SOUMYS EXPORTS (SINCE DISSOLVED),TIRUPPUR vs. ACIT, TIRUPPUR

This appeal by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-3, Coimbatore dated 25.06.2015 in IT Appeal No.5/2014-15 for the assessment year 2010-11 passed U/s.250(6) r.w.s. 143(3) & 147 of the Act.

The assessee has raised several grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in confirming the order of Ld.AO who had computed the capital gain of the assessee

The brief facts of the case are that the assessee is a firm engaged in the business of manufacture and export of hosiery garments. The assessee firm M/s. Soumys Exports was dissolved and merged with M/s. Gene Apparels w.e.f. 01.04.2009. Consequently the assets of the assessee firm were taken over by M/s. Gene Apparels at the written down value. The Ld.AO determined the capital gain of the assessee invoking the provision of Section 45(4) of the Act being the difference between the fair market value of the asset as on the date of the transfer and value of the assets as per the books of accounts of the assessee firm. While doing so, the Ld.AO adopted fair market value of the asset as determined by the Ld.DVO applying CPWD rates. The order of the Ld.AO was subsequently confirmed by the Ld.CIT(A).

The only grievance of the assessee now before us is that while determining the fair market value of the building, PWD rates should be CPWD rates. The Ld.AR relied in the decision of the Hon’ble Madras High Court in the case CIT vs. K. Jayakumar reported in 35 taxmann.com 179 wherein it was held that in a city like Coimbatore it would be more appropriate to adopt PWD rate instead of CPWD rate for valuing the building. The gist of the decision is reproduced herein below for reference:- “We have perused the orders passed by the authorities below. We agree with the contention of the learned Standing Counsel appearing for the Revenue that the order of the Tribunal is totally without any basis. As rightly pointed out by the learned Standing Counsel, the construction of the shopping and residential complex is in Coimbatore, which is not a small town, but a Corporation. A reading of the order of assessment shows that the Income Tax Officer had not agreed with the Valuation Officer's report as it is, particularly when he noted that the assessee himself had undertaken the supervision. Thus, the Assessing Officer partially agreed with the assessee and allowed the valuation at 10% instead of 7.5%, towards supervision charges. The Assessing Officer also accepted the contention that water connection was already existing; apart from that, certain other concessions were given. However, the basis of valuation as regards the cost of construction, nevertheless, was that of the District Valuation Officer, adopting CPWD rates. It is not denied by the Revenue that there is a variation between the CPWD rates and the State PWD rates. Considering the geographical location, the availability of work force and the cost of materials, unless there are similarities in the rates under CPWD and the State PWD, we do not think, we can blindly go by CPWD rates for the purpose of arriving at the cost of construction. In the circumstances, while setting aside the order of the Tribunal, we remit back the matter to the Assessing Officer for working out the cost of construction, to be distributed in assessment years 1997-98 and 1998-99 by taking State PWD rates and for passing orders in accordance with law, after giving the assessee an opportunity of hearing.”

The Ld.DR strongly opposed to the submission of the Ld.AR and relied on the orders of the Ld.Revenue Authorities.

We have heard the rival submissions and perused the materials on record. From the facts of the case it is apparent that the building is not located in a metropolitan city. Therefore we find that the ratio laid down by the order of the Hon’ble Jurisdictional Madras High Court cited supra will be applicable in the case of the assessee. Hence, following the ratio laid down by the Hon’ble Madras High Court in the case CIT vs. K. Jayakumar supra we hereby direct the Ld.AO to adopt PWD rates instead of CPWD rates while computing the capital gain of the assessee.

In the result appeal filed by the assessee is allowed.