Law: Income Tax Act, 1961

Section: 143

Income-tax----Firm---Dissolution---Valuation of closing stock for determining income of firm up to date of dissolution---Market value of closing stock is to be adopted ---Continuation of business by reconstitution of firm---Not relevant. The assessee was a registered firm and for the assessment year 1984-85, the Income-tax, Officer completed the assessment on the basis of the return filed by the assessee. The Commissioner of Income-tax exercising his powers under section 263 of the Income Tax Act, 1961, directed the Income-tax Officer to make a fresh assessment on the ground that the assessee-firm had been dissolved on February 6, 1984, on the death of one of its partners and had been re-constituted the next day and hence a separate assessment had to be made f6r the period February 7, 1984 to March 31, 1984. According to the Commissioner the stock-in-trade as on February 6, 1984, had to be valued at market rate. The Tribunal held that there was no warrant for re-valuation of stock in a continuing business. On a reference; Held, that on the death of the partner on February 6, 1984, the firm stood dissolved and so the closing stock as on February 6, 1984, being the date of dissolution should be valued on the basis of market price, for the purpose of determining the income of the firm up to the date of dissolution. A.L.A. Firm v. CIT (1991) 189 ITR 285 (SC) fol. CIT v. Indian Reinforcing Co. (1991) 188 ITR 651 (Mad.) and G.R Ramachari & Co. v. CIT (1961) 41 ITR 142 (Mad.) ref. JUDGMENT MRS. A. SUBBULAKSHAMY, J.---The assessee is a registered firm. For the assessment year 1984-85, the assessee had filed a return showing the income of Rs.1,37,810 from its business in turmeric. The Income-tax Officer made the assessment under section 143(3) on May 30, 1984, accepting the income as returned. The Commissioner of Income-tax on a review of that assessment order, noticed that the assessee-firm had been dissolved on February 6, 1984, on the death of one of the partners of the firm and the firm had been re-constituted on the next day with the remaining five partners and that the assessment of the income for the period of February 7, 1984, to March 31, 1984, had to be…

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