M/s. Tareeka Sarees, Baroda V. The Income tax Officer, Ward-2(2), Baroda

ITA 1406/AHD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1927 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-12-2009
• Assessment Year: 1994-1995
• Appeal Filed On: 30-05-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M MATHIVANAN
• Assessee Lawyers: URVASHI SHODHAN A R
• Keywords: Cost of acquisition; Reassessment proceedings; Set aside; Liquidation; Capital Gains
• Section: 271(1)(c); 143(3); 264; 147; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH BAHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND A.N. PAHUJA, AM M/S TAREEKA SAREES, RUTAM, OPP. AVERY, GOTRI ROAD, RACE COURSE CIRCLE, BARODA- 390 007. V/S . INCOME-TAX OFFICER, WARD-2(2), BARODA. PAN :ACXPP5104B (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SMT. URVASHI SHODHAN,AR REVENUE BY:- SHRI M. MATHIVANAN, DR O R D E R A.N. PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATE D 17.03.2006 OF THE LD. CIT(A)-II,BARODA, RAISES THE FOLLOWING G ROUNDS :- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN ADDING RS.12,26,196/ - ON ACCOUNT OF DIFFERENCE IN VALUATION OF CLOSING STOCK OF FINISHE D GOODS AT MARKET VALUE AS AGAINST COST OR MARKET VALUE WHICHEVER IS LOWER METHOD FOLLOWED BY THE APPELLANT. 2. BOTH THE LOWER AUTHORITIES HAVE SERIOUSLY ERRED IN LAW IN APPLYING THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F A.L.A. FIRMS (189 ITR 285) TO THE FACTS OF THE APPELLANTS CASE WITHOUT APPRECIATING THAT THE BUSINESS OF THE APPELLANT HAS CONTINUED WITHOUT ANY BREAK WHATSOEVER. FURTHER THEY HAVE SER IOUSLY ERRED IN NOT APPRECIATING THAT THE RATIO OF THE SAID DECISIO N IN THE CASE OF ALA FIRMS MAY BE APPLICABLE TO A CASE WHERE FIRM IS DISSOLVED AND THE BUSINESS IS ALSO DISCONTINUED WHILE IN THE CASE OF THE APPELLANT ONLY THE FIRM IS DISSOLVED BUT THE BUSINESS IS NEVE R DISCONTINUED. THE FACTS OF THE CASE ARE SIMILAR TO THE DECISION O F HONBLE SUPREME COURT IN THE CASE OF SAKTHI TRADING CO. VS. CIT (25 0 ITR 871) WHEREIN IT WAS HELD THAT THE RATIO OF THE ALA FIRMS (SUPRA) WOULD NOT APPLY WHERE THE FIRM IS DISSOLVED BUT THE BUSINESS IS NOT DISCONTINUED. 3. ALTERNATIVELY AND WITHOUT PREJUDICE, IF IT IS HE LD THAT GOODS ARE REQUIRED TO BE VALUED AT MARKET PRICE IN THE HANDS OF THE APPELLANT, ITA NO.1406/AHD/2006 ASST. YEAR:1994-95 ITA NO.1406/AHD/2006 2 CORRESPONDING PURCHASE COST IN THE HANDS OF M/S TAA RIKA EXPORTS MAY KINDLY BE INCREASED TO THAT EXTENT SO AS TO AVO ID DOUBLE TAXATION. 4. BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN NOT PROPERLY APPRECIATING AND CONSIDERING VARIOUS SUBMI SSIONS, EVIDENCES AND SUPPORTING PLACED ON RECORD DURING TH E COURSE OF THE ASSESSMENT PROCEEDINGS AND NOT PROPERLY APPRECIATIN G VARIOUS FACTS AND LAW IN ITS PROPER PERSPECTIVE. 5. