ITO - 20(3)(3), MUMBAI v. M/s. SUMANGAL INTERNATIONAL, MUMBAI

ITA 859/MUM/2008 | 2004-2005
Pronouncement Date: 29-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 85919914 RSA 2008
Assessee PAN AAKFS5783L
Bench Mumbai
Appeal Number ITA 859/MUM/2008
Duration Of Justice 3 year(s) 5 month(s) 22 day(s)
Appellant ITO - 20(3)(3), MUMBAI
Respondent M/s. SUMANGAL INTERNATIONAL, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 29-07-2011
Date Of Final Hearing 26-05-2011
Next Hearing Date 26-05-2011
Assessment Year 2004-2005
Appeal Filed On 07-02-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI P.M.JAGTAP ACCOUNTANT MEMBER & SHRI V.DURGA RAO JUDICIAL MEMBER. I.T.A. NO. 859/MUM/2008. ASSESSMENT YEAR : 2004-05 THE INCOME-TAX OFFICER M/S SUMANGAL INTERNATIONAL 20(3)(3) MUMBAI. VS. 201 SANJAY BUILDING NO.3 MITTAL ESTATE ANDHERI KURLA ROAD ANDHERI (EAST ) MUMBAI. PAN AAKFS5783L APPELLANT. RESPONDENT. APPELLANT BY : SHRI B. JAYA KUMAR. RESPONDENT BY : DR. SHIVRAM AND SHRI PARAS S. SALVA. DATE OF HEARING : 23-05-2011. DATE OF PRONOUNCEMENT : 29-07- 2011 O R D E R. PER P.M. JAGTAP A.M. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LEARNED CIT(APPEALS)-32. MUMBAI DATED 31-10-2007. 2. IN GROUND NO.1 THE REVENUE HAS CHALLENGED THE A CTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION OF RS.4 92 00 0/- MADE BY THE AO ON ACCOUNT OF DIFFERENCE IN THE VALUE OF CONSIDERATION RECEIVE D BY THE ASSESSEE FIRM FROM THE COMPANY AND THE WRITTEN DOWN VALUE OF THE ASSETS SO LD. 2 ITA NO. 859/MUM/2008 ASSTT. YEAR : 2004-05. 3. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHI P FIRM WHICH WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORTING OF TEXT ILE AND FABRICS. THE ASSESSEE FIRM WAS DISSOLVED ON 31-12-2003 AND ALL ITS ASSETS AND LIABILITIES WERE TAKEN OVER BY M/S SUMANGAL SILK MILLS P. LTD. (SSMPL IN SHORT) AS A GOING CONCERN. THE BUSINESS OF THE ASSESSEE FIRM WAS ALSO TAKEN OVER B Y THE SAID COMPANY AND CONTINUED WITH EFFECT FROM 01-01-2004. THE RETURN O F INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY THE ASSESSEE ON 01-11-20 04 DECLARING TOTAL INCOME OF RS.14 36 800/- FOR THE PERIOD ENDED ON 31-12-2003. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT SSMPL W AS INDUCTED AS A PARTNER IN THE ASSESSEE FIRM ON 01-04-2003 WITH 55% SHARE OF P ROFIT. SUBSEQUENTLY THE PARTNERSHIP FIRM WAS DISSOLVED ON 31-12-2003 AND IT S BUSINESS AS WELL AS ALL THE ASSETS AND LIABILITIES WERE TAKEN OVER BY SSMPL AS A GOING CONCERN. THE ASSESSEE WAS CALLED UPON BY THE AO TO FURNISH THE DETAILS OF CONSIDERATION RECEIVED ON SUCH