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TMI Blog1986 (4) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... ge cost basis. The ITO did not accept this valuation of the assessee. He held that as the firm was dissolved on the last day of the accounting year the closing stock has to be valued as per the market rate but not at the cost price. He place reliance on the decisions of the Madras High Court in G. R. Ramachari Co. v. CIT [1961] 41 ITR 142. Accordingly, he made the assessment. On appeal, the Commissioner (Appeals) held that the firm was dissolved on 7-11-1980. On a perusal of the journal entries, he found that the cash book clearly shows that the jewelry has been sold to Shri Chagganraj and in the books of Chagganraj there are corresponding suitable entries debiting stock account and crediting purchase account. He held that all these trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness. He urged that in cases of this type a pragmatic view should be taken. The learned departmental representative submitted that the firm is dissolved. The closing stock has necessarily to be valued at the market rate. He strongly supported the order of the learned commissioner (Appeals). 4. We have considered the rival submissions. It is not disputed before us that the firm was dissolved on 7-11-1980 which is the last day of the accounting period. The learned Commissioner (Appeals) in his very exhaustive order after perusal of the journal entries has found that the jewellery has been sold to Shri Chagganraj who is one of the partners and in his books suitable entire debiting stock account and credit purchases accounts haves been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artners took over the entire stock. The question arose whether the closing stock. On the date of dissolution of the firm should be valued at market price or cost price. The Madras High Court held that the valuation of the stock in hand should be made on the basis of the prevailing market rate. It was observed as under: "The case of a firm which goes into liquidation forms a close parallel to the present case. In such a case all the stock-in-trade and other assets of the business will have to be sold and their value realised. It cannot be controverted that it is only by doing so that the true state of the profits or losses of the business can be arrived at. The position is not very different when the partnership ceases to exist in the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm as on 7-11-1980. No formal deed of dissolution was executed. We are unable to accept the submission of the assessee's counsel that the partners has agreed to value the closing stock at cost price as there is no written agreement or evidence to prove the same. The fact that the closing stock was valued at cost price in the past will have no relevance while valuing the closing stock when the firm itself is dissolved. The conduct of passing entries evaluation the closing stock at cost price which was accepted by the partners will not go to prove that when the firm was constituted there was an agreement to value the closing stock at the cost price when it is dissolved. Even if such entries are made it is not a factor that can affect th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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