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONF IRMING THE LEVY OF INTEREST UNDER SEC.234A/B/C/D OF THE ACT. 6. LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONF IRMING THE ACTION OF ASSESSING OFFICER IN INITIATING PENALTY UNDER SECTI ON 271(1)(C) OF THE ACT WITHOUT RECORDING MANDATORY SATISFACTION AS CON TEMPLATED UNDER THE ACT AT THE TIME OF FRAMING THE ASSESSMENT ORDER . THE APPELLANT CARVES LEAVE TO ADD, AMEND, ALTER, ED IT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT TH E TIME OF OR BEFORE THE HEARING OF THE APPEAL. 2. ADVERTING FIRST TO GROUND NOS.1 & 2 OF THE APPEA L, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT THAT ASSESSMENT IN THIS CA SE WAS COMPLETED ON 31.01.1997 U/S 143(3) READ WITH SECTION 147 OF THE INCOME-TAX ACT,1961 [HEREINAFTER REFERRED TO AS THE ACT] ON AN INCOME OF RS.20,87,940/-.INTER ALIA, AN AMOUNT OF RS. 12,26,196 WAS ADDED TOWARDS VALUAT ION OF CLOSING STOCK. ON APPEAL, THE LD. CIT(A) DISMISSED THE APPEAL VIDE OR DER DATED 6.5.1997. ON FURTHER APPEAL, THE ITAT ,VIDE THEIR ORDER DATED 4. 7.2003, SET ASIDE THE ISSUE RELATING TO VALUATION OF STOCK TO THE ASSESSING OFF ICER[AO IN SHORT] WITH THE FOLLOWING DIRECTIONS :- IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOT STATED THE METHOD OF ACCOUNTING FOLLOWED BY THE ASS ESSEE. WE, THEREFORE, FOUND CONSIDERABLE FORCE IN THE SUBM ISSION OF LD. DEPARTMENTAL REPRESENTATIVE THAT FACTS IN THE C ASE OF SAKTHI TRADING CO. (SUPRA) NEEDS VERIFICATION AT TH E END OF THE ASSESSING OFFICER. WE, THEREFORE, SET ASIDE THE ORD ER OF LD. CIT(A) ON THIS ISSUE AND REMIT THE ISSUE REGARDING ADDITION OF RS.12,26,196/- MADE BY ASSESSING OFFICER ON ACCOUNT OF VALUATION OF CLOSING STOCK OF FINISHED GOODS TO THE FILE OF ASSESSING OFFICER WITH DIRECTION THAT HE SHOULD RE- ADJUDICATE THE SAME KEEPING IN VIEW THE JUDGMENT OF APEX COURT IN THE CASE OF SAKTHI TRADING CO., (SUPRA) DECIDED ON 2 ND AUGUST, 2001. ITA NO.1406/AHD/2006 3 2.1 IN TERMS OF THE AFORESAID DIRECTIONS OF THE I TAT, THE AO AFTER ANALYZING THE DECISION OF THE HONBLE APEX COURT IN SHAKTHI T RADING CO VS. CIT.,250 ITR 871(SC) CONCLUDED VIDE HIS ORDER DATED 16.03.20 05 THAT :- I. IN THIS CASE, THE FIRM HAS CEASED THE EXIST FRO M 30.09.1993, ACCOUNTS ARE FINALIZED AND SUBMITTED UPTO 30.09.199 3 ALONG WITH RETURN OF INCOME. II. THE ASSESSEE FIRM TAREEKA SAREES HAS DISCO NTINUED THE BUSINESS AND TRANSFERRED THE SAME TO ANOTHER CONCER N WITH SEPARATE SET OF PARTNERS, THEREFORE, IT IS CLEAR TH E BUSINESS OF THE FIRM NAMELY TAREEKA SAREES CEASED TO EXIST FROM 30. 