Conversion of Fixed asset to stock in trade

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

19 June 2010 Hi all,

In my case, assessee has converted the land held has fixed asset into stock in trade.

For example:

Cost of Land - Rs.180
FMV on the date of conversion - Rs.270
Sale value - Rs.300

In books, N/p will be Rs.120 (300-180).

But what is taxable under capital gain is -

FMV on conversion - Rs.270
Indexed cost of land - Rs. 200
LTCG - Rs.70

My question is -

While preparing IT memo, Net profit is Rs.120, less taxed under other head (CG) Rs.70 and the balance as PGBP Rs.50, whereas my taxable income under this business is only Rs.30 (300-270). How to get rid of the difference in MEMO?

Whether wee need to pay tax on entire Rs.50?

Kindly help me in this regard asap...

CA Punit

CA Punit (Expert)
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19 June 2010 The difference of 20 is a measure of inflation & forms part of your cost for tax purposes..ie. you need not pay tax on it.

While preparing Computation of Income for taxation, you'll first deduct the actual profit of 120 from ur p&l & add back only 30 as business income and add 70 as LTCG under Capital Gains.
As such, though ur actual profit is 120, ur taxable profit'll only be 100 (30 pgbp & 70 as ltcg)

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