Capital gains

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

06 February 2013 A PROPERTY IS REGISTERED & STAMP DUTY IS PAID ON THAT VALUE.
IN A.Y.2010-11, ASSESSEE SOLD THE ABOVE SAID PROPERTY. WHILE COMPUTING THE CAPITAL GAIN. ASSESSEE CONSIDERED THE COST AS RS.5000/- PER SQ.YARD AS THE MARKET VALUE ON THE BASIS OF LETTER ISSUED BY APIIC. BUT THE A.O. CONSIDERED THE VALUE (COST) AS 2500/- PER SQ.YARD AS PER THE CERTIFICATE ISSUED BY SRO & CALCULATED THE TAX

WHETHER ASSESSEE CAN ADOPT THE BASIS OF VALUE ADOPTED FOR ALLOTMENT OF LAND BY APIIC FOR THE PURPOSE OF COMPUTING CAPITAL GAIN?

PLEASE PROVIDE CASE LAW IF ANY...
THANKS IN ADVANCE

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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06 February 2013 from the query it is not clear that what is the cost of acquisition incurred by the assessee. Cost of Acquisition must be a realistic amount spent by the assessee to acquire the asset. If the assessee can prove the cost incurred by him or money paid by him , the AO has to accept the same unless he is having any evidence as regards the lesser cost incurred by the assessee.
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In the above case, Can AO deny the payment made to the vendor- if not, then actual cost paid has to be considered as COA.
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Querist : Anonymous

Querist : Anonymous (Querist)

08 February 2013 1)sale value of land and building is 1 crore in AY 2010-11.
2)COA of land is 3 lakhs in AY 2003-04.
cost of construction of building amounted to 25 lakhs in 2008.
3)While calculating capital gain the assessee considered sale value of land as 5000 per sq yard as per letter issued by APIIC. But the AO considered sale value as 2500 as per certificate issued by SRO.
4)Sale value of land as per assessee is 5000*1000 sq yards is 50 lakhs. and the rest 50 lakhs is considered as sale value of building.
5)sale value of land as per AO is 2500*1000sq yards is 25 lakhs.and the rest 75 lakhs as sale value of building.
6) state whether for segregating the consideration between land and superstructure,the value adopted on the basis of certificate issued by APIIC can be adopted..
Any judicial decisions in support of the same..
thanks in advance

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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18 July 2024 In the scenario you've described, there are discrepancies between the sale values of the land and building as determined by the assessee (taxpayer) and the Assessing Officer (AO). Here’s a breakdown and analysis of the situation based on the details provided:

### Facts Recap:
1. **Sale Value of Land and Building:**
- Total sale consideration: Rs. 1 crore.
- According to assessee: Land value = Rs. 50 lakhs, Building value = Rs. 50 lakhs.
- According to AO: Land value = Rs. 25 lakhs, Building value = Rs. 75 lakhs.

2. **Cost Details:**
- Cost of Acquisition (COA) of land: Rs. 3 lakhs in AY 2003-04.
- Cost of Construction of building: Rs. 25 lakhs in 2008.

### Issues and Considerations:
1. **Discrepancy in Sale Value:**
- The assessee claims a higher sale value for the land (Rs. 50 lakhs) compared to the AO’s assessment (Rs. 25 lakhs).
- This impacts the computation of capital gains tax, as higher sale value reduces the taxable gain.

2. **Basis of Valuation:**
- Assessee’s basis: Sale value derived from a letter issued by APIIC (Andhra Pradesh Industrial Infrastructure Corporation) indicating Rs. 5000 per sq yard.
- AO’s basis: Sale value determined based on a certificate issued by the Sub-Registrar’s Office (SRO), valuing the land at Rs. 2500 per sq yard.

3. **Segregation of Consideration:**
- The issue revolves around whether the value adopted by APIIC can be accepted for segregating the consideration between land and superstructure (building).

### Legal Perspective:
- **Judicial Precedents and Provisions:**
- In cases involving disputes over valuation, courts generally look at the documentary evidence provided by both parties (assessee and AO).
- The ITAT (Income Tax Appellate Tribunal) and higher courts have ruled that the valuation method should be rational and supported by evidence.
- There are cases where certificates or letters issued by government agencies or authorities have been considered valid for determining the fair market value (FMV) of property.

### Recommendations:
- **Legal Support:**
- To support your case, it would be beneficial to gather and present any additional evidence or documentation that supports the valuation claimed by the assessee (such as the APIIC letter).
- Refer to relevant judicial decisions where similar valuation methods have been accepted by the ITAT or courts.

- **Consultation:**
- Given the complexity and potential impact on tax liabilities, consulting a tax advisor or legal expert who specializes in property transactions and tax matters would be prudent.
- They can provide tailored advice based on the specifics of your case and help navigate through the legal framework and precedents effectively.

### Conclusion:
The adoption of the valuation based on the APIIC letter is plausible if it can be substantiated as a reliable and rational method of valuation. To strengthen your case, gather all relevant documentation and seek professional advice to ensure compliance with tax laws and maximize tax benefits where applicable.

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