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TMI Blog2001 (6) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness on 1st April, 1995 and had sold the entire stock to its sister-concern on 31st March, 1995. Since it was a bulk sale and since quality-wise segregation of stock was not made, it was sold at the lower price of Rs. 560 per brass. This transaction yielded a GP of 2 per cent only as against general GP of 24 per cent. It was noted by the AO that in the immediately preceding month, the sale rate was of about Rs. 960 per brass. Further, in the current month itself, i.e., in the month of March, sales to outsiders averaged at Rs. 990 per brass. The AO took note of the fact that the firm was dissolved on the next day, i.e., 1st April, 1995, as per the dissolution deed. The stamp paper for dissolution deed was already purchased on 28th March, 1995. Thus, according to the AO it was also determined that the firm was going to be dissolved in the next few days and when the firm is dissolved the stocks have to be valued at market rate in view of the decision of the Supreme Court in the case of A.L.A. Firm vs. CIT (1991) 93 CTR (SC) 133 : (1991) 189 ITR 285 (SC). Accordingly, the AO adopted the rate of Rs. 990 per brass and added the difference of Rs. 33,83,240 to the total income. 4. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel for the assessee, at the outset, briefed us with the facts as narrated above. It was submitted that the principle laid down in the case of A.L.A. Firm was not applicable to the facts of the present case since there was no closing stock prior to the dissolution of the firm. The firm was dissolved on 1st April, 1995, and the sale of coal ash to the sister-concern had taken place on 31st March, 1995. It was not open for the Department to deem the dissolution to have taken place on 31st March, 1995. Further, as regards the avoidance of tax, it was contended that the company had paid tax at a higher rate by selling the stock in the subsequent year, than what would have been paid by the firm had it sold the stock to outsiders. Thus, according to him, there was no force in the Revenue's argument as regards tax avoidance also. There was also no basis to adopt the sale price in the next six months as the market value of the stock as on 31st March, 1995, in view of the fact that the stock was not segregated quality-wise and hence any rate taken by the Department would be arbitrary. 6. The learned Departmental Representative submitted that in substance, the firm and the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old on 31st March, 1995, to the company was brought to the notice of the AO as well as of the CIT(A) in the course of proceedings before each of them and, in fact, the CIT(A) had accepted this fact also. Since the sales were to be segregated on the last day, the market rate could not be taken as was the contention of the Revenue. The other moveable assets were transferred to the company on 1st April, 1995, at book value with which the Department had no objection, then it was a question mark why the objection for transferring the stock at a price higher than the book value. It was reiterated that there cannot be any deeming dissolution and hence the decision in A.L.A. Firm could not be applied. 8. We have duly considered the rival contentions and the material on record. The basic facts as they emerge from the record placed before us and which are not in dispute are as follows: (1) that the assessee-firm was trading in coal ash; (2) that the assessee-firm was dissolved on 1st April, 1995, i.e., one day after the end of the relevant accounting year; (3) that the stock of coal ash remaining with the assessee on 31st March, 1995, was sold at Rs. 560 per brass to a company; (4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assets to PCAPL. Be that as it may, the question arises as to whether the Revenue authorities can read the date of dissolution as 31st March, 1995, instead of 1st April, 1995. In our opinion, this is not permissible. A similar issue had come up before the Supreme Court in the case of CWT vs. Arvind Narottam (1988) 72 CTR (SC) 94 : (1988) 173 ITR 479 (SC). The Court observed as follows: "It is vehemently urged by Dr. Gauri Shankar that the approach to be adopted in this case is not that which finds favour under the IT law and different considerations prevail under the WT Act. As I am proceeding on the basis of the true consideration of the deeds of settlement, I fail to see any substance in that contention. Reliance was also placed by learned counsel for the Revenue on McDowell Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC). That decision cannot advance the case of the Revenue because the language of the deeds of settlement is plain and admits of no ambiguity." Further, in his concurring but separate observations, His Lordship, Sabyasachi Mukherji, J. observed as follows: "In any event, however, where the true effect on the construction of the deeds is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of transfer of highly valued stock at lower value. In our opinion, this issue is not germane to the dispute before us, moreso, when it is not on record as to how many shares were received by the partners, whether the consideration was paid in cash or the same were allotted for consideration other than cash and if the consideration was paid in cash what was the consideration. All these facts are not on record and hence it is worthless to argue that the partners received hidden profit in the form of highly valued shares. The point of dispute is when did the dissolution take place. When the factum of dissolution is not challenged by the Department, how can it change the date of dissolution on its own and attach a date different than what the parties agreed to. The undisputed fact remains that upto 31st March, 1995, an entity in the form of firm remained and continued its business. The said firm got dissolved on 1st April, 1995. 16. Now, having accepted the fact that the firm was dissolved, let us examine what happens on dissolution. In this respect, the Supreme Court in its judgment in the case of A.L.A. Firm has referred with approval the decision of Madras High Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er when it said that the dissolution took place on 1st April, 1995, and not on 31st March, 1995, and disregarding the sale transaction it treated the sold stock as unsold. Thus, the Department intended to undo everything which the parties intended to do. We, therefore, hold that the firm was dissolved on 1st April, 1995, and not on 31st March, 1995, as contended by the Department. We further hold that there was no closing stock on the date of dissolution as the same had been sold on 31st March, 1995, by the firm prior to its dissolution. 18. Having held as above, actually there is no need to deal with the ground raised by the Revenue in its appeal because it merely pertains to the value to be adopted in the closing stock. However, since we have held that there was no closing stock at all, the question of valuation does not arise. Nonetheless, since the same had been argued by the parties, we briefly deal with the same. The contention of the assessee is that since the entire stock was sold in a single stroke, it has to be sold at a lower price than the normal market value. There is force in the submission of the assessee that the firm would not have been able to sell such a huge q ..... X X X X Extracts X X X X X X X X Extracts X X X X
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