M/s. J.C. Bhalla & Co., New Delhi v. Addl. CIT, New Delhi

ITA 1921/DEL/2015 | 2011-2012
Pronouncement Date: 29-03-2019 | Result: Partly Allowed
Expert Summary: "Assessee being a Chartered Accountancy partnership firm, would be eligible to exemption u/s 54EC, where it invested capital gains earned from sale of its client relationships and goodwill pertaining to its business of internal audit and risk consultancy(IARC) practice in specified bonds. Where payment of bonus made to partners was specifically mentioned in a supplementary partnership deed and also specified exact amount of bonus payable, such payment could not be disallowed u/s 40(b)."

Appeal Details

RSA Number 192120114 RSA 2015
Assessee PAN AAAFJ3258M
Bench Delhi
Appeal Number ITA 1921/DEL/2015
Duration Of Justice 3 year(s) 11 month(s) 23 day(s)
Appellant M/s. J.C. Bhalla & Co., New Delhi
Respondent Addl. CIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 29-03-2019
Appeal Filed By Assessee
Tags No record found
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 29-03-2019
Assessment Year 2011-2012
Appeal Filed On 06-04-2015
Judgment Text
1 | P A G E THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI AMIT SHUKLA JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI ACCOUNTANT MEMBER ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12 ) M/S. J.C. BHALLA & CO B - 17 MAHARANI BAGH NEW DELHI PAN: AAAFJ3258M VS. ADDL. CIT RANGE - 37 NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANIL BHALLA CA REVENUE BY: SHRI K. HA U THANG SR. DR DATE OF HEARING 11/03 / 201 9 DATE OF PRONOUNCEMENT 2 9 / 03 / 2019 O R D E R PER PRASHANT MAHARISHI A. M. 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A) - XX NEW DELHI DATED 10.02.2015 FOR THE ASSESSMENT YEAR 2011 - 12 RAISING FOLLOWING GROUNDS OF APPEAL : - 1) THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE APPELLANT FIRM DIE LEARNED CIT(APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IN TREATING TIRE CAPITAL RECEIPT OF RS. 29 00 000 ON ACCOUNT OF STERILIZATION OF INCOME STREAM OF INTERNAL AUDIT AND RISK CONSULTANCY PRACTICE AS BUSINESS INCOME. 1.1) WITHOUT PREJUDICE ALTERNATIVELY THE LEARNED CIT(APPEALS) HAS ERRED BOTH ON FACT S AND IN LAW IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IN NOT ALLOWING THE CLAIM OF THE APPELLANT THAT IT HAS SOLD A LONG TERM CAPITAL ASSET NAMELY 'CLIENT RELATIONSHIP AND 'GOODWILL' IN RESPECT OF INTERNAL AUDIT AND RISK CONSULTANCY PRACTI CE AND THE AMOUNT RECEIVED AGAINST THAT WAS A CAPITAL GAIN ENTITLED TO DEDUCTION U/S 54EC OF THE ACT. 2) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT FIRM THE LEARNED CIT(APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ACTION O F THE LEARNED ASSESSING OFFICER IN DISALLOWING RS. 49 72 773 OUT OF BONUS OF RS. 67 87 318 WHICH HAS BEEN PAID TO PARTNERS OF THE FIRM IN ACCORDANCE WITH THE AGREEMENTS OF PARTNERSHIP AND AS PER SECTION 40(B) OF THE ACT. 2. THE APPELLANT ASSESSEE IS A PARTNE RSHIP FIRM CARRYING ON THE PROFESSION OF CHARTERED ACCOUNTANCY. IT FILED ITS RETURN OF INCOME ON 29/9/2011 DECLARING M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 2 TOTAL INCOME OF INR 34011290/ WHEREIN THE LONG - TERM CAPITAL GAIN OF INR 29 LACS WAS CLAIMED EXEMPT U/S 54 E C OF THE INCOME TAX ACT [THE AC T ]. THE LEARNED ASSESSING OFFICER PASSED AN ORDER U/S 143 (3) OF THE ACT ON 28/2/2014 DETERMINING TOTAL INCOME OF THE ASSESSEE AT INR 38986560 WHEREIN HE MADE THE TWO ADDITIONS/ DISALLOWANCES TO THE RETURNED INCOME. FIRSTLY THE ASSESSEE HAS SHOWN CAPIT AL GAIN OF INR 2 900 000 WHICH WAS CLAIMED AS EXEMPT U/S 54EC OF THE INCOME TAX ACT WAS MADE TAXABLE AND SECONDLY DISALLOWED BONUS PAID TO THE PARTNERS OF RS. 4 972773/ . BOTH THE ISSUES WERE AGITATED BEFORE THE LEARNED CIT A WHERE IN APPEAL OF ASSESS EE WAS DISMISSED THEREFORE ASSESSEE IS IN APPEAL. 