Capital asset converted into stock

Hi Sachin, though it appears that Section 45(2) charges notional income to Capital Gains it is not so. Section 2(47)(iv) provides that Transfer includes, conversion of Capital Asset into Stock in Trade. Section 42(2) overrides the provisions of Section 45(1). Charging Section 45(1) provides that any gains arising from the transfer of Capital Asset shall be charged to tax in the previous year of transfer. However Section 45(2) considering the fact that no real income is earned on conversion of Capital Asset into Stock in Trade provides for assessing such capital gains only in the year in which teh stock in trade is sold by the assesse i.e. when the real income accrues. Assessee can claim exemption u/s 54 on such capital gains.

Are there any case laws or Circulars regarding this??