09.1993. III THE FIRM TAREEKA SAREES CLOSED ITS ACCOUN TS AS ON 30.09.1993 AND HAS NOT DONE ANY BUSINESS AFTER THAT. IV THE DISCONTINUANCE AND CESSATION OF THE BUSI NESS OF THE FIRM IS WITH AN INTENTION AND WILLINGNESS AND NOT THRUST UP ON THEM BY ANY NATURAL CALAMITY UNLIKE SAKTHI TRADING CO. V. AS PER NOTE NO.6 OF THE AUDITORS REPORT, THE ASSESSEE IS FOLLOWING THE METHOD OF VALUATION OF FINISHED GOODS AND WORK IN PROGRESS AT COST OR MARKET VALUE, WHICH EVER IS LOWER WHILE RAW MATERIAL IS VALUED AT COST. 2.2 ACCORDINGLY, THE ASSESSING OFFICER WHILE DIST INGUISHING THE FACTS OF THE CASE UNDER CONSIDERATION FROM THE FACTS OBTAINING I N THE CASE OF SAKTHI TRADING CO., OBSERVED THAT THE FACTS OF THE PRESEN T CASE ARE IDENTICAL WITH THE FACTS IN THE ALA FIRMS,184 ITR 285 (SC) , THE ASSESSEE HAVING DISCONTINUED ITS BUSINESS AND CEASED TO FUNCTION AF TER 30 TH SEPTEMBER, 1993. THE ASSESSING OFFICER, THEREFORE, HELD THAT THE CLO SING STOCK OF FINISHED GOODS AS ON 30.9.1993 HAS TO BE TAKEN AT MARKET VALUE OF RS.90,74,780/- AND ADDED THE DIFFERENCE OF RS.12,26,196/- TO THE TOTAL INCO ME. 3. ON APPEAL, THE ASSESSEE CONTENDED THAT THE ONGO ING RUNNING BUSINESS OF THE ASSESSEE FIRM WITH ITS ENTIRE ASSETS, LIABIL ITIES, STOCKS AND GOODWILL, ETC. WAS ASSIGNED TO M/S TAREEKA EXPORTS ON 1.10.1993 TH ROUGH AN AGREEMENT OF ASSIGNMENT AND AS SUCH, IT WAS A CASE OF SALE OF A GOING CONCERN AND NOT DISSOLUTION OR DISCONTINUANCE OF THE BUSINESS. THER EFORE, THE DECISION IN THE CASE OF SHAKTHI TRADING CO. IS SQUARELY APPLICABLE IN ITS CASE AND THE DECISION IN THE CASE OF ALA FIRM WAS DISTINGUISHABLE FROM T HE ASSESSEES CASE. INTER ALIA, RELIANCE WAS PLACED ON THE DECISION OF THE TR IBUNAL IN THE CASE OF DCIT ITA NO.1406/AHD/2006 4 VS. BANYAN & BERRY (1999) 63 TTJ 261. IN THE LIGHT OF THESE SUBMISSIONS, THE CIT(A) UPHELD THE ACTION OF ASSESSING OFFICER IN TH E FOLLOWING TERMS :- 2.19 IN VIEW OF THE DISCUSSIONS GIVEN ABOVE AND T HE FACTS AND CIRCUMSTANCES OF THIS CASE, I INTEND TO AGREE WITH THE ASSESSING OFFICER THAT FACTS OF THE PRESENT CASE ARE ENTIRELY DIFFERE NT FROM THOSE OF SAKTHI TRADING CO., AND THEY ARE MORE IDENTICAL TO ALA FIR M CASE. MOREOVER, SIMILAR ISSUE OF TRANSFER OF BUSINESS AS A GOING CO NCERN CAME UP BEFORE HON. KERALA HIGH COURT IN THE CASE OF KUTTUKARAN MA CHINE TOOLS VS. CIT (2003) 264 ITR 305. IT WAS HELD BY THE HON.HIGH COURT THAT THE TRIBUNAL WAS NOT JUSTIFIED IN NOT APPLYING THE HON. SUPREME COURT DECISION IN ALA FIRM CASE. ACCORDINGLY, ADDITION OF RS.12,26,196/- MADE BY THE ASSESSING OFFICER IS CONFIRMED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF HE LD. CIT(A)., THE LD. AUTHORISED REPRESENTATIV E WHILE REITERATING THEIR SUBMISSIONS BEFORE THE AUTHORITIES BELOW, RELIED U PON DECISIONS IN THE CASE OF BHIM SEN GARG VS. DCIT (2005) 93 TTJ (JBP) 322 A ND SAGAR TYRE HOUSE VS. ITO (2004) 91 TTJ (JAB) 581. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF AUTHORITIES BELOW . 