DELOITTE HASKINS AND SELLS LLP,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 16(2), MUMBAI

AY 2015-16 “1.Re.: Disallowance u/s. 40(a)(i) of the Income-tax Act, 1961 aggregating to Rs.2,34,11,426/-: 1.1 The National Faceless Appeal Centre ["NFAC"] / Commissioner of Income- tax (Appeals) ["CIT(A)"] has erred in confirming the disallowance made u/s. 40(a)(i) of the Income-tax Act, 1961 ["the Act"] on the following payments:

1.2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, no disallowance u/s. 40(a)(5) of the Act is called for and the NFAC/CIT(A) ought to have held as such. 1.3 The Appellant submits that the NFAC/CIT(A) has confirmed the disallowance made by the Assessing Officer ignoring the facts of the case, the details particulars and additional evidence filed and without even analysing the law on the subject. 1.4 The Appellant submits that the Assessing Officer be directed to delete the disallowance so made by him and to re-compute its total income and tax thereon accordingly.

2. Re.: Payments made to retired partners amounting to Rs.8,45,37,535/-: 2.1 The NFAC/ CT(A) has exred in confirming the action of the Assessing Officer of considering the amount of Rs.8,45,37,535/- paid to retired partners as income of the Appellant. 2.2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the said amount of Rs.8,45,37,535/- cannot be considered as its income as it was diverted by overriding title and the Assessing Officer/NFAC/CIT(A) ought to have held as such. 2.3 The Appellant submits that the NFAC/CIT(A) has confirmed the addition made by the Assessing Officer ignoring the facts of the case, the details/ particulars and additional evidence filed and without even analysing the law on the subject. 2.4 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. 2.5 The NFAC/CIT(A) erred in not following earlier years favourable Commissioner (Appeals) order for the AY 2008-09 and AY 2012-13 while deciding this issue. Without prejudice to the foregoing: 2.6 The Appellant submits that the payments of Rs.8,45,37,535/- made to retired partners ought to be allowed as a deduction u/s. 37(1) of the Act while computing its total income.

3. Re.: Addition of Rs.1.49.60.266/- as professional fees made on the basis of the un-reconciled transactions appearing in AIR and the books of accounts: 3.1 The NFAC CIT(A) has erred in confirming the addition of Rs.1,49,60,266/- as professional fees being the alleged difference between the professional fees appearing in AIR and the books of accounts. 3.2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the said un-reconciled entries cannot be treated as income and the NFAC/CIT(A) ought to have held as such. 3.3 The Appellant submits that the NFAC/CIT(A) has confirmed the addition made by the Assessing Officer ignoring the facts of the case, the details/ particulars and additional evidence filed and without even analysing the law on the subject. 3.4 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. 3.5 The NFAC/CIT(A) failed to appreciate that the Appellant is following cash system of accounting and hence amount appearing in AIR is not necessarily the Appellant's income for the relevant assessment year.

4. Re.: General: 4.1 The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever modify all or any of the foregoing grounds of appeal at or before the hearing of the appeal.”

AY 2013-14 “1. Re.: Disallowance u/s. 40(a)(i) of the Income-tax Act, 1961 aggregating to Rs.1,15,89,509/-: 1.1 The National Faceless Appeal Centre ["NFAC"] / Commissioner of Income- tax (Appeals) ["CIT(A)"] has erred in confirming the disallowance made u/s. 40(a)(i) of the Income-tax Act, 1961 ["the Act"] on the following payments:

1.2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, no disallowance u/s. 40(a)(i) of the Act is called for and the NFAC/CIT(A) ought to have held as such. 1.3 The Appellant submits that the NFAC/CIT(A) has confirmed the disallowance made by the Assessing Officer ignoring the facts of the case, the details/ particulars/ submissions and additional evidence filed and without even analysing the law on the subject. 1.4 The Appellant submits that the Assessing Officer be directed to delete the disallowance so made by him and to re-compute its total income and tax thereon accordingly.

2. Re.: Payments made to retired partners amounting to Rs.7,79,71,624/- 2.1 The NFAC/ CIT(A) has erred in confirming the action of the Assessing Officer of considering the amount of Rs.7,79,71,624/- paid to retired partners as income of the Appellant. 2.2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the said amount of Rs.7,79,71,624/- cannot be considered as its income as it was diverted by overriding title and the Assessing Officer/ NFAC/CIT(A) ought to have held as such. 2.3 The Appellant submits that the NFAC/CIT(A) has confirmed the addition made by the Assessing Officer ignoring the facts of the case, the details/ particulars/submissions filed and without even analysing the law on the subject. 2.4 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.

