CARPET PALACE, Jaipur V. DCIT, Jaipur

ITA 365/JPR/2013

• Counselvise Citation: 36523114 RSA 2013
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 08-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Assessee Lawyers: S L PODDAR
• Keywords: Capital asset; Fair market value
• Section: 45(5); 10

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JAIPUR BENCH : JAIPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 365/JODH/2013 (A.Y. 2005-06) M/S. CARPET PALACE, VS. DCIT, CENTRAL CIRCLE-3, 42, JAGDISH COLONY, JAIPUR. RAMGARH MODI, JAIPUR. PAN NO. AAAFC 9100 B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.L. PODDAR. DEPARTMENT BY : SHRI D.C. SHARMA - D.R. DATE OF HEARING : 29/01/2014. DATE OF PRONOUNCEMENT : 13/03/2014. O R D E R PER N.K. SAINI, A.M THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 01/03/2013 OF LD. CIT (A), CENTRAL, JAIPUR. THE FO LLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE L D. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFF ICER FOR FRAMING ASSESSMENT ORDER U/S 147/148(3) OF I.T. ACT, 1961 W HICH IS VOID AB- INITIO DESERVES TO BE QUASHED. 2 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE LD . CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 9,27,520/- ON ACCOUN T OF UNDISCLOSED INCOME BY VALUING CLOSING STOCK. 3. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE LD . CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFF ICER FOR APPLYING THE PROVISIONS OF SECTION 45(4) OF THE I.T. ACT, 19 61 ON STOCK. 4. THAT THE ASSESSEE CRAVES YOUR INDULGENCE TO ADD, AMEND OR ALTER ALL OR ANY GROUNDS OF APPEAL AT THE TIME OF, OR BEFORE THE HEARING OF THE APPEAL. 2 THE GRIEVANCE OF THE ASSESSEE RELATES TO THE CONFI RMATION OF ADDITION OF RS. 9,27,520/- ON ACCOUNT OF VALUATION OF CLOSING STOCK. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING, TRADING AND EXPORT OF WO OLEN CARPETS AND WAS ASSESSED AS PARTNERSHIP FIRM UPTO THE A.Y. 2004-05. THE ASSESSEE-FIRM WAS DISSOLVED BY THE DISSOLUTION DEED EXECUTED ON 0 2/04/2004. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS PER THE P ROVISIONS OF SECTION 189(1) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT) WHERE ANY BUSINESS OR PROFESSION CARRIED OUT BY A F IRM IS DISCONTINUED OR WHERE THE FIRM IS DISCONTINUED, THEN THE ASSESSING OFFICER SHALL MAKE AN ASSESSMENT ON THE TOTAL INCOME OF THE FIRM AS IF NO SUCH DISCONTINUANCE OR DISSOLUTION HAD TAKEN PLACE. THE ASSESSING OFFI CER ALSO REFERRED TO THE PROVISIONS OF SECTION 176 OF THE ACT RELATING TO DI SCONTINUED BUSINESS AND ALSO REFERRED TO THE PROVISIONS OF SECTION 45(4) OF THE ACT, WHICH 3 PRESCRIBES THAT THE PROFIT OR GAIN ARISING FROM THE TRANSFER OF CAPITAL ASSET BY WAY OF ITS