TAKING OVER OF ITS ASSETS BY SSMPL ALONG WITH ITS B USINESS WITH EFFECT FROM 01-01- 2004. IT WAS SUBMITTED BY THE ASSESSEE THAT THE AMO UNTS APPEARING IN THE CAPITAL ACCOUNT OF THE PARTNERS WERE TREATED AS THEIR LOANS BY THE COMPANY IN THE CAPACITY OF DIRECTORS AND SHARE HOLDERS. IT WAS FURTHER SUBM ITTED THAT THERE WERE NO IMMOVABLE PROPERTIES BELONGING TO THE ERSTWHILE FIR M ON THE DATE OF DISSOLUTION AND ALL THE ASSETS AND LIABILITIES WERE TAKEN OVER BY SSMPL AT BOOK VALUE. 4. AFTER HAVING CONSIDERED THE SUBMISSION MADE ON B EHALF OF THE ASSESSEE AND THE FACTS BORNE OUT FROM RECORD THE AO REQUIRED TH E ASSESSEE TO SHOW CAUSE AS TO WHY THE TAKING OVER OF ASSETS AND LIABILITIES OF TH E ERSTWHILE FIRM BY SSMPL SHOULD NOT BE TREATED AS SALE OF THE BUSINESS AND THE PROF IT ARISING FROM SUCH SALE SHOULD NOT BE BROUGHT TO TAX AS CAPITAL GAIN. IN REPLY IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE FIRM THAT THERE WAS NO TRANSFER OF ANY ASS ETS ON THE TAKING OVER OF THE CAPITAL ASSETS OF THE ERSTWHILE PARTNERSHIP FIRM BY SSMPL AS PER THE PROVISIONS OF 3 ITA NO. 859/MUM/2008 ASSTT. YEAR : 2004-05. SECTION 47(XIII) SINCE THE CONDITIONS STIPULATED TH EREIN WERE FULLY SATISFIED IN ITS CASE. ON EXAMINATION OF THE FACTS OF THE CASE INCLU DING THE TERMS AND CONDITIONS OF THE TAKEOVER THE AO FOUND THAT THE CONDITIONS STIP ULATED IN SECTION 47(XIII) WERE NOT SATISFIED IN THE CASE OF THE ASSESSEE AND ACCOR DINGLY HE HELD THAT THERE WAS A TRANSFER OF FIXED ASSETS OF THE ASSETS BELONGING TO THE ASSESSEE FIRM TO SSMPL AND THE PROFIT ARISING FROM SUCH TRANSFER WAS CHARGEABL E IN ITS HANDS AS LONG TERM CAPITAL GAIN. IN THIS REGARD HE FOUND THAT SSMPL HA D BOOKED AN AMOUNT OF RS.84 17 441/- AS THE COST OF ASSETS ACQUIRED FROM THE ASSESSEE FIRM IN ITS BOOKS OF ACCOUNT WHEREAS THE WRITTEN DOWN VALUE OF THE SAID ASSETS ON THE DATE OF DISSOLUTION AS PER THE BOOKS OF THE ASSESSEE FIRM W AS RS.79 25 441/-. THE DIFFERENCE OF RS.4 92 000/- THEREFORE WAS TREATED BY HIM AS LONG TERM CAPITAL GAIN CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE FIRM ON TRANSFER OF FIXED ASSETS. 5. THE MATTER WAS CARRIED BEFORE THE LEARNED CIT(AP PEALS) AND IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE HIM THAT THE AO HAD NOT ADOPTED A PROPER PROCEDURE TO DETERMINE THE FAIR MARKET VALUE OF THE CAPITAL ASSETS ON THE DATE OF TRANSFER. IT WAS SUBMITTED THAT WHAT THE AO HAD DONE WAS TO TAKE THE FIGURE OF GROSS VALUE OF FIXED ASSETS FROM THE BALANCE SHEET AS FAIR MARKET VALUE WHICH WAS NOT CORRECT. IT WAS CONTENDED THAT THE ADDITION OF RS.4 92 000/- MADE