2.5 The NFAC/CIT(A) erred in not following earlier years favourable Commissioner (Appeals) order for the AY 2008-09 and AY 2012-13 in deciding the ground. Without prejudice to the foregoing: 2.6 The Appellant submits that the payments made to retired partners of Rs.7,79,71,624/-ought to be allowed as a deduction u/s. 37(1) of the Act while computing its total income.

4. Re.: Credit for tax deducted at source amounting to Rs. 18,45,12,129/-: 4.1 The NFAC/CIT(A) erred in not directing the Assessing Officer to grant full credit for tax deducted at source of Rs. 18,45,12,129/- as claimed by the Appellant in its return of income for the year under consideration. 4.2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it is entitled to full credit for tax deducted at source from its income as claimed by it and NFAC/CIT(A) ought to have held as such. 4.3 The Appellant submits that the Assessing Officer be directed to grant full credit for tax deducted at source as claimed by it and to re-compute its tax liability accordingly. and 351/Mum/2024 AY 2013-14, 2015-16 to 2017-18 Deloitte Haskins And Sells LLP 5. Re.: Credit for foreign tax credit amounting to Rs.2,70,645/-granted short: 5.1 The NFAC/CIT(A) erred in not specifically directing the Assessing Officer to grant credit for foreign tax of Rs.2,70,645/- as claimed by the appellant for the year under consideration. 5.2 The learned NFAC/CIT (A) ought to have appreciated that all the relevant documents for claim of foreign tax credit was provided in course of assessment proceedings. Hence, the learned AO ought to have been directed to allowed FTC credit of Rs.2,70,645 and to re-compute its tax liability accordingly.

6. Re.: Interest u/s 244A: 6.1 The NFAC/CIT(A) erred in not directing the Assessing Officer to grant interest under section 244A till date of grant of the refund.

7. Re.: Interest u/s 234D 7.1 The appellant denies the liability for interest u/s 234D. The NFAC/Assessing Officer ought to have directed to delete the interest of Rs.6,11,115 levied under section 234D.”

AY 2017-18 “1:0 Re.: Disallowance u/s, 40(a)(i) of the Income-tax Act, 1961 aggregating to Rs.1,34,27,607/-: 1:1 The National Faceless Appeal Centre ["NFAC"]/ the Commissioner of Income- tax (Appeals) ["CIT(A)"] has erred in confirming the disallowance made u/s. 40(a)(i) of the Income-tax Act, 1961 ["the Act"] on the following payments of professional fees:

1:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, no disallowance u/s. 40(a)(i) of the Act is called for and the NFAC/CIT(A) ought to have held as such. and 351/Mum/2024 AY 2013-14, 2015-16 to 2017-18 Deloitte Haskins And Sells LLP 1:3 The Appellant submits that the Assessing Officer be directed to delete the disallowance so made by him and to re-compute its total income and tax thereon accordingly. 2:0 Re.: Payments made to retired partners amounting to Rs.15,50,39,219/-: 2:1 The NFAC/ CIT(A) has erred in confirming the action of the Assessing Officer of considering the amount of Rs.15,50,39,219/- paid to retired partners as income of the Appellant. 2:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the said amount of Rs.15,50,39,219/-cannot be considered NFAC/CIT(A) ought to have held as such 2:3 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 2:4 The NFAC/CIT(A) erred in not following earlier years favourable Tribunal order for the AY 2008-09 and Commissioner (Appeals) order for the AY 2012-13 in deciding the ground. Without prejudice to the foregoing: 2:5 The Appellant submits that the payments of Rs.15,50,39,219 made to retired partners ought to be allowed as a deduction u/s. 37(1) of the Act while computing its total income. 3:0 Re.: Addition of Rs.4,22,85,898/- as professional fees made on the basis of the un-reconciled transactions appearing in Form No. 26AS and the books of accounts: 3:1 The NFAC/ CIT(A) has erred in confirming the addition of Rs.4,22,85,898/- as professional fees being the alleged difference between the professional fees appearing in Form No. 26AS and the books of accounts. 3:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the said un-reconciled entries cannot be treated as income and the NFAC/CIT(A) ought to have held as such. 3:3 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. 3:4 NFAC/CIT(A) failed to appreciate that Appellant is following cash system of accounting and hence amount appearing in Form 26AS is not necessarily be the Appellant's income for the relevant assessment year. 4:0 Re.: Credit for tax deducted at source amounting to Rs.63,23,59,722/-:

