TMI Blog2018 (2) TMI 764X X X X Extracts X X X X X X X X Extracts X X X X ..... ments made to the outgoing partner and therefore were in the nature of capital expenditure. We are presently concerned with the limited issue of reopening of the assessment beyond period of four years from the end of relevant assessment year. In this respect, the Revenue has completely failed in satisfying us that there was any failure on the part of the assessee in disclosing truly and fully, all material facts. From the reasons recorded by the Assessing Officer as well as material produced before us, it is completely visible that all necessary facts were already on record, duly disclosing and that there was no failure on the part of the assessee in this regard - Decided in favour of assessee. - Special Civil Application No. 22407 of 2017 With Special Civil Application No. 22408 of 2017 - - - Dated:- 6-2-2018 - MR. AKIL KURESH AND MR. B. N. KARIA, JJ. For The Petitioner : Mr JP SHAH, Sr Advocate with Mr MANISH J SHAH For The Respondent : Mrs MAUNA M BHATT, Advocate COMMON ORDER (PER : HONOURABLE Mr. JUSTICE AKIL KURESHI) Petitioner has challenged Notices dated 20th February 2017 and 24th March 2017 issued by the respondent-Assessing Officer to reopen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce it cannot be allowable as expenditure u/s. 37 of the IT Act. Further, the payments were stated to be made in view of Clause-10 of partnership deed. However, by making provision in partnership deed, the entitlement of income cannot be proved because any provision made in partnership deed should have legal entitlement as per the provision of Income Tax Act. For example, provision of Section 40(b) provides the allowability of payments remuneration and interest on capital to the partners to certain extent. Therefore, any excess provisions made in this regard in partnership deed are not allowed in view of provision of section 40(b). Therefore, the entitlement of deducting certain amount for payment to retiring partners cannot be proved by making provision in partnership deed. Moreover, the payment made for service rendered in past to build the income of the firm is nature of goodwill which is of capital nature. Further, the payment of goodwill is required to be made to retiring partners by the incoming partners who are the real beneficiaries of that income build by the retiring partners. In view of the above, I have reason to believe that the assessee failed to dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs on the basis of which it can be said that income chargeable to tax has escaped assessment. In fact, in the reasons itself, he has stated, .. Subsequently, on verification of Schedule-9 of Profit Loss account regarding professional fees, it revealed that the assessee has directly deducted an amount of ₹ 48,10,682/= from Gross Professional receipts and thereby reduce its income to the above extent. As per Clause 10 of partnership deed, there is provision for payment of pension to the retiring partners .. Thus, the information on which the Assessing Officer proceeded to form a belief that the said payment was not a recognized deduction, the said payment could not have been allowed to be deduced from the income, was already on the record. This would be relevant in the context of the fact that the impugned notice came to be issued beyond the period of four years from the end of relevant assessment year and the element of true and full disclosure on the part of the assessee would be important. The Assessing Officer has referred to Schedule-9 which is a Profit and Loss account, filed along with return of income. He has also referred to Clause 10 of the partnership deed w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable. i. Any Partner retiring after Qualifying Period of 20 years with the participating Firm, shall be entitled to receive payments, at the rate of 25 percent of his average annual Amount received in the previous year from all the Participating Firms for best three years out of the last five years prior to retirement (even if it is related to the period prior to 1st April 2007) in absolute terms, for a period of ten yeas from the date of retirement. If the Partner retires in between the end of two accounting years than the average annual Amount received in the previous year shall be computed with reference to completed financial years before the date of retirement as a Partner. The absolute amount referred to above will be indexed as per the Cost Inflation Index specified in Section 48 of the Income Tax Act, 1961 or will be increased every year at the simple rate of 5% per annum, whichever is higher. The payments will be made on a monthly basis. The payments under this clause will be restricted to ₹ 60 lacks per annual and this limit will be indexed as per the Cost Inflation Index specified in Section 48 of the Income Tax Act 1961, the base year for the indexati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made as per Annexure III. It could be thus seen that the partnership deed itself contained elaborate provisions for payment to a retiring partner, or to the representatives of the deceased partner. The objective of such payment was based on the amounts billed, but not received; work completed, but not billed and work partly completed and not billed, as at the time of death or retirement of a partner. The computation was on the basis of the format provided under sub-clause [n] of the partnership deed. The said sub-clause [n] also provides that such payment of pension to the partners will be made as per Annexure-III. Such Annexure-III for Assessment Year 2010-2011 contained the following details:- Name of the Retired Partner Pension payment for 2009-10 Pension Payable up to A. G. PALKAR Apr 09 to Sep 09 ₹ 23,06,274 2017-18 Oct 09 to Mar 20 ₹ 25,04,408 Total- ₹ 48,10,682 Note: In terms of Clause 10.n.l., the above payme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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