TMI Blog1985 (12) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was a firm which was dissolved on June 30, 1971, when two of the five partners retired. The retiring partners were allowed to withdraw the closing stock valued at Rs. 94,390.75. Their accounts were duly debited. On the next day, the remaining partners entered into fresh partnership deed to carry on the same business as that of the dissolved firm. For the assessment year 1972-73, which is the year in question, assessment was completed on the basis that the total income of the assessee-firm was Rs. 1,04,770. This was on the basis that the closing stock was correctly valued at Rs. 94,390.75. Subsequently, the assessment was reopened. The Income-tax Officer held that on dissolution of the firm on June 30, 1971, the closing stock should hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trading results of the partnership on the date when it ceases to function, the valuation of the stock on hand should be made on the basis of the prevailing market price. Therefore, that the partner who takes over the stock on hand values them at cost price is of no effect. " In A. L. A. Firm v. CIT [1976] 102 ITR 622 (Mad), the Madras High Court, following its earlier decision in G. R. Ramachari Co. v. CIT [1961] 41 ITR 142 (Mad), held (headnote): " Stock-in-trade of a firm does not cease to be stock-in-trade on the dissolution of the firm. Though an assessee has an option to value the stock-in-trade at cost or market value, whichever was lower, during the subsistence of a business, that option is not available to it at the poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid and discharged (see Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300). It is, therefore, clear that for the purpose of assessment of a dissolved firm under section 189 of the Income-tax Act, 1961, the income of the firm has to be computed with reference to the market value of the closing stock and not the book value of such stock. On the other hand, in the case of a continuing business, it is open to the assessee-firm to value its stock-in-trade either at cost or market value, whichever is lower. This privilege does not extend to a dissolved firm. In this connection, reference may be made to the recent decision of the Supreme Court in Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 (SC), where the court, referring to a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the business. In CIT v. Keshavlal Chandulal [1966] 59 ITR 120 (Guj), although the main business of the assessee-firm had been terminated, the firm apparently continued as a business entity and, in the absence of any evidence to show that the transaction was sham, the court accepted the concessional price at which twenty-eight shops were distributed among the partners. This price, although less than the market value, was more than the cost as shown in the books of account. These decisions, in our view, do not support the assessee's contention that upon dissolution of the firm, its profits have to be computed taking into account not the market value of the stock, but only their book value. We are in respectful agreement with the reasoning ..... X X X X Extracts X X X X X X X X Extracts X X X X
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