TMI Blog2004 (12) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... ver at Rs. 92,903 on 25-2-1997. The Assessing Officer called upon the assessee to explain the reasons as to why the closing stock be not valued at market price in view of the decision in the case of CIT v. Nathu Lal Jawarchand [1997] 227 ITR 251 (MP) which in turn is based on A.L.A Firm v. CIT [1991] 189 ITR 285 (SC). It was contended on behalf of the assessee that it was regularly valuing its closing stock by taking average price according to its true worth and the same method was followed in the instant year. It was opined by the Assessing Officer that the stock was required to be valued at market price. On the instructions of the Assessing Officer, the assessee computed the market rate of gold ornaments at Rs. 397 per gram as on the closing day. The Assessing Officer, however, made certain changes and calculated the market price as on the day of dissolution at Rs. 455 per gram. Apart from others, the assessee had included labour charges @ Rs. 10 per gram whereas the Assessing Officer considered this amount at Rs. 15 per gram. Similarly, the value of the silver ornaments in the closing stock was adopted by the Assessing Officer @ Rs. 6.40 per gm. as against Rs. 4.53 per gm. compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, pursuant to the direction given by the Assessing Officer was in order. On the other counts, he relied on the impugned order. 3.3 In the opposition, the learned DR contended that the stock was rightly valued at the market price and the learned CIT(A) was not justified in allowing relief of Rs. 5 per gm. on the labour charges. On the other aspect, he relied on the impugned order. 3.4 We have considered the rival submissions in the light of material placed before us and precedents deliberated upon. The short question that falls for our adjudication in these grounds is to decide as to whether the closing stock of gold and silver ornaments should be valued at market price as on the closing day or at the method regularly employed by the assessee. Uncontroverted facts of this case are that the firm was constituted on 1-1-1996 consisting of S/Shri Kuldip Chand and Varinder Kumar as the partners. On 25-2-1997 Shri Kuldip Chand expired and the firm was dissolved. Thereafter, the business of the firm was taken over by the sole surviving erstwhile partner, namely, Shri Varinder Kumar. The case of the Revenue is that on 25-2-1997 being the closing day of the period for which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other and son. On the death of mother on 11-2-1993, leaving behind her share of assets and liabilities by 'Will' to her son, the son carried on the business thereafter who was the other partner in the erstwhile firm. The Assessing Officer applied the decision of the A.L.A. firm s case for valuing the closing stock as on the date of dissolution, but the Hon'ble High Court after considering both the summit court decisions, came to the conclusion that when business continued after dissolution of the firm, closing stock could be valued at cost or market price whichever is lower. In the case of Naveen Hardware Electrical Store v. CIT [2004] 266 ITR 308 (Gau.) the assessee firm was having its H.O. at Dimapur and B.O. at Diphu. Disputes arose amongst the partners of the firm, which eventually led to its dissolution. Two of the partners took over Dimapur and Diphu branches and continued business in their individual capacity with a different entity. On the question of valuation of the closing stock on the date of dissolution, the Assessing Officer opined that the closing stock be valued at the market rate as against the assessee's contention that it should be valued at cost price which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinuation of the business of the firm after its discontinuance. If the same is not continued as one composite unit or is discontinued, the closing stock would be valued at market price in accordance with the decision of A.L.A. Firm's case. If, however, the business of the erstwhile firm is continued after its dissolution either by way of reconstitution of firm with different partners or a single partner becoming proprietor and continuing the business of the earlier firm as a whole, the same is said to be the continuation of business after the dissolution of the firm. The primary condition is the continuation of the business of the firm as a single unit after its dissolution. It is irrelevant as to whether the said business is continued after dissolution by another firm on reconstitution or by one of the partners assuming the position of a sole proprietor. So long as business of the firm goes on undisturbed without distribution of assets and liabilities amongst the partners, the same is said to be continuing and the decision of the Hon'ble Supreme Court in the case of Sakthi Trading Co. would hold the field and the closing stock need not be valued at market price, disregarding the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost price as on the date of the dissolution of the firm. These grounds are disposed of in the above terms. 4. Ground Nos. 2 3 of the Revenue's appeal deal with relief allowed by the CIT(A) on the additions made on account of ornaments not recorded in the trading account. 4.1 Briefly stated, the facts of these grounds are that the Assessing Officer found certain discrepancies in Register GS-11 and GS-12. On being called upon to reconcile the difference, it was stated on behalf of the assessee that Shri Kuldip Chand, the partner and his two daughters-in-law, namely, Smt. Simmi Chandok and Smt. Aruna had their personal gold ornaments which was kept with the firm merely for displaying purpose and to ensure the safe custody of their jewellery. The remaining discrepancy was stated to be on account of the jewellery of two Karigars, namely, Balraj and Subhash Chander which was received from them for sale. The Assessing Officer made addition of Rs. 11,17,234 on the basis of excess weight of gold ornaments credited in the stock register. The detailed chart was made available showing date-wise receipt of jewellery by the assessee-firm, from these five persons in total and the returns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kuldip Chand in the year under consideration was restored to the file of the Assessing Officer for fresh investigation. Regarding the receipt of jewellery from Karigars, namely, S/Shri Subhash Chander and Balraj, the learned CIT(A) deleted the addition in respect of gold ornaments kept by them with the assessee-firm amounting to Rs. 1,99,699 and received back in the same year itself. The department is aggrieved in ground No. 2 against the relief allowed by the CIT(A) of Rs. 6,58,662. It is obvious that this amount represents the deposit of gold jewellery by Shri Kuldip Chand, Smt. Simmi Chandok and Smt. Aruna in earlier years. From the perusal of the details recorded in the impugned order, which remained uncontroverted before us, it is clearly borne out that all the three persons were assessed to Wealth-tax and had declared gold ornaments worth much more than that given to the assessee-firm for safe custody in the earlier years. Apart from that, it is noted that the addition of Rs. 2,58,872 representing gold jewellery deposited by Shri Kuldip Chand in the instant year restored to the file of the Assessing Officer, was decided vide order dated 12-3-2002, a copy of which has been pla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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