DISTRIBUTION OR DISSOLUTION OF A FIRM , SHALL BE CHARGEABLE TO TAX AS THE INCOME OF THE FIRM OF THE PREVIOUS YEAR, IN WHICH THE SAID TRANSFER TAKES PLACE AND THAT FOR THE PURPOSE OF SE CTION 48 OF THE ACT, THE FAIR MARKET VALUE OF THE ASSETS ON THE DATE OF SUCH TRANSFER, SHALL BE DEEMED TO BE FULL VALUE OF THE CONSIDERATION RECEIV ED AS A RESULT OF TRANSFER. AS PER ASSESSING OFFICER, SHRI KANHA RAM AGARWAL, WHO WAS PREVIOUSLY PARTNER IN THE FIRM HAD TAKEN OVER ALL T HE ASSETS AND LIABILITIES AFTER DISSOLUTION OF THE FIRM ON 01/04/2004 AND THE POSITION OF VARIOUS ASSETS WITH THE FIRM AS ON 01/04/1984 WAS AS UNDER: - I) BUILDING (WDV) RS. 58,653/- II) FURNITURE (WDV) RS. 16,624/- III) PLANT AND MACHINERY (WDV) RS. 5,70,134/- IV) CLOSING OF STOCK OF FINISH GOODS RS. 39,42,87 3/- V) RAW MATERIAL RS. 54,06,843/- THE VALUATION OF THE ABOVE ASSETS WAS BASED ON BOOK VALUE AND NOT ON MARKET RATE. THE ASSESSING OFFICER ASKED THE AS SESSEE TO SHOW-CAUSE AS TO WHY THE CAPITAL GAIN SHOULD NOT BE LEVIED UND ER SECTION 45(4) OF THE ACT ON DISSOLUTION OF THE FIRM ON 01/04/2004 BY VAL UATING THE ASSET AND CLOSING STOCK AT THE MARKET RATE AS HELD BY THE HON 'BLE SUPREME COURT IN 4 THE CASE OF M/S. ALA FIRM VS. CIT REPORTED IN 189 I TR 285. THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF SECTION 45(4) OF T HE ACT ARE APPLICABLE ONLY IN RESPECT OF TRANSFER AND DISTRIBUTION OF COM PLETE ASSETS AND NOT ON TRANSFER OF FINISHED GOODS AND RAW MATERIAL. IT WA S STATED THAT THE DEFINITION OF CAPITAL ASSETS UNDER SECTION 2(14)(I) OF THE ACT EXCLUDES THE STOCK IN TRADE AND CONSUMABLE STORES HELD FOR THE P URPOSES OF BUSINESS. IT WAS ALSO STATED THAT IN THE CASE OF ASSESSEE, THERE WAS NO RE-VALUATION, NO DISTRIBUTION OF ASSETS, NO CESSATION OF BUSINESS , NO SEPARATE BUSINESS WAS STARTED AND THE BUSINESS OF THE ASSESSEE-FIRM W AS CONTINUED. THEREFORE, THE FACTS OF THE CASE OF M/S. ALA FIRM V S. CIT (SUPRA) WERE NOT APPLICABLE ON THE CLOSING STOCK UNLESS THERE WAS TR ANSFER OF ASSETS/ DISTRIBUTION OF ASSETS ON DISSOLUTION OF FIRM AND C ESSATION OF BUSINESS. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- 1. M/S. SHAKTI TRADING CO. VS. CIT 250 ITR 871 (SC) 2. CIT VS. VIJAY METAL INDUSTRIES 256 ITR 540 (MAD.) THE ASSESSING OFFICER DID NOT FIND MERIT IN THE SUB MISSIONS OF THE ASSESSEE AND CAME TO THE CONCLUSION THAT WHEN ONE O F THE OUTGOING PARTNER ACQUIRED THE BUSINESS FOR ITS CONTINUATION IN HIS INDIVIDUAL CAPACITY, IT WILL AFFECT THE STATUS OF THE FIRM AND THE REAL RIGHT OF THE PARTNERS COULD NOT BE MUTUALLY ADJUSTED ON ANY OTHE R BASIS. THEREFORE, 5 THE SETTLEMENT OF HIS ACCOUNT MUST NOT BE ON NOTION AL BASIS, BUT ON A REAL BASIS AND THE VALUATION OF CLOSING STOCK HAS TO BE MADE AT MARKET RATE. