1998 (8) TMI 109 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of retention deposit against contract receipts.
2. Deletion of addition on account of revaluation of assets.
3. Deletion of arbitration claim taxed on a protective basis.
4. Determination of the previous year ending date for the assessment year 1985-86.
5. Addition of sanctioned claim amounts.
6. Interest under section 215 of the Income Tax Act.

Detailed Analysis:

1. Deletion of Addition on Account of Retention Deposit Against Contract Receipts
The first ground of appeal concerns the deletion of the addition made by the Assessing Officer (AO) on the adjustment of the retention deposit against contract receipts amounting to Rs. 3,59,432. The AO contended that this amount represented the difference in retention deposits received by the assessee but not offered for income during the assessment year. The CIT(A) deleted the addition, noting that the assessee had declared total receipts based on the work bill submitted and that the short receipt was due to retention money debited to the Executive Engineer's account. The Tribunal upheld the CIT(A)'s decision, agreeing that the retention money had already been accounted for in the work bills and included in the total receipts, thus requiring no further addition.

2. Deletion of Addition on Account of Revaluation of Assets
The second issue pertains to the deletion of the addition of Rs. 53,25,000 made by the AO on revaluation of assets. The AO based this addition on the Supreme Court's decision in A.L.A. Firm vs. CIT. However, the CIT(A) deleted the addition, stating that the Supreme Court's decision was not applicable in this case. The Tribunal concurred, noting that the assets and liabilities were taken over by the company as a running concern, and no assets were left except contingent assets. The Tribunal emphasized that the revaluation of assets could not be justified as the assets were not distributed among the partners but were transferred to the company.

3. Deletion of Arbitration Claim Taxed on Protective Basis
The third issue involves the deletion of the arbitration claim taxed on a protective basis. The AO had treated the receipt of Rs. 1,12,09,700 from the arbitrator as the firm's income for the assessment year 1985-86. The CIT(A) deleted this addition, holding that the income accrued for the assessment year 1988-89. The Tribunal upheld the CIT(A)'s decision, referencing the Gujarat High Court's ruling that the firm was dissolved and the transfer of business was genuine. The High Court had concluded that the firm could not be taxed for the receipt as it had ceased to exist, and the amount was to be received by the partners.

4. Determination of the Previous Year Ending Date for the Assessment Year 1985-86
In the assessee's appeal, the first effective ground was that the CIT(A) was not justified in holding that the previous year for the assessment year 1985-86 ended on 31st March, 1985. The Tribunal agreed with the assessee's contention, noting the High Court's acceptance that the firm was dissolved by the deed of dissolution dated 16th August, 1984. Therefore, the Tribunal concluded that the previous year ended on 16th August, 1984.

5. Addition of Sanctioned Claim Amounts
The next ground in the assessee's appeal concerned the addition of Rs. 2,48,944, which was sanctioned on 26th September, 1984, and 23rd November, 1984. The AO added this amount to the assessee's income, and the CIT(A) confirmed the addition. However, the Tribunal found that the High Court had recognized the firm's dissolution and the arrangement that dues arising from the settlement with the Government would go to the partners. The Tribunal noted that the amounts received by the erstwhile partners were already taxed in their hands for the assessment year 1986-87, thus the addition could not be sustained.

6. Interest Under Section 215 of the Income Tax Act
The ground regarding interest under section 215 of the Act was deemed consequential in nature. The remaining grounds in the assessee's appeal were not pressed.

Conclusion
The appeals resulted in a dismissal for the Revenue and a partial allowance for the assessee. The Tribunal upheld the CIT(A)'s decisions on the deletion of additions related to retention deposits, revaluation of assets, and arbitration claims. It also agreed with the assessee on the determination of the previous year ending date and the non-sustainability of the addition of sanctioned claim amounts. The interest under section 215 was treated as consequential.