BY THE AO BY TAKING SUCH GROSS VALUE OF ASSETS AS FAIR MARKET VA LUE THUS WAS NOT CORRECT. THE LEARNED CIT(APPEALS) FOUND MERIT IN THIS SUBMISSION OF THE ASSESSEE. ACCORDINGLY HE DELETED THE ADDITION OF RS.4 92 000/- MADE BY TH E AO AND DIRECTED THE AO TO RECOMPUTE THE CAPITAL GAIN IF ANY ON TRANSFER OF FIXED ASSETS BY THE ASSESSEE FIRM TO SSMPL AFTER DETERMINING THEIR FAIR MARKET VALUE ON THE DATE OF TRANSFER BY ADOPTING PROPER PROCEDURE. 4 ITA NO. 859/MUM/2008 ASSTT. YEAR : 2004-05. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS RIGHTLY HELD BY THE LEARNED CIT(APPEALS) THE ACTION OF THE AO IN ADOPTING THE GROSS VALUE OF FIXED ASSETS AS T HEIR FAIR MARKET VALUE ON THE DATE OF TRANSFER FOR COMPUTING CAPITAL GAIN WAS NOT CORR ECT AND THIS POSITION HAS NOT BEEN DISPUTED BY THE LEARNED DR AT THE TIME OF HEAR ING BEFORE US. IN ORDER TO DETERMINE THE FAIR MARKET VALUE OF THE RELEVANT FIX ED ASSETS ON THE DATE OF TRANSFER FOR THE PURPOSE OF COMPUTING CAPITAL GAIN A PROPER PROCEDURE AS LAID DOWN IN THE RELEVANT PROVISIONS OF THE ACT HAS TO BE FOLLOWED/A DOPTED AND IN OUR OPINION THE LEARNED CIT(APPEALS) WAS FULLY JUSTIFIED IN DIRECTI NG THE AO TO RECOMPUTE THE CAPITAL GAIN AFTER FOLLOWING SUCH PROCEDURE. THE IM PUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE THUS DOES NOT SUFFER FRO M ANY INFIRMITY AND UPHOLDING THE SAME WE DISMISS GROUND NO.1 OF THE REVENUES APPEAL. 7. IN GROUND NO.2 THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION OF RS.2 17 30 164/- MADE BY THE AO ON ACCOUNT OF FAIR MARKET VALUE OF THE CLOSING SOCK OF THE ASSESSEE FIRM TAKEN OVER BY SSMPL AS ON THE DATE OF DISSOLUTION. 8. AS ALREADY NOTED WHILE DEALING WITH THE ISSUE IN VOLVED IN GROUND NO.1 THE BUSINESS OF THE ASSESSEE FIRM WAS TAKEN OVER BY SSM PL ALONG WITH ALL ITS ASSETS AND LIABILITIES INCLUDING STOCK IN TRADE AS A GOING CONCERN. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT STOCK I N TRADE OF THE ASSESSEE FIRM WAS TAKEN OVER BY SSMPL AT COST OF RS.1 77 94 895/ -. ACCORDING TO HIM THE SAID STOCK SHOULD HAVE BEEN TRANSFERRED BY THE ASSESSEE FIRM TO SSMPL ON ITS DISSOLUTION AT MARKET PRICE AND NOT AT ITS COST. IN THIS REGARD HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF A. L.A. FIRM VS. CIT REPORTED IN 93 CTR 133 TO HOLD THAT THE VALUATION OF STOCK IN TRADE TRANSFERRED BY THE ASSESSEE 5 ITA NO. 859/MUM/2008 ASSTT. YEAR : 2004-05. FIRM TO SSMPL ON THE DATE OF DISSOLUTION SHOULD HAV E BEEN MADE ON THE BASIS OF ITS MARKET VALUE. ACCORDINGLY THE MARKET VALUE OF THE S TOCK IN TRADE ON THE DATE OF DISSOLUTION WAS WORKED OUT