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. THE ASSESSEE FIRM TAARIKA SAREES(TS) TRANSFERRED ITS BUSINESS AS A GOING CONCERN AS PER AGREEMENT DATED 20.9.1993 TO THE FIRM TAARIKA EXPORTS(TE) . THE REL EVANT CLAUSES OF THE SAID AGREEMENT READ AS FOLLOWS: '1. TS AGREES TO ASSIGN AND TRANSFER AND TE AGREES TO TAKEOVER EFFECTIVE FROM 1 ST OCTOBER,1993(HEREINAFTER REFERRED TO AS THE APPOI NTED DATE) AS SUCCESSOR IN INTEREST IN THE ENTIRE BUSINESS OF TS TOGETHER WITH GOODWILL ,TRADE NAME, MOVABLE PROPERTIES, TANGIBLE AND INTANGIBLE ASSETS AND ALL LIABILITIES AND ALL THE PROPERTIES, ALL THE MACHINERIES, BENEFITS OF LICENS ES, QUOTA LICENSES, AGREEMENTS, CONTRACTS AND CERTIFICATE(S) OF ALLOCAT ION, IF ANY, IN RESPECT OF ANY MATERIAL ISSUED BY ANY GOVERNMENT, STATE, MUNICIPAL OR OTHER STATUTORY OR QUASI-STATUTORY AUTHORITIES IN CONNECTION WITH THE BUSINESS OF TS. 3. FOR THE PURPOSE OF TAKING OVER THE BUSINESS OF TS: A) THE VARIOUS FIXED ASSETS(SUCH AS FITTINGS, MEASU RING INSTRUMENTS, COMPUTERS, TYPE WRITERS,ETC.,IF ANY) WILL BE TAKEN OVER AT THEIR RESPECTIVE BOOK VALUE AS APPEARING ON THE APPOINTED DATE IN THE BOO KS RELATING TO TSS BUSINESS. ITA NO.1406/AHD/2006 5 B) THE VALUE OF RAW MATERIALS, FINISHED GOODS, STOR ES, SPARES ETC., IF ANY, WILL BE TAKEN OVER AT THEIR RESPECTIVE COST AS APPEARING ON THE APPOINTED DATE IN THE BOOKS RELATING TO TSS BUSINESS. C) SUNDRY DEBTORS, LOANS, ADVANCES AND DEPOSITS, IF ANY, SHALL BE TAKEN OVER AT THEIR RESPECTIVE FIGURES APPEARING ON THE A PPOINTED DATE IN THE BOOKS OF ACCOUNTS RELATING TO TSS BUSNESS. (D) AMOUNTS OF CASH IN HAND AND BANK BALANCES ( IN CURRENT, FIXED DEPOSIT AND OTHER ACCOUNTS), IF ANY, SHALL BE TAKEN OVER AT THEIR RESPECTIVE FIGURES APPEARING ON THE APPOINTED DATE IN THE BOOKS OF ACC OUNT RELATING TO TSS BUSINESS. (E) THE LIABILITIES, I.E. SECURED AND UNSECURED LOA NS AND CURRENT LIABILITIES OF TS SHALL BE CONSIDERED AT THE BOOK VALUE. (F) THE NET FIGURE SHALL BE ADDED RS.1,00,000/- AS THE GOODWILL PAYABLE BY TE TO TS. (5) IN SETTLEMENT OF ACCOUNTS BETWEEN TS AND TE, TH E AMOUNT PAYABLE BY TE TO TS WILL BE CALCULATED WITH REFERENCE TO THE V ALUES OF THE ASSETS ENUMERATED ABOVE, AS DETAILED IN CLAUSE 3 HEREOF, A FTER DEDUCTING THEREFROM THE AMOUNT OF ALL LOANS AND LIABILITIES ENUMERATED ABOVE, AS DETAILED THEREIN, AND DUE FROM TS TO OUTSIDERS AND THIRD PARTIES. TH E PRICE PAYABLE AFTER SUCH DEDUCTION IS HEREINAFTER REFERRED TO AS THE TAKE O VER PRICE. (6) IN EXCHANGE AND CONSIDERATION OF THE TAKE OVER OF THE BUSINSS AS SPECIFIED IN CLAUSE 1 HEREOF, TE SHALL CREDIT TO TH E ACCOUNT OF TS, THE TAKE OVER PRICE AS DETERMINED UNDER CLAUSE 5 HEREOF AND THE S AME SHALL THEREAFTER BE PAYABLE BY TE TO TS ON OR BEFORE THE COMPLETION OF THE ASSIGNMENT, WHICH SHALL BE WITHIN A PERIOD OF SIX MONTHS FROM THE DAT E HERE GIVEN (TIME BEING THE ESSENCE OF THE CONTRACT) THE DATE OF COMPLETION OF ASSIGNMENT BEING HEREAFTER REFERRED TO AS THE EFFECTIVE DATE. (9) TS AGREES THAT ANY BUSINESS, CONTRACTS, TRANSCT IONS ETC DONE BY TS ON OR AFTER 1.10.1993, SHALL BE ON ACCOUNT OF TE, AND TS SHALL ACT AS A TRUSTEE OF TE, TO THIS EXTENT AS DETAILED IN CLAUSE (19) BELOW . (10) UPON COMPLETION OF THE ASSIGNMENT BY DELIVERIN G