M/s Zircon Traders Ltd., New Delhi V. ACIT, New Delhi

ITA 1442/DEL/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7502 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 30-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 22-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SINGH
• Keywords: Business income; Business expenditure; Speculation loss; Deemed dividend
• Section: 143(3); 14A; 37(1); 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI J.S. REDDY ITA NO. 14 4 2 /DEL/201 1 ASSESSMENT YEAR: 2007 - 08 ZIRCON TRADERS LTD., VS. ASSISTANT CIT, 219 - ANUPAM COMMERCIAL COMPLEX, CIRCLE 18(1), PLOT NO. 9 & 10, BLOCK A, NEW DELHI. COMMUNITY CENTRE, PASHCHIM VIHAR, NEW DELHI. (APPELLANT) (RESPONDENT) (PAN: AAACZ1665K ) ITA NO. 588/DEL/2012 ASSESSMENT YEAR : 2008 - 09 ITA NO. 1277/DEL/2011 ASSESSMENT YEAR : 2007 - 08 ASSISTANT CIT, VS. ZIRCON TRADERS LTD., CIRCLE 18(1), 219 - ANUPAM COMMERCIAL COMPLEX, NEW DELHI. PLOT NO. 9 & 10, BLOCK A, COMMUNITY CENTRE, PASHCHIM VIHAR, NEW DELHI. (APPELLANT) (RESPONDENT) (PAN: AAACZ1665K ) ASSESSEE BY: SHRI P.C. YADAV, ADV. REVENUE BY: SHRI D.S. SINGH, SR. DR ORDER PER I.C. SUDHIR: JUDICIAL MEMBER ITA NO. 1277/DEL/ 2011 : THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER ON SEVERAL GROUNDS INVOLVING THREE MAIN ISSUES. FIRSTLY, AS TO WHETHER THE LEARNED CIT(APPEALS) WAS JUSTIFIED IN DELETING DISALLOWANCE OF RS.50,89,113 CLAIMED AS PREMIUM 2 PAID ON KEYMAN INSURANCE POLICY? SECONDLY AS TO WHETHER THE LEARNED CIT(APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.2,10,00,000 IGNORING THE FACT THAT THE AMOUNT WAS NOT CAPITAL REIMBURSEMENT AS CLAIMED BY THE ASSESSEE BUT WAS RECEIPT IN THE NATURE OF LIQUIDITY DAMAGES AND INT EREST? THIRDLY, AS TO WHETHER THE LEARNED CIT(APPEALS) WAS JUSTIFIED IN SETTING ASIDE THE ISSUE OF VERIFICATION OF KEYMAN INSURANCE POLICY EXPENSES AND DISALLOWANCE UNDER SEC. 14A OF THE INCOME - TAX ACT, 1961 WITH DIRECTION TO THE ASSESSING OFFICER TO REC OMPUTED THE DISALLOWANCES. 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW, MATERIAL AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. 3. ISSUE NO.1 : IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAD DEBITED ADMINISTRATIVE EXPENSES AND DETAILS THEREOF WERE GIVEN IN SCHEDULE - Q. ON PERUSAL OF THE SAME, THE ASSESSING OFFICER NOTICED THAT ASSESSEE COMPANY HAD DEBITED PREMIUM PAID ON KEYMAN INSURANCE AMOUNTING TO RS.50,89,113. THE ASSESSEE SUBMITTED THAT KEYMAN INSURANCE BALANCE WAS TAKEN BY THE COMPANY ON BEHALF OF ITS MANAGING DIRECTOR SHRI DEEPAK KOTHARI AS HE HAS CONTRIBUTED TO EARN MORE PROFIT TO THE COMPANY AND H IS LOSS WOULD BE A 3 MAJOR LOSS TO THE COMPANY, THEREFORE, ON HIS LIFE KEYMA N INSURANCE WAS TAKEN BY THE COMPANY AND IT WAS AN ALLOWABLE EXPENDITURE IN THE HANDS OF THE COMPANY. THE ASSESSEE WAS ALSO ASKED BY THE ASSESSING OFFICER AS TO WHETHER PREMIUM PAID ON BEHALF OF THE SHRI DEEPAK KOTHARI SHOULD NOT BE TREATED AS DEEMED DIVID END AND AS TO WHETHER KOTAK MOHINDRA ENDOWMENT PLAN IS COVERED UNDER KEYMAN INSURANCE POLICY. THE ASSESSEE WAS ALSO ASKED ABOUT THE WORTH OF KEYMAN CALCULATED AS PER IRDS S GUIDELINES OR NOT. