TMI Blog1996 (8) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of the partners, namely, Shri Kantilal, expired on 13-11-1988. A fresh deed of partnership was executed on 28-11-1988 between the erstwhile three partners and one, Shri Rajiv Kumar, with 25% share income each. This deed of partnership was made effective from 17-11-1988. 3. The assessee filed return for the period from 23-10-1987 to 13-11-1988 (date of death of the partner, Shri Kantilal) and the assessment was made on 26-3-1990 under section 143(3) of the Act. 4. On scrutiny of the said assessment order, the Commissioner noticed that the Assessing Officer had accepted the closing stock as shown by the assessee. He was of the view that as the firm had dissolved, its assets should have been revalued according to the market rates and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. He, therefore, set aside the assessment on the point. Aggrieved, the assessee is before us. 6. The learned counsel for the assessee reiterated the (sic). He emphasised that the proviso below sub-section (2) of section 187 contained deeming provision only and as a matter of fact in the case of the assessee, there was merely a change in the constitution of the firm. In this connection, he placed reliance on the recital in the partnership deed executed on 28-11-1988 to the effect that the business was continued along with the debtors and creditors. Relying on the Madras Bench decision of the Tribunal in J. A. Venkoba Rao v. ITO [1993] 44 ITD 264, he vehemently argued that the decision of the Apex Court in A.L.A. Firm's case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the firm-- (a) if one or more of the partners cease to be partners or one or more new partners or more of the persons who were partners of the firm before the change continue as partner or partners after the change." 9. It is, thus, obvious that the purpose of the proviso to section 187(2) inserted with retrospective effect from 1-4-1975 is to provide that there does not take place a change in the constitution of the firm as contemplated by section 187(2)(a) in a case where the firm is dissolved on the death of any of its partners. The effect of the said proviso to section 187(2) has been considered in a series of judgments delivered by the Hon'ble High Court of Madhya Pradesh. In the case of CIT v. Jasumal Devandas [1985] 156 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the firm is dissolved. In the case of G.R. Ramachari Co. v. CIT [1961] 41 ITR 142 (Mad.), a partnership firm had been valuing its opening and closing stock at the cost price when the firm was carrying on business. On the dissolution of the firm, one of the partners took over the stock on hand and valued at the cost price. However, revenue authorities valued the stock at the market price. The issue of valuation of stock in the case of a dissolved firm was referred to the Madras High Court under section 66(2) of the Income-tax Act, 1922. After considering various authorities, a Division Bench of the Madras High Court held that the closing stock should be valued at the market rate and the principle of book value would apply in (sic) la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above observations, the Hon'ble Supreme Court agreed with the view taken by the Madras High Court in G.R. Ramachari Co.'s case. In this view of the matter and on the face of the law enunciated by the Hon'ble Supreme Court, it is difficult for us to persuade ourselves to take a different view in the light of the decision of Madras Bench of the Tribunal in the case of J. A. Venkoba Rao. 14. We are inclined to agree with the view of the Commissioner that the benefit of any set off could not be allowed to the successor-firm on account of valuation of the closing stock of the old firm for the simple reason that the successor-firm is an entirely different entity with different constitution. 15. For the reasons aforesaid, we do not find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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