BY HIM AT RS.2 17 30 163 /- AND THIS ENTIRE AMOUNT WAS ADDED BY HIM TO THE TOTAL INCOME OF THE ASSESSEE FI RM AS ITS BUSINESS INCOME U/S 28(IV). HE DECLINED TO ENTERTAIN EVEN THE ALTERNATI VE PLEA OF THE ASSESSEE THAT THE ADDITION IF ANY ON ACCOUNT OF THIS ISSUE COULD BE MADE ONLY TO THE EXTENT OF DIFFERENCE BETWEEN RS.2 17 30 163/- BEING MARKET VA LUE OF THE STOCK IN TRADE AND RS.1 77 94 895/- AT WHICH THE STOCK WAS TRANSFERRED TO SSMPL ON THE DATE OF DISSOLUTION ON THE GROUND THAT THE AMOUNT OF RS.1 7 7 94 895/- BEING COST OF STOCK TRANSFERRED HAD ALREADY BEEN DEBITED IN THE BOOKS O F THE ASSESSEE FIRM. 9. THE ADDITION MADE BY THE AO ON ACCOUNT OF FAIR M ARKET VALUE OF CLOSING STOCK AS ON THE DATE OF TRANSFER WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED BEFORE THE LEARNED CIT(APPEALS) AND THE FOLLOWING S UBMISSION WAS MADE ON ITS BEHALF TO SUPPORT AND SUBSTANTIATE THE CASE THAT TH E SAID ADDITION MADE BY THE AO IS NOT SUSTAINABLE : (I) THE INVENTORIES HAVE BEEN VALUED AS PER THE REC OGNIZED PRINCIPLES OF VALUATION WHICH ARE IN ACCORDANCE WITH THE ACCOUNT ING STANDARDS IN THIS REGARD. (II) THE APPELLANT HAS BEEN CONSISTENTLY FOLLOWING THE SAME METHOD OVER THE YEARS AND THERE IS NO DEVIATION. (III) THE BUSINESS OF THE APPELLANT HAS BEEN TAKEN OVER BY THE COMPANY AS GOING CONCERN. THUS THERE IS NO CLOSURE OF BUSINESS THE BUSINESS CONTINUES IN THE HANDS OF THE COMPANY. (IV) THERE IS NO REQUIREMENT UNDER THE INCOME TAX A CT TO DETERMINE THE FAIR MARKET VALUE OF STOCK IN TRADE. (V) NEITHER SECTION 50B NOR SECTION 45(4) REQUIRES DETERMINATION OF FAIR MARKET VALUE OF INVENTORIES OF STOCK IN TRADE. 6 ITA NO. 859/MUM/2008 ASSTT. YEAR : 2004-05. (VI) SECTION 45(4) REQUIRES DETERMINATION OF FAIR M ARKET VALUE OF CAPITAL ASSETS. SECTION 2(14) SPECIFICALLY EXCLUDES STOCK IN TRADE FROM THE DEFINITION OF CAPITAL ASSETS. (VII) THE DECISIONS IN THE CASES OF G.R. RAMACHARI & CO. V/S CIT (1961) 41 ITR 142 (MAD) AND ALA FIRM V/S CIT (1991) 93 CT R 133 (SC) CITED BY THE A.O. DO NOT HAVE ANY BEARING IN THE FA CTS AND CIRCUMSTANCES OF THE CASE. (VIII) IN FACT IN KWALITY STEEL SUPPLIERS V/S CIT (2001) 271 ITR 40 (GUJ) ALSO CITED BY THE A.O. THE HONBLE HIGH COURT HAS CLEARLY HELD THAT IN CASE OF DISSOLUTION OF FIRM IF BUSINESS IS CONTINU ED BY OTHER PARTNERS THE VALUATION OF CLOSING STOCK CAN BE DONE AT COST. (IX) THIS IS NOT A CASE WHERE THE INVENTORIES OF ST OCK IN TRADE HAVE BEEN DISTRIBUTED AMONG THE PARTNERS OR TAKEN OVER BY THE PARTNERS AS CAPITAL ASSETS. (X) IN THE FACTS OF THE CASE THE STOCK IN TRADE IN THE HANDS OF FIRM REMAINS STOCK IN TRADE IN THE HANDS OF THE COMPANY. WHATEVE R IS THE COST IN THE HANDS OF THE COMPANY THE SAME SHALL BE THE PRICE IN THE HANDS OF THE FIRM OR VICE-VERSA. (A COPY OF PROFIT & LOSS A/C AN D BALANCE SHEET OF THE COMPANY AS WELL AS OF THE FIRM IS ALREADY AVAIL ABLE ON RECORDS. 