JUDGMENT
MRS. A. SUBBULAKSHMY, J.
The assessee-firm filed returns of income for the year 1982-83. During the lifetime of one Shri Paranjothi Nadar, he was one of the five partners of the assessee-firm. He died on 31st Oct., 1981. On the death of Paranjothi Nadar, the assessee claimed that the firm stood dissolved and the assessee furnished returns of income disclosing an income of Rs. 22,940 for the period from 1st April, 1981, to 31st Oct., 1981, stating that closing stocks had to be valued to market price. The AO brought to charge an aggregate sum of Rs. 71,140 being the differential arising out of the valuation of the closing stock at market price and he made assessments one from 1st April, 1981 to 31st Oct., 1981, and the other from 1st Nov., 1981, to 31st March, 1982.
The first appellate authority confirmed the view taken by the AO. The Tribunal found that on the death of Paranjothi Nadar, the remaining four partners took one Ravi Gunapandian as partner and continued the business as before and the Tribunal also found that the business of the firm having been continued, there was necessity for valuing the closing stock as on 31st Oct., 1981, at market price. On that, the reference has arisen and at the instance of the Revenue, the following question has been referred to this Court for our opinion :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the closing stock of the firm as on 31st Oct., 1981 being the date of dissolution of the erstwhile firm should not be valued on the
basis of market price ?”
2. The claim of the assessee is that on the death of Paranjothi Nadar, the firm stood dissolved and hence, the assessee is liable to furnish returns of income only for the period from 1st April, 1981, to 31st Oct., 1981, i.e., till the date of death of the partner Paranjothi Nadar. The Tribunal had found that since one partner was added on the death of the said Paranjothi Nadar and the business was continued, there is no necessity to value the closing stock as on 31st Oct., 1981, at the market price.
3. In the case of CIT vs. India Reinforcing Co. (1991) 188 ITR 651 (Mad) : 50, this Court has held that
“In the case of dissolution of a firm, the closing stock had to be valued at the market value. The mere fact that some of the other ‘Items had been left untouched could not be a justification for not valuing the closing stock at the market value on the dissolution of the firm.
The apex Court has held in the case of A.L.A. Firm vs. CIT (1991) 93 CTR (SC) 133 (1991) 189 ITR 285 (SC) : 53 that with a view to arrive at correct picture of trade of the partnership on the date when it ceases to function, the valuation of stock-in-trade should be made on the basis of the prevailing market price, affirming the view taken in the case of G.R. Ramachari & Co. vs. CIT (1962) 41 ITR 142 (Mad) : 29.
4. The assessee-firm was constituted under the partnership deed dt. 21st April, 1956 at will and on the death of Paranjothi Nadar, one of the partners of the firm, the firm stood dissolved and a new firm was constituted and two separate assessments were made by the AO. Following the decision of the Supreme Court in the decision in A.L. A Firm Vs. CIT (supra), we hold that the closing stock of the firm as on 31st Oct., 1981, is to be valued at market price. On the death of Paranjothi Nadar, the firm stood dissolved and so, the closing stock as on 31st Oct., 1981, being the date of dissolution of the firm, should be valued on the basis of market price. The view taken by the Tribunal is not justified.
5. We answer the question in favour of the Revenue and against the assessee.
No costs.
OPEN