3. THE FIRST ISSUE IS WITH RESPECT TO CHARGEABILITY OF SUM OF INR 29 LACS. THE BRIEF FACTS SHOWS THAT ASSESSEE HAS CLAIMED TO HAVE SOLD A LONG - TERM CAPITAL ASSET BEING CLIENT RELATIONSHIP AND GOODWILL OF INTERNAL AUDIT AND RISK CONSULTANCY ( IARC) PRACTICE TO M / S PROTIVITY CONSULTING PRIVATE LIMITED ( PROTIVITY) FOR A TOTAL CONSIDERATION OF INR 7 600 000. THE ASSESSEE RECEIVED OUT OF THE ABOVE INR 7 600 000 / - RS. 29 LACS DURING THE RELEVANT PREVIOUS YEAR . BALANCE AMOUNT OF INR 4 700 000/ - WAS RECEIVED IN FINANCIAL YEAR 2012 13. THE ASSESSEE CLAIMED THE SAID RECEIPT OF INR 29 LACS ON SALE OF A LONG - TERM CAPITAL ASSET AND CLAIMED DEDUCTION UNDER SECTION 54 E C OF THE ACT BY WAY OF INVESTMENT IN SPECIFIED BOND. THE ASSESSEE ALSO ENTERED INTO A SEPARATE NON - SOLICITATION AND NON - COMPETE AGREEMENT ON 19/11/2010 WHEREBY THE ASSESSEE AGREED TO NOT TO SOLICIT AND CARRY OUT COMPETING BUSINESS FOR A CONSIDERATION OF INR 1 600 000/ - . THIS SUM WAS DISCLO SED BY THE ASSESSEE AS A BUSINESS INCOME IN ACCORDANCE WITH THE PROVISIONS OF SECTION 28 ( VA ) OF THE ACT. THEREFORE ONLY DISPUTE IS THAT WHETHER SUM OF RS 29 LAKHS RECEIVED BY ASSESSEE IS A CAPITAL RECEIPT OR OTHERWISE AS CAPITAL GAIN ON TRANSFER OF CA PITAL ASSETS ( AS ALTERNATIVELY CLAIMED BY THE ASSESSEE) OR NON COMPETE FEES ( AS CLAIMED BY THE LD AO). IF IT IS HELD THAT ASSESSEE HAS TRANSFERRED A CAPITAL ASSETS THEN WHETHER ASSESSEE SHOULD BE ELIGIBLE FOR EXEMPTION/ DEDUCTION U/S 54 EC OF THE ACT OR NOT. TO SUBSTANTIATE T HE CLAIM ASSESSEE SUBMITTED A. COPIES OF THE AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH THE BUYER OF THE PRACTICE M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 3 B. COPIES OF THE BILLS. C. COPIES OF NON COMPETE AGREEMENT THE LD AO ALSO MADE ENQUIRY WITH THE BUYER M /S PROTIVITY ON THE ISSUE AND OBTAINED CONFIRMATION ABOUT THE SALE OF PRACTICE . A SSESSEE EXPLAINED ISSUE BEFORE THE LEARNED ASSESSING OFFICER THAT THE FIRM IS IN THE PRACTICE AS CHARTERED ACCOUNTANT S AND WAS CARRYING O N INTERNAL AUDIT AND ASSURANCE PRACTICE AS A SEPARATE BUSINESS VERTICAL. IT IS ALSO CARRYING OUT OTHER PROFESSION SUCH AS AUDITS CONSULTANCY ET C. THE INTERNAL AUDIT PRACTICE WAS AGREED TO BE SOLD TO PROTIVITY ALONG WITH ALL ITS RIGHTS AND INTEREST IN THE SPECIFIED PRACTICE. T HE ASSESSEE WAS CARRYING ON THIS INTERNAL AUDIT PRACTICE OVER A PERIOD OF MORE THAN 30 YEARS AND THE OVERALL F IRMSS PRACTICE AND REPUTATION WAS FOR MORE THAN 60 YEARS. THE BUNDLE OF RIGHTS IN THE ABOVE PRACTICE WAS DEFINED AS THE PURCHASE ASSETS WHIC H IS CLIENT RELATIONSHIP AND GOODWILL . A SSESSEE SOLD IT FOR PAYMENT OF INR 2 900 000 AS THE 1 ST PART OF SALE PRICE. ONE OF THE PARTNERS OF THE ASSESSEE FIRM ALONG WITH SOME OF HIS WORKING TEAM WAS ALSO TO BE EMPLOYED BY PROTIVITY. THEREFORE THE CLAIM OF THE ASSESSEE WAS THAT CONSIDERATION RECEIVED BY IT OF RS 29 LAKHS IS A CAPITAL RECEIPT. ALTERNATIVELY IT ALSO CLAIMED THAT IF IT IS HELD TO BE TRANSFER OF A CAPITAL ASSETS THEN EXEMPTION U/S 54EC IS ALLOWABLE AS ASSESSEE HAS MADE RE QUISITE INVESTMENTS IN THE BONDS. ASSESSEE SUBMITTED THAT ABOVE SUM IS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAIN AND COST OF ACQUISITION OF THE SAME U/S 55 (2) (A) OF THE ACT IS NIL AND TOTAL SUM IS A LONG TERM CAPITAL AGAIN AGAINST WHICH A SSESSEE IS ELIGIBLE FOR EXEMPTION U/S 54 EC OF THE ACT . THE MAIN REASON FOR CLAIMING THAT IT IS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX AT ALL WAS THAT WHEN THE SOURCE OF THE INCOME WAS TERMINATED IT BECOMES A CAPITAL RECEIPT. THE ASSESSEE STATES THAT WHEN IT IS SOURCES OF INCOME THAT IS ITS INTERNAL AUDIT PRACTICE IS TERMINATED TO ANOTHER PARTY AND IT ENTERS INTO A NON COMPETE AGREEMENT TO NOT TO DO THE SIMILAR BUSINESS FOR A CERTAIN NUMBER OF YEARS THE RESULTANT CONSIDERATION RECEIVED FOR THE SAME SO FAR AS IT RELATES TO OTHER TH AN NONCOMPETE FEES IS A CAPITAL RECEIPT. THE LEARNED AO MADE ENQUIRY WITH THE PROTIVITY A ND FOUND THAT THE BILLS AND INVOICES AS WELL AS THE CLIENT LIST M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 4 CONSISTED NOT ONLY OF THE ERSTWHILE CLIENTS OF THE ASSESSEE AND IT WAS THAT IT WAS NOT SERVING ALL THE OLD CLIENTS OF THAT FIRM. HE ALSO FOUND THAT ONLY ONE OF THE PARTNERS RETIRED FROM THE FIRM AND JOINED PROTIVITY AS EMPLOYEE BUT STAFF OF IARC PRACTICE HAS NOT MOVED WITH HIM TO PROTIVITY. THEREFORE THE LE ARNED ASSESSING OFFICER WAS OF THE OPINION THAT THERE WAS NO EVIDENCE TO SUGGEST THAT INTERNAL AUDIT PRACTICE CARRIED OUT BY THE BUYER WAS ENJOYING THE GOODWILL ACQUIRED OVER THE YEAR BY THE ASSESSEE F IRM. HE WAS ALSO OF THE VIEW THAT IT CANNOT BE SAID T HAT PROTIVITY BOUGHT THE PRACTICE OF THE ASSESSEE AS IT DID NOT GET ALL THE CLIENTS OF THE ASSESSEE FIRM NOR THE ASSESSEE REQUESTED ITS CLIENTS TO MOVE OVER TO THAT PARTICULAR ENTITY . THE BUYER ALSO DID NOT USE ANY OF THE BRAND NAME OR TRADE NAME OF THE APPELLANT ASSESSEE IF ANY. THE LEARNED AO WAS ALSO OF THE VIEW THAT ASSESSEE DID NOTHING TO ENSURE THAT ALL ITS INTERNAL AUDIT CLIENTS MIGRATE TO THE BUYER POST AGREEMENT AND NOTHING WAS DONE BY THE PURCHASER TO RETAIN SUCH CLIENTS BY SUITABLY PUBLIC IZING THE DEAL OF PURCHASE OF THE