10. THE LEARNED CIT(APPEALS) FOUND MERIT IN THE SUB MISSION MADE ON BEHALF OF THE ASSESSEE ON THIS ISSUE AND DELETED THE ADDITION MADE BY THE AO ON ACCOUNT OF FAIR MARKET VALUE OF STOCK ON THE DATE OF DISSOLUTI ON FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 14.4 OF HIS IMPUGNED ORDER : I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE A.R. OF APPELLANT. I HAVE ALSO VERY CAREFULLY GONE THROUGH THE REASONING AND WORKING GIVEN BY THE A.O. IN PARA 5.23 TO 5.33 (PAGE 20 TO 26) OF THE ASSESSMENT ORDER. AND AFTER CONSIDERING THE PROVISIONS OF SECT ION 45(4) SECTION 2(14) AND SECTION 145A I HAVE NO HESITATION IN SAYING TH AT THERE WAS NO NEED TO DISTURB THE VALUATION OF STOCK IN TRADE. THE ENTIRE EXERCISE IS FUTILE ON THE PART OF THE A.O. THE ADDITION ON THIS ACCOUNT OF RS.2 17 30 164/- MADE TO THE BUSINESS INCOME OF THE APPELLANT IS HEREBY DELETED . 7 ITA NO. 859/MUM/2008 ASSTT. YEAR : 2004-05. 11. THE LEARNED DR SUBMITTED THAT WHEN THE ASSESSEE FIRM WAS DISSOLVED AND ALL ITS ASSETS AND LIABILITIES INCLUDING STOCK IN TRADE WERE TAKEN BY SSMPL THE MARKET VALUE OF THE ASSETS INCLUDING STOCK IN TRADE SHOULD HAVE BEEN ADOPTED FOR THE PURPOSE OF TRANSFER. HE SUBMITTED THAT THE STOCK IN TRADE AS ON THE DATE OF DISSOLUTION HOWEVER WAS TAKEN OVER BY SSMPL AT CO ST ONLY WHICH WAS NOT CORRECT AS HELD BY THE AO RELYING ON THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF A.L.A. FIRM (SUPRA). HE CONTENDED THAT THE MARKET V ALUE OF STOCK TRANSFERRED BY THE ASSESSEE FIRM TO SSMPL ON THE DATE OF DISSOLUTI ON THUS WAS RIGHTLY ADDED BY THE AO AS ITS BUSINESS INCOME U/S 28(IV) AND THE LE ARNED CIT(APPEALS) WAS NOT JUSTIFIED IN DELETING THE SAID ADDITION WITHOUT GIV ING ANY COGENT OR CONVINCING REASON IN SUPPORT. HE THEREFORE STRONGLY RELIED O N THE ORDER OF THE AO ON THIS ISSUE IN SUPPORT OF THE REVENUES CASE. 12. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OU TSET SUBMITTED THAT THE PROVISIONS OF SECTION 45(4) ARE APPLICABLE ONLY TO CAPITAL ASSETS AND NOT TO THE STOCK IN TRADE. HE SUBMITTED THAT STOCK WAS TRANSFERRED B Y THE FIRM TO SSMPL ON ITS DISSOLUTION AT BOOK VALUE AND THERE IS NO PROVISION IN THE ACT WHICH REQUIRES THE ASSESSEE TO VALUE THE SAME AT MARKET PRICE. HE SUBM ITTED THAT IT IS NOT A CASE OF DISTRIBUTION OF CAPITAL ASSETS AMONG