POSSESSION OR OTHERWISE, TE SHALL BE ENTITLED TO THE SAID PROPERT Y IN THEIR OWN RIGHT AND SHALL BE ENTITLED TO DEAL WITH AND / OR DISPOSE OF THE SA ME IN THE MANNER THEY DESIRE WITHOUT AY REFERENCE TO TS HEREIN. (11) TE SHALL PAY ALL OUTGOING AS AND FROM 1.10.199 3 IN RESPECT OF THE SAID BUSINESS CARRIED ON BY TS AND AGREED TO BE ASSIGNED BY THIS AGREEMENT IN THAT BEHALF AND TE AGREES TO INDEMNIFY AND KEEP IND EMNIFIED TS FROM ALL ACTIONS, CLAIMS AND OR DEMANDS IN THAT BEHALF. (16) TS DECLARES THAT IT HAS ENTERED INTO SEVERAL C ONTRACTS IN CONNECTION WITH THE SAID BUSINESS OF TS AND TS FURTHER DECLARES THA T THE SAID CONTRACTS HAVE ITA NO.1406/AHD/2006 6 BEEN DULY ENTERED INTO, SIGNED AND EXECUTED BUT THE OBLIGATIONS OF EITHER PARTY UNDER THE SAID CONTRACTS HAVE BEEN EITHER NOT COMPL ETED AT ALL OR HAVE BEEN ONLY PARTLY CARRIED OUT. IT IS HEREBY EXPRESSLY AG REED AND DECLARED THAT TE SHALL CARRY OUT THE OBLIGATIONS OF TS TO BE OBSERVE D AND PERFORMED UNDER THE SAID CONTRACTS AND THAT ALL CHARGES AND OR AMOUNTS OR ANY CONSIDERATION PAYABLE OR ANY LIABILITIES ACCRUING HEREINUNDER BY OR TO TS UNDER THE SAID CONTRACTS OR ANY OF THEM SHALL BE PAYABLE OR RECEIV ABLE BY TE AS THE CASE MAY BE, AND TS SHALL HAVE NO RIGHT, TITLE, INTEREST , OBLIGATION OR CLAIM OF ANY NATURE WHATSOEVER IN OR OVER THEM OR ANY OF THEM. (19) (A) PENDING THE ASSIGNMENT AND / OR TRANSFER OF THE ASSETS HEREINABOVE WRITTEN, IF AND SO LONG AS ANY SUCH RIG HTS, SANCTIONS, PERMISSIONS, LETTERS OF INTENT, QUOTA RIGHTS, CERTI FICATES PRIVILEGES, BENEFITS, LICENCES, (INCLUDING IMPORT LICENSES, IF ANY), AGREEMENTS AND CONTRACTS ARE NOT TRANSFERRED TO THE NAME OF OR ASS IGNED TO TE ON OR BEFORE THE EFFECTIVE DATE, THEN, SAVE AND TO THE EX TENT EXPRESSLY OTHERWISE PROVIDED FOR IN THIS AGREEMENT, TS SHALL ON AND FROM THE APPOINTED DATE UPTO THE EFFECTIVE DATE CONTINUE TO HOLD SUCH RIGHTS, CERTIFICATES, PRIVILEGES, BENEFITS, LICENSES (INCLU DING IMPORT LICENSES, IF ANY), AGREEMENTS AND CONTRACTS AFORESAID AND SHALL CARRY ON AND BE DEEMED TO HAVE BEEN CARRYING ON ITS BUSINESS FOR AN D ON ACCOUNT OF AND ON BEHALF OF AND FOR THE BENEFIT OF TE AS IF TS WERE TRUSTEE OF TE FOR THE SAME. (B) ON AND FROM THE APPOINTED DATE UPTO THE EFFECT IVE DATE, TS SHALL CARRY ON ITS BUSINESS AS AFORESAID WITH UTMOST PRUD ENCE AND SHALL NOT, WITHOUT THE CONCURRENCE OF TE ALIENATE, CHARGE OR O THERWISE DEAL WITH THE SAID PROPERTIES AND ASSETS WHICH ARE THE SUBJEC T MATTER OF THIS AGREEMENT OR ANY PART THEREOF, EXCEPT IN THE ORDINA RY COURSE OF BUSINESS OR VARY THE TERMS AND CONDITIONS OF EMPLOY MENT OF THE EMPLOYEES ENGAGED IN THE SAID BUSINESS OF TS AS AFO RESAID. (C) INCOME OR PROFITS ACCRUING TO TS OR LOSSES ARI SING TO OR INCURRED BY TS FROM AND AFTER THE APPOINTED DATE UPTO THE EF FECTIVE DATE SHALL, FOR ALL PURPOSE, SUBJECT AS AFORESAID, BE TREATED A S INCOME, PROFITS OR LOSSES AS THE CASE MAY BE, OF TE. (D) TS HEREBY EXPRESSLY AGREES AND UNDERTAKES THAT IT SHALL, AT THE REQUEST OF TE EXECUTE SUCH WRITINGS OR DOCUMENTS AS MAY BE REQUIRED BY TE TO ENABLE TO ENJOY FULLY AND EFFECTUALLY THE SAID RIGHTS, SANCTIONS, PERMISSION, QUOTA RIGHTS, CERTIFICATES, PRIVILEGES, BENEFITS, LICENSES (INCLUDING IMPORT LICENSES, IF ANY), AGREEMENTS AND CONTRACTS AFORESAID. 