- (1.) WE have heard Sri Shambhu Chopra, the learned counsel for the department/appellant and Sri Suyash Agarwal, the learned counsel for the assessee.
(2.) IN the assessment year 1990 -91, the Tribunal while allowing the appeal of the department observed in paragraph no.14 as under: - "In view of the above legal position, it is clear that whatsoever may be the mode of dissolution or closure of the business of the firm, the profits have to be ascertained only by taking the closing stock at market value. The accounts have to be worked out on that basis upto the date of dissolution or prior to it. The situation that the firm came to an end by way of liquidation or partners dissolved the firm for distributing the assets of the firm, or dissolved and closed the firm with a view to form a company or otherwise, are, in our view, not relevant because the accounts of the outgoing entity, i.e., the firm, are to be prepared properly, may be the business remains the same and stock is also taken over by the new entity i.e., the company. For tax purposes, the profit and loss of the outgoing entity, i.e., the firm has to be properly and separately worked out and is not to be mixed up with the new entity, i.e., the company. The plea of the Ld. counsel for the assess that in a case of conversion of a firm into a company, the business is not continued and, therefore, same method of valuation of closing stock should be applied, is not acceptable."
(3.) THIS view of the tribunal was made on the basis of the decision of the Supreme Court in A.L.A. Firm s Vs. Commissioner of Income Tax, 1991 189 ITR 285, in which it was held that if the partnership is dissolved, the valuation of the closing stock has to be valued at market price. The assessee being aggrieved filed an application under section 254(2) of the Income Tax Act for rectification of the mistake contending that there was apparent on the face of the record. During the pendency of this application, the Supreme Court delivered a decision in Sakthi Trading Co. Vs. Commissioner of Income Tax, 2001 250 ITR 871 holding that where the business continued and the firm was reconstituted, the valuation of the closing stock would have to be determined at cost price or market price, whichever is lower. In the light of this decision, which was brought to the knowledge of the Tribunal, the application of the assessee under section 254(2) of the Income Tax Act was allowed and the necessary rectification was made.;