THE PARTNERS O N DISSOLUTION OF THE FIRM BUT THE BUSINESS OF FIRM WAS TAKEN OVER BY SSMPL ONE OF T HE PARTNERS OF THE ASSESSEE FIRM AS A GOING CONCERN. AS REGARDS THE RELIANCE OF THE AO ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF A.L.A. FIRM (S UPRA) HE CONTENDED THAT THE SAME WAS CLEARLY MISPLACED AS IN THE SAID CASE THE RE WAS DISTRIBUTION OF ASSETS AMONG THE PARTNERS ON DISSOLUTION OF THE ERSTWHILE FIRM. HE SUBMITTED THAT THIS DISTINCTION HAS BEEN CLEARLY BROUGHT OUT BY THE HON BLE SUPREME COURT IN THE CASE OF SAKTHI TRADING CO. VS. CIT REPORTED IN 250 ITR 8 71 WHEREIN THE DECISION IN THE CASE OF A.L.A. FIRM (SUPRA) HAS BEEN EXPLAINED AND DISTINGUISHED. HE ALSO RELIED 8 ITA NO. 859/MUM/2008 ASSTT. YEAR : 2004-05. ON THE DECISION OF JABALPUR BENCH OF ITAT IN THE CA SE OF SAGAR TYRE HOUSE VS. ITO REPORTED IN 91 TTJ 581 AND SUBMITTED THAT A SIM ILAR ISSUE INVOLVING IDENTICAL FACTS HAS BEEN DECIDED BY THE TRIBUNAL IN THE SAID CASE IN FAVOUR OF THE ASSESSEE. HE ALSO CONTENDED THAT EVEN THE MARKET VALUE OF THE ST OCK DETERMINED BY THE AO WAS NOT CORRECT AND THERE WAS NO JUSTIFICATION IN THE A CTION OF THE AO IN ADDING THE ENTIRE AMOUNT OF RS.2.17 CRORES WHEN THE STOCK WAS TRANSFERRED BY THE ASSESSEE TO SSMPL ON THE DATE OF DISSOLUTION AT RS.1.78 CRORES. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE MARKET VALUE OF STOCK TAKEN OVER BY SSMPL FROM THE ASSESSEE FIRM ON THE DATE OF DISSOLU TION WAS ADDED BY THE AO TO THE TOTAL INCOME OF THE ASSESSEE FIRM AS BUSINESS I NCOME RELYING MAINLY ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF A. L.A. FIRMS (SUPRA). THE ISSUE INVOLVED IN THE CASE OF A.L.A. FIRMS HOWEVER WAS RELATING TO THE VALUATION OF CLOSING STOCK IN A CASE WHERE THERE WAS DISSOLUTION AND ALSO DISCONTINUANCE OF THE BUSINESS OF THE FIRM. IN THE PRESENT CASE THERE WAS HOWEVER NO DISCONTINUANCE OF THE BUSINESS OF THE ASSESSEE FIRM ON ITS DISSOLUTIO N AND IT WAS A CASE OF TAKING OVER AND CONTINUATION OF BUSINESS OF THE ASSESSEE FIRM B Y ONE OF ITS PARTNERS VIZ. SSMPL. IN THE CASE OF SAKTHI TRADING CO. VS. CIT SU PRA) A SIMILAR ISSUE HAD COME UP FOR CONSIDERATION INVOLVING IDENTICAL FACTS INAS MUCH AS ALTHOUGH THERE WAS DISSOLUTION ON ACCOUNT OF THE DEATH OF ONE OF THE P ARTNERS THERE WAS NO DISCONTINUANCE OF THE BUSINESS AND IT WAS HELD BY T HE HONBLE SUPREME COURT THAT THE HONBLE HIGH COURT WAS CLEARLY IN ERROR IN RELY ING UPON THE DECISION IN THE CASE OF A.L.A. FIRMS FOR COMING TO THE CONCLUSION THAT A SSETS HAD TO BE VALUED AT MARKET PRICE. IT WAS HELD THAT THERE WAS NO CESSATION OF B USINESS IN THE