Allocation of Profit in sale of Land and Building

[Deepak Whorra]

We sold our factory land &building where the sale deed seperately stated the value of the land and seperately stated the value of the Building.  The Sale value was more than the combined values of Land and Building .The values were accepted by the Stamp Valuation Officer and stamp duty was duly paid.

The Value of the Land ( circle Rate ) was 1.23 Crore and the building was at  O.24 crore in the sale deed. However we sold the property at 2.40 crores and the same was in the sale deed. Thus there was an excess of about 92 lacs over the circle rates.

After deducting the indexed cost of land, we paid Long Term capital Gains.

The residual value i.e. 2.40 crores less (1.23 + 0.24 ) = 1.16 crores was Credited to the Block of Assets i.e. Buildings.This meant  0.24 lacs value of Building in the sale deed+ 92 lacs excess. Thus no tax was paid on that as the existing Block of Assets ( Buildings ) was more than 1.16 lacs

The AO is now stating that the excess over the stamp duty value cannot be all transferred to the Building account but should be divided between Land and Building in the ratio of the circle values as per circle rates. This would mean that we cannot Credit all the residaul value over the land value ( as per circle rates ) to the Block of Assets of the Building but have to add back 79 lacs to the land Values . We would then have to pay LTCG Tax on the Land Value.

 

This is a case where our sale deed is above the Circle rates and yet we are sufferring. Please Comment

 

AI Summary

Allocation of consideration between land and building may be reallocated by tax authorities, affecting capital gains treatment.
Where total sale consideration exceeded the combined deed values for land and building, the assessee credited the residual entirely to the building and to its block of assets; the assessing officer asserts the surplus must be apportioned between land and building in proportion to circle (stamp) values, thereby raising the land's taxable sale consideration. Recommended evidentiary remedies include obtaining a registered valuer's report or other external documentary support, or adopting a defensible proportional allocation of the total consideration.