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION G IVEN BY THE ASSESSEE IN RESPONSE TO THE ABOVE QUERY AND HOLD THAT PREMIUM PAID ON KEYMAN INSURANCE BY THE COMPANY TO KOTAK MOHINDRA INSURANCE COMPANY WAS NOT ALLOWABLE EXPENDITURE AND DISALLOWED THE SAME. 4. THE LEARNED CIT(APPEALS) HAS, HOWEVER, DELETED THE DISALLOWANCE OF RS.50,89.113 MADE BY THE ASSESSING OFFICER WHO HAD REJECTED THE CLAIMED PREMIUM PAID ON KEYMAN INSURANCE POLICY. 5. IN SUPPORT OF THE GROUND NO.1, INVOLVING THE ISSUE, THE LEARNED DR SUBMITTED THAT THE SAID INSURANCE POLICY WHICH IS AN ENDOWMENT PLAN IS NOT COVERED UNDER KEYMAN INSURANCE POLICY AS DISCUSSED IN THE ASSESSMENT ORDER. HE SUBMITTED THAT FOR THE CALCULATION OF WORTH OF INDIVIDUAL CLAIM ED TO 4 BE THE KEYMAN OF THE ASSESSEE COMPANY, THE GUIDELINES OF IRDA HAVE NOT BEEN FOLLOW ED. THE CONCERNED INSURANCE COMPANY I.E. KOTAK MOHINDRA LTD. HAS NOT GIVEN A CATEGORICAL STATEMENT THAT ENDOWMENT PLAN IS COVERED UNDER KEYMAN INSURANCE POLICY. HE SUBMITTED FURTHER THAT ON SURRENDER OR OTHERWISE OF THE POLICY, THE PROCEEDS RECEIVED ARE NO T TAXABLE IN THE HANDS OF THE COMPANY AS THE ENDOWMENT PLAN IS NOT QUALIFIED AS KEYMAN INSURANCE POLICY. THE LEARNED SR. DR CONTENDED FURTHER THAT WHILE DECIDING THE ISSUE, THE LEARNED CIT(APPEALS) HAS IGNORED THE MERITS OF THE ARGUMENTS OF THE ASSESSING O FFICER. 6. THE LEARNED AR ON THE OTHER HAND SUBMITTED THAT THE ISSUE RAISED IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON BLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF CIT VS. RAJAN NANDA & ORS., 349 ITR 8 (DEL.) , WHEREIN THE IR LORDSHIPS REFERRING TO THE CBDT CIRCULAR NO. 762 DATED 18.2.1998 HA VE BEEN PLEASED TO HOLD THAT THE ASSESSEE COMPANY IS ENTITLED FOR THE DEDUCTION OF PREMIUM PAID IN RELATION TO KEYMAN INSURANCE COMPANY A S AN ALLOWABLE EXPENSES. HE ALSO PLACED RELIANCE ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. B.N. EXPORTS (2010 323 ITR 178 (BOM.) EXPRESSING THE SAME VIEW. IN VIEW OF THESE DECISIONS, THE LEARNED AR TRIED TO JUSTIFY THE FIRST APPELLATE ORDER IN THIS 5 REGARD. HE ALSO POINTED OUT TH AT IN EARLIER YEARS THE REVENUE HAS ALLOWED SIMILAR CLAIMED DEDUCTIONS. THE LEARNED AR SUBMITTED FURTHER THAT THE ASSESSING OFFICER HAS MISUNDERSTOOD THE FACTS OF THE PRESENT CASE AS HE HAS RECORDED SOME FACTS WHICH ARE CONTRARY TO THE ACTUAL FACTS . HE SU BMITTED THAT OM KOTAK MOHINDRA LIFE INSURANCE CO. LTD. HAD ISSUED KAYMAN INSURANCE COMPANY, WHICH WAS SPECIFICALLY RECORDED ON THE POLICY DOCUMENTS ITSELF AND IT WAS ISSUED IN TERMS OF GUIDELINES ISSUED BY IRDA. THUS, DISALLOWANCE OF THE CLAIM OF EXPENDIT URE OF KEYMAN INSURANCE OF RS.50,89,113 IS AGAINST THE FACTS OF THE PRESENT CASE AND AGAINST THE LAW. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS REPRODUCED BOTH THE IRDA S CIRCULARS DATED 27.4.2005 AND 31.3.2006 BUT HAS FAILED TO APPRECIATE THE CONT ENTS OF THE SAME. THE SAID CIRCULARS DATED 27.4.2005 AND 31.3.2006 NOWHERE STATE THAT ENDOWMENT PLANS DO NOT COVER UNDER KEYMAN POLICY. THE ASSESSING OFFICER AT PAGE NO. 9 OF THE ASSESSMENT ORDER HAS AGAIN WRONGLY MENTIONED THAT KOTAK MOHINDRA HAS NOT GIVE N ANY CATEGORICAL STATEMENT THAT ENDOWMENT PLAN ISSUED IN THIS REGARD IS A KEYMAN INSURANCE POLICY. IN THE LETTER DATED 11.4.2005 ISSUED BY KOTAK MOHINDRA LIFE INSURANCE IT HAS BEEN CLEARLY STATED AS REFERENCE KOTAK ENDOWMENT PLAN BEARING NO. 00315686 IS SUED UNDER KEYMAN INSURANCE ON THE LIFE OF MR, DEEPAK KOTHARI. 6 7. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT THE CASE OF THE ASSESSEE REMAINED THAT THE POLICY HOLDER IS THE ASSESSEE ZIRCON TRADERS LTD. AND THE POLICY WAS TAKEN IN THE NAME OF SHRI DE EPAK KOTHARI, DIRECTOR OF THE COMPANY BEING THE KEY PERSON FOR THE COMPANY. POLICY WAS TAKEN IN HIS NAME IN ORDER TO PROTECT THE BUSINESS OF THE ASSESSEE AGAINST ANY FINANCIAL LOSS ARISING IN CASE OF AN UNTIMELY DEMISES OF THE SAID DIRECTOR. ACCORDINGLY, T HE PREMIUM PAID WAS CLAIMED AS AN EXPENSE OF THE ASSESSEE COMPANY AND DEBITED TO IT PROFIT AND LOSS ACCOUNT ISSUED. IT WAS NOT A PAYMENT ON BEHALF OF SHRI DEEPAK KOTHARI AND FOR THE BENEFIT OF SHRI DEEPAK KOTHARI BUT THE POLICY WAS TAKEN TO COVER THE BUSI NESS LOSSES THAT MIGHT ARISE TO THE COMPANY CONSEQUENT TO LOSS OF KEY PERSONNEL. THUS, IT IS CLEAR THAT KEYMAN INSURANCE POLICY IS TAKEN BY THE COMPANY NOT ON BEHALF OR FOR THE BENEFIT OF ENSURED BUT TO COVER ITSELF FROM A LOSS THAT MIGHT ARISE TO THE COMP ANY DUE TO SUDDEN AND UNTIMELY LOSS OF ITS KEY PERSONNEL. IT IS ALSO UNREBUTTED MADE THAT SIMILAR EXPENSES OF KEYMAN INSURANCE POLICY CLAIMED IN EARLIER YEARS WAS ALLOWED BY THE REVENUE . THE POLICY WAS TAKEN BY THE COMPANY ON 11.4.2005 AND THEREAFTER IT R EMAINED SUBJECT MATTER OF TWO ASSESSMENT YEARS. ON MATURITY OF THE POLICY, THE AMOUNT RECEIVED ALONG WITH ASSOCIATED BONUS AND INCENTIVE IS TAXABLE UNDER THE HEAD BUSINESS INCOME OR PROFESSIONAL INCOME UNDER SEC. 28 OF THE INCOME - TAX ACT, 1961. ONCE THE POLICY IS TAKEN UNDER KEYMAN 7 POLICY, THE QUESTION OF CHANGING THE TERMS OF THE POLICY DOES NOT ARISE. POLICY CONTINUES TO BE HELD BY THE ORGANIZATION WHICH HAS SUBSCRIBED TO THE POLICY INITIALLY IN THE NAME OF KEYMAN IN THE BUSINESS, THE PROCEEDS ON MATURI TY ALONG WITH OTHER INCENTIVE WILL BE PAID TO SUCH ORGANIZATION