4:1 The NFAC/CIT(A) erred in not directing the Assessing Officer to grant full credit for tax deducted at source of Rs.63,23,59,722/- as claimed by the Appellant in its return of income for the year under consideration. 4:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it is entitled to full credit for tax deducted at source from its income as claimed by it and NFAC/CIT(A) ought to have held as such. 4:3 The Appellant submits that the Assessing Officer be directed to grant full credit for tax deducted at source as claimed by it and to re-compute its tax liability accordingly. 5:0 Interest under section 234C 5:1 The NFAC/CIT(A) erred in not directing the AO to re-compute the interest under section 234C after considering TDS and FTC as claimed by the appellant. 5:2 The NFAC/CIT(A) erred in not directing the AO to provide the working of the interest charged under section 234C. 6:0 Interest under section 234B 6:1 The NFAC/CIT(A) erred in not directing the AO to re-compute the interest charged under section 234B after considering TDS and FTC as claimed by the appellant. 6:2 The NFAC/CIT(A) erred in not directing the AO to provide the working of the interest charged under section 234B. 7:0 Re.: General: 7:1 The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever modify all or any of the foregoing grounds of appeal at or before the hearing of the appeal.” 2.1. Issues raised in all these four appeals by the assessee are common except for variation in the quantum of addition/disallowance made. Accordingly, we take up all the four appeals together for adjudication by passing this consolidated order. For our observations and findings, we draw facts from the appeal for AY 2013-14 in . Our observations and findings in this appeal of all the issues shall apply mutatis-mutandis to the other three appeals. and 351/Mum/2024 AY 2013-14, 2015-16 to 2017

18. Deloitte Haskins And Sells LLP

3. Assessee is a limited liability partnership of professionals. It follows cash system of accounting. Source of income for assessee consists of income from rendering professional services. Return of income was filed on 30.09.2013, reporting total income at Rs.1,61,31,363/- which was revised on 31.03.2015, reporting same total income, but claiming higher credit for TDS.

3.1. In regard to ground no. 1, in the course of assessment proceedings, ld. AO noted that assessee had incurred expenses of Rs.1,15,89,509/- on account of professional services and other charges on which no TDS was done. According to the assessee, these payments made by it were not covered for TDS. It also submitted that receivers of the payments made by assessee had discharged their tax liability and therefore, no disallowance u/s. 40(a)(i) is called for. These payments include: i) Professional fees to Deloitte & Touche Rs. 14,14,369/- Management Services Pvt. Ltd., Singapore ii) Professional services to Deloitte AB Sweden Rs. 6,09,984/- iii) Purchase of books on IFRS from America Rs. 6,924/- institute of CPA iv) Reimbursement of expense Rs. 34,14,982/- v) Refund of excess fees received Rs. 86,175/- vi) Registration charges Rs. 1,89,441/- vii) Language Testing International, INC Rs. 11,440/- viii) Thomson Reuters (Professional) UK Ltd. Rs. 1,66,695/- ix) Deloitte Australia trust Rs. 56,90,000.