INTERNAL AUDIT PRACTICE OF THE ASSESSEE. THEREFORE HE HELD THAT WHAT CLIENT RELATIONSHIP WAS ACTUALLY TRANSFERRED WAS NOT CLEAR. THE LEARNED AO WAS FURTHER OF THE VIEW THAT AS THE ENTIRE INTERNAL AUDIT TEAM OF THE ASSESSEE DID NOT SHIFT TO THE NEW BUYER BUT ONLY A PARTNER THEREFORE IT CANNOT BE SAID THAT A VERTICAL WA S ACTUALLY TRANSFERRED BY THE ASSESSEE FIRM. THE LEARNED AO THEREFORE WAS OF THE VIEW THAT A SUM OF INR 7 600 000 RECEIVED BY THE ASSESSEE WAS PAID TO THE ASSESSEE TO MAKE ITSELF ABSENT FROM THE FIELD OF INTERNAL AUDIT PRACTICE. LD AO ALSO REJECTED RELI ANCE PLACED BY ASSESSEE ON THE DECISION OF HONOURABLE DELHI HIGH COURT IN ACIT VS KHANNA & ANNADHANAM 2013 - TIOL - 163 - HC - DEL - WAS ALSO NOT ACCEPTED BY THE AO IN STA TING THAT IT IS DISTINGUISHABLE ON FACTS. T HEREFORE HE HELD THAT THE CLAIM OF THE ASSESSEE OF THE SALE OF THE CLIENT RELATIONSHIP AND GOODWILL OF THE INTERNAL AUDIT PRACTICE IS A NONCOMPETE FEE RECEIVED FOR NOT TO CARRY OUT A SPECIFIC BUSINESS ACTIVITY AND IS CHARGEABLE TO TAX UNDER SECTION 28 ( V A ) OF THE ACT. AS HE HAS TAXED ABOVE SUM AS BUSINESS INCOME THERE WAS NO QUESTION OF GRANTING DEDUCTION U/S 54EC OF THE ACT. M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 5 4. ON APPEAL BEFORE THE LEARNED CIT A ASSESSEE REITERATED THE SAME FACTS AND ARGUMENTS. HE HELD THAT THE CLAIM OF THE ASSESSE E THAT THE GOODWILL HAS BEEN SOLD IS NOT APPARENT FROM THE FACTS. HE HELD THAT THE INVOICES AND BILLS DO NOT SHOW THE NAME OF THE ASSESSEE APPEARING AND THUS THE FACT DID NOT SHOW THAT THE BRAND NAME OF THE APPELLANT WAS BEING USED. HE FURTHER STATED TH AT THERE IS NO EVIDENCE TO SHOW THAT THE INTERNAL AUDIT PRACTICE OF THE APPELLANT HAS BEEN TRANSFERRED IN ENTIRETY TO THE BUYER. HOWEVER HE STATED THAT THE GOODWILL EXIST WITH CLIENT RELATIONSHIP OR THE NAME OF THE APPELLANT AS REPUTATION IN CONNEC TION OF THE BUSINESS. HE ALSO NOTED THAT THE APPELLANT HAS NO DOUBT STOPPED THE PRACTICE IN THE RESPECT OF INTERNAL AUDIT AFTER ENTERING INTO IMPUGNED AGREEMENT WITH THE BUYER HOWEVER THE ABOVE FACT DO NOT SHOW THAT ANY OF THE ASSET I.E. GOO DWILL HAS BEEN TRANSFERRED. THUS HE HELD THAT THE SUM RECEIVED OF INR 29 00 000 BY THE ASSESSEE IS A NONCOMPETE FEE WHICH IS TAXABLE U/S 28 ( VA) OF THE ACT. HE FURTHER RELIED ON THE SERIES OF DECISIONS AND REJECTED THE SEVERAL DECISIONS RELIED UPON BY THE ASSESSEE. HE THEREFORE REJECTED THE CLAIM OF THE ASSESSEE TO TREAT SALE OF GOODWILL AND HE TREATED THE RECEIPT AS A NONCOMPETE FEE AND MADE A TAXABLE U/S 28 ( VA ) OF THE ACT. HE FURTHER DID NOT GRANT BENEFIT OF DEDUCTION UNDER SECTION 54EC ALSO AS TH ERE WAS NO CAPITAL GAIN BUT BUSINESS INCOME. 5. ASSESSEE AGGRIEVED WITH THE ORDER OF THE LOWER AUTHORITIES CHALLENGED THIS ISSUE AS PER GROUND NUMBER 1 OF TH IS APPEAL. THE LEARNED AUTHORISED REPRESENTATIVE REFERRED TO THE FACTS OF THE CASE. HE REFERRED TO THE AGREEMENT DATED 3/11/2010 ENTERED INTO FOR PURCHASE AND SALE OF ASSETS PLACED AT PAGE NUMBER 27 97 OF THE PAPER BOOK . H E S UBMITTED THAT ASSESSEE FIRM WAS CARRYING ON THE PROFESSION OF THE CHARTERED ACCOUNTANCY FOR LAST ALMOST 60 YEARS SOLD THEIR INTERNA L AUDIT PRACTICE TO AN INTERNATIONAL LEADING F I RM PROTIVITY . AS PER AGREEMENT CLIENT CONTRACTS CLIENT RELATIONSHIP WAS TRANSFERRED ALONG WITH THE PARTNER AND HIS TEAM OF THE FIRM WHO WAS HANDLING THE INTERNAL AUDIT PRACTICE TO THE ABOVE BUYER FOR INR 2 900 000 / - TO BE PAYABLE TOWARDS PURCHASE PRICE OF G OODWILL AND CLIENT RELATIONSHIP. H E REFERRED TO THE VARIOUS CLAUSES OF THE AGREEMENT AND SUBMITTED THAT THERE WERE SEVERAL CONDIT ION PRECEDENTS WHICH SHOWS THAT M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 6 THE ASSESSEE HAS SOLD THE INTERNAL AUDIT PRACTICE ALONG WITH THE CLIENT LIST AND CLIENT RELATIONSHIP TO THE BUYER. HE FURTHER SUBMITTED THAT ASSESSEE ENTERED INTO A FURTHER AGREEMENT FOR NON - SOLICIT ATION AND NON - COMPETE A GREEMENT WITH THE ABOVE BUYER ALONG WITH ITS PARTNERS. THE BUYER ALSO PAID A SUM OF INR 1 600 000 / - FOR THAT WHICH IS OFFERED FOR TAXATION U/S 28 (VA) OF THE ACT AND IS NOT IN DISPUTE . HE FURTHER REFERRED TO PAGE NUMBER 107 OF THE PAPER BOOK WHICH IS A CONFIRMATION FROM BUYER V IDE LETTER DATED 12/02/2014 THAT THEY HAVE ACQUIRED THE INTERNAL AUDIT PRACTICE OF THE ASSESSEE FIRM FOR A SUM OF INR 2 900 000 / - . HE SUBMITTED THAT THE COMPLETE EVIDENCES WERE PLACED BEFORE THE LOWER AUTHORITIES WHICH EVEN INCLUDED THE CONFIRMATION FROM THE BUYER. HE ALSO REFERRED TO THE AGREEMENT CLAUSES WHICH SHOWS THAT WHAT IS