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- 1. POPULAR WORKSHOPS VS. CIT 166 ITR 348 (KER) 2. LENSES CENTRE VS. ITO (ITAT, HYD-SB) 60 ITD 11 3. POPULAR AUTOMOBILES VS. CIT 179 ITR 632 (KER) 4. CIT VS. NATHULAL JAWAHARDCHAND 277 ITR 251 (MP) THE ASSESSING OFFICER, HOWEVER, ACCEPTED THE VALUE OF THE FURNITURE, PLANT & MACHINERY AT WRITTEN DOWN VALUE DECLARED BY THE ASSESSEE. HE ALSO ACCEPTED THE VALUATION OF BUILDI NG AT BOOK VALUE, BUT DID NOT ACCEPT THE VALUATION OF THE CLOSING STOCK S HOWN BY THE ASSESSEE AND DETERMINED THE VALUE AT MARKET RATE. ACCORDING LY, DIFFERENCE OF VALUATION OF FINISHED GOODS AT RS. 6,58,722/- AND R AW MATERIAL AT RS. 2,68,797/-, TOTALING TO RS. 9,27,519/- WAS ADDE D TO THE INCOME OF THE ASSESSEE. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER:- M/S CARPET PALACE WAS A PARTNERSHIP FIRM TILL 31.0 3.2004. WITH EFFECT FROM 01.04.04 THE FIRM WAS DISSOLVED AND THE RUNNIN G BUSINESS WAS TAKEN 6 OVER BY ONE OF THE PARTNERS SHRI KANHA RAM AGARWAL. IN THE VIEW OF THE LEARNED ASSESSING OFFICER ON DISSOLUTION OF FIRM TH E STOCK OF THE FIRM SHOULD HAVE BEEN TRANSFERRED TO SHRI KANHA RAM AGARWAL AT MARKET PRICE IN PLACE OF BOOK PRICE. ACCORDINGLY THE LEARNED ASSESSING OF FICER HAS ASSESSED THE DIFFERENCE BETWEEN THE MARKET PRICE AND THE BOOK PR ICE OF THE STOCK BEING 9,27,520/- AS INCOME IN THE HANDS OF THE FIRM. WHIL E DOING SO THE LEARNED ASSESSING OFFICER HAS WRONGLY APPLIED THE PROVISION S OF SECTION 45(4) UNDER A MISTAKEN NOTION AND HAS ALSO WRONGLY APPLIED THE RATIO OF THE SUPREME COURT DECISION IN THE CASE OF ALA FIRM VS. CIT (199 1) 189 ITR 285 (DATED 21.02.1991) DISREGARDING THE LATER DECISION OF THE SUPREME COURT IN THE CASE OF SAKTHI TRADING CO. VS. CIT (2001) 250 ITR 8 71 (DATED 02.08.2001). 2. PROVISIONS OF SECTION 45(4) ARE NOT APPLI CABLE - THE LEARNED ASSESSING OFFICER HAVE APPLIED THE PROV ISIONS OF SECTION 45(4) AND HAVE CALCULATED MARKET PRICE OF FINISHED GOODS AND RAW MATERIAL AND THE DIFFERENCE WITH REFERENCE TO BOOK VALUE OF THES E STOCKS BEING 9,27,519/- HAS BEEN ADDED TO THE INCOME OF THE ASSE SSEE. IT WAS SUBMITTED BEFORE THE LEARNED ASSESSING OFFICER THAT THE PROVI SIONS OF SECTION 45(4) ARE NOT APPLICABLE TO THE FACTS OF THE CASE. IT IS SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS BY WAY OF FILING L ETTERS ON 12.06.2009 & 16.12.2009 THAT PROVISIONS OF SECTION 45(4) ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. COPIES OF THESE LETTERS ARE AVAILA BLE ON PAPER BOOK PAGE NO. 5 TO 12. IN THE ABOVE REGARD THE ASSESSEE HUMBLY SUBMITS THA T THE PROVISIONS OF SECTION 45(4) ARE NOT APPLICABLE. THE PROVISION OF SECTION 45(4) ARE QUOTED BELOW - SECTION 45(4) 'THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON