M/S Moti Lal Duli Chand, Kanpur vs Department Of Income Tax

This is Revenue's appeal directed against the order passed by learned CIT(A)-I, Kanpur dated 14/08/1992 for the assessment year 2090-91.

2. In this appeal, the Revenue has raised the following grounds:

"1. That the learned CIT(A) has erred in law and on facts in deleting the addition of Rs.13,97,000/- on account of assessee's failure to value the closing stock on the dissolution of the firm at market price, without properly appreciating the facts of the case.

2. That the order of learned CIT(A) being erroneous in law and on facts deserves to be vacated and that of the Assessing Officer restored."

3. Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A). He also placed reliance on a judgment of Hon'ble Allahabad High Court rendered in the case of Motor Sales vs. CIT [1998] 230 ITR 44 (All).

2 Reliance was also placed on the judgment of Hon'ble Apex Court rendered in the case of Sakthi Trading Co. vs. CIT [2001] 250 ITR 871 (SC) and also on the judgment of Hon'ble Kerala High Court rendered in the case of CIT vs. S. Koder [1998] 233 ITR 620 (Ker).

4. We have considered the rival submissions. We find that in the case of Sakthi Trading Co. (supra), it was held by Hon'ble Apex Court that where there is no discontinuance of business, the closing stock is to be valued at cost or market price, whichever is lower. In that case, there was dissolution of firm but the firm was reconstituted with remaining partners without discontinuance of the business. Under these facts, the Assessing Officer held that the closing stock on the date of reconstitution is to be valued at market price. In the case of Motor Sales (supra), there was succession of firm by a company. In fact in that case also, the firm was converted into company. In that case, it was the claim of the assessee that the income of the entire year during which the conversion took place was assessable in the hands of the company but it was held by Hon'ble Allahabad High Court that the firm was assessable for the period which was succeeded by the company.

5. When we consider the applicability of these judgments, we find that as per the judgment of Hon'ble Allahabad High Court in the case of Motor Sales (supra), the income till the date of succession is to be assessed in the hands of the firm. As per the judgment of Hon'ble Apex Court in the case of Sakthi Trading Co. (supra), if there is no discontinuance of business, value of closing stock has to be adopted on the basis of cost or market price, whichever is lower and the Assessing Officer cannot substitute market value. When we apply the ratio decidendi of these judgments, we find that till the date of succession, the income of the assessee firm has to be assessed in the hands of the assessee firm and for the purpose of computing such 3

income, the value of closing stock has to be taken at cost or market price whichever is lower and the Assessing Officer cannot substitute market value. We feel so because in the present case also, the business has not been discontinued because the same partners have become shareholders of the present company and business was continued without discontinuation of business. Considering all these facts and the legal position, as discussed above, we are of the considered opinion that no interference is called for in the order of CIT(A).

6. In the result, the appeal of the Revenue stands dismissed.

(Order was pronounced in the open court on the date mentioned on the caption page)

Sd/. Sd/.

(SUNIL KUMAR YADAV) ( A. K. GARODIA ) Judicial Member Accountant Member

Dated:26/02/2015. *C.L.Singh

Copy of the order forwarded to : 1.The Appellant 2.The Respondent. 3.Concerned CIT 4.The CIT(A) 5.D.R., I.T.A.T., Lucknow Asstt. Registrar