5.1 FROM A READING OF THE AFORESAID CLAUSES OF T HE AGREEMENT, IT IS APPARENT THAT THE ASSESSEE[TS] HAD TRANSFERRED THEIR BUSINES S IN ITS ENTIRETY AS A GOING CONCERN TO THE TE WITH EFFECT FROM 1.10.1993 AND I T ALSO PROVIDES THAT THE ITA NO.1406/AHD/2006 7 ASSESSEE SHALL HAVE NO MANNER OF CLAIM OR RIGHT TO ANY OF THE SAID ASSETS. IT FURTHER PROVIDES THAT THE ASSESSEE SHALL DO ALL ACT S OR THINGS NECESSARY TO MAKE THE TRANSFER ABSOLUTE. EVIDENTLY, THE ENTIRE A SSETS OF THE ASSESSEE-FIRM WERE TRANSFERRED TO THE COMPANY AS A GOING CONCERN WITH EFFECT FROM OCTOBER 1, 1993, AND THEREAFTER, THE ASSESSEE HAD NO BUSINE SS NOR ANYTHING REMAINED WITH THE ASSESSEE TO CARRY ON ANY BUSINESS. HOWEVER , THE ASSESSEE CLAIMED THAT THE SAID FIRM CONTINUED THE BUSINESS AND RELI ED UPON A DECISION IN THE CASE OF SHAKTHI TRADING CO.(SUPRA). IT IS WELL SETT LED THAT A FIRM CANNOT EXIST WITHOUT A BUSINESS, FOR PARTNERSHIP ACCORDING TO SE CTION 4 OF THE INDIAN PARTNERSHIP ACT IS THE RELATIONSHIP BETWEEN PERSONS WHO HAVE AGREED TO SHARE THE PROFITS OF A BUSINESS CARRIED ON BY ALL O R ANY OF THEM ACTING FOR ALL. THE DECISION OF THE MADRAS HIGH COURT IN O.RM.OM.RM .PL. MUTHUKARUPPAN CHETTIAR V. CIT [1943] 11 ITR 540 IS RELEVANT IN THIS CONTEXT. THE AGREEMENT CLEARLY PROVIDED THAT THE ENTIRE BUSINESS IS TRANSF ERRED AS ON OCTOBER 1, 1993. IN THE ABOVE CIRCUMSTANCES, THERE CANNOT BE A FIRM THEREAFTER IN THE EYES OF LAW. IN THIS CONTEXT THE DECISION OF THE SUPREME CO URT IN A.L.A. FIRM V. CIT [1991] 189 ITR 285 RELIED ON BY THE AO AND THE LD. CIT(A) DESERVES CONSIDERATION. IN THAT CASE THE ASSESSEE-FIRM CARRI ED ON MONEY-LENDING BUSINESS IN MALAYA AND AS A PART OF AND INCIDENTAL THERETO, A BUSINESS IN PURCHASE AND SALE OF HOUSE PROPERTIES, GARDENS AND ESTATES. THE FIRM CLOSED ITS ACCOUNTS AS ON MARCH 13, 1961, WITH EFFECT FROM WHICH DATE THE FIRM WAS DISSOLVED. ALONG WITH THE RETURN FILED FOR THE YEAR 1961-62, THE ASSESSEE HAD PRODUCED A PROFIT AND LOSS ACCOUNT AND CERTAIN OTHE R STATEMENTS. IN THE PROFIT AND LOSS ACCOUNT A SUM OF $ 1,01,248 WAS SHOWN AS D IFFERENCE ON REVALUATION OF ESTATES, GARDENS AND HOUSE PROPERTIES. HOWEVER, THIS AMOUNT WAS DEDUCTED IN THE ADJUSTMENT MEMO FOR INCOME-TAX PURP OSES ON THE GROUND THAT IT WAS NOT ASSESSABLE TO TAX EITHER AS REVENUE OR A S CAPITAL GAINS. THIS WAS PRACTICALLY ACCEPTED IN THE ASSESSMENT. HOWEVER, IN REASSESSMENT PROCEEDINGS THIS AMOUNT WAS ADDED TO THE INCOME EAR LIER BROUGHT TO TAX TREATING THE HOUSE PROPERTIES, GARDENS AND ESTATES AS