THE DISSOLUTION OF A FIRM OR OTHER ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS (NOT BEING A COMPANY OR A CO- OPERATIVE SOCIETY) OR OTHERWISE, SHALL BE CHARGEABL E TO TAX AS THE INCOME OF THE FIRM, ASSOCIATION OR BODY, OF THE PREVIOUS YEAR IN WHICH THE SAID 7 TRANSFER TAKES PLACE AND, FOR THE PURPOSES OF SECTI ON 48, THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH TRANSFER SHA LL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUIN G AS A RESULT OF THE TRANSFER.' THE PROVISIONS OF SECTION 45(4) SPELL OUT THE FOLLOWING CONDITIONS FOR THEIR APPLICABILITY SR. NO. CONDITIONS OF THE PROVISIONS HOW NOT APPLICABLE TO THE FACTS OF THE 1 TRANSFER THE PROVISIONS OF SECTION 45(4) REQUIRE TRANSFER OF A CAPITAL ASSET. HOWEVER THE DEFINITION OF TRANSFER U/S 2(47) DOES NOT INCLUDE THE ABOVE TRANSACTIONS AS TRANSFER. 2 CAPITAL ASSET THE DEFINITION OF CAPITAL ASSET U/S 2(14)(I) IS AS UNDER AND DOES NOT INCLUDE STOCK IN TRADE AS CAPITAL ASSET- CAPITAL ASSET' MEANS PROPERTY OF ANY KIND HELD BY AN ASSESSEE WHETHER OR NO CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE -(I) ANY STOCK-IN- TRADE, CONSUMABLE STORES, RAW MATERIALS HE LD FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION.' 3 DISTRIBUTION THE PROVISIONS OF SECTION 45(4) REQUIRED DISTRIBUTION OF CAPITAL ASSET. IN THE CASE OF THE ASSESSEE THERE WAS NO DISTRIBUTION OF CAPITAL ASSET S BETWEEN THE PARTNERS. THE ENTIRE RUNNING BUSINESS WAS TAKEN OVER BY SHRI KANHA RAM AGARWAL. HENCE PROVISIONS WERE NOT APPLIED. 4 DISSOLUTION EXCEPT THIS CONDITION NO OTHER CONDITIONS ARE FULFILLED IN THE CASE OF THE ASSESSEE. 8 IN VIEW OF THE ABOVE IT IS SUBMITTED THAT THE LEARN ED ASSESSING OFFICER WAS NOT JUSTIFIED IN APPLYING THE PROVISIONS OF SECTION 45(5) TO THE FACTS OF THE CASE. HENCE THE ADDITION MADE DESERVES TO BE DELETE D. IT WAS FURTHER STATED THAT THE DECISIONS RELIED ON BY THE ASSESSING OFFICER IN THE CASE OF ALA FIRM VS. CIT (SUPRA) HAS BEEN OVERRULED BY THE HON'BLE SUPREME COURT IN THE CASE OF SAKTHI TRADING CO. VS. CIT (2001) 250 ITR 871. IT WAS FURTHER STATED THAT THE DEFINI TION OF WORD TRANSFER IN SECTION 2(47) DOES NOT COVER THE CASE OF DISSOLU TION OF THE FIRM AND THAT THE PROVISIONS OF SECTION 45(4) OF THE ACT WER E NOT APPLICABLE ON THE VALUATION OF THE CLOSING STOCK BECAUSE THE BUSINESS CONTINUED AND WAS TAKEN OVER BY ONE OF THE PARTNERS. THE LD. CIT(A) D ID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND CONFIRMED THE A CTION OF THE ASSESSING OFFICER BY OBSERVING AS UNDER:- ON CAREFUL CONSIDERATION OF ALL RELEVANT FACT IT MA Y BE NOTED THAT THE FIRM WAS 'ORIGINALLY CONSISTED OF TWO PARTNERS AND W.E.F. 1.4.2004 WHEN ONE PARTNER HAS WITHDRAWN FROM THE