ONLY. THE KEYMAN IS SUCH A PERSON WHOSE SERVICES HAVE A TAILING EFFECT ON THE BUSINESS OF SUCH ORGANIZATION. THE ASSESSING OFFICER WHILE DISALLOWING THE CLAIM ALSO INVOKED THE PROVISIONS OF SE C. 2(22)(E) TREATING IT AS DEEMED DIVIDEND AND ALSO INVOKED THE PROVISIONS OF SEC. 194 OF THE ACT FOR NOT DEDUCTING TDS. 8. SOME BRIEF BACKGROUNDS OF THE KEYMAN INSURANCE POLICY HAS BEEN DISCUSSED BY THE LEARNED CIT(APPEALS) AS PER WHICH UNDER THE INCOME - TAX ACT, 1961, THIS CONCEPT OF KEYMAN INSURANCE POLICY FOR THE FIRST TIME WAS INTRODUCED BY THE FINANCE (NO.2) ACT, 1996. BEFORE THIS AMENDMENT, THERE WAS NO PROVISION EXPLAINING THE TREATMENT OF PREMIUM PAID , SUM RECEIVED ON MATURITY ETC. UNDER THE ACT. P REVIOUSLY, ON THE ONE HAND, THE INSURANCE PREMIUM WAS DEDUCTED AS EXPENDITURE BUT ON THE OTHER HAND THE RECEIPTS ON MATURITY WERE CLAIMED AS EXEMPTED FROM TAXATION UNDER THE PROVISIONS OF SEC. 10(10D). TO CURVE THIS PRACTICE, SOME AMENDMENTS WERE MADE BY T HE AFORESAID ACT. WHILE THE ACT HAS BEEN AMENDED TO PROVIDE THAT THE AMOUNT 8 RECEIVED WILL BE TAXABLE IT DOES NOT SPECIFY THE PROVISIONS UNDER WHICH THE PREMIUM PAID ON THE KEYMAN INSURANCE POLICY IS ALLOWABLE AS BUSINESS EXPENDITURE EXCEPT BY THE CBDT CIRC ULAR. 9. CBDT VIDE LETTER NOL. 35/12/64 - IT DATED 03.02.1964 ADDRESSED TO THE LIC OF INDIA H AS CLARIFIED THAT THE PREMIUM PAID BY THE ASSESSEE COMPANY UNDER THE KEYMAN INSURANCE POLICY WILL BE DEDUCTIBLE IN THE COMPUTATION OF BUSINESS INCOME UNDER SECTION 37(1) OF THE ACT. AGAIN, VIDE CIRCULAR NO.L 762 DATED 18.2.1998, THE CBDT HAS MADE IT CLEAR THAT PREMIUM PAID ON THE KEYMAN INSURANCE IS ALLOWABLE AS BUSINESS EXPENDITURE. 10. THE ISSUE RAISED IS ALSO FULLY COVERED BY THE DECISION OF HON BLE JURISDICTIO NAL DELHI HIGH COURT IN THE CASE OF CIT VS. R.N. & ORS. (SUPRA) WHEREIN THE HON BLE HIGH COURT AFTER REFERRING TO THE CBDT CIRCULAR DATED 18.2.1998 HAS BEEN PLEASED TO HOLD THAT THE ASSESSEE COMPANY IS ENTITLED FOR THE DEDUCTION OF PREMIUM PAID IN RELATION TO KEYMAN INSURANCE POLICY AND IT IS AN ALLOWABLE EXPENSES. SIMILAR VIEW HAS BEEN EXPRESSED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. V.N. EXPORTS (SUPRA). IN VIEW OF THE RATIOS LAID DOWN IN DECISION S ABOVE CITED , WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) HAS RIGHTLY ALLOWED THE CLAIMED EXPENSES INCURRED ON 9 THE PAYMENT OF PREMIUM ON KEYMAN INSURANCE POLICY. THE SAME IS UPHELD. GROUND NO.1 INVOLVING THE ISSUE IS THUS DECIDED AGAINST THE REVENUE , AND IS ACCORDINGLY REJECTED. 