Law:

Section:

Section 145 of the Income-tax Act, 1961 [Corresponding to section 13 of the Indian Income-tax Act, 1922] - Method of accounting - Valuation of stock - Assessment year 1945-46 - Whether privilege of valuing opening and closing stock in a consistent manner is available only to continuing business and it could not be adopted where business comes to an end and stock-in-trade has to be disposed of in order to determine exact position of business on date of closure - Held, yes - Whether therefore, in order to arrive at correct picture of trading results of partnership on date when it ceases to function, valuation of stock in hand should be made on basis of prevailing market price - Held, yes FACTS The assessee was a unregistered firm consisting of R and 'A' as partners. Later disputes arose between the partners which led to the dissolution of the partnership. In the suit between the two parties in this connection, it was decided by the High Court that in order to settle the claims inter se the parties, the stock as on the final dates of accounting should be valued at the market price. After the completion of the assessment the AAC found that as against the value of the stock which 'R' took away which was shown in the books as Rs. 22,286, the valuation as fixed by the High Court for the settlement of the disputes among the partners was Rs. 31,001. He, thus, set aside the assessment order. The department accordingly took the view that the difference represented the "realisable position" and that for the purpose of dissolution of a firm and consequent division of assets and liabilities the schedules that were prepared had to be on the basis of the ruling market price at the date of such dissolution as the valuation involved adjustments of the rights and obligations of the partners inter se, the consequential profit or loss required to be ascertained and divided among the various partners. On this basis, the department held that this difference of Rs. 8,715 represented the profits of the assessee and made the assessment accordingly on appeal the AAC confirmed this assessment. The Tribunal also rejected the case of assessee. On reference: HELD The privilege of valuing the…

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