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Land & Building seperation - Reg.

(Querist) 25 August 2009 This query is : Resolved 
A land along with building has been purchased in the year 2005-2006 for Rs. 30Lakhs. But in books of accounts it has been accounted as Land for total purchase prise.

As per Annexure 1A issued by Registrar/Authority it has been quoted as Rs. 39Lakhs as land value and Rs. 10Lakhs as Building Value. Therefore the total municipal / govt. value of both land & building including to be Rs. 49Lakhs.

This misappropriation of booking the entire purchase value of Rs. 30Lakhs in Land has been found out by auditors in this financial year of 2008-2009.

1. My question is if the land & building value is to be apportioned, then it has to be done under what basis?

2. Will it be possible to reduce land value to that extent? Will there be any capital gains effect as per IT act or any other effect as per Companies act?
Sugata Shankar Roy (Expert) 28 August 2009
There is no specific guideline in this respect. However, the valuation done by the Government Authority which has been accepted by the assessee company and not challenged may be considered and accordingly the apportionment of land and building may be done in the ratio 39:10.
A rectification entry has to be passed. Further in land no depreciation I believe has not been claimed as it is not possible. However depreciation on building in the past years i.e. Previous Years 2005-06, 06-07 & 07-08 has to be written off as it would have been done in case proper appropriation was done since purchase. Of course current year depreciation i.e. 2008-09 is possible and futher the assessee company may take a chance by filing a revised return for Prevoius Year 2007-08 relevant to AY 2008-09 in case assessment is not completed and original return filed in time.
Thus it is possible to reduce land value and create another block of asset for building as discussed above.
There will not be any CAPITAL GAIN AT ALL for the necessary changes. It is suggested proper disclosures should be given under Notes to Account.
Sangeetha (Querist) 29 August 2009
Thank you for ur reply.


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