2005 (2) TMI 463 - AT - Income Tax

Summary

Issues: Valuation of closing stock on conversion of proprietary concern into a partnership firm.

In this case, the appellant, who was the proprietor of an export-oriented unit, converted the business into a partnership firm. The Assessing Officer valued the closing stock at market rate, resulting in an addition to business income. The CIT(A) upheld this valuation citing a Supreme Court decision. However, the appellant argued that a subsequent Supreme Court ruling indicated that no valuation adjustment was necessary in cases of business continuity post-conversion. The appellant also referred to a Madras High Court case supporting their stance. The Tribunal noted that in the absence of business discontinuation, the closing stock should be valued at cost or market price, whichever is lower. The Tribunal directed the Assessing Officer to reevaluate the stock-in-trade based on this principle. Grounds 2 and 3, which were not contested during the hearing, were dismissed. Consequently, the appeal was partially allowed for statistical purposes.