PURCHASED ASSETS DEFINED IN AGREEMENT AS CLIENT RELATIONSHIP AND GOODWILL ONLY . WITH RESPECT TO THE TRANSFER OF THE CLIENT RELATIONSHIP H E STATED THAT AS PER THE LETTER DATED 29/1/2014 ASSESSEE SUBMITTED BEFORE THE AO DETAILS OF THE CLIENTS WHICH WERE ACQUIRED BY THE BUYER AND CONFIRMATION OF THE BUYER WITH RESPECT TO THOSE CLIENTS. HOWEVER ON OBSERVATION OF LD AO THAT THAT ALL THE C LIENTS OF THE ASSESSEE WERE NOT SERVED BY THE BUYER AND NOT ALL THE CLIENTS OF THE ASSESSEE PRIOR TO THE ACQUISITION BY THE BUYER REMAINED WITH THE BUYER HE SUBMITTED THAT AT THE TIME OF ACQUISITION ASSESSEE TRANSFERRED ALL CLIENT RELATIONSHIP AND THEREF ORE LATER ON IT IS FOR THE CLIENTS AND THE NEW BUYER TO CONTINUE THAT RELATIONSHIP. HE SUBMITTED THAT ASSESSEE DID NOT CARRY ON INTERNAL AUDIT PRACTICE WITH THOSE CLIENTS AND IT IS P URELY A BUSINESS CALL FOR BOTH THE SIDES ON WHICH ASSESSEE DOES NOT H AVE ANY CONTROL. ON THE FINDING OF LD AO ABOUT TRANSFER OF THE EMPLOYEES HE SUBMITTED THAT LEARNED CIT APPEAL HAS NOTED THAT THE INTERNAL AUDIT VERTICAL EMPLOYEES OF THE ASSESSEE JOINED THE BUYER HENCE FINDING OF LD AO WAS HELD TO BE ERRONEOUS BY LD CIT (A) THEREFORE TH IS ARGUMENT OF THE AO DOES NOT SURVIVE. HE FURTHER STATED THAT FOR NOT COMPETING WITH THE SIMILAR BUSINESS OF THE BUYER ASSESSEE WAS FURTHER PAID A SUM OF INR 1 600 000 WHICH WAS OFFERED AS A NON COMPETE FEES A ND THERE IS NO DISPUTE ON THE SAME. THEREFORE THERE IS EVIDENCE BASED ON WHICH LOWER AUTHORITIES HELD THAT THIS SUM OF RS 29 LAKHS IS ALSO A NON COMPETE FEES. THEREFORE HE STATED THAT ABOVE SUM RECEIVED BY THE M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 7 ASSESSEE IS A CAPITAL RECEIPT. EVEN OTHERWISE HE STATED THAT EVEN IF IT IS TAXABLE AS A CAPITAL GAIN THE PROVISIONS OF SECTION 55 (2) (A) OF THE ACT APPLIES AND THE COST OF ACQUISITION OF THE SAME IS NIL BUT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SE CTION 54 EC OF THE ACT. HE FURTHER RELIED ON THE DECISION OF THE HONOURABLE DELHI HIGH COURT IN 351 ITR 110 MAINLY. THEREFORE HE STATED THAT ANY SUM RECEIVED BY THE ASSESSEE IN CONSEQUENCE OF IMPAIRMENT OF PROFIT EARNING APPARATUS IS IN THE NATURE OF CAPI TAL RECEIPT AND NOT TAXABLE AS THE CAPITAL GAIN OR BUSINESS PROFIT. EVEN OTHERWISE HE SUBMITTED THAT IF THE CLIENT RELATIONSHIP AND THE GOODWILL ARE HELD TO BE A CAPITAL ASSET TRANSFER OF WHICH IS CHARGEABLE TO TAX AS CAPITAL GAIN THEN ASSESSEE IS ENTI TLED TO DEDUCTION UNDER SECTION 54 E C OF THE ACT. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE EXTENSIVELY REFERRED TO THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT SUM OF INR 2 900 000 RECEIVED BY THE ASSESSEE IS CHARGEABLE TO TAX AS NON COMPETE FEES O NLY. HE STATED THAT THE FINDING OF THE LEARNED AO AND THE LEARNED CIT A CLEARLY D EMONSTRATE S THAT ASSESSEE HAS NOT COMPLETELY HIVED OF ITS INTERNAL AUDIT BUSINESS AS MANY OF THE CLIENTS OF THE ASSESSEE FIRM DID NOT GO WITH THE BUYER AND EVEN BUYER DID NOT SERVE MANY OF THE EXISTING CLIENTS OF THE INTERNAL AUDIT BUSINESS OF THE ASSESSEE FIRM. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO CONSIDERED THE RELEVANT JUDICIAL PRECEDENTS PLACED BEFORE US. THE UNDISPUTED FACTS OF THE CASE IS THAT ASSESSEE IS A FORM OF CHARTERED ACCOUNTANT CARRYING ON THE PROFESSION OF CHARTERED ACCOUNTANCY HAVING A STANDING OF ALMOST 60 YEARS DISCONTINUED ITS BUSINESS OF INTERNAL AUDIT BY TRANSFERRING IT TO A N INTERNATIONAL FIRM PROTIVITY BY AGREEMENT DATED 3/11/2010 TITLED AS AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS. ACCORDING TO THE AGREEMENT IT IS AGREED BY THE PARTIES THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES RELATED TO IN TERNAL AUDIT AND RISK CONSULTING PRACTICE. THE BUYER AGREED TO PURCHASE THE SPECIFIED ASSETS IN TERMS OF THE ABOVE AGREEMENT AND THE ASSESSEE FIRM HAS AGREED TO TRANSFER ALL RIGHTS / INTEREST ENTITLED IN THE SPECIFIED ASSETS. AS PER ARTICLE 2 OF THE AGREE MENT IT IS FURTHER STATED THAT THE ASSESSEE FIRM IS OWNER OF THE PURCHASED ASSET AGREES TO SALE TRANSFER M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 8 ASIDE AND CONVEY TO THE PURCHASER ALL THE PURCHASED ASSETS. THE PURCHASED ASSETS HAVE ALSO BEEN DEFINED IN ARTICLE 1 OF THE AGREEMENT WHICH MEAN S COLLECTIVELY CLIENT RELATIONSHIPS AND GOODWILL . THE CLIENT RELATIONSHIPS ARE ALSO DEFINED IN THE ARTICLE 1 MEANING THE RELATIONSHIPS TRADE CONNECTIONS REFERRALS AND FUTURE OPPORTUNITIES CULTIVATED OVER THE YEARS IN RELATION TO THE IARC PRACTICE IN CLUDING CLIENT CONTACTS AND/OR