STOCK-IN-TRADE OF THE ASSESSEE. THIS WAS CONFIRMED BY THE TRIBUNAL. THE H IGH COURT UPHELD THE TRIBUNAL'S ORDER. THE SUPREME COURT OBSERVED THAT T HE DECISION OF THE MADRAS HIGH COURT IN G.R. RAMACHARI AND CO. V. CIT [1961] 41 ITR 142 SQUARELY COVERS THE SITUATION. IN THE SAID DECISION, IT WAS HELD THAT THE PRINCIPLE OF ITA NO.1406/AHD/2006 8 VALUING THE CLOSING STOCK OF A BUSINESS AT COST OR MARKET PRICE AT THE OPTION OF THE ASSESSEE IS A PRINCIPLE THAT WOULD HOLD GOOD ON LY SO LONG AS THERE IS A CONTINUING BUSINESS AND THAT WHERE A BUSINESS IS DI SCONTINUED, WHETHER ON ACCOUNT OF DISSOLUTION OR CLOSURE OR OTHERWISE BY T HE ASSESSEE, THEN THE PROFITS CANNOT BE ASCERTAINED EXCEPT BY TAKING THE CLOSING STOCK AT THE MARKET VALUE. COMPARING THE SITUATION OF A FIRM WHICH GOES INTO LIQUIDATION WHERE THE STOCK-IN-TRADE AND OTHER ASSETS OF THE BUSINESS WIL L HAVE TO BE SOLD AND THEIR VALUE REALIZED, THE HONBLE MADRAS HIGH COURT OBSER VED THAT THE POSITION IS NOT VERY DIFFERENT WHEN THE PARTNERSHIP CEASES TO E XIST IN THE COURSE OF THE ACCOUNTING YEAR. THE HONBLE COURT FURTHER OBSERVED THAT IN ORDER TO ARRIVE AT THE CORRECT PICTURE OF THE TRADING RESULTS OF THE P ARTNERSHIP ON THE DATE WHEN IT CEASES TO FUNCTION, THE VALUATION OF THE STOCK IN H AND SHOULD BE MADE ON THE BASIS OF THE PREVAILING MARKET PRICE. THE SUPREME C OURT ULTIMATELY HELD THAT THERE CAN BE NO MANNER OF DOUBT THAT, IN TAKING ACC OUNTS FOR PURPOSES OF DISSOLUTION, THE FIRM AND THE PARTNERS, BEING COMME RCIAL MEN, WOULD VALUE THE ASSETS ONLY ON A REAL BASIS AND NOT AT COST OR AT T HEIR OTHER VALUE APPEARING IN THE BOOKS. IN THE LIGHT OF VIEW TAKEN IN THE SAID D ECISION, WE ARE OF THE VIEW THAT SINCE THE ENTIRE BUSINESS OF THE FIRM TS WAS TRANSFERRED TO THE TE, THE FIRM TS CAME TO AN END AND CONSEQUENTLY THE PRINCIP LES LAID DOWN IN THE DECISION OF THE SUPREME COURT IN A.L.A. FIRM (SUPR A) APPLIED. IN VIEW THEREOF, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LOWER AUTHORITIES. 5.2 AS REGARDS RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF SAGAR TYRE HOUSE (SUPRA), IT WAS HELD THAT THE SAME BUS INESS WAS CONTINUED BY ONE OF THE EX-PARTNER AND THEREFORE, THERE WAS NO Q UESTION OF VALUATION OF CLOSING STOCK AT MARKET PRICE ON THE DATE OF DISSOL UTION OF THE FIRM. IN THE CITED CASE, BUSINESS WAS NOT TRANSFERRED AS A GOING CONCE RN TO ANOTHER FIRM . THUS , THE FACTS IN THE CITED CASE BEING ENTIRELY AT VARIA NCE WITH THE FACTS OF THE CASE UNDER CONSIDERATION, RELIANCE ON THE SAID DECISION IS MISPLACED. 5.3 AS REGARDS DECISION THE CASE OF BHIM SEN GARG VS. D CIT(SUPRA), THE JAIPUR BENCH OF THE TRIBUNAL FOUND THAT ON CONVERSI ON OF PROPRIETARY CONCERN INTO PARTNERSHIP FIRM AS A GOING CONCERN, THERE BEI NG NO CESSATION OF BUSINESS, STOCK-IN-TRADE IS TO BE VALUED AT COST OR MARKET PRICE, WHICHEVER IS ITA NO.1406/AHD/2006 9 LOWER. AS ALREADY OBSERVED, IN THE CASE UNDER CONSI DERATION, AFTER THE TRANSFER OF BUSINESS BY TS TO TE THERE WAS NO FIRM IN EXISTE NCE AND THEREFORE, THERE IS NO QUESTION OF CARRYING ON OF ANY BUSINESS. THUS, F ACTS BEING ALTOGETHER DIFFERENT , RELIANCE ON THE SAID DECISION IS ALSO M ISPLACED. 