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TMI Blog1995 (8) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... 80, was the previous year for the assessment year 1981-82. The assessee, a partnership-firm, was dissolved on that day, i.e., November 7, 1980. It valued its closing stock on average cost basis but that was not accepted by the Income-tax Officer. He assessed the closing stock as per the market rate on the ground that the business was dissolved on the last day of the accounting year. The assessee's appeal to the Commissioner of Income-tax (Appeals) having failed, it filed a second appeal before the Income-tax Appellate Tribunal, By order dated April 23, 1986, the Tribunal dismissed the appeal upholding the view of the Income-tax Officer as confirmed by the Commissioner (Appeals). It is from that order that the abovesaid question has arisen. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to the Madras High Court under section 66(2) of the Indian Income-tax Act, 1922. After considering various authorities, a Division Bench of the Madras High Court rejected a similar submission and held that the closing stock should be valued at the market rate and the principle of book value would apply in the case of a running concern and would have no application on the dissolution of the firm. The principle laid down by the Madras High Court in that case was followed by another Division Bench of the same High Court in A. L. A. Firm v. CIT [1976] 102 ITR 622. In that case following the principle laid down in G. R. Ramachari and Co.'s case [1961] 41 ITR 142 (Mad), the Division Bench of the Madras High Court reiterated the principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luation of the assets of a firm, which was only for the division of the assets among the partners, must be done on a real and not on a notional basis as logically, in point of time, the division is subsequent to the dissolution of the firm ; consequently, no profit could be said to have accrued to the firm by the process of revaluation as the revaluation could not partake of the nature of trade and any excess which would arise on the revaluation was only an imaginary or notional profit and could not be brought to tax for various reasons. After considering the judgment of the Madras High Court in G. R. Ramachari and Co.'s case [1961] 41 ITR 142 and also the various other authorities, the Supreme Court laid down (page 307): " Once this prin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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