CONTRACTS ENTERED INTO WITH ANY OTHER PERSON IN RELATION TO THE IARC PRACTICE AND INCLUDES ALL RIGHTS TITLE AND INTEREST IN THE SAME TOGETHER WITH THE RIGHT TO REPRESENT TO 3 RD PARTIES THAT THE PURCHASER IS THE OWNER OF THE AFORESAID. THE CLIENT CONTRACTS HAVE ALSO BEEN DEFINED IN THE ARTICLE 1 MEANING THAT THE CONTRACTS OR AGRE EMENTS OR ENGAGEMENT LETTERS OF CONFIRMATION EXECUTIVE OR ISSUED NOVATED BY THE CLIENTS WHICH AS ON THE COMPLETION DATE SHALL ALREADY REFLECT THE ENGAGEMENT OF THE IDENTIFIED PERSON OF THE PURCHASER BY SUCH CLIENTS TO THE SATISFACTION OF THE PURCHASER FOR AVAILING OF SERVICES BY CLIENTS IN RELATION TO IARC PRACTICE AND SHALL INCLUDE ANY PRIOR / IN FUTURE RELATIONSHIPS WITH SUCH CLIENTS. IN THE SAME ARTICLE 1 GOODWILL HAS ALSO BEEN DEFINED MEANING THAT THE GOODWILL PERTAINING TO THE IARC PRACTICE WHICH TRANSLATES TO A SELF GENERATED ASSET COMPRISING OF CLIENT RELATIONSHIP AND REPUTATION GENERATED AND INCLUDES THE RIGHT TITLE AND INTEREST WITH RESPECT TO BUSINESS RELAT ING TO IARC PRACTICE TOGETHER WITH THE RIGHT TO REPRESENT TO 3 RD PARTIES AND THAT THE PURCHASER IS THE OWNER OF THE AFORESAID. ANNEXURE B OF THE AGREEMENT SHOWS LIST OF IARC CLIENT AND RELATIONSHIPS OF THE COMPANY. ANNEXURE C TO THE AGREEMENT SHOWS THE P URCHASE PRICE OF INR 29 LACS FOR CLIENT RELATIONSHIP AND GOODWILL TO BE PAID SUBJECT TO THE TERMS OF THE AGREEMENT. FURTHER INR 4 700 000 WHICH IS TO BE PAID IN THE 2 ND PART OF THE PURCHASE PRICE WHICH IS NOT PERTAINING TO THIS YEARS RELEASE OF ONE OF THE PARTNER FROM PARTNERSHIP AND HIS CONTINUOUS EMPLOYMENT WITH THE BUYER. FURTHER SCHEDULED 2 2 1 (A) SHOWS THE LIST OF CONTRACTS IN RELATION TO THE CLIENT RELATIONSHIP THAT ARE UNDER NEGOTIATION AS PER THE FORMATS PROVIDED BY THE PURCHASER IS AN EFF ECTIVE DATE AND LIST OF EXISTING CONTRACTS WITH THE RESPECT TO CLIENT RELATIONSHIPS THAT DO NOT CONTAIN STANDARD CLAUSES ARE SET OUT IN THE FORMATS PROVIDED BY THE PURCHASER. THIS AGREEMENT ITSELF SHOWS THAT BEFORE BUYING THE IARC PRACTICE OF THE ASSESSEE THE BUYER HAS MADE A M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 9 COMPLETE DUE DILIGENCE OF THE PRACTICE HAND HAS PURCHASED THE ONGOING CONTRACTS ALONG WITH THE CLIENT RELATIONSHIP FOR INR 2 900 000. AS ACCORDING TO US THE CLIENT LIST CONTRACTS ARE PROPERTY OF THE ASSESSEE FIRM WHICH IS CONNECTED WITH THE PROFESSION OF THE ASSESSEE IT FALLS INTO THE DEFINITION OF CAPITAL ASSET ACCORDING TO SECTION 2 (14) OF THE ACT. THEREFORE ACCORDING TO US THE ASSESSEE HAS TRANSFERRED IT CAPITAL ASSETS AS DEFINED UNDER SECTION 2 (14) OF THE INCOME TAX ACT IT CA NNOT BE SAID THAT THE ABOVE SUM RECEIVED BY THE ASSESSEE IS A CAPITAL RECEIPT WHICH IS NOT CHARGEABLE TO TAX. ACCORDING TO US THE ASSESSEE HAS TRANSFERRED CAPITAL ASSET THEREFORE IT IS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAIN. IT CAN ALSO NOT BE CONSIDERED AS A NONCOMPETE FEES BECAUSE IN THE AGREEMENT THROUGH WHICH THE ASSESSEE HAS RECEIVED INR 29 LACS DOES NOT TALK ABOUT THE NONCOMPETE CONDITIONS. FOR THE SAME THE ASSESSEE HAS ENTERED INTO ANOTHER AGREEMENT FOR WHICH INR 1 600 000 HAVE BEEN PAID BY THE BUYER TO THE ASSESSEE WHICH HAS BEEN OFFERED BY THEM AS A NONCOMPETE FEES AS BUSINESS INCOME. FURTHER AS THE ABOVE CLIENT LIST AND CONTRACT RELATIONSHIP IS BEEN BUILT BY THE ASSESSEE OVER PAST 30 YEARS IT CAN ALSO NOT BE HELD TO BE A SHORT - TERM CAPITAL ASSET BUT THEY ARE A LONG - TERM CAPITAL ASSET. NOW THE 2 ND QUESTION ARISES ABOUT THE COST OF ACQUISITION OF THESE ASSETS. THE ASSESSEE HAS NOT PURCHASED THE REASSESSMENT ARE SELF - ACQUIRED THEREFORE ACCORDING TO THE PROVISIONS OF SECTION 55 (2) (A) (II) THE COST OF THE ACQUISITION OF THESE ESSENTIAL BE TAKEN TO BE NIL. THEREFORE INR 2 900 000 ON BY THE ASSESS IS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAIN AND THE COST OF ACQUISITION BEING NIL. THEREFORE INR 2 900 000 CANNOT BE TAXED AS NONCOMPE TE FEES AND ALSO CANNOT BE CONSIDERED AS CAPITAL RECEIPT BUT IS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS. AS THE ASSESSEE HAS MADE AN INVESTMENT IN THE SPECIFIED BONDS AND CAPITAL GAIN HAS ARISEN TO THE ASSESSEE FROM TRANSFER OF A LONG - TERM CAPITAL ASSET ASSESSEE IS ALSO ELIGIBLE FOR EXEMPTION UNDER THAT SECTION. IN VIEW OF THIS GROUND NUMBER 1 OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8. THE SECOND ISSUE IN THE APPEAL IS WITH RESPECT TO THE DISALLOWANCE OF RS. 4 972773 / - AS BONUS PAID TO THE PARTNERS. THE BRIEF FACT SHOWS THAT THE FIRM WAS CARRYING ON THE PROFESSION OF THE CHARTERED