CASE ON HAND AND THEREFORE THE CLOSING STOCK COULD NOT BE DIRECTED TO BE VALUED AT THE MARKET RATE. THE COORDINATE BENCH OF THIS TRIBUNAL ALSO HAD AN O CCASION TO CONSIDER A SIMILAR 9 ITA NO. 859/MUM/2008 ASSTT. YEAR : 2004-05. ISSUE IN THE CASE OF SAGAR TYRE HOUSE VS. ITO 91 T TJ 581 WHEREIN IT WAS HELD RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SAKTHI TRADING CO. (SUPRA) THAT THERE BEING NO DISCONTINUANCE OF B USINESS ON DISSOLUTION OF FIRM AND ONE OF THE EX-PARTNER HAVING TAKEN OVER THE ASS ETS AND LIABILITIES AND CONTINUED THE SAME BUSINESS THERE WAS NO QUESTION OF VALUATI ON OF CLOSING STOCK AT MARKET PRICE ON THE DATE OF DISSOLUTION OF THE FIRM. IN TH E PRESENT CASE THE BUSINESS OF THE ASSESSEE FIRM WAS TAKEN OVER AND CONTINUED ON ITS D ISSOLUTION BY SSMPL ONE OF ITS PARTNERS AND THIS BEING THE POSITION WE HOLD RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SAKTHI TRADING CO. (SU PRA) THAT THE ADDITION MADE BY THE AO BY ADOPTING MARKET PRICE OF STOCK IN TRADE TAKEN OVER BY SSMPL ON THE DATE OF DISSOLUTION OF THE FIRM WAS NOT SUSTAINABLE . IN OUR OPINION THE LEARNED CIT(APPEALS) THEREFORE WAS FULLY JUSTIFIED IN DEL ETING THE SAID ADDITION MADE BY THE AO AND UPHOLDING HIS IMPUGNED ORDER ON THIS ISS UE WE DISMISS GROUND NO. 2 OF THE REVENUES APPEAL. 14. AS REGARDS GROUND NO.3 RELATING TO ASSESSEES CLAIM FOR DEDUCTION U/S 80HHC ON THE GROSS AMOUNT OF DEPB INCLUDING THE UNR EALIZED DEPB OF RS.27 08 126/- THE LEARNED REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED BY THE AMENDMENT MADE IN THE PROVISIONS OF SECTION 80HHC BY INSERTING SECOND AND THIRD PROVISOS TO SUB -SECTION (3) RETROSPECTIVELY AS WELL AS THE DECISION OF HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT VS. KALPATARU COLOURS & CHEMICALS 328 ITR 451. WE THER EFORE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE AND DIRECT THE AO TO RECOMPUTE THE DEDUCTION PERMISSIBLE TO THE ASSESSEE U/S 80HHC IN RESPECT OF DEPB KEEPING IN VIEW THE SAID AMENDMENT AS WELL AS THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF KALPATARU COLOURS & CHEMICALS (SUPRA). 10 ITA NO. 859/MUM/2008 ASSTT. YEAR : 2004-05. GROUND NO. 3 OF THE REVENUES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 15. IN THE RESULT THE APPEAL OF THE REVENUE IS TRE ATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 29 TH DAY OF JULY 2011. SD/- SD/ - (V. DURGA RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 29 TH JULY 2011. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR E-BENCH. (TRUE COPY ) BY ORD ER ASSTT. REGISTRAR ITAT MUMBAI BEN CHES MUMB AI.