5.4 IN VIEW OF THE FOREGOING, WE DO NOT FIND ANY INFIRMITY IN THE VIEW TAKEN BY THE LD. CIT(A) THAT DECISION IN THE CASE OF SHAKTI TRADING CO.(SUPRA) WAS NOT APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERA TION AND THAT THE FACTS WERE IDENTICAL WITH THE FACTS OBTAINING IN THE DECISION IN THE CASE OF A.L.A. FIRM SUPRA).THEREFORE, GROUND NOS. 1 & 2 IN THE APPEAL A RE DISMISSED. 6. AS REGARDS ALTERNATE PLEA RAISED IN GROUND NO. 3 OF THE APPEAL THAT CORRESPONDING PURCHASE COST IN THE HANDS OF TE MAY BE INCREASED, THE ISSUE UNDER CONSIDERATION, AS EMERGING FROM THE IMPUGNED ORDER, IS AS TO WHETHER OR NOT DECISION IN THE CASE OF SHAKTI TRADING CO.( SUPRA) WAS APPLICABLE . THE ISSUE RELATING TO PURCHASE COST IN THE HANDS OF TE IS NOT BEFORE US NOR TE IS IN APPEAL BEFORE US. THEREFORE, WE REFRAIN FROM MA KING ANY OBSERVATIONS IN RELATION TO THE CASE OF TE. AS REGARDS, RELIANCE UP ON A DECISION IN THE CASE OF KWALITY STEEL SUPPLIERS VS. CIT,271 ITR 40(GUJ), IN THE SAID DECISION THE ISSUE RELATED TO THE EXERCISE OF REVISIONAL JURISDICTION UNDER SECTION 263 OF THE ACT IN HOLDING THAT THE CLOSING STOCK HAD TO BE VALUED AT MARKET PRICE ON THE BASIS OF THE RATIO OF THE DECISION OF THE SUPREME COURT I N A.L.A. FIRM [1991] 189 ITR 285 , EVEN THOUGH THE BUSINESS WAS CONTINUED AFTER THE DI SSOLUTION OF THE FIRM. SUCH ARE NOT THE FACTS IN THE CASE UNDER CONSIDERAT ION. THEREFORE, RELIANCE ON THE AFORESAID DECISION IS TOTALLY MISPLACED. IN VIE W OF THE FOREGOING, WE DO NOT FIND ANY MERIT IN GROUND NO. 3 AND IS ,ACCORDINGLY, DISMISSED. 7. GROUND NO. 5 RELATES TO CHARGING OF INTEREST U/S 234A,234B, 234C & 234D OF THE ACT. THE LD. AR ON BEHALF OF THE ASSESS EE DID NOT MAKE ANY SUBMISSIONS BEFORE US ON THIS GROUND WHILE LEVY O F INTEREST U/S 234A,234B, 234C & 234D OF THE ACT BEING MANDATORY [COMMISSIONE R OF INCOME TAX.VS ANJUM M. H. GHASWALA AND OTHERS,252 ITR 1(SC)], TH IS GROUND IS DISMISSED. ITA NO.1406/AHD/2006 10 8. GROUND NO.6 RELATES TO MERE INITIATION OF PENAL TY PROCEEDINGS, WHICH IS NOT APPEALABLE. THEREFORE, THIS GROUND IS ALSO DISM ISSED. 9. GROUND NO. 4 BEING GENERAL IN NATURE, DOES NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF THE RESIDUARY GROUND, ACCORDINGLY, THESE GROUNDS ARE D ISMISSED 10. IN THE RESULT, APPEAL IS DISMISSED. SD/- SD/- (BHAVNESH SAINI) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED :31/12/2009 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. INCOME-TAX OFFICER, WARD-2(2), BARODA 3. THE CIT(APPEALS)-II BARODA 4. THE CIT CONCERNED. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ORDER PRONOUNCED IN OPEN COURT ON 31/12 /2009