3.2. This issue had come up before the Co-ordinate Bench of ITAT Mumbai in assessee’s own case for AYs 2010-11, 2011-12 and 2014-15 in & 292/Mum/2024, order dated 04.02.2025. This is a legacy issue which has also been dealt for AYs 2006-07 to 2008-09 in 6786/Mum/2011 and order dated 23.03.2018. Also, this issue came up in appeal for AY 2012- and 351/Mum/2024 AY 2013-14, 2015-16 to 2017-18 Deloitte Haskins And Sells LLP 13 in ITA no. 7515/Mum/2016, order dated 13.08.2019. Consistent view of the Co-ordinate Benches in all these AYs has been that these payments are not taxable and hence not subjected to TDS provisions. Therefore, no disallowance is called for u/s.40(a)(i). Relevant observations and findings of the Co-ordinate Bench in the order for AYs. 2010-11, 2011-12 and 2014-15 (supra) are extracted below for ready reference: “Disallowance under section 40(a)(i)- Ground No.2 13. The AO during the course of assessment noticed that the above payments have been made without deducting Tax at Source and therefore called on the assessee to show-cause why the amount cannot be disallowed under section 40(a)(i). The assessee submitted that the above payments were made outside India without deduction of tax at source since the said payments were not chargeable to tax under the Act and therefore it was required to deduct tax at source under section 195(1) of the Act. The assessee further submitted that the provisions of section 40(a)(i) are attracted only when any sum chargeable under the Income-tax Act which is payable outside India and on which tax is deductible but tax is not deducted at source. The assessee also made a detailed submission on the taxability of each of payments before the AO to submit that the amounts are not taxable in India and accordingly no TDS was deducted. However, the AO did not accept the submissions made by the assessee and proceeded to make addition towards all the payments as listed above totaling to Rs. 81,69,987/-. The CIT(A) confirmed the addition made by the AO. (a) Payment of professional fees 14. The Id AR submitted that the services were rendered by Deloitte & Touche LLP, USA to the clients who required certain assistance with regard compliance under US laws. The Id AR further submitted that Deloitte Tax LLP, USA was rendering service with review of INCAT U.S. Federal and state income tax accounting for audit assistance and preparation, The id AR argued that the payments made are not taxable under section 9(1)(vii) since Deloitte & Touche LLP, USA and Deloitte Tax LLP, USA have rendered professional services and not technical services and drew our attention to section 1941 to submit that the professional services and technical services are different. Accordingly the Id AR submitted that the payments are not liable to tax in India in view of the Article 15 of the Tax Treaty between India and USA. It is also submitted that the services are rendered outside India and therefore no tax is liable to be deducted at source. The Id AR made similar submission for payments made to Deloitte & Touche Management Services Pte Ltd, Singapore.

4.1. This is also a legacy issue from the past several assessment years which has travelled up to the Co-ordinate Bench. Ld. AO himself as taken a note of this issue arising in past several assessment years. He has also referred to the decision of Hon’ble Jurisdictional High Court of Bombay in the case of C.C. Choksi & Company and 293/Mum/2008 dated 25.07.2008 for AY 2008-09 which has not been accepted by the department and SLP preferred before the Hon’ble Supreme Court for AY 2004-05 and 2006-07, pending for disposal.

4.2. Relevant extract from the order of the Co-ordinate Bench in the assessee’s own case (supra) is extracted below for ready reference whereby the disallowance made by the ld. AO has been deleted: “Payments to retired partner-Ground No.3: 18. The AO during the course of hearing noticed that the assessee has paid an amount of Rs. 4,41,38,383/- to ex-partners and the same is claimed as deduction under section 37(1) of the Act. The AO called on the assessee to explain why the said payment cannot be disallowed. The assessee submitted that the payments are made as per the clause agreed in the partnership deed and the said clause in the in the partnership deed also provides for the mechanism to compute the amount payable to the partners. The assessee further submitted that since the payment is done as per the terms agreed in the partnership deed, the payment has a prior and overriding charge on the receipts of the assessee and gets diverted before it reaches the hands of the assessee. Accordingly, the assessee submitted that the payments made to ex-partner cannot be taxed in the hands of the assessee and should be allowed as a deduction. The AO however did not accept the submissions of the assessee and by placing reliance on the decision of the AO for AY 2008-09 and 2009-10 the entire payment was disallowed in the hands of the assessee.

against the AO."

20. The facts for the year under consideration being identical in our considered view the decision of the Co-ordinate Bench in assessee's own case for AY 2008- 09 is applicable for the year under consideration also. Accordingly, we direct the AO to delete the disallowance made in this regard. The ground raised by the assessee is allowed.” 4.3. This issue has also been dealt by the Co-ordinate Bench in assessee’s own case in appeal for AY 2018-19 in order dated 21.06.2024, wherein the undersigned Accounted Member is the author. On identical fact pattern, the issue has been addressed in detail after taking into consideration long line of judicial precedents, including that of Hon’ble Jurisdictional High Court of Bombay and various other Co-ordinate Benches. Relevant observations and findings in this respect are extracted below from the said order:

7. Taking up second issue in respect of addition made for payments made to retired partners of Rs.11,49,40,775/-, Id. Counsel for the assessee submitted that professional fees of the said amount was diverted by overriding title to the and 351/Mum/2024 AY 2013-14, 2015-16 to 2017-18 Deloitte Haskins And Sells LLP retired partners as per clause 11.7. 16.3 and 16.14 of the partnership deed, dated 01.04.2017. This amount was reduced from the gross receipts of the assessee for the year under consideration duly reflected in the profit and loss account in schedule 9 placed at page 209 of the paper book. "Schedule 9: Fees Professional fees 11,78,40,39,244 Less: Payments under clause 10 of the 11,49,40,7

75. Partnership Deed 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 16.14.1 shall have a prior charge on the gross fees and assets of the LLP and consequently the real income aceruing 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 he 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 payments provided in Clause 116.14.1. 7.2. Ld. Counsel also referred to clause 16.13 dealing with right to receive payments on retirement or death from which he pointed out that the sums payable to the retired partners shall be determined on the basis of amounts billed, but not received, work completed, but not billed and work partly completed and not billed as at the date of death or retirement or as the case may be, having regard to the fact that the assessee follows cash system of accounting. He reiterated the practice adopted by the assessee in respect of rendering of professional services and recognising revenue on its account which is already elaborated in above paragraphs and therefore not repeated for the sake of brevity. 7.3. Ld. Counsel took us through the aforesaid clauses of partnership deed relating to payments made to the retired partners in order to explain that there is a prior charge of the gross fees received by the continued partners because of which it is not an income of the assessee firm. He submitted that the amount paid to the retired partners is a consideration to them for the assessee to continue the same business in the same line with the new partners and to retain the retired partners to support competitiveness on their own and not to join a new firm which is a threat to the existing firm as well as to settle the pending bills relating to income earned by them as a partner during their tenure in the assessee firm. On a specific query by the bench, Ld. Counsel for the assessee and 351/Mum/2024 AY 2013-14, 2015-16 to 2017-18 Deloitte Haskins And Sells LLP made a statement and gave the assurance that there is no change in the terms of the Partnership Deed in respect of payments to retired partners, in the case of the assessee. Ld. Counsel, by summarising various clauses of the partnership deed submitted the following: i. "Under the deed a partner who has served the firm for a qualifying period exceeding 20 years as defined in the deed, is entitled to certain payment for a specified period after the retirement. ii. such payment is in respect of amounts billed but not received & Work- in Progress as at the date of retirement having regard to the fact that the Partnership follows the cash system of accounting; in consideration of the Retiring Partner permitting the continuing Partners the use of the Firm name & to carry on the profession, along with the clientele and the attendant rights of the Firm and the contribution made 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 in diverted away by superior title: and therefore is not the income of the appellant firm iii. The nature of obligation is such that the sum payable to retired partners cannot be said to be part of appellant income." 7.4. He also contended that this amount has already been included in the income of the retired partners and offered to tax under their return of income for the year under consideration. 7.5. He placed reliance on the decisions of the Co-ordinate Bench of ITAT in assessee's own case for Assessment Year 2008-09 and Assessment Year 2012- 13 wherein it was held that payment to retired partners is diverted by overriding title and is not an income of the assessee firm. He also referred to several decisions of the group concerns which are placed on record. Ld. Counsel also placed reliance on the decision of Hon'ble Jurisdictional High Court of Bombay in the case of CIT vs. A.F. Ferguson & Co. in ITA(L)No.97/2011, dated 21.07.2011. From this he referred to the substantial question of law which dealt with the identical issue. The same is reproduced as under: and 351/Mum/2024 AY 2013-14, 2015-16 to 2017-18 Deloitte Haskins And Sells LLP (a) Whether on the facts and circumstances of the case and in law the Hon'ble Tribunal was justified in upholding order of the CIT(A) disallowing payment deleting the addition of Rs. made by 32,85,000/- made Assessing Officer to 3partner/spouses of deceased partners, by holding that payment has been paid on account of overriding title allowing claim of the Assessee?" on the profits and 7.6. Hon'ble High Court gave its decision by referring to its own earlier decision in the case of CIT vs. C.C. Chokshi & Co. in of 2008 and 193 of 2008, dated 25.07.2008 wherein the similar question raised by the Revenue was rejected.