FIRM, THE FIRM WAS DISSOLVED AND THE BUSINESS OF FIRM WAS TAKEN OVER BY THE REMAINING ON E PARTNER SH. KANHARAM AGARWAL. WITH SUCH DISSOLUTION OF FIRM THE BUSINESS OF THE APPELLANT FIRM HAVE DEFINITELY DISCONTINUED IN AS MUCH AS THE SUBS EQUENT BUSINESS HAS NOT BEEN CARRIED BY THE PARTNERSHIP FIRM BUT BY THE IND IVIDUAL NAMELY SH. KANHARAM AGARWAL IN THE STATUS OF AS PROPRIETORSHIP . THEREFORE THERE IS MERIT IN THE CONTENTION OF THE AO THAT WITH THE DIS SOLUTION OF FIRM W.E.F. 1.4.2004 THERE WAS DISCONTINUANCE OF BUSINESS AND T HEREFORE THE CASE OF THE APPELLANT IS MORE SIMILAR TO THE FACTS AND CIRCUMST ANCES IN THE CASE OF ALA FIRM VS. CIT (1991) 189 ITR 285. IT MAY FURTHER BE MENTIONED THAT THERE IS NO 9 DISPUTE ON THE FACT THAT WHEN THERE IS DISSOLUTION OF THE FIRM AS PER THE PROVISIONS OF SEC. 189(1), THE ASSESSMENT OF THE TO TAL INCOME IS TO BE MADE IN THE CASE OF FIRM AS IF NO SUCH DISCONTINUANCE OR DISSOLUTION HAS TAKEN PLACE. AS REGARDS THE MAIN CONTENTION OF THE APPELL ANT THAT THE FACTS AND CIRCUMSTANCES OF THIS CASE ARE SIMILAR TO THE CASE OF M/S SAKHTI TRADING CO. VS. CIT (2001) 259 ITR 871, IT MAY BE STATED THAT S UCH CONTENTION IS DEVOID OF ANY MERIT IN AS MUCH AS IN THIS CASE THE FIRM WAS H AVING NUMBER OF PARTNERS AND WITH THE WITHDRAWAL OF ONE PARTNER FROM THE FIR M THE REMAINING PARTNERS HAVE CARRIED OUT THE SAME BUSINESS AND ACC ORDINGLY THE PARTNERSHIP HAVE ITSELF CONTINUED THE SAME BUSINESS . THE ESSENTIAL DIFFERENCE IS THAT IN THE CASE OF SAKHTI TRADING CO . THE BUSINESS HAS BEEN CARRIED BY THE PARTNERSHIP FIRM ITSELF WHEREAS IN T HE CASE OF THE APPELLANT, WITH A DISSOLUTION OF FIRM THE SUBSEQUENT BUSINESS HAS NOT BEEN CARRIED OUT BY THE PARTNERSHIP BUT BY A PROPRIETOR AND AN INDIV IDUAL. IN THIS BACKGROUND NO FAULT CAN BE ATTRIBUTED TO THE FINDING OF THE AO FOR TAXING THE DIFFERENCE IN VALUE OF STOCK BY ADOPTING MARKET VALUE BY FOLLO WING THE DECISION OF HON. SUPREME COURT IN THE CASE OF ALA FIRM VS. CIT SUPRA . THE ACTION OF THE AO/ ADDITION MADE BY THE AO AMOUNTING TO RS. 927520/- I S CONFIRMED. NOW THE ASSESSEE IS IN APPEAL. 5. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE S UBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN APPLYING THE PROVISION S OF SECTION 45(4) OF THE ACT BECAUSE FIRSTLY THERE WAS NO TRANSFER INVOLVED IN THE CASE OF THE ASSESSEE OF ANY ASSETS AS PER THE PROVISIONS OF SEC TION 2(47) OF THE ACT; SECONDLY, NO CAPITAL ASSET HAS BEEN TRANSFERRED AS THE STOCK IN TRADE IS NOT COVERED IN THE DEFINITION OF CAPITAL AS PER THE PROVISIONS OF SECTION 10 2(14)(I) OF THE ACT; THIRDLY IN THE CASE OF ASSESSE E THERE WAS NO DISTRIBUTION OF ASSETS AS THE ENTIRE RUNNING BUSINE SS WAS TAKEN OVER BY ONE OF THE PARTNER SHRI KANHA RAM AGARWAL; LASTLY THE B USINESS HAS NOT DISCONTINUED IN THE CASE OF ASSESSEE. THEREFORE, T HE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT( A) DESERVES TO BE DELETED. RELIANCE WAS PLACED ON THE DECISION OF TH E HON'BLE SUPREME COURT IN THE CASE OF SAKTHI TRADING CO. VS. CIT (2001) 250 ITR 871 . 