JUDGMENT
R. Jayasimha Babu, J.
1. The question referred to us, at the instance of the Revenue, for our consideration is :
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the fair market value of the closing stock as against the book value agreed upon by the partners should not be adopted when the firm was dissolved and dissolution accounts drawn up ?”
2. The assessment year is 1985-86.
3. The assessee is a firm. Originally it consisted of four partners. On the death of one of them, Shri Sohanlal, in November, 1984, the firm was dissolved by a deed dated November 27, 1984. The remaining partners took over the business of the dissolved firm and continued the same in the same name and a fresh deed of partnership was entered into by them. While taking over the business of the dissolved firm, the new firm took over the closing stock as on the date of dissolution at the book value. The Assessing Officer considered such valuation to be untenable and held that the closing stock should have been taken at the market value. He proceeded to estimate the market value and added a sum of Rs. 4,82,549 to the value of the closing stock. The assessee’s appeal to the Commissioner was unsuccessful. However, the assessee met with success before the Tribunal on further appeal.
4. The Supreme Court has recently pronounced on this question in the case of Sakthi Trading Co. v. CIT [2001] 250 ITR 871. It was held therein that where there is no cessation of business, the closing stock ought to be valued at cost or market price, whichever is lower. The assessee in this case having taken the cost which was lower than the market price, there was no scope for revising the value of the closing stock upward on the ground that the market price was higher. The question referred to us is, therefore, answered in favour of the assessee and against the Revenue.