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2012 (12) TMI 495 - AT - Income TaxConversion of partnership firm into company versus dissolution of firm - Going concern - Addition u/s 40A cash transaction during purchase of old jewellery - Income escaping assessment - reassessment u/s 147 on the firm after conversion - held that:- Where the surrender value of the old jewellery entrusted by the customers to the assessee firm is Rs. 100/- and the value of new jewellery returned by the assessee is Rs. 200/-, the differential amount of Rs. 100/- alone is paid by the customers to the assessee. The assessee is not making payment of Rs. 100/- to the customer at the time of accepting the old ornaments. That is why the Commissioner of Income tax (Appeals) has correctly appreciated that the entire transaction consisted of cash entries as well as journal entries. The cash entries related to the payment of the differential amount by the customers to the assessee firm. There is no payment of cash by the assessee firm to its customers at the time of receipt of old ornaments. - there is no question of the assessee violating the provisions of law stated in section 40A(3). - Decided in favor of assessee. Valuation of closing stock at the time of conversion of the partnership firm into a private limited company. - held that:- All the partners of the erstwhile firm became the shareholders of the new company. Nobody else was admitted as shareholder. No asset of the old firm was distributed among the partners. No capital was withdrawn by the partners. The capital of the partners was converted into shares contributing towards the capital of the company. All other assets and liabilities were taken over by the company. - there was no cessation of business and therefore the closing stock had to be valued at cost or market price, whichever is lower. - CIT(A) rightly deleted the stock valuation addition - Decided in favor of assessee.
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