Conversion of capital asset into stock-in-trade

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Ameya (Querist)
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21 July 2016 Dear Sir,

One of my friend has converted his capital asset purchased in 1993 into stock-in-trade on 1.4.14.Now on 1.6.16 he has made sale agreement for Rs.85,00,000/-.Fair market valuation on 1.4.14 was Rs.75,00,000/-.Now instead of taxing Rs.10 lakh as PGBP income,can he cover the transaction under Sec 44AD declaring 8% i.e.Rs.6,80,000/-.???

And one more,will he liable for audit if the fair market value as on 1.4.14 was Rs.80,00,000/- and profit is to be declared Rs.5,00,000/- i.e. less than 8% of gross receipts?

CA ANILKUMAR B.COM FCA DISA

CA ANILKUMAR B.COM FCA DISA (Expert)
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22 July 2016 As per sec 45(2), when a capital asset is converted in to stock in trade such transaction is considers as transfer and and liable to capital gain in the previous year in which such converted asset is sold by the assessee in his business. Fair market value as on the date of conversion of such asset is considered as sale consideration ( here 75 lakhs). Index in the year of conversion should be considered for indexed cost of acquisition. Tax is chargeable in the AY 17-18. Another part in such transaction is business income. Such FMV of the asset is considered as cost of the stock and should deducted from sale value 85 lakhs.

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Ameya

Ameya (Querist)
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22 July 2016 Dear Sir,with reference that the SALE CONSIDERATION-FMV,can we apply sec 44AD?......And are liable for audit if such difference is less than 8% of sale consideration is my query?

CA ANILKUMAR B.COM FCA DISA

CA ANILKUMAR B.COM FCA DISA (Expert)
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22 July 2016 How this transaction alone can consider under 44AD? The assessee will also have other transactions in the current Year . So total receipts will above limit.

Ameya

Ameya (Querist)
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22 July 2016 Agreed.But I have an instance where there in only one transaction in the financial year.Then what?

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