ACCOUNTANCY IN TERMS OF THE PARTNERSHIP DEED DATED 29/9/2006 AND 19/11/2010 READ WITH THE M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 10 SUPPLEMENTARY DEED DATED 18/11/2010 AND 31/3/2010. ON 18/11/20 10 ON E THE PARTNER S OF THE F IRM RETIRED TO TAKE UP EMPLOYMENT WITH THE PROTIVITY AND THE SUPPLEMENTARY DEED DATED 18/11/2010 WAS TO SANCTION BONUS TO ALL THE EXISTING SEVEN PARTNERS BEFORE A NEW PARTNER COULD BE ENTERED. SUBSEQUENTLY A SUPPLEMENTARY PARTNERSHIP DEED DATED 31/3/2011 WAS ENTERED INTO AN ADDITIONAL BONUS FOR REMAINING SIX PARTNERS WAS SANCTIONED. THE LEARNED ASSESSING OFFICER REFERRED TO PARA NUMBER 13 (C) OF THE PARTNERSHIP DEED DATED 29/9/2006 AND STATED THAT THE PAR TNERS MAY BE ENTITLED TO BE PAID BONUS AND COMMISSION ON NET PROFITS OF THE FIRM AFTER CHARGING THE ABOVE SALARY AND BONUS SO HOWEVER THAT THE PAYMENT OF BONUS AND COMMISSION SELL BE AT THE ABSOLUTE DISCRETION OF THE PARTNERS AND WILL BE PAID WITH THE CONC URRENCE OF ALL THE PARTNERS AND PAID TO ALL 3 OR ANY OF THE WORKING PARTNERS AS DECIDED BY THE PARTNERS. SUBSEQUENTLY ON 18/11/2010 AND 31/3/2011 THE ASSESSEE RESO LVES TO SANCTION BONUS TO ALL THE PARTNERS. AS PER PARTNERSHIP DEED DATED 18/11/2010 THE B ONUS OF INR 5 322484 WAS SANCTIONED AND AS PER THE PARTNERSHIP DEED DATED 31/3/2011 RS. 1464834/ WAS AUTHORISED. THEREFORE THE TOTAL BONUS PAYMENT AUTHORISED BY THE ASSESSEE WAS OF INR 6787318 / - . THE ABOVE B ONUS PAYMENT WAS AUTHORISED IN THE PARTNERSH IP DEED. THE LEARNED AO NOTED THAT THE HONOURABLE DELHI HIGH COURT IN SOOD BRIDGE ASSOCIATES VS CIT HAS HELD THAT FOR ALLOWABILITY OF REMUNERATION TO THE PARTNERS THE PARTNERSHIP DEED MUST QUANTIFY OR PROVIDE THE MANNER OF COMPUTING THE REMUNERATION PAYA BLE TO THE PARTNERS AND IT SHOULD NOT BE LEFT TO THE DISCRETION OF THE PARTNERS TO BE DECIDED BASED ON FURTHER NEGOTIATION LETTER ON. THE AO FURTHER HELD THAT THAT THE CLAUSE 13 ( C ) OF THE PARTNERSHIP DEED DATED 29/9/2006 DID NOT SPECIFY THE AMOUNT OF B ONUS PAYABLE NOT PRESCRIBE ANY MANNER OF COMPUTATION FOR THE SAME HENCE ACCORDING TO HIM THE ABOVE B ONUS IS NOT ALLOWABLE TO THE ASSESSEE. HE FURTHER STATED THAT THOUGH THE ASSESSEE FIRM APPEARS TO AGREE WITH THIS PROPOSITION AND IT EXECUTED TWO MORE SUPPLEMENTARY PARTNERSHIP DEED DATED 18/11/2010 AND 31/3/ 2011 WHICH QUANTIFIED THE SAID BONUS. THEREFORE HE HELD THAT NO BONUS PAID TO THE PARTNERS DURING THE RELEVANT PREVIOUS YEAR COULD BE ALLOWED BASED ON THE PARTNERSHIP DEED DATED 29/9/2006. THERE AFTER HE REFERRED TO THE M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 11 PROVISIONS OF SECTION 40 ( B ) OF THE INCOME TAX ACT AND NOTED THAT THE PARTNERSHIP DEED CAN ONLY SANCTION PAYMENT OF BONUS WITH PROSPECTIVELY AND NOT RETROSPECTIVELY THE PAYMENT CAN ONLY BE TO A PARTNER AND NOT TO SOMEONE WHO HA S RETIRED AS A PARTNER THE SUPPLEMENTARY PARTNERSHIP DEEDS CAN ONLY SANCTION PAYMENT OF BONUS SUBSEQUENT TO THAT. HE FURTHER HELD THAT THE PAYMENT MADE IN ACCORDANCE WITH THE SUPPLEMENTARY PARTNERSHIP DEED EXECUTIVE ON THE LAST DAY OF THE FINANCIAL YEAR CANNOT BE ALLOWED FOR THE FINANCIAL YEAR AS IT WOULD AMOUNT TO SANCTIONING THE BONUS WITH RETROSPECTIVE EFFE CT. HE FURTHER HELD THAT SHRI AKSHAY BHALLA RETIRED FROM THE FIRM WITH EFFECT FROM 18/11/2010 AND BONUS SANCTION ED TO HIM BY PARTNERSHIP DEED DATE D 18/11/2010 CANNOT BE ALLOWED UNDER THE INCOME TAX ACT. THEREFORE OUT OF THE TOTAL BONUS PAID OF INR 6 787318/ FOR THE FULL YEAR HE COMPUTED THE ALLOWABLE BONUS FOR 4 MONTHS AND 12 DAYS OUT OF 12 MO NTHS AND STATED THAT ONLY INR 1 814544/ IS ALLOWABLE TO THE ASSESSEE. C ONSEQUENTLY HE DISALLOWED INR 4 972773 AS EXCESS BONUS PAID DURING THE YEAR. 9. AGAINST THE ABOVE DISALLOWANCE THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT A WHO CONFIRMED THE DISALLOWANCE HOLDING THAT SI NCE IN THE CASE OF THE APPELLANT THE ORIGINAL PARTNERSHIP DEED DOES NOT SPECIFY THE MANNER OF COMPUTATION OF BONUS THEREFORE BONUS CANNOT BE ALLOWED UNDER THE ORIGINAL PARTNERSHIP DEED. HE FURTHER HELD THAT SUPPLEMENTARY PARTNERSHIP DEED CANNOT BE MAD E APPLICABLE FOR THE PERIOD PRIOR TO THE DATE OF AUTHORIZATION . 