The ITAT deleted a ₹4.27 crore capital gains addition, holding sales from stock-in-trade cannot be doubly taxed under both business income and capital gains under Section 45(2).
ITAT Deletes ₹4.27 Cr Capital Gains Addition on Stock-in-Trade Sales
The Income Tax Appellate Tribunal (ITAT) has deleted an addition of ₹4.27 crore imposed on a taxpayer under capital gains, holding that sales of goods classified as stock-in-trade cannot simultaneously be taxed under capital gains provisions. The decision relies on Section 45(2), which excludes assets held as stock-in-trade from capital gains computation.
The revenue had classified certain property sales as taxable under Section 45(1) as capital gains, despite the assessee’s treatment of the properties as inventory. The ITAT observed that once the nature of holding is determined as stock-in-trade—either by usage or business model—Section 45(2) bars classification as capital assets. Thus, inclusion under capital gains results in double taxation when profits are already taxed as business income.
This decision reinforces the principle of mutuality of taxation: a transaction cannot be taxed twice under mutually exclusive heads. Practitioners representing real estate developers or traders with mixed assets must clearly document asset classification at acquisition. The ruling also supports proportionate taxation principles, reducing disputes over developer sales of constructed units.
Citations
- Section 45(2), Income Tax Act, 1961
