 to 31/10/08
Total Rs.259000/-
Sale Rs.275000/- (on 24/02/09)
Now My query is in view of the above facts and circumstances that the above assets may be treated as a fixed assets and holding of the same from 20/02/05.
Now my query is the A.O. asked that for the A.Y.2009-10, It is notice that the company had sold a property and has earned Rs.16000/-. The property was shown as Stock in Process upto A.Y. 2007-08 but in A.Y. 2009-10 it has been transferred as "Capital assets". In this regard, please explain as to why profit has not been shown on transfer of " Stock-in-Process to Capital Assets" on market rate as provided in the act.
Please show cause as to why profit on transfer of "Working in Process to Capital Assets" be not taken on market value as per provisions provided in the Income Tax Act,1961.
In this connection it is to bring in your kind notice that the assesee company had filled its Income tax Return and showing the profit of Rs.16000/- as Long term capital gain. kindly guide me What answer I have to give to A.O. and is there any short term capital gain while no depreciation has been charged on construction because in the year in which the construction was made the sale was also made in that year. An early reply will be highly appreciable.
Thanks

CA SHAH DILEEPKUMAR

CA SHAH DILEEPKUMAR (Expert)
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30 May 2012 on the basis of facts as narrated by you, the said asset is business asset ( fixed asset) which is not an investment, therefore any gain arises out of this is short term capital gains not long term since the same has been classified as fixed assets in the books.Depreciation is not relevant at this point of time since the capital asset was in working process.