COMMISSIONER OF INCOME TAX Vs. SAKTHI TRADING CO

JUDGEMENT

(1.) 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 reconstituted 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 made separately. He was of the view that in making the present assessment, the stock-in-trade as on February 6, 1984, had to be valued at market rate and the Commissioner had set aside the assessment and directed the Income-tax Officer to make a fresh assessment holding that failure to take the market value of the closing stock was an error prejudicial to the Revenue. On appeal, the Tribunal found that there being no warrant for revaluation of stock in a continuing business, the order of the Income-tax Officer accepting the profit shown by the assessee on the method of accounting regularly followed was not in any way erroneous and did not require to be revised under Section 263. 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 :

(2.) ON the death of one of the partners, the assessee-firm stood dissolved on February 6, 1984, and there was reconstitution of the firm with the remaining partners from February 7, 1984. The assessment for the accounting period up to February 6, 1984, and from February 7, 1984, to March 31, 1984, had to be made separately and the Commissioner was of the view that in making the assessment, the closing stock as on February 6, 1984, had to be valued at market rate.