ITAT Surat Accepts Separate Land and Building Consideration in Composite Sale

Sudesh Synthetic Mills Private Limited Vs DCIT (ITAT Surat)

Composite Sale Consideration for Factory Land and Building Must Be Reasonably Bifurcated: ITAT Surat

Summary: The assessee sold factory land together with a shed structure for a consolidated consideration of ₹2.30 crore. It apportioned ₹1.50 crore towards land and ₹80 lakh towards the depreciable factory building. Accordingly, it computed long-term capital gain of ₹74.40 lakh on land and short-term capital loss of ₹18.70 lakh under Section 50 on the building, offering net capital gain of ₹55.70 lakh.

The Assessing Officer rejected the bifurcation and treated the entire ₹2.30 crore as consideration for land, mainly because the purchaser had allegedly accounted for the property as land and had not claimed depreciation on the shed. He recomputed long-term capital gain at ₹1.60 crore and made an addition of ₹1.04 crore.

The Tribunal observed that the registered Deed of Assignment expressly described the transferred property as land “along with 179 sq. metres shed structure.” The assessee’s audited financial statements also consistently classified land as a non-depreciable asset and the factory building as a depreciable asset. Therefore, merely because both assets were transferred through one document for a composite price, the entire consideration could not be attributed only to land.