1988 (10) TMI 84 - AT - Income Tax

Summary

Issues:
- Valuation of stock on dissolution of a firm
- Jurisdiction of CIT under section 263 of the IT Act

Analysis:

Issue 1: Valuation of stock on dissolution of a firm
The assessee appealed against the addition of Rs. 55,577 to its total income due to undervaluation of stock on dissolution of the firm. The CIT invoked powers under section 263, valuing the stock at market value based on various court decisions. The assessee argued against this valuation, citing Supreme Court rulings that there is no transfer to a partner at dissolution, and stock should be valued at cost. The Tribunal considered these arguments but upheld the CIT's order, stating that stocks on hand at dissolution must be valued at market price. The Tribunal found no merit in the assessee's arguments and ruled in favor of the Revenue.

Issue 2: Jurisdiction of CIT under section 263 of the IT Act
The assessee contended that the CIT's order was beyond the time limit prescribed by law, as the amendment to section 263 was effective from 1st Oct., 1984. The CIT passed the order on 17th Feb., 1987, after the order of the ITO on 28th June, 1984. The Departmental Representative argued that the amendment was clarificatory and the order was within the time limit. The Tribunal analyzed the legality of the CIT's jurisdiction and concluded that the order was time-barred. Citing precedents and the Board's circular, the Tribunal held that the CIT could not obtain jurisdiction after 27th June, 1986, under section 263. Consequently, the Tribunal set aside the CIT's order on jurisdictional grounds.

In conclusion, the Tribunal allowed the appeal in part, upholding the valuation of stock at market price on dissolution of the firm but setting aside the CIT's order on jurisdictional grounds.