Law: Income Tax Act, 1961

Section: 147,187

Section 147, read with section 187, of the Income-tax Act, 1961 - Income escaping assessment - Illustration - Assessment year 1981-82 - Assessee-firm originally consisted of three partners, but with retirement of one partner, entire business, rights and liabilities were taken over by remaining two partners who continued said firm despite executing a deed of dissolution and a new deed of partnership - Assessment was accordingly completed - Subsequently, ITO issued notice under section 148, stating therein that as firm was dissolved, its closing stock should have been valued at market rate and not as per method consistently followed by it - Whether since it was a case of mere change in constitution of firm duly covered under section 187, very foundation on which notice under section 148 proceeded, that there was dissolution of firm, was on non-existent ground and therefore impugned notice under section 148 as well as proceedings under section 147 were liable to be quashed - Held, yes FACTS The assessee-firm originally consisted of three partners. In the assessment year 1981-82, one of the partner retired from the firm and the firm continued with the remaining two partners in the subsequent assessment years. The assessee submitted that although there was a deed of dissolution of the firm, and a new deed of partnership was also executed by the continuing partners, the continuing two partners had taken over the running business of the partnership firm with all the assets and liabilities including the share payable to the retiring partner. After completion of the original assessment order under section 143(3), for the relevant assessment year, the ITO issued a letter to the assessee stating that as the firm was dissolved from the assessment year 1981-82, the closing stock should have been valued at the market rate and proposed to initiate action under the Act to bring to tax the income by adopting the market rate of closing stock. The assessee submitted written objections pointing out that the assessee had valued the closing stock at the average rate of opening stock and purchases, as per the practice uniformly followed by them and that while making the assessment,…

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