8. Per contra, Id. CIT, DR submitted that payments made to retired partners cannot be regarded as diversion but is an application of income since it is made from the income of the firın. Ld. DR placed reliance on the orders of the authorities below. In the course of arguments, she placed reliance on the decision of Co-ordinate Bench of ITAT. Mumbai in the case of S.B. Billimoria & Co. Vs. ACIT [2010]125 ITD 122(Mum) to buttress her contention.

and 351/Mum/2024 AY 2013-14, 2015-16 to 2017-18 Deloitte Haskins And Sells LLP V. Delhi Tribunal decision in the case of Deloitte Haskins & Sells in 17 for the AY 2011-12; 9.2. From the decisions of Co-ordinate Benche of ITAT, Chennai in the of ACIT Sells in dated 25.11.2016, identical issue was dealt whereby addition so made was deleted. In the said decision, reliance was placed on the order of another Co-ordinate Bench of ITAT, Mumbai in the case of C.C. Chokshi & Co. vs. JCIT in for Assessment Year 1995-96 to 1997-98, dated 24.04.2006. Case of C.C. Chokshi & Co. travelled before the Hon'ble Jurisdictional High Court of Bombay, where the appeals by the Revenue were dismissed by placing reliance on the decision of the Hon'ble Court in the case of CIT vs. Mulla & Mulla & Craigie Blunt & Caroe [1991] 190 ITR 198 (Bom). 9.3. On a specific query to the Id. Counsel of the assessee in respect to the findings given in the case of Mulla & Mulla & Craigie Blunt & Caroe (Supra), ld. Counsel took the Bench through the decision and pointed out that Hon'ble' Court has dealt with the issue on identical set of facts by referring to the substantial questions of law. While answering the substantial questions of law, the Hon'ble Court noted that there was a legal obligation in terms of the deed of retirement to pay in a particular manner to the erstwhile partner in respect of realisation fees after their retirement. It was held to be an instance of the source of income being subject to an obligation. Thus, the outstanding fees paid to the retiring partners as per the terms of the deed of retirement were held not assessable as income of the firm. The Hon'ble Court by relying on the decision of Hon'ble Supreme Court in the case of Sital Das Thirath Das [1961] 41 ITR 367 (SC) noted that the true teat for the application of the rule of diversion of income by overriding charge was whether the amount deducted in truth never reached the assessee as income. According to it, there is a difference between the amount which a person is obliged to apply out of his income and amount which by the nature of the obligation cannot be said to be a part of his income where as a result of the obligation income is 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.

by the revenue are dismissed." now 10.1. Thus, the reliance placed by the Id. DR on the case of S.B. Billimoria & Co. (Supra) is of no support to her.

11. In conclusion, the undisputed facts are that assessee firm made payment to retired partners in terms of its partnership deed where in the basis is that partner would have rendered their professional services during his tenure as a partner but could not enjoy 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 Id. 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.” 4.4. There being no change in the fact pattern and applicable law as well as nothing is brought on record to controvert the above, respectfully following the decision of the Co-ordinate Bench in assessee’s own case and 351/Mum/2024 AY 2013-14, 2015-16 to 2017

18. Deloitte Haskins And Sells LLP (supra), addition made by the ld. AO is deleted. Accordingly ground no. 2 raised by the assessee is allowed.

5.1. Ld. DR submitted that if the addition so made is deleted, corresponding TDS ought not to be allowed in the hands of the assessee. Nothing has been brought on record before us to controvert the above factual position. This issue also has been legacy issue dealt in appeal for AYs. 2006-07 to 2008-09 and 2010-11, 2011-12 and 2014-15 wherein Co-ordinate Bench has held in favour of the assessee. Relevant extract in this respect are as under from the order of appeals for AYs. 2010-11, 2011-12 and 2014-15 (supra): “10. We heard the parties and perused the material on record. Before the AO, the assessee submitted reconciliation between the professional fees received as per books of accounts and what is reflected in Form 26AS in which the assessee could not reconcile the difference to the tune of Rs. 93,06,204/-. During the appellate proceedings, the assessee submitted further reconciling an amount of Rs. 73.20,340/-. The assessee submitted before the CIT(A) the details of invoices, date of receipt of payment, etc. for the un-reconciled balance and also submitted with regard to few parties that the payment as reflected in Form 26AS has not actually been received by the assessee. We notice that the CIT(A) inspite of calling for the remand report has not considered the further details furnished by the assessee reconciling the balances and has simply proceeded to confirm the addition made by the AO. It is a well-settled position that the AO cannot make any addition merely based on the mismatch in Form 26AS without examining the additional evidences, reasons for the differences, etc. filed by the assessee. The assessee has provided the party wise details of professional fees along with the date of receipt to substantiate the amount reflected in the books of accounts. In this regard, it is relevant to take note that the following observations of the Co-ordinate Bench in assessee's own case (supra) "10.3. We have heard the rival submissions. We find that major amount under the head professional fee received is from Encorn Win Farms (India) Ltd. that the payer had, in response to section 13(6)notice admitted(Pg-53 of the PB)that it had not paid any amount to the assessee, that it also ascertained that no professional services were availed from the assessee We find that the FAA had brushed aside such an important piece of evidence only on the ground that the figure was appearing in the AIR Mistakes in the information in AIR is not uncommon. In these circumstances and after considering the Pg-53 of the PB. we are of the opinion that we are of the opinion the FAA was not the justified in confirming the addition of Rs.51.06 lakhs. We would also like to refer to the case of Sri Vallabh Lohia(supra) wherein the issue of and 351/Mum/2024 AY 2013-14, 2015-16 to 2017-18 Deloitte Haskins And Sells LLP non reconciliation of AIR information has been deliberated upon. We are reproducing the relevant portion of the order and it reads as under "5. In Ground Nos.3 & 4 of appeal, assessee has disputed the order of Id CIT(A) in confirming the addition of Rs.2.66.916 made by the AO as interest received from Rajvaibhav Enterprises Pvt Ltd., based on AIR information.