6 . IN HIS RIVAL SUBMISSIONS, LEARNED D.R. STRONGLY S UPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT UP TO THE A.Y. 20 04-05, ASSESSMENT WAS FRAMED IN THE NAME OF THE FIRM. HOWEVER, ON 01/04/ 2004, THE PARTNERSHIP FIRM WAS DISSOLVED AND ALL THE ASSETS A ND LIABILITIES OF THE RUNNING BUSINESS WERE TAKEN OVER BY ONE OF THE PART NERS NAMELY SHRI KANHA RAM AGARWAL, BUT THE SAME BUSINESS REMAINED C ONTINUED. IN THE PRESENT CASE, THE ASSESSING OFFICER ACCEPTED THE VA LUATION OF ALL THE ASSETS EXCEPT THE VALUATION OF CLOSING STOCK OF FIN ISHED GOODS AND RAW MATERIAL WHICH WAS VALUED AT MARKET RATE. THE ASSE SSING OFFICER RELIED 11 ON A DECISION OF THE HON'BLE SUPREME COURT IN THE C ASE OF ALA FIRM VS. CIT (1991) 189 ITR 285. HOWEVER, THE SAID DECISION WAS DISTINGUISHED BY THE HON'BLE SUPREME COURT IN THE LATER DECISION DAT ED 02/08/2001 IN THE CASE OF M/S. SAKTHI TRADING CO. VS. CIT (2001) 250 ITR 871 (SUPRA) WHEREIN, BY REVERSING THE DECISION OF THE HON'BLE M ADRAS HIGH COURT, IT HAS BEEN HELD AS UNDER:- THAT SINCE THERE WAS NO CESSATION OF BUSINESS , TH E CLOSING STOCK HAD TO BE VALUED AT COST OR MARKET PRICE, WHICHEVER WAS LO WER. IT IS AN ESTABLISHED RULE OF COMMERCIAL PRACTICE AND ACCOUNTANCY THAT WHERE THERE IS NO DISCONTINUANCE OF BUSINESS T HE CLOSING STOCK IS TO BE VALUED AT COST OR MARKET PRICE, WHICHEVER IS LOW ER. IN THE PRESENT CASE ALSO, THERE WAS NO DISCONTINUA NCE OF BUSINESS AND NO OTHER BUSINESS WAS STARTED WITH THE ASSETS A ND LIABILITIES WHICH WERE LEFT BY THE RETIRING PARTNERS AND THE ASSETS A ND LIABILITIES WERE TAKEN OVER BY ONE OF THE CONTINUING PARTNER. THE ASSESSI NG OFFICER HIMSELF ACCEPTED THE VALUATION OF FURNITURE, PLANT & MACHIN ERY, BUILDING AS DISCLOSED IN THE BOOKS OF ACCOUNTS, HOWEVER, HE DID NOT ACCEPT THE VALUATION OF CLOSING STOCK AND MADE THE ADDITION IN SPITE OF THE FACT THAT THERE WAS NO CESSATION OF BUSINESS. THEREFORE, AS P ER THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE AFORESAID REFER RED TO CASE, THE CLOSING STOCK COULD NOT BE DIRECTED TO BE VALUED AT THE MARKET VALUE. 12 ACCORDINGLY, THE ADDITION MADE BY THE ASSESSING OFF ICER AND SUSTAINED BY THE LD. CIT(A) IS DELETED. 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. (ORDER PRONOUNCED IN THE COURT ON 13 TH MARCH, 2014). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH MARCH, 2014. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JAIPUR.