2018 (12) TMI 684 - AT - Income Tax

Addition of payment to retired partners u/s.37(1) on identical issue /facts with respect to payment made to retired partners that too in the case of the assessee the Tribunal considered the factual matrix and considered the decision of the Tribunal on identical facts / issue for ay 2011-12, wherein the payment of expenditure allowable u/s.37(1) of the Act has been considered. The Tribunal also considered the partnership deed wherein identical reference has been made in various clauses with respect to determination and the payments to retiring partners or the spouse /nominees of the deceased partners and thereafter reached to the particular conclusion. - Decided in favour of assessee. Addition towards advances received from clients - Held that - In the case of the assessee itself for ay 2011-12, the Tribunal has deliberated upon identical issue and considering the decision from Hon ble Delhi High Court in the case of Dinesh Kumar Goel 2010 (10) TMI 287 - DELHI HIGH COURT and arguments from both sides including the decision in the case of A.F.Ferguson & Co. 2014 (7) TMI 1285 - BOMBAY HIGH COURT another decision from Hon ble P&H High Court in the case of CIT vs. Punjab Tractors Co-operative Multi-purpose Society Ltd. 1997 (8) TMI 37 - PUNJAB AND HARYANA HIGH COURT , affirmed the stand of the ld.CIT(A). Reopening of assessment - reason to believe that income has escaped assessment - incorrect claim of expenditure as a revenue expenditure towards the pension paid to retired partners - Held that - ase was reopened with the issuance of notice u/s,.148 on 13.3.2015 as the ld. A.O found that the assessee incorrectly claimed the expenditure as a revenue expenditure towards the pension paid to retired partners. As per the partnership deed also, it was found that money received from the clients has been shown as advances from clients instead of offering the same as income. Thereafter, the assessee in response to the notice offered the total taxable income of Rs,13,56,49,603/- on 29.4.2015. The ld.AO communicated the reasons for reopening. The assessee filed its objections vide letter dated 18.2.2016. The ld.A.O disposed of the objections of the assessee by a speaking order on 10.03.2016. We note that the contention of the assessee that the reopening of the assessment was merely done on the basis of the change of opinion and based on audit objections has been duly discussed. Thus, considering the foregoing decisions and the amended provisions with effect from 01.04.1989, we are of the considered opinion that the ld.First Appellate Authority is justified to confirm the reopening as valid. Thus, the Cross objections of the assessee for assessment year 2010-11 with respect to validity of reopening of assessment u/s.147 of the Act is held to be valid.

Summary

Issues Involved:
1. Reopening of assessments for AY 2010-11.
2. Disallowance of payments to retired partners under Section 37(1) of the Income Tax Act, 1961.
3. Deletion of addition towards advances received from clients.

Issue-wise Detailed Analysis:

1. Reopening of Assessments for AY 2010-11:
The assessee challenged the reopening of assessments under Section 147 of the Income Tax Act, arguing that there was no fresh material or evidence with the Assessing Officer (AO), and the reopening was merely based on a change of opinion and audit objections. The Tribunal examined the provisions of Section 147 and relevant case laws, concluding that the AO had sufficient material to form a reasonable belief that income had escaped assessment. The reopening was held valid as the AO had independently applied his mind, and the reopening was not merely on the basis of a change of opinion. The Tribunal referred to several judicial decisions supporting the AO's power to reopen assessments based on new information, even if it was obtained after the original assessment.

2. Disallowance of Payments to Retired Partners under Section 37(1):
The primary issue was whether the payment of ?1,58,56,741 to retired partners was allowable as a deduction under Section 37(1) of the Income Tax Act. The AO disallowed the payment, treating it as an application of income rather than an expenditure necessary for carrying on business. The CIT(A) deleted the disallowance, following the Tribunal's decision in the assessee's own case for AY 2011-12, where similar payments were held to be allowable. The Tribunal, in the current case, reiterated its earlier decision, emphasizing that the payments were made as per the partnership deed and constituted a diversion of income by overriding title. The Tribunal also referred to the Mumbai Tribunal's decision in the case of C.C. Chokshi & Co., which was approved by the Bombay High Court, holding that such payments were not an application of income but a diversion by overriding title.

3. Deletion of Addition towards Advances Received from Clients:
The AO added ?5.97 lakhs towards advances received from clients, treating it as income. The CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that the issue was covered in favor of the assessee in its case for AY 2011-12. The Tribunal emphasized that the advances received from clients for services not yet rendered could not be treated as income until the services were completed. The Tribunal referred to the Delhi High Court's decision in CIT vs. Dinesh Kumar Goel and other judicial precedents, supporting the view that advances received for future services should not be treated as income until the services are rendered.

Conclusion:
The Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s orders, confirming the deletion of disallowances and additions. The Tribunal also dismissed the assessee's cross-objections as infructuous, as the main issues were already decided in favor of the assessee. The reopening of assessments for AY 2010-11 was held valid, and the payments to retired partners were allowed as deductions under Section 37(1). The advances received from clients were not treated as income until the services were rendered.