Y. K. Sabharwal, J. - (1.) At the instance of the Revenue the question, in respect of the assessment year 1984-85, that was referred for the opinion of the High Court was :"Whether on the facts and in the circumstances of the case where on the dissolution of the firm the business is taken over by a partner without discontinuance and the value of the closing stock determined under the regular method of accounting is accepted by the partners in the settlement of accounts or dissolution purposes, the Income-tax Officer can substitute the market value in respect of the closing stock alone for the purpose of determining the income of the firm up to the date of dissolution -
(2.) Briefly the facts are as follows:
(3.) The assessee is a registered firm. As a result of the death of one out of its six partners, on February 6, 1984, the firm was dissolved. It was, however, reconstituted with effect from the next day, that is, 7th February, 1984, with the remaining five partners. Two orders of assessments were made : one for the period up to February 6, 1984 and the other for the period from 7th February, 1984 to 31st March, 1984. The Commissioner of Income Tax made an order under Section 263 of the Income-tax Act, 1961 as according to him the assessment order made by the Income Tax made an order under Section 263 of the Income-tax Act, 1961 as according to him the assessment order made by the Income Tax Officer was erroneous and prejudicial to the interest of the Revenue in valuing the stock in trade as on 6th February, 1984 on the basis of cost or market rate, whichever is lower as that was the usual method the assessee used to adopt in valuing its stock. The Commissioner of Income Tax relying upon the decision of the Madras High Court in A.L.A. Firm vs. Commissioner of Income-tax, (1991) 189 ITR 285, came to the conclusion that the Income Tax Officer ought to have valued the closing stock at its market rate as on 6th February, 1984. Thus, setting aside the assessment order dated 30th May, 1984, the Income Tax Officer was directed to pass a fresh order.;