2010 (8) TMI 1003 - AT - Income Tax

Summary

Issues Involved:
1. Addition on account of sundry creditors.
2. Addition on account of income diverted to retired partners.
3. Credit for tax deducted at source (TDS).
4. Levy of interest u/s 234C(1).
5. Addition on account of difference in EEFC account valuation.

Summary:

1. Addition on account of sundry creditors:
The assessee, following the cash system of accounting, was showing certain amounts as liabilities. The AO made an addition of Rs. 16,46,455/- for the balance amounts not accepted. The CIT (A) directed the AO to follow the order for the assessment year 2001-02. The Tribunal restored the matter to the AO for verification and decision in accordance with law, particularly for items like profession tax, unpaid cheques, travel advance, and inter-office conversion exchange. The Tribunal noted that the assessee's system of accounting had been accepted by the department in part and required verification of payments made in subsequent years.

2. Addition on account of income diverted to retired partners:
The AO added Rs. 32,85,000/- paid to ex-partners, relying on CIT v. V.G. Bhuta. The CIT (A) confirmed the addition. The Tribunal, however, accepted the assessee's plea, noting that the partnership deed created an overriding title in favor of the ex-partners. The Tribunal referred to the decision in C.C. Chokshi and Co., which was confirmed by the Bombay High Court, and other similar cases, concluding that the amounts paid to retired partners could not be treated as the assessee's income.

3. Credit for tax deducted at source (TDS):
The Tribunal directed the AO to examine the assessee's claim regarding TDS and give credit in accordance with law while giving effect to the order.

4. Levy of interest u/s 234C(1):
The Tribunal noted that this ground was consequential and directed the AO accordingly.

5. Addition on account of difference in EEFC account valuation:
The AO added Rs. 7,41,262/- due to the difference in the EEFC account valuation. The CIT (A) deleted the addition, following the order for the assessment year 2000-2001. The Tribunal upheld this decision, noting that under the cash system of accounting, unrealized gain in the EEFC account could not be added as income, consistent with the precedent set in the assessee's own case for the assessment year 2000-2001.

Conclusion:
The assessee's appeal was partly allowed for statistical purposes, and the revenue's appeal was dismissed. The Tribunal directed the AO to verify certain claims and give effect to the order in accordance with law.