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TMI Blog2009 (7) TMI 917X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act, 1961. According to the Assessing Officer, the interest earned on bank deposits by the assessee is income from other sources and, therefore, to be excluded from the book profits in computing the deduction under section 40( b ) of the Act. He, accordingly, restricted the allowance of deduction on account of remuneration to partners with reference to the "profits and gains of business or profession" after excluding the interest earned on bank deposits. The assessee appealed to the CIT(A) against the decision of the Assessing Officer. 3. In the meantime, the Assessing Officer had issued notices under section 148 for the assessment years 2002-03, 2003-04 and 2004-05. The assessee had objected to the issue of notice on the ground of jurisdiction. So however, rejecting the objection of the assessee, the Assessing Officer made the assessments under section 147, restricting the allowance of deduction under section 40( b ) of the Income-tax Act, 1961, by excluding the interest earned on bank deposits from book profits for the respective assessment years. 4. The assessee appealed to the CIT(A), challenging the validity of reopening of assessments for all the three years; as al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at was permissible under the statute. Under Explanation to section 147, if the Assessing Officer is of the opinion that excess deduction is allowed to the assessee, he is entitled to reopen the assessment. The issue as to whether intimation under section 143(1) can be reopened is settled in favour of the revenue) by the decision of the Hon ble Supreme Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 wherein their Lordships have held as under: "Under the scheme of section 143(1) of the Income-tax Act, 1961, as substituted with effect from 1-4-1989, and prior to its substitution with effect from 1-6-1999, what were permissible to be adjusted under the first proviso to section 143(1)( a ) were: ( i ) only apparent arithmetical errors in the return, accounts or documents accompanying the return, ( ii ) loss carried forward, deduction, allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return and similarly, ( iii ) those claims which were on the basis of the information available in the return, prima facie inadmissible and were to be rectified/allowed/di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years 2002-03 and 2003-04 is valid as the Assessing Officer had not expressed any opinion while processing the return under section 143(1). 12. For the assessment year 2004-05, though the assessment had been made under section 143(3) earlier, the Assessing Officer had not expressed any opinion about the issue involved herein. It is also admitted fact that the Assessing Officer had not made any enquiry in regard to the issue in hand. We are therefore, of the considered view that the proceedings have validly been imitated under section 147, read with section 148 in respect of all the three years. We, therefore, do not find any merit in the cross-objections of the assessee. The same are accordingly dismissed. 13. The cross objections of the assessee are dismissed. 14. We now take up the appeals of the revenue for the assessment years 2002-03, 2003-04 and 2004-05. 15. The common issue involved in these appeals is relating to the computation of deduction on account of salary paid to the partners. The assessee had calculated the deduction on account of remuneration to partners with reference to the income from profession including the interest earned on bank de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Reliance has been placed on the decision of the Hon ble Bombay High Court in the case of Manilal Kher Ambalal Co. v. A.G. Lulla, Seventh ITO [1989] 176 ITR 253, to support the claim that a firm of Solicitors Advocates was bound by The Bombay High Court (Original Side) Rules. Reliance was also placed on the following decisions to support the claim that the firm of Solicitors was bound to keep the money with the bank on account of deposits received from its clients for meeting the expenses : (1) CIT v. Lok Holdings [2009] 308 ITR 356 (Bom.) (2) CIT v. Indo Swiss Jewels Ltd. [2006] 284 ITR 389 (Bom.) The interest earned on such deposits was incidental to the profession of the assessee and, therefore, the same was assessable under the head "Profits and gains of business or profession". It was explained that the assessee has not deposited surplus funds but the deposits received from the clients in the bank accounts on which interest has been earned. It was further contended that in some cases, the interest earned on short-term deposits has been held to qualify for deduction even under section 80-I of the Act. Reference in this regard has been made to the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te to keep accounts . Every advocate shall keep such books of account, as will be necessary, to show and distinguish in connection with his practice as an Advocate ( a )Moneys received from or on account of and moneys paid to or on account of each of his clients and, ( b )The moneys received and the moneys paid on his own account. R.11. Obligation to pay money into a client account . Every Advocate who holds or receives money on account of a client (save money hereinafter expressly exempted from the application of this Rule) shall forthwith pay such money to a current or deposit account at bank to be kept in the name of the Advocate in the title of which the word "client" shall appear (hereinafter referred to as "client account"). An Advocate may keep one client account or as many such accounts as he thinks fit : Provided that when an Advocate receives a cheque or draft presenting in part money belonging to the client and in part money due to the Advocate, he may, where practicable, split the cheque or draft and pay to the client account that part only which represents money belonging to the client. In any other case he shall pay the whole of such cheque or draft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asthan High Court in Mahaveerchand v. Bhanwarlal AIR 1958 Raj. 77 (FB) has held that while dealing with the money of the client, an expenditure incurred by the Advocate for and on behalf of the client out of such moneys must be duly accounted for and that it is professional misconduct if he withholds such moneys or misappropriate them. The Hon ble Madras High Court in L.J., A First Grade Pleader, In re AIR 1937 Mad. 696 (FB) has held that misappropriation of client s money is misconduct. The Hon ble Kerala High Court in An Advocate, In re AIR 1961 Ker. 209 has held that it will be professional misconduct on the part of an Advocate when he retains the money in client s account even after the demand is made by the client. 20. A perusal of the Rules, and the decisions quoted above reveal that the assessee is under an obligation to keep the money received from its clients as deposit in a separate bank account and withdrawal and appropriation from the said bank account is regulated. It, therefore, follows that the deposit in such an account cannot be said to be the surplus money available with the assessee deposited with a bank for earning of interest income. Such deposits ..... X X X X Extracts X X X X X X X X Extracts X X X X
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