COMMISSIONER OF INCOME TAX Vs. POPULAR AUTOMOBILES

JUDGEMENT

(1.) THE assessment in question is for the year 1985 86. The question of law referred is as follows :

(2.) THE assessee firm was dissolved on 13th May, 1984, i.e., in the accounting year ended on 31st March, 1984. The entire assets and liabilities were distributed among the partners. The closing stock was also distributed on 13th May, 1984. The assessee firm valued the closing stock at cost or market price, whichever is less. The assessee followed this method in the past for valuing its closing stock. However, the same method of valuation of the stock was followed even after the dissolution of the assessee firm on 13th May, 1984. The assessee was required to value the stock on the date of dissolution of the firm at the market price as per the decision of the Madras High Court in the case of A.L.A. Firm vs. CIT (1976) 102 ITR 622 (Mad) : TC 2R.461 and also the decision of the Kerala High Court in the case of Popular Workshop vs. CIT (1986) 54 CTR (Ker) 323 : (1986) 166 ITR 348 (Ker) : TC 2R.441. According to the assessee, since the entire stock is transferred to partners as a bulk lot, the market price would mean that price at which the assessee purchased the stock from manufacturers, which represent the wholesale market price and it would be incorrect to value it by applying retail market price. The assessee filed an appeal before the Tribunal against the order of the CIT. The Tribunal followed the decision of the Madras Bench of the Tribunal in the case of J.A. Venkoba Rao vs. ITO (1993) 44 ITD 264 (Mad). It held that the valuation adopted by the firm is correct. On the basis of the above facts, the question of law has been referred to us.

(3.) WE heard the counsel for the Revenue Sri. George K. George. Sri George placed before us the following decision in A.L.A. Firm vs. CIT (1991) 93 CTR (SC) 133 : (1991) 189 ITR 285 (SC) : TC 2R.453, in CIT vs. Diza Electricals (1998) 150 CTR (Ker) 498 : (1999) 238 ITR 924 (Ker) : TC S2.66 and later decision of the Supreme Court in Sakthi Trading Co. vs. CIT (2001) 169 CTR (SC) 297 : (2001) 250 ITR 871 (SC). Learned counsel for the Revenue argued that there is a distinction between cases where there is a continuation of business after dissolution and cases where there is discontinuation of business after dissolution. According to him, insofar as the case of discontinuation of business is concerned, closing stock has to be valued as on the market rate. In A.L.A. Firm vs. CIT (supra), it was observed as follows :