Income Tax Appellate Tribunal - Jabalpur
Sagar Tyre House vs Ito on 6 November, 2002
Equivalent citations: (2004)91TTJ(JAB)581
ORDER
Hemant Sausarkar, J.M. The assessee has filed the appeal on the following grounds :
(i) That the whole assessment is illegal.
(ii) That the assessment has been made incorrectly in assessment year 1992-93. Since the relevant date of valuation is 1-4-1992, the same should have been assessed in assessment year 1993-94.
(iii) That the value of stock arrived at is arbitrary, excessive and high under the facts and circumstances of the case.
(iv) That the assessing officer erred 'in valuing only the stock at market price while ignoring market value of fixed assets and debtors wherein there was loss which has to be set aside against any likely gain out of stock transfer.
(v) That provision of section 45 applies to all the assets that are transferred on dissolution of the firm and the assessing officer erred in isolating only the stock for the purpose of computation.
(vi) That the matter deserves reconsideration since it involves substantial calculations of market value of all assets and only then any profit or loss can be arrived at.
2. Since all the grounds relate to valuation of closing':stock of the firm which is dissolved but the same business was continued as 'a proprietary concern as such, all the grounds are adjudicated simultaneously.
3. The assessee has filed the return of income for 1992-93 on 27-10-1992, along with audit report and declaration under section 184(7) of Rs.1,97,763. The assessing officer allowed registration for the year 1992-93.
4. The assessee derived income from sale of tyres. Notice was issued under s. 148. Since there was dissolution of partnership firm on 31-3-1992, and Smt. Sushma Jain who was ex-partner had continued the business by taking over the business of assets and liabilities on 31-3-1992, the assessing officer while following the Hon'ble Supreme Court decision in case of A.L.A. Firm v. CIT (1991) 189 ITR 285 (SC), concluded that at the time of dissolution of firm the stock in the trade should be valued at market rate and the difference between the cost price and the market price should have been offered for tax. Since the difference was not offered to tax, the assessing officer treated the return already filed by the assessee earlier considering as return in response to notice under s. 148.
5. In response to notice under section 143(2), the partner and the assessee attended along with counsel. Written submissions were filed. The assessing officer added the difference in value of closing stock of Rs. 49,285 as discussed by assessing officer while relying on the Hon'ble decision of Supreme Court in case of A.L.A. Firm v. CIT (supra) while concluding the assessment under s. 143(3)/148 of the Act. The assessee had shown sales for Rs. 91,11,642 and GP Rs. 4,38,311 which comes to 4.81 per cent. The value of closing stock shown at cost price was Rs. 10,24,651 by arriving at closing stock at market price by adding GP rate shown was Rs. 10,73,936, as such, difference was Rs. 49,285 in valuation of closing stock and directed for charging interest under section 234B, 234C and initiated penalty under section 271(1)(c).
6. In the first appeal before learned Commissioner (Appeals), the learned Commissioner (Appeal) dismissed the appeal filed by the assessee. While dismissing the appeal the learned Commissioner (Appeals) has relied on the order of Hon'ble Supreme Court in case of A.L.A. Firm v. CIT (supra), Madras High Court Decision reported in 158 Taxation 119 and also the decision of Hon'ble Madhya Pradesh High Court in case of CIT v. Nathulal Jawaharchand (1997) 227 ITR 251 (MP).
7. In the appeal before us, the learned counsel of the assessee argued before us that the firm was dissolved on 31-3-1992, and the same business was continued even after 31-3-1992, in the assessment year. The firm was dissolved and the ex-partner, Smt. Jain, has taken over the business assets and liabilities and continued the same business. As such, when there was dissolution of firm but continuation of the business, there is no necessity to value the stock on market price when there was no sale of the stock at the time of dissolution of firm. The stock was valued as per practice adopted during many previous years hence the decision of Hon'ble Supreme Court in case of A.L.A. Firm v. CIT (supra) does not apply and also the decision of the Hon'ble MP High Court in case of CIT v. Nathulal Jawaharchand (supra) where the Hon'ble MP High Court has considered the above decision of the Hon'ble Supreme Court, also does not apply as the facts of the present case are different from the facts in cases mentioned above.
8. The learned Departmental Representative submitted before us and relied on the orders of authorities below.
9. We have heard arguments from both the sides and perused the records. It is observed from the record that on 31-7-1992, the firm was dissolved but the same business was continued. Only the management has been changed. Previously, it was firm and after 31-3-1992, it was a proprietary business but in both the periods before and after dissolution, the same business was continued. As such, there is no question of valuation of closing stock on the date of dissolution of firm, i.e., 31-3-1992. The value of the stock has to be computed on the date of dissolution of the firm just for distribution of partners shares in capital at the time of dissolution of firm.
10. The learned counsel of the assessee relied on order of the Hon'ble Supreme Court in case of Sakthi Trading Co. v. CIT (2001) 250 ITR 871 (SC) "Valuation of stock-Proper practice-To value closing stock at cost of market price, whichever is lower-Firm dissolution on death of one partner-Reconstituted with remaining partners without discontinuance of business-Closing stock of firm-To be valued at cost of market price, whichever is lower". The Hon'ble Supreme Court has reversed the decision of CIT v. Sakthi Trading Co. (2000) 242 ITR 468 (Mad), and distinguished the decision of A.L.A. Firm v. CIT (supra). Therefore, we conclude on the basis of above facts and in the given circumstances, the same business was continued even after dissolution of the firm as a proprietary organisation. Hon'ble Supreme Court in Sakthi Trading Co. v. CIT (supra) opined that where there is dissolution of the firm, reconstituted with remaining partners without dissolution of business, stock of the firm is to be valued at market price or cost price, whichever is lower, where decision of A.L.A. Firm (supra) was discussed.
11. In the result, the appeal is allowed in favour of the assessee and against revenue.