TMI Blog2018 (12) TMI 217X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, the assets and liabilities relating to the civil construction business remained with the assessee firm and were not distributed among anybody. Even the assets and liabilities relating to the software education business and real estate project were not distributed among any partners but, were transferred to a new firm and transfer of a business should be construed as distribution of assets and liabilities among the partners. We are of the clear view that the decision in the case of A.L.A. Firm [1991 (2) TMI 1 - SUPREME COURT] which was heavily relied upon by the learned counsel for the Revenue, can have no application to the case on hand - the partnership firm deed dated 03.08.2005, is a good piece of evidence to show that the assessee firm continued to be in existence after re-constitution, that is, even after 31.03.2002 without getting dissolved. Tribunal erred in reversing the order passed by the CIT(A) and therefore, the order passed by the Tribunal calls for interference. - Decided in favour of the assessee - Tax Case (Appeal) No.1106 of 2008 - - - Dated:- 16-11-2018 - Mr. Justice T.S. Sivagnanam And Mrs. Justice V. Bhavani Subbaroyan For the Appellant : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1991] 55 Taxman 497 (SC) and valued the closing work in progress as on 31.03.2002 at market value and added a sum of ₹ 6,43,43,000/- to the income returned. Further, by deeming distribution of assets among the partners at the time of dissolution, the Assessing Officer invoked the provisions of Section 45(4) of the Act and computed long term capital gains at ₹ 26,98, 202/-. Subsequently, the Assessing Officer revised the assessment under Section 154 of the Act on 11.05.2005, and re-determined the income excluding long term capital gains at ₹ 15,67,98,490/- as against ₹ 16,52,07,490/-. Aggrieved by the order of assessment, the assessee preferred appeal before the Commissioner of Income-tax (Appeals)-IV ( the CIT(A) for brevity). 5. It was contended that it is a case of re-constitution and not a case of dissolution and the Assessing Officer ought to have seen that as per the MOU dated 01.08.2002, the businesses continued in the existing partnership firm to be managed by the continuing partners. Further, factual details were placed in support of their contention. 6. The decision in the case of A.L.A. Firm (supra) was sought to be distinguished by s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee firm stood dissolved as on 31.03.2002 and consequently, whether there was any liability to capital gain tax for the assessment year 2002-03. 11. The Assessing Officer in his order stated that the assessee firm as constituted vide the original deed of partnership dated 27.11.2000, existed in its original form retaining its original assets and liabilities only till 31.03.2002 and on 01.04.2002, two new firms came into being by splitting the assets and liabilities and various business of the original firm and in effect, the original firm ceased to exist after 31.03.2002. There is a fundamental contradiction in what the Assessing Officer had observed. The understanding of the factual position by the Assessing Officer is that the original firm ceased to exist after 31.03.2002. If such is the understanding, we fail to understand as to how the Assessing Officer could have come to a conclusion that the firm stood dissolved as on 31.03.2002. Equally, the finding of the Assessing Officer that since the original firm ceased to exist after 31.03.2002, the revaluation of the closing stock at market value has to be considered for 31.03.2002 only. These contradictions should enu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , clause nos.2, 6(A), 7(A) etc., and after elaborately discussing the same, has held that there is sufficient proof regarding the intention of the continuing partners to continue the appellant firm and also the continued existence of the assessee firm without ever being dissolved as stated by the Assessing Officer. 17. The CIT(A) referred to a decision of the Division Bench of this Court in the case of Commissioner of Income-tax vs. Standard Printing Machinery, [2003] 260 ITR 268 (Madras). The Hon'ble Division Bench took note of the decision of the Hon'ble Supreme Court in Sakthi Trading Co. vs. CIT, [2001] 250 ITR 871 (SC) wherein, it was held that there is no cessation of business, the closing stock ought to be valued at cost or market price, whichever is lower. On the facts of the case, it held that the assessee having taken the costs which was lower than the market price, there was no scope for revising the value of the closing stock upward on the ground that the market price was higher. 18. In Sakthi Trading Co. (supra), the question, which fell for consideration, was whether on dissolution of the firm the business is taken over by a partner without discont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 01.04.2002 and that the later two balance sheets came into existence only on 01.04.2002 and not on 31.03.2002. 23. Further, after appreciating the documents placed before it, the CIT(A) held that the assessee firm was never dissolved much less on 31.03.2002 and on the other hand, got itself re-constituted with three of the continuing partners and therefore, the case is squarely covered by Section 187(2) of the Act. Further, the assets and liabilities relating to the civil construction business remained with the assessee firm and were not distributed among anybody. Even the assets and liabilities relating to the software education business and real estate project were not distributed among any partners but, were transferred to a new firm and transfer of a business should be construed as distribution of assets and liabilities among the partners. 24. In the light of the above factual position, we are of the clear view that the decision in the case of A.L.A. Firm (supra), which was heavily relied upon by the learned counsel for the Revenue, can have no application to the case on hand. 25. The learned counsel for the Revenue placed reliance on the decision of the High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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