Law:

Section:

Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 1992-93 - Appellant/assessee was a registered partnership firm - Due to disputes and differences amongst partners, it was decided to dissolve firm by a deed of dissolution - Partners of appellant-firm while finalizing accounts for purpose of income-tax, valued closing stock at cost price - Assessing Officer assessed firm accepting valuation of closing stock at cost price - Commissioner, however, in exercise of his power under section 263, directed Assessing Officer to reassess income by revaluing stock of firm at market price - On appeal against said order, it was seen from records that pursuant to dissolution, there was complete division/distribution of assets and liabilities between partners and two of partners had taken over business of appellant-firm - Whether since business was taken over and continued by partners in their individual capacity and as a different entity, it could be concluded that there was complete cessation of business of firm - Held, yes - Whether in such a situation, closing stock of firm should have been valued at market price - Held, yes - Whether, therefore, Commissioner was justified in invoking his jurisdiction under section 263 - Held, yes FACTS The appellant-firm was a registered partnership firm. Due to disputes and differences amongst the four partners of the firm, it was decided to dissolve the firm by the deed of dissolution dated 5-4-1992 with effect from 31-3-1992. The partners of the firm while finalizing the accounts for the purpose of income-tax for the assessment year 1992-93 valued the closing stock at cost price. The Assessing Officer assessed the income of the firm accepting the value of the closing stock at cost price. Thereafter, the Commissioner issued notice to the firm in exercise of his powers under section 263. The Commissioner directed the Assessing Officer to reassess the income by revaluing the stock of the firm at market price as on 31-3-1992 and to allocate the profits arising thereupon amongst the partners. On appeal, the Tribunal confirmed the order of the Commissioner. On appeal : HELD…

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