Plot development

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A firm consolidated several plots of land and converted a portion into stock in trade for residential plot development, while retaining the rest as a capital asset. The firm requires advice on valuing the stock of plots, especially since some have been sold before development completion. Guidance is also needed for the valuation of the remaining un-diverted land.

PARAS CHHAJED

PARAS CHHAJED

(Querist)

02 May 2024 A firm purchased various pieces of adjoining land having different Khasara numbers from various persons at different prices. After a year of purchase, the firm got all the pieces of land consolidated in a single khasara. Post consolidation it converted a part of the consolidated land into stock in trade and another part continues as a capital asset. The portion converted into stock in trade is proposed to be developed in residential plots as per the approved layout after the diversion of such land into non-agricultural land.
Relevant figures are as follows:
1. Total Area after consolidation 100000 sq ft.
2. Converted into stock in trade 70000 sq ft
3. Capital Asset 30000 sq ft
4. Average cost of consolidated land Rs.200 per sq. ft.
5. Saleable plot area after development 35000 sq ft.
6. Cost to be incurred for development Rs.10500000
7. Period of development 2 years
8. Plot sale to commence immediately without waiting for completion of the development

Kindly guide as to the valuation of the stock of plots and also the un-diverted land.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

02 May 2024 Technically it is not possible to convert land in to stock in trade partly, when it is having single khasara.

PARAS CHHAJED

PARAS CHHAJED

(Querist)

02 May 2024 In Chhattisgarh partial diversion is permitted and accordingly part of land is diverted into Non-agricultural land and converted into stock in trade. Rest of the land continues to be capital asset.
In this background kindly advise as to valuation of stock of plots.

PARAS CHHAJED

PARAS CHHAJED

(Querist)

03 May 2024 Cost of development includes leveling, fencing/ boundary wall, water supply line and overhead tank, power line including power substation, cement concrete internal roads, drainage system, sewerage treatment plant, garden, play area, security post etc.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

03 May 2024 As per available data, I presume there is no relevance of the subdivision with earlier khasra numbers. In that case you can take average purchase price for the capital asset retained, provided the same remains to be agricultural in nature. Otherwise take market value as on the date of conversion and offer capital gains for that land too.

PARAS CHHAJED

PARAS CHHAJED

(Querist)

03 May 2024 Thanks for the guidance. Please also guide as to the valuation of the stock of plots which are under development given the fact that some plots have been sold before the completion of the development of the project. The sale price is uniform for all plots.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

04 May 2024 1. FMV of the plot on the date of conversion+ cost of improvement uniformly divided over all. (assuming possession will be handed over only on final development)

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