10. THE ASSESSEE AGGRIEVED WITH THE ORDER OF THE LOWER AUTHORITIES CHALLENGED THE ABOVE DISALLOWANCE AS PER GROUND NUMBER 2 OF THE APPEAL. THE LEARNED AUTHORISED REPRESENTATIVE CONTESTING THE ABO VE DISALLOWANCE STATED THAT THE SUPPLEMENTARY PARTNERSHIP DEED DATED 18/11/2010 AND 19/11/2010 AS WELL AS 31/3/2011 COMPLETELY DISCLOSED THE MANNER OF THE COMPUTATION OF THE BONUS PAYABLE TO THE PARTNERS. HE FURTHER REFERRED TO THE PROVISIONS OF SECTION 4 0 (B ) OF THE ACT TO SHOW THAT IF THE PAYMENT IS IN ACCORDANCE WITH AND AUTHORISED BY THE PARTNERSHIP DEED THE SAME IS REQUIRED TO BE ALLOWED TO THE ASSESSEE. HE FURTHER STATED THAT SUPPLEMENTARY DEED PROVIDED FOR PAYMENT OF BONUS FOR THE YEAR THEREFORE THERE CANNOT BE ANY QUESTION OF M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 12 PAYING ANY BONUS WITH RETROSPECTIVE EFFECT. HE FURTHER STATED THAT ALL THE SUPPLEMENTARY DEEDS WERE EXECUTIVE DURING THE YEAR THE PROFIT ACCRUED TO THE ASSESSEE AT THE END OF THE YEAR AND THEREFORE THE ASSESSEE WAS ENTIT LED TO THE CLAIM OF THE BONUS IN FULL. HE FURTHER REFERRED TO THE FACT THAT THE LEARNED ASSESSING OFFICER HAS WRONGLY NOTED PARTNERSHIP DEED DATED 18/11/ 2010 WHICH IS IN FACT PARTNERSHIP DEED DATED 29/9/2006 READ WITH SUPPLEMENTARY DEED DATED 18/11/2010 . SIMILAR ERROR MADE BY THE LEARNED ASSESSING OFFICER WAS ALSO POINTED OUT IN THE TABLE PRODUCED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER . H E FURTHER STATED THAT EVEN OTHERWISE THE QUANTUM OF THE PAYMENT OF THE BONUS WAS DECIDED AT THE END OF THE S PECIFIC FINANCIAL YEAR AND AUTHORISED BY THE SUPPLEMENTARY DEED. SUPPLEMENTARY PARTNERSHIP DEED IS PART OF THE ORIGINAL PARTNERSHIP DEED . HE FURTHER STATED THAT IT IS AN ACCEPTED LAW THAT THE PROFITS ARE DETERMINED AT THE END OF THE FINANCIAL YEAR AND NOT ON DAILY BASES. THEREFORE IT CANNOT BE HELD THAT THE PROFIT ACCRUED TO THE ASSESSEE PRIOR TO THE CLOSE OF THE ACCOUNTING YEAR. HE FURTHER STATED THAT QUANTIFICATION OF BONUS CANNOT BE MADE IN THE PARTNERSHIP DEED ITSELF BUT AUTHORITY TO PAY BONUS ARISE S FROM THE PARTNERSHIP DEED. HE FURTHER STATED THAT PROVISIONS OF SECTION 40 ( B ) ONLY PRESCRIBES THAT THE PAYMENT HAS TO BE MADE IN ACCORDANCE WITH AND AUTHORISED BY THE PARTNERSHIP DEED. HE FURTHER STATED THAT THE DECISION RELIED UPON BY THE LEARNED CIT A OF THE HONOURABLE DELHI HIGH COURT CLEARLY SHOWS THAT THERE WAS NO MENTION OF ANY AMOUNT IN THE PARTNERSHIP DEED OR IN THE SUPPLEMENTARY DEED. HE REFERRED TO THE PARAGRAPH NUMBER 14 OF THAT DECISION AND THEREFORE HE STATED THAT THE ABOVE DECISION IS DISTINGUISHABLE ON THE FACT AND THEREFORE DOES NOT APPLY. HE FURTHER REFERRED TO THE SEVERAL JUDICIAL PRECEDENT AND N OTABLE AMONGST THEM WAS CIT VS VAISH ASSOCIATES 63 TAXMANN.COM 90 (2015) AND STATED THAT THE ISSUE IS FULLY COVERED IN FAVOUR OF THE ASSE SSEE. ACCORDINGLY HE SUBMITTED THAT THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES IS NOT IN ACCORDANCE WITH THE PROVISION OF THE LAW. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED LOWER AUTHORITIES AND SUBMITTED T HAT ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONOURABLE DELHI HIGH COURT AS M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 13 STATED BY THE LEARNED CIT A. HE REITERATED THE SAME FACTS AND STATED THAT WHEN THE PARTNERSHIP DEED WHICH ARE CALLED AS A SUPPLEMENTARY PARTNERSHIP DEED WERE ENTERED LATER ON THEREFORE FROM THAT DATE ONLY THE BONUS IS ALLOWABLE TO THE PARTNERS WHICH THE ASSESSING OFFICER HAS ALLOWED. IT WAS FURTHER STATED THAT WHEN THE SUPPLEMENTARY DEEDS WERE ENTERED INTO BY THE ASSESSEE ON SUBSEQUENT DATE PRIOR TO THAT DATE THERE WAS NO AUTHORIZATION OF THE PAYMENT OF BONUS. THEREFORE IT CANNOT BE SAID THAT THE PAYMENT OF THE BONUS IS AUTHORISED BY AND IN ACCORDANCE WITH THE PARTNERSHIP DEED. IT WAS THEREFORE SUBMITTED THAT THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT A M AY BE UPHELD. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO CONSIDERED THE JUDICIAL PRECEDENTS RELIED UPON BY BOTH THE PARTIES. UNDISPUTEDLY THE ORIGINAL PARTNERSHIP DEED DATED 29 TH DAY OF SEPTEMBER 2006 CLAUSE 13 DEALS WITH THE REVELATION TO THE PARTNERS. AS PER CLAUSE ( A) THE MAXIMUM REMUNERATIO N PAYABLE TO THE PARTNERS HAS BEEN MENTIONED. IN CLAUSE ( B) FIXED AMOUNT OF SALARY IS MENTIONED WITH RESPECT TO EACH OF THE PARTNER. IN CLAUSE ( C) IT IS PROVIDED THAT PARTNERS MAY ALSO BE ENTITLED TO BE PAID BONUS COMMISSION ON NET PROFITS OF THE FIRM . SUBSEQUENTLY A SUPPLEMENTARY PARTNERSHIP DEED WAS ENTERED INTO ON 18 TH DAY OF NOVEMBER 2010. AS PER THIS DEED THE CLAUSE 13 ( C ) OF THE ORIGINAL PARTNERSHIP DEED DATED 29/09/2006 WAS AMENDED AND IT WAS AGREED AMONG THE PARTNERS THAT THE BONUS SHALL B E PAID TO THE PARTNERS FOR THE YEAR ENDED 31 ST OF MARCH 2011. ACCORDING TO THAT AGAINST EACH PARTNER OF A FIXED SUM WAS MENTIONED. FURTHER ON 19/11/2010 A FURTHER PARTNERSHIP DEED WAS