2002 (9) TMI 54 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the fair market value of the closing stock as against the book value agreed upon by the partners should not be adopted when the firm was dissolved and dissolution accounts drawn up? Held that where there is no cessation of business, the closing stock ought to be valued at cost or market price, whichever is lower. The assessee in this case having taken the cost which was lower than the market price, there was no scope for revising the value of the closing stock upward on the ground that the market price was higher. The question referred to us is, therefore, answered in favour of the assessee and against the Revenue.

Summary

The High Court of Madras ruled in favor of the assessee in a case involving the valuation of closing stock upon the dissolution of a firm. The court held that the closing stock should be valued at cost or market price, whichever is lower, when there is no cessation of business. The judgment referenced a Supreme Court case to support this decision. The dispute arose during the assessment year 1985-86 when the Assessing Officer disagreed with the valuation method used by the firm after the dissolution and added an amount to the closing stock value. The Tribunal sided with the assessee, leading to the final ruling in their favor against the Revenue.