6. The AO stated that as per AIR information, assessee received interest from Rajvaibhav Enterprises Pvt Ltd., amounting to Rs.2,66,916. Further, assessee vide letter dated 18.12.2009 stated that no interest payment was received nor the assessee claimed any TDS in respect of the alleged interest. However, AO did not concur with the contention of the assessee and made this addition to the income of the assessee. In the first appeal, Id CIT(A) confirmed the action of AO. Hence, this appeal by the assessee.

7. During the course of hearing, Id A. R. reiterated the facts as stated before the authorities below. He referred to pages 41 -43 of PB, which is a copy of ledger account of M/s. Steel World and submitted that assessee has not received any interest from Rajvaibhav Enterprises (P) Ltd... He submitted that merely on the basis of AIR information and without any evidence thatassexsee has received any interest from it, hence the amount could not be added to the income of the assessee Ld D.R merely relied on orders of authorities below.

9. We observe that AO has made this addition merely on the basis of AIR information and without bringing any evidence on record that the assessee has actually received the said interest of Rs. 2.66.916. It is not the case of the department that the said party was put to cross examination or the ledger account of the assessee in the books of account of the said party were given to the assessee and assessee was confronted thereon. We agree with ld A.R. that merely on the basis of AIR information and without bringing any evidence on record, it cannot be held that interest income has been received by the assessee from Rajvaibhav Enterprises (P)Lid. Therefore, the said addition is not justified, Accordingly, we delete the addition of Rs. 2,66,916 by allowing ground Nos 3 & 4 of appeal taken by the assessee." Following the above, we decide Ground No. 1 in favour of the assessee."

8. Ground nos. 6 and 7 are in respect of claim of interest u/s. 244A and Section 234D. In this respect, it is submitted that interest u/s. 244A of Rs. 99,72,469/- granted earlier was withdrawn. Claim of the assessee is that it is entitled to interest u/s. 244A up to the date of refund voucher i.e. up to 05.05.2014. In this respect, reference was made to CBDT Circular No. 20-D(XXII-II) dated 20.08.1968. This issue had come up before the Co-ordinate Bench in assessee’s own case in appeals for AY 2006-07 to 2008-09 (supra). In this order, Co-ordinate Bench directed the ld. AO to follow the CBDT circular and allowed the ground so raised by the assessee. Considering the factual position and the CBDT circular relied upon by the assessee, we give similar direction to the ld. JAO to grant interest up to the date of refund voucher. Accordingly, ground no. 6 is allowed.

8.1. For interest u/s. 234D, it is consequential to the grant of TDS credit claimed by the assessee which has already been dealt by us in ground nos. 4 and 5 and also subject to interest u/s. 244A dealt here in above. Thus, this ground does not need separate adjudication.

10. The other three appeals are also on identical fact pattern having similar issues with varying quantum of addition/disallowance and ground numbers. The issues raised in these three appeals have been adjudicated upon in the appeal for AY 2013-14 in the above paragraphs. Our observations and findings on all these issues apply mutatis- mutandis to the other three appeals. Accordingly, all the three appeals are also partly allowed.