2011 (8) TMI 1312 - AT - Income Tax

Summary

Issues involved:
The judgment involves disputes on three different grounds: (1) Addition on account of sundry creditors, (2) Additions on account of payment to retired partners and wives of deceased partners under the provisions of partnership deed as diversion of income, and (3) Disallowance of payment made to a retired employee.

Issue 1: Addition on account of sundry creditors
The AO noted discrepancies in the balance sheet of the assessee regarding sundry creditors, which led to an addition of Rs. 2,68,564. The CIT(A) confirmed this addition, stating that the assessee was following the cash method of accounting, making the sundry creditors unjustified. The Tribunal upheld the CIT(A)'s decision based on similar disputes in previous assessment years.

Issue 2: Additions on account of payment to retired partners and wives of deceased partners
The dispute centered around deductions claimed by the assessee for payments made to retired partners and spouses of deceased partners under the partnership deed. The AO disallowed the claim, considering it as a diversion of income. However, the Tribunal, after examining the partnership deed, allowed the claim, stating that it was a case of diversion of income and not application of income, as argued by the authorities.

Issue 3: Disallowance of payment made to a retired employee
The AO disallowed a payment of Rs. 5.00 lacs made to a retired employee as pension, citing lack of evidence of partner agreement. The CIT(A) upheld the disallowance, but the Tribunal overturned this decision, stating that the claim should not be disallowed solely on the ground of lack of partner agreement, as no amount can be paid to an employee or ex-partner without partner consent.

In conclusion, the Tribunal partly allowed the appeal of the assessee, overturning the decisions on the second and third disputes while upholding the addition on account of sundry creditors.