Genuine evidence is crucial to prove the conversion of land into stock-in-trade, and the absence of such evidence can lead to the rejection of the claim.

K.RAVIRAJA PANDIAN,J.

Pursuant to the direction of this Court made in Tax Case Petition Nos.272 and 273 of 1996, the Income-tax Appellate Tribunal set out a case and referred the following questions for the opinion of this Court:

"1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the lands held by the assessee had not been converted into stock in trade?

2. Whether on the facts and in the circumstances of the case the Tribunal was right in rejecting the alternate claim of the assessee regarding the computation of capital gains on transfer of lands?"

The assessment years are 1982-83 and 1983-84.

2. The facts as stated in the statement of case are as follows:

The assessee was a Private Limited Company engaged in textile business. From the assessment year 1982-83, it claimed that it had started business in real estate by converting part of its vacant land into stock-in-trade to carry on the business of real estate. In order to prove the same, it was contended that a resolution to that effect was passed on 1.1.1981 and entries have been made in the books of account. It was also claimed that the proceedings of the resolution was recorded in the minutes, duly signed by the Chairman, that the minutes so recorded was filed with the Registrar of Companies on 11.1.1983, that as per the entries made in the books of account, the property alleged to have been converted into stock-in-trade was valued at the market value of Rs.35,90,000/- and recorded in the books of account. It was also claimed that during the relevant previous year an extent of 3.58 acres of land was sold for the gross receipts of Rs.9,15,790/- and claimed a sum of Rs.10,24,260/- as business loss. Pending the assessment proceedings before the Assessing Officer, the assessee made an application to the Inspecting Assistant Commissioner under Section 144A for appropriate direction. The Inspecting Assistant commissioner after hearing the assessee declined to give any direction as requested for.

3. The Assessing Officer after considering the material on record did not accept the claim of the assessee of conversion of land into stock-in-trade. The Assessing Officer found that the property, which was alleged to have been converted into stock-in-trade as per the resolution dated 1.1.1981 was in fact sold during the relevant previous year as per the agreements of sales entered into by the assessee in the years 1969 and 1970. It was further concluded by the Assessing Officer that the higher valuation of the property in question was made by the assessee in order to avoid capital gains tax. Thus, the Assessing Officer treated the transactions as sale of immovable property and computed long term capital gains. Likewise, for the assessment year, 1983-84, the assessee claimed for allowances of Rs.56,960/- on the ground that the said amount was incurred by the assessee towards improvement of the land. That claim was also negatived by the Assessing Officer on the ground that the assessee did not sell any land in respect of which the said expenditure was incurred.

4. The assessee carried the matter in appeal to the Commissioner of Income-tax (Appeals), who accepted the claim of the assessee that the lands in question were converted into stock-in-trade by accepting the minutes dated 1.1.1981 and held that the agreements of sales entered by the assessee were not acted upon. By the said reasoning, the Commissioner of Income-tax (Appeals) set aside the assessment and remitted the matter back to the Assessing Officer to determine the business profit or loss of the transaction.

5. The revenue carried the matter on appeal to the Tribunal. The Tribunal concluded that the finding of the Commissioner of Income-tax (Appeals) are not based on facts; that the land in question which was alleged to have been converted into stock-in-trade were not at all in the assessee's possession as on the date of resolution on 1.1.1981 to convert the same into st