11. ISSUE NO.2 : THE FACTS IN BRIEF ARE THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH TOP WORLD LTD. ON 12.11.2003 AND IT PAID AN AMOUNT OF RS.1.60 CRORES TOWARDS PROPERTY. HOWEVER, THE DEAL COULD NOT BE MATERIALIZED AND THE ASSESSEE RECEIVED A SUM OF RS.2.10 CRORES. THE ASSESSEE THEREAFTER OFFERED RS.50 LACS AS CAPITAL GAIN. THE ASSESSING OFFICER, HOWEVER, MADE PRESUMPTION OF LIQUIDATED DAMAGE OF RS.2.10 LACS AND ALSO TAXED RS.50 LACS AS CAPITAL GAIN DISCLOSED BY THE ASSESSEE. THE LEARNED CIT(APPEALS) AFTER DI SCUSSING THE CASE OF THE ASSESSEE AS WELL AS ASSESSING OFFICER HAS HELD THAT ONLY DIFFERENCE IN AMOUNT SHOULD HAVE BEEN ADDED AND THE WHOLE CONSIDERATION AMOUNT WHICH WAS RECEIVED BACK AS A REFUND COULD NOT BE TAXED. HE HELD THE CLAIMED CAPITAL GAIN AMOUNT ING TO RS.50 LACS DISCLOSED BY THE ASSESSEE AS JUSTIFIED. 12. IN SUPPORT OF THE GROUND, THE LEARNED SR. DR HAS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER. THE LEARNED SR. DR SUBMITTED THAT ON CAREFUL CONSIDERATION OF CLAUSES OF THE AGREEMENT, THE ASSESSING OFFICER HAS 10 ARRIVED AT THE CONCLUSION THAT RECEIPT OF RS.2.10 CRORES IS NOTHING BUT LIQUIDATED DAMAGES AND THE INTEREST PAID. THE ASSESSING OFFICER WAS THUS JUSTIFIED IN HOLDING THAT IT IS NOT A CAPITAL GAIN BUT INCOME FROM OTHER SOURCES AND TAXE D ACCORDINGLY. 13. THE LEARNED AR ON THE OTHER HAND TRIED TO JUSTIFY THE FIRST APPELLATE ORDER. HE SUBMITTED THAT THE ASSESSING OFFICER HAS TAXED THE AMOUNT AS INCOME FROM OTHER SOURCES WITHOUT ANY BASIS AND IGNORING THAT THE ASSESSEE HAD MADE INVESTMENT IN PREVIOUS YEAR AND HAS DECLARED THE GAIN AS CAPITAL GAIN. THE ASSESSEE HAD FILED THIRD PARTY EVIDENCE IN THIS REGARD. THE ASSESSING OFFICER WITHOUT CONDUCTING ANY INQUIRY FROM THE SAID THIRD PARTY HAS TAXED THE ENTIRE AMOUNT I.E. THE AMOUNT INVESTED AND THE AMOUNT RECEIVED, ARBITRARILY IN THE HANDS OF THE ASSESSEE. HE SUBMITTED FURTHER THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD FILED FOL LOWING DOCUMENTS IN SUPPORT OF I T S CLAIM: I) OPTION AGREEMENT WITH TOP WORLD PROPERTY PVT. LTD.; ( PAGE NOS. 79 OF THE PAPER BOOK ) ; II) CONFIRMATION OF ACCOUNT OF RS.1.10 CRORES (PAGE NO. 82 OF THE PAPER BOOK); III) CONFIRMATION OF AMOUNT OF RS. 50 LACS (PAGE NO. 83 OF PAPER BOOK; 11 IV) CREDIT NOTE/BENEFIT OF RS. 50 LACS RECEIVED FROM THE SUPPLIERS (PAGE NO. 84 OF TH E PAPER BOOK). 14. THE LEARNED AR SUBMITTED FURTHER THAT FROM THE PERUSAL OF THE ABOVE DOCUMENTS, IT IS VERY MUCH EVIDENT THAT ASSESSEE HAD MADE PAYMENT OF RS.1 .10 CRORE VIDE CHEQUE NO.635372 ON 12.11.2003, RS. 50 LACS VIDE CHEQUE NO. 635377 ON 16.2.2004 AND RECEIVED DISCOUNT OF RS. 50 LACS THROUGH CREDIT NOTE. THEREAF TER DUE TO SOME DISPUTES, THE DE A L WAS CANCELLED AND THE BUILDER ACCEPTED HIS DEFAULT AND RETURNED BACK THE AMOUNT OF RS. 1 C RORE VIDE CHEQUE NO. 794315 DATED 10.12.2006 AND RS. 1 .10 CRORE VI DE CHEQUE NO. 794316 DATED 10.12.2006. HE ACCORDINGLY OFFERED THE GAIN ACCRUED ON ACCO U NT OF SURRENDER OF CAPITAL RIGHTS AS CAPITAL GAIN AND PAID TAXES ACCORDINGLY. 15. THERE IS NO DISPUTE ON THE ABOVE FACTS. HAVING CONSIDERED THE