TMI Blog1988 (7) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the order of the ITO was erroneous and prejudicial to Revenue. He pointed out that the closing stock was valued on the dissolution date at cost or market price whichever was lower as if the firm was continuing its business. This, according to him, was incorrect. As on the date of dissolution, the closing stock should have been valued at market price. In so far as the ITO accepted the value of closing stock as admitted by the assessee without altering it to represent the market price, the order was erroneous and prejudicial to Revenue. He then gave an opportunity to the assessee who raised several objections to the proposed revision. The Commissioner rejected these objections and held that the assessee had no option other than valuing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en as the value of the assets. The asset at the book value continues to belong to the firm and whatever fluctuations there may be in the value of that asset, the benefit or the loss of it would accrue to the firm. But the situation is totally different when the firm is dissolved or when a partner retires. The settlement of his account must be not on a notional basis but on a real basis, that is every asset of the partnership should be converted into money and the account of each partner settled on that basis. The assets have to be valued, of course, on the basis of the market value on the date of the dissolution. The decision in N. Muhammad Ussain Sahib's case for historical reason binds this Court, and it may not be necessary to state th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion should be only net profit which would be realised if these stocks had been sold. He then submitted that the net profit in the accounts was only about 6 per cent. He, therefore, submitted that the addition should be reduced to 6 per cent of the stock as valued by the assessee. 5. We are unable to accept this submission. What we are concerned is to find out the market value of the closing stock and substitute the market value in place of the figure fixed by the assessee in the accounts. There is no assumption that the stock-at-hand is actually sold so that the expenditure connected with such sale would become deductible item. We are not concerned with any notional deduction of expenditure likely to be incurred by the assessee if it were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions that the market value is being substituted. It is because of accounting principles. If the market value of the goods are readily available, there is no need to go to any fiction of willing buyer or willing seller. For instance, the assessee was dealing in stocks and shares quoted in stock market, these stock quotations will be the market value. Only in cases where such guidance is not available that we will have to find out what is the market value. In the assessee's case also, no legal fiction is required. He is dealing in electrical goods where the prices are fixed by the manufacturing company. Those prices or a portion of those prices would represent the market value. No legal fiction is involved here. 7. Assuming the legal fic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure these goods at cost price from the company itself. In our opinion this submission is also to be rejected. Here again, Sri Ratnakar is labouring under misconception that a fictional sale is involved. It is not so. The assessee's goods are all manufactured by well-known companies and it contains the price list. Thus, it is not necessary to wait for two months in order to find out what would be the market price. It is not necessary to actually sell the goods to ascertain the market price. Neither is the fact that the market rate would be applicable to all closing stock would create a legal fiction of all the goods being sold simultaneously at one point of time. There is no place for such assumptions. 9. It was then submitted that the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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