EXECUTED WHEREIN IDENTICALLY IN CLAUSE NUMBER 13 THERE WAS A PROVIS ION OF PAYMENT OF BONUS TO THE PARTNERS. THIS PARTNERSHIP DEED WAS NECESSITATED WHEN MR. AKSHAY BHALLA RETIRED FROM THE FIRM. FURTHER ON 31 ST MAY OF MARCH 2011 THE SAID CLAUSE 13 C OF THE PARTNERSHIP DEED DATED 19/11/2010 WAS AMENDED FURTHER PROVIDE BON US TO THE PARTNERS AT THE FIXED SUM WHICH IS MENTIONED AGAINST THE EACH OF THE PARTNERS. THE SUPPLEMENTARY DEED STATED THAT IT IS APPLICABLE FOR THE FINANCIAL YEAR 2010 11 ONLY. THEREFORE IT IS APPARENT THAT THE FIXED SUM OF BONUS IS MENTIONED M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 14 AGAINST THE NAME OF THE EACH PARTNER. THE BONUS WILL ALSO PAID IN TERMS OF THE CLAUSE OF THE PARTNERSHIP DEED. THEREFORE ACCORDING TO US THE AMOUNT OF PARTNERS REMUNERATION WHICH INCLUDES THE ABOVE BONUS IS IN ACCORDANCE WITH AND AUTHORISED BY THE PARTNERS HIP DEEDS OF THE ASSESSEE. FURTHER NOW THE ONLY ISSUE THAT REMAINS IS WHETHER THE SUPPLEMENTARY PARTNERSHIP DEED ENTERED ON 31 ST DAY OF MARCH 2011 AND 18 TH DAY OF NOVEMBER 2010 THE PARTNERS CAN BE ALLOWED THE BONUS PRIOR TO THOSE DATES OR NOT BECAUSE IN THE ORIGINAL PARTNERSHIP DEED DATED 29 TH DAY OF SEPTEMBER 2006 THOUGH THERE WAS PROVISION OF PAYMENT OF BONUS HOWEVER THERE WAS NO QUANTIFICATION OF THE MA NNER OF COMPUTATION OF THE BONUS PAYABLE TO THE PARTNERS WAS MENTIONED. HOWEVER IN THE SUPPLEMENTARY DEED THE EXACT AMOUNT OF BONUS PAYABLE TO THE EACH OF THE PARTNER IS MENTIONED. ON READING OF THE SUPPLEMENTARY DEED PROVIDED FOR THE PAYMENT OF BONUS ON 18 TH DAY OF NOVEMBER 2010. THEREFORE ON THAT PARTICULAR DATE ONLY THE BONUS ACCRUED TO THE PARTNERS. SIMILARLY WIDE SUPPLEMENTARY DEED DATED 31 ST DAY OF MARCH 2011 IT WAS DECIDED TO PAY THE BONUS AND THEREFORE IT ACCRUED TO THE PARTNERS ON THE SAME D ATE. IN BOTH THE PARTNERSHIP DEED WHICH IS CALLED SUPPLEMENTARY PARTNERSHIP DEED IT WAS SPECIFICALLY MENTIONED THAT THEY APPLY TO THE FINANCIAL YEAR 2010 11. THE PROFIT OF THE PARTNERSHIP FIRM CAN ONLY BE COMPUTED AT THE END OF THE YEAR WHEN THE BOOK S OF ACCOUNTS ARE DRAWN UP AND MADE UP. THEREFORE ACCORDING TO US THE ABOVE PAYMENT OF BONUS PAID TO THE PARTNERS IS IN ACCORDANCE WITH THE PARTNERSHIP DEED AUTHORISED BY IT AND IT APPLIES FOR THE FULL YEAR. THE DECISION RELIED UPON BY THE REVENUE IN 15 TAXMANN.COM 76 (DELHI) CLEARLY SHOWS THAT IN PARA NUMBER 9 HONOURABLE HIGH COURT RECORDED THAT CLAUSE 1 OF THE SUPPLEMENTARY PARTNERSHIP DEED DATED 01/04/1992 AUTHORIZES PAYMENT OF REMUNERATION TO THE PARTNERS BUT DOES NOT QUANTIFY THE SAME. IT ALSO DID NOT PRESCRIBE ANY METHOD OR MANNER TO CALCULATE AND COMPUTE THE REMUNERATION. IN THAT PARTICULAR CASE THE REMUNERATION PAYABLE WAS TO BE MUTUALLY AGREED BETWEEN THE PARTNERS FROM TIME TO TIME FURTHER IN PARA NU MBER 10 ON INTERPRETATION OF CLAUSE 2 OF THE SUPPLEMENTARY DEED THE HONOURABLE HIGH COURTS HELD THAT CONJOINT READING OF CLAUSE 7 OF THE PARTNERSHIP DEED DATED 01/05/1976 AND CLAUSE 1 AND 2 OF M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 15 THE SUPPLEMENTARY PARTNERSHIP DEED DATED 01/04/1992 CONDITIONS OF SECTION 40 (B) (V) ARE NOT SATISFIED. THE HONOURABLE HIGH COURT HELD SO BECAUSE THERE WAS NO MANNER OF QUANTIFYING THE AMOUNT PAYABLE TO THE PARTNERS. IN THE IMPUGNED CASE BEFORE US THE ASSESSEE HAS CLEARLY MENTIONED THE AMOUNT PAYABLE TO EACH OF THE PARTNER AS BONUS. HENCE THE REVENUES RELIANCE ON THE ABOVE DECISION IS MISPLACED. FURTHER IN ANOTHER DECISION OF THE HONOURABLE DELHI HIGH COURT RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE IN 63 TAXMANN.COM 90 (DELHI) (2015) WHEREIN A SUPPLEM ENTARY DEED WAS EXECUTIVE ON 01/08/2009 WAS CONSIDERED TO BE EFFECTIVE FROM 01/04/2009 FOR ASSESSMENT YEAR 2009 10. ACCORDINGLY THE DISALLOWANCE OF RUPEES FOR 972773/ MADE BY THE LEARNED AO BECAUSE OF BONUS/REMUNERATION PAID TO THE PARTNERS IS NOT SUS TAINABLE. THEREFORE WE REVERSE THE ORDER OF THE LEARNED CIT A AND DIRECT THE AO TO DELETE THE ABOVE ADDITION. ACCORDINGLY GROUND NUMBER 2 OF THE APPEAL IS ALLOWED. 13. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. OR DER PRONOUNCED IN THE OPEN C OURT ON 2 9 / 03 / 2019 . - SD/ - - SD/ - ( AMIT SHUKLA ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 9 / 03 / 2019 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT NEW DELHI M/S. J.C. BHALLA & CO VS. ADDL. CIT ITA NO. 1921/DEL/2015 (ASSESSMENT YEAR: 2011 - 12) PAGE | 16 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/ PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER