9911796707
TMI Blog2024 (6) TMI 1138X X X X Extracts X X X X X X X X Extracts X X X X ..... aken notion which is pending for disposal. From the details furnished and extracted above, we note that there are out of pocket expenses which has been subjected to service tax/GST, there are intra firm invoices which are disclosed in service tax returns and forms part of the aggregate turn over as per Service Tax law. However, in financials these intra-firm invoices are both income and expenses and are netted off in profit and loss account, since it is income and expense pertaining to same assessee firm. Assessee follows cash method of accounting and only the fees which is received during the year is considered as income whereas for the purpose of service tax and GST, the gross receipts/turnover is based on invoices issued and not on the basis of fees collected. Considering all these facts on record supported by documentary evidences, we find the reconciliation furnished by the assessee is justified. Accordingly, the difference between the gross receipts/turnover as per the ITR and service tax added by the ld. Assessing Officer is deleted. Ground no.1 alongwith with its sub grounds are allowed. Addition made for payments made to retired partners - HELD THAT:- The undisputed facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tailed explanation including the reconciliation between the receipts as per the ITR Form/ Financial Statements and the service tax/ GST returns and hence considering the facts and circumstances of its case, no addition in respect thereof is called for and NFAC/ CIT(A) ought to have held as such. 1:3 The Appellant submits that the NFAC/ CIT(A) has passed the impugned Order merely on the basis of a selective reading of the statement of facts and has merely confirmed the position of the Assessing Officer without even realising that the facts of the case were misinterpreted/ misunderstood by the Assessing Officer. 1:4 The Appellant submits that the Assessing Officer be directed to delete the addition so made by him and to re-compute its total income and tax thereon accordingly. Without prejudice to the foregoing: 1:5 The Appellant submits that the NFAC/ CIT(A) has erred in confirming the action of the Assessing Officer of considering the alleged difference between the receipts as per ITR Form/ Financial Statements and the service tax/ GST returns as Rs. 147,22,44,468/- as against the correct amount of Rs. 135,73,03,693/-. 1:6 The Appellant submits that the Assessing Officer has inadver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the Assessing Officer be directed to delete the levy of interest u/s. 234A of the Act and to re-compute its tax liability accordingly. 5:0 Re.: Levy of interest u/s. 234C of the Act: 5:1 The NFAC/ CIT(A) has erred in confirming the stand taken by the Assessing Officer in levying excessive interest u/s. 234C of the Act. 5:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, interest u/s. 234C of the Act ought to be levied on the returned income and the NFAC/ CIT(A) ought to have held as such. 5:3 The Appellant submits that the Assessing Officer be directed to levy of interest u/s. 234C of the Act on the returned income and to re-compute its tax liability accordingly. 3. Brief facts of the case as culled out from records are that assessee is a limited liability partnership firm of Chartered Accountants and providing professional services to various clients. It is registered with Institute of Chartered Accountants of India. Assessee renders professional services of assurance, taxation and other consulting services to domestic and international clients. Assurance services includes statutory audit and tax audit u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for out of pocket expense (OPE') is received, such receipt is credited to the such expense account. Thus, incurrence of expenses and recovery of the same has no impact on the profit and loss account of the appellant. However, under Service tax / GST law OPE invoice rendered on the client is subject to service tax/ GST and accordingly they are considered as taxable service for the purpose of service tax/ GST return. Whereas, OPE invoices being in the nature of reimbursement of expense, do not form part of the professional fees considered in the return of income. Accordingly, for the purpose of reconciliation, the above amount is added to the grosss receipts from profession as per books. ii. Invoice rendered in EY 17-18 but not paid by client till 31.3.18- Rs. 160,42,16,076 Service tax/ GST is required to be paid on billing basis and accordingly Service tax / GST return include fees for which invoices are rendered. Such invoices may or may not have been paid by the client in the same financial year. As appellant is following cash system of accounting, fee is accounted and offered to tax in the year of receipt. Accordingly, for the purpose of reconciliation, the above amount is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt diverted to retired partners and spouses of deceased partners (hereinafter referred as retired partners ) is in accordance with clauses 11.7, 16.13 and 16.14 of the partnership deed. According to the assessee, these payments were made in accordance to the partnership deed for which detailed compilation of partnership deed, deeds of accession and supplementary deeds were placed on record. 3.5. Assessee explained the practice adopted by it in rendering the professional and recognising revenue on its account. It was submitted that memo of fees is raised on the client upon completion of an engagement. Income in respect of professional fees gets booked only on receipt of professional fees from the client. At any given point of time, there are several ongoing professional engagements for which professional time has been spent and efforts made. Such work in progress is not reflected in the accounts because of the cash method of accounting. This practice results into considerable amount of income which is either unbilled or billed but not received and work in progress to be received from the clients for which costs are incurred, time is devoted and efforts made during the period when r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore justified the addition made by the ld. Assessing Officer. On the third issue relating to short credit of TDS, ld. CIT(A) directed the ld. Assessing Officer to verify Form No.26AS and other challan details for taxes paid by the assessee and there upon allow credit. Aggrieved, assessee is in appeal before the Tribunal. 