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J.A. Venkoba Rao vs Income-Tax Officer on 30 October, 1992 cites

A.L.A. Firm vs Commissioner Of Income Tax, Madras on 21 February, 1991

8. The revenue relied on the decision of the Supreme Court in the case of A.L.A. Firm (supra) to contend that the substitution of market value had been upheld by the Supreme Court. We find that on the facts of that case, the partners had agreed to value the closing stock at market value in the dissolution account but wanted the ITO to take the book value for income-tax purpose. The Supreme Court upheld the action of the ITO substituting the market value which was agreed by the partners for dissolution in respect of income-tax assessment also. That was not a case where the market value was substituted as against cost or book value accepted by the partners in the dissolution accounts, to bring to tax notional and unrealised profit. We find that the decision of the Supreme Court is not an authority for bringing to tax a notional and unrealised profit. As we have seen before, the proviso to Section 145 empowers the ITO to deduce only the true profits and that power cannot be exercised for taxing a notional and unrealised profit. In other words, while it is possible for the ITO to substitute the cost by withdrawing the privilege to value the closing stock at a market value which is less than cost as on the date of the dissolution, we find no authority for the proposition that the cost as agreed to by the partners in the dissolution accounts could be substituted by market value which is higher. Hence we have no hesitation in deleting the addition. The ITO is directed to recompute the total income and also authorise him to amend the assessments of the partners as a consequence.
Supreme Court of India Cites 34 - Cited by 276 - Full Document

The Commissioner Of Income-Tax,Bombay vs Chandulal Keshavlal & Co., Petlad on 17 February, 1960

7. But the revenue does not stop with that. It is claimed that the cost should be replaced by market value which is higher than cost. We are unable to accept this contention for more than one reason. Firstly, no principle can justify that the valuation of the closing stock at a market value higher than cost, as that will result in the taxation of notional profits which the assessee has not realised. Secondly, in the present case the closing stock was valued at cost and the accounts of the assessee as closed on the date of the dissolution by reason of a death of a partner was accepted in the estate duty proceedings also, as reflecting the market value. Thirdly, the adoption of the real basis cannot by itself justify the substitution of the market value for the cost, where the market value is higher, particularly in the case of a death of a partner where the assets of the firm have not been converted into money. As pointed out by the Gujarat High Court in CIT v. Keshavlal Chandulal [1966] 59 ITR 120 (Guj.) at pg. 133 it is not necessary that the partners should sell all the goods and realised the price. They may agree among themselves that it would be more expedient to dispose of the assets amongst themselves rather than to outsiders and that they should do so at a book value which may be less than market rate. Fourthly, in such a case if the revenue were to substitute the market value then that would amount to bringing to tax the surplus which was not there but a notional and unreal surplus. Not only that, it will also mean that the actual surplus when subsequently realised by the successor-firm would be taxed leading to double taxation of the same income. The Supreme Court has held in the case of Laxmipai Singhaniav. CIT[ 1969] 72 ITR 291 that it is a fundamental rule of the law of taxation and unless otherwise expressly provided income cannot be taxed twice.
Supreme Court of India Cites 7 - Cited by 273 - P B Gajendragadkar - Full Document
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