TMI Blog2014 (7) TMI 998X X X X Extracts X X X X X X X X Extracts X X X X ..... UPREME Court] the principle is that the value can be determined on the basis of cost or market value and the assessee will have option to choose between lesser of them, provided the business or trade is being continued; in case the firm is dissolved or the business activity is discontinued, the market value alone becomes relevant - whatever may have been the liberty of an assessee to choose between the cost and market value of an asset, whichever is beneficial to him; that liberty stands taken away when the firm is dissolved, or the business activity is discontinued - For the purpose of determining the value of property, which is allotted to the respective partners on dissolution, it is only the market value that becomes relevant; and that exactly was taken into account – Decided against Assessee. - R.C.No.112 of 2001 - - - Dated:- 9-7-2014 - L. Narasimha Reddy And Challa Kodanda Ram,JJ. For the Applicant : Sri Y. Ratnakar For the Respondent : Sri S. R. Ashok ORDER (Per the Honble Sri Justice L. Narasimha Reddy) This reference under Section 256(2) of the Income Tax Act, 1961 (for short the Act) is made by the Hyderabad Bench B of the Income Tax Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 29,571/-, under Section 217 of the Act, were levied. Aggrieved by the order of the Assessing Authority, the applicant carried the matter in appeal before the Commissioner. The order of the ITO was affirmed, by the Commissioner, through his order, dated 01.02.1991. Thereafter, the applicant filed I.T.A.No.488/Hyd/1991 before the Tribunal. The appeal was dismissed, through a detailed order, dated 26.06.1992. The applicant filed R.A.No.303 of 1992 with a request to refer the three questions, mentioned above, to this Court. When the request was not acceded to, he approached this Court by filing R.C., and on a direction issued therein, the questions were referred. Sri Y. Ratnakar, learned counsel for the applicant, submits that the very act of the I.T.O. in determining the value of the house at ₹ 17,67,678/-, as against the value shown in the return at ₹ 6,73,000/-, is contrary to law. He contends that it is a fairly settled practice and principle not only in the accountancy, but also in the field of taxation that an assessee, who undertakes trade, is entitled to take the cost, of an asset, or its market value, whichever is less. He submits that the firm was brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he firm and the legal consequences flowing from it. The effort of the applicant is to convince this Court that the firm was only a nominal entity and it did not have any difference, whether it was dissolved or not, and the entire controversy turned around it. There may be instances where the firms are brought into existence nominally and no activity is undertaken by them. In cases of that nature, the assessee may convince ITO, and if the pleaded facts are proved, the ITO himself may ignore the existence of such firm. Where however, the firm is brought into existence through a registered document and separate returns are field on behalf of the firm, posting profits and furnishing other ingredients of a typical return, one cannot expect the ITO to ignore the existence of the firm. Added to that, a peculiar situation exists in the instant case. As a result of dissolution of the firm, redistribution of the properties took place in a manner, different from the one, in which they were held before the constitution of the firm. That, in turn, attracted imposition of gift tax. The matter landed before this Court in the form of R.C.No.160 of 2000 at the instance of the applicant herein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgument advanced in this behalf is that in case the ITO was empowered to re-determine the value of an item, which forms part of the stock in trade, at the stage of dissolution, he is equally under obligation to determine the value thereof, when it gained its entry into the assets of the firm by adopting the same parameters. Reliance is placed upon the judgment of this Court in Commissioner of Income- Tax v. Agarwal Enterprises 236 ITR 412. It is, no doubt, true that in the said judgment, this Court took the view that it is competent for the ITO to arrive at his own conclusion about the value of an item furnished at the stage of entry into the stock in trade of a firm. That, however, was in a totally different context. At any rate, that question was neither raised before the Tribunal, nor it forms part of the questions, referred to us. The manner, in which the value of an asset, which forms part of stock in trade of a firm must be arrived at, is explained by the Supreme Court in A.L.A. Firms case (1 supra). Broadly stated, the principle is that (a) the value can be determined on the basis of cost or market value and the assessee will have option to choose between lesser of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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