5. Before us, ld. Counsel for the assessee reiterated the factual submissions made before the authorities below. On the first issue relating to addition made on account of difference between the gross receipts/turnover between ITR and service tax, ld. Counsel emphasised on the findings recorded by the ld. Assessing Officer in this respect, whereby he has stated that assessee firm has explained the difference of Rs. 147,22,44,468/-. He referred to annexure to notice u/s. 142(1) placed in the paper book to point out that a specific query was raised by the ld. Assessing Officer which was replied to his satisfaction. He also referred to the detailed explanation furnished before the Assessing Officer on each of the items of reconciliation of statement corroborated by documentary evidences placed on record. According to him, the authorities below could not appreciate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Partnership Deed 11,49,40,7 75 11,66,90,98,469 7.1. Ld. Counsel referred to the list of retired partners containing details of payments made to them in the year under consideration placed at page 131 of the paper book. For this purpose, he referred to the clauses contained in the partnership deed. From Clause 11.7, it was pointed out that payments to retired partners in terms of clause 16.14 shall have a prior charge on the gross fees and assets of the assessee firm. Consequent to this, the real income accruing to assessee shall be the income left after satisfying such charge. The said clause of the partnership deed is reproduced as under: 11.7.1. It is agreed that payments as provided in Clause l6.14.1 shall have a prior charge on the gross fees and assets of the LLP and consequently the real income accruing to the LLP as constituted from time to time during the period such payments are to be made shall be the income left after satisfying such charge. [It is clarified that similar obligations hitherto incurred shall continue to be fulfilled.] 11.7.2. No Partner. his heirs, or his legal representatives or nominees are or shall be entitled to any lump sum payment in lieu of the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the surviving Partner during his association with the Firm, in increasing the future income earning, for agreeing to assume the liability in respect of payment to retired partners of the legacy firm etc. iii. every partner including incoming partner agrees to the covenants with the retiring partner by being a party to the partnership deed, iv. such payment is made by specific provision in the Deed, a prior charge on the gross fees and assets of the firm. v. retirement of a partner does not affect continuation of the firm vi. retiring partner does not have any right, title or interest in Goodwill, vii. retiring partner is bound by negative covenants in respect of not engaging himself in any professional practice, etc. In view of the facts emanating from the contents of the Partnership Decd. the appellant submitted that: i. There is a prior charge in respect of payments due to the retired partners on the gross fees received by the continuing firm, ii. In view of prior charge arising from the provision of the Partnership Deed, the sum payable to the retied partners is diverted away by superior title and therefore is not the income of the appellant firm. iii. The nature of obliga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d identification of the amount payable to the retired partners. These clauses also specify the treatment of such amounts by creating a prior charge on the income and assets of the assessee. We have also gone through the practice adopted by the assessee firm for rendering the professional services and recognising revenue thereon as discussed in above paragraphs. The facts narrated above on this issue are undisputed and therefore are not reiterated for the sake of brevity. 9.1. We note that there is long line of judicial precedents dealing with the subject matter which includes decisions by Co-ordinate Benches of ITAT, including those approved by Hon'ble Jurisdictional High Court of Bombay in the case of CCIT vs. C.C. Chokshi Co. and ACIT vs. A.F. Ferguson Co. (Supra). Decisions of Co-ordinate Benches of ITAT includes- I. Chennai Tribunal decision in the case of Deloitte Haskins Sells in ITA No 2079/CHNY- 2016 for the AY 2011-12. II. Ahmedabad Tribunal decision in the case of Deloitte Haskins Sells in ITA NO.1983/AHDI2017- for the AY 2013-14 and ITA No. 1984/AHDI2017 for AY 2014-15. III. Mumbai Tribunal decision in the assessee's own case for the AY 2006-07 to 2008-09 in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s diverted before it reaches the assessee which is deductable. Thus. the substantial question of law was answered in negative, i.e., in favour of the assessee. 10. Before us, ld. DR had referred to the case of Co-ordinate Bench of ITAT, Mumbai in the case of S.B. Billimoria Co. (Supra) wherein the payments made to the retiring partners were held to be out of self imposed obligation being gratuitous and hence an application of income. In this decision, the claim of the assessee was disallowed. To this effect, ld. Counsel for the assessee had referred to the decision of Co-ordinate Bench of ITAT, Chennai in assessee s group concern, i.e., ACIT vs. Deloitte Haskins Sells in ITA No. 1517/CHN/2017 for Assessment Year 2012-13 dated 08.02.2018. In this decision, the case of S.B. Billiomoria Co. (Supra) was dealt with and was distinguished vis- -vis principles laid down in the case of C.C. Chokshi Co. (Supra). The Co-ordinate Bench by relying on the two decisions of Hon'ble Jurisdictional High Court of Bombay (Supra) allowed the claim of the assessee. The relevant findings from this decision are reproduced as under: We have heard the rival submissions and perused the materials availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the fruits thereof on account of work having remained incomplete and the concerned client could not be billed for the work already done. Considering the facts on record, documentary evidences forming part of the paper book and long line of judicial precedents referred and discussed above, including those in the case of assessee itself and those by the Hon'ble Jurisdictional High Court of Bombay (Supra) wherein there is no material change in the facts and the applicable law as well as the terms of partnership deed, we respectfully following the judicial precedents, delete the addition made in this respect by the ld. Assessing Officer. Also, with this finding of ours, the alternate plea taken by the assessee of allowing the claim u/s. 37(1) of the Act is rendered infructuous. Accordingly, grounds raised by the assessee in this respect are allowed. 12. On the third issue relating to short credit of TDS, ld. CIT(A) has directed the ld. Assessing Officer to verify the records and allow the credits subject to verification. We concur with the directions given by the ld. CIT(A) and accordingly remit this matter to the file of ld. Assessing Officer in terms of the directions so given. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
