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TMI Blog2003 (12) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... on the following questions of law: "1. Whether, on the facts and in the circumstances of the case, the Tribunal having not found the order dated February 8, 1994, passed by the Income-tax Officer, Dimapur, to be erroneous has not erred in upholding the order of the Commissioner passed under section 263 of the Income-tax Act, 1961? 2. Whether, on the facts and circumstances of the case, the valuation of closing stock as on March 31, 1992, as adopted/directed by the Commissioner of Income-tax and the Tribunal was correct in law? 3. Whether, on the facts and circumstances of the case, the orders passed by the Commissioner of Income-tax and the Tribunal are not vitiated due to perversity wholly ignoring the relevant material on record?" The appellant-firm was a registered partnership firm having its head office at Dimapur and branch office at Diphu. The firm was dealing in hardware and electrical goods. Disputes and differences arose amongst the four partners of the firm which eventually led to its dissolution by the deed dated April 5, 1992, with effect from March 31, 1992. The partners of the appellant firm while finalising the accounts as on March 31, 1992, for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel for the Revenue, however, emphasised that the decisions referred to and relied upon on behalf of the assessee clearly indicate that the normal practice of valuation of stock-in-trade at the cost price is available in a continuing business and this privilege is not available where a firm is dissolved resulting into complete cessation of business. According to Shri Bhuyan, the erstwhile firm, M/s. Naveen Hardware and Electrical Stores, ceased to exist on dissolution with effect from March 31, 1992, and, therefore, the stock-in-trade as on that day ought to have been valued at market price, and the resultant profit in the hands of the partners as exigible to tax during the relevant assessment year, i.e., 1992-93. The intention of the parties has to be ascertained from the deed of dissolution. The following excerpts relevant for the issue at hand are quoted below: "Whereas on account of difference among the partners of the firm as to the conduct of the business of the firm, the parties hereto agreed and decided among themselves to dissolve the partnership firm with effect from the expiry of the accounting year ended on 31st March, 1992. Whereas it has been considered e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. This otherwise means that the business of the erstwhile firm came to an end on the expiry of March 31, 1992, and there was complete cessation of business of this firm. Though the deed of dissolution was executed on April 5, 1992, the effective date being March 31, 1992, will be determinative of the successive course of action. The decision of the Commissioner as well as the learned Tribunal that the date of execution of the deed of dissolution is irrelevant for the purpose at hand appears to be just and proper. Smt. Sarala Devi Jain and Shri Vijay Kumar Jain, who took over Dimapur and Diphu branch, respectively, continued with the business in their individual capacity with or different entity and the continuance of the business by them in their individual capacity after March 31, 1992, will have no effect in so far the question of valuation of stock-in-trade as on March 31, 1992, is concerned. In G.R. Ramachari [1961] 41 ITR 142, the Madras High Court clearly held that the privilege of valuing the opening and closing stock in a consistent manner is available only to a continuing business and this mode of valuation cannot be adopted where a business has come to an end. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter dissolution, two groups were carrying on separate businesses with the assets and liabilities which fell to their shares from the dissolution of the firm. In the present case, however, though there was dissolution on account of the death of one of the partners, there was no discontinuance of the business. The unchallenged finding recorded by the Tribunal is that there was no discontinuance of business. Even as per principles laid down in A.L.A. Firm's case [1991] 189 ITR 285 (SC) in such a case the closing stock is to be valued at the cost or market price, whichever is lower. That is an established rule of commercial practice and accountancy. The High Court was clearly in error in relying upon the decisions of the Madras High Court in the cases of G.R. Ramachari and Co. [1961] 41 ITR 142 and A.L.A. Firm [1976] 102 ITR 622 for coming to the conclusion that assets had to be valued at market value. As already noticed, in the present case, there was no cessation of business and, therefore, the closing stock could not be directed to be valued at the market rate." Now coming to the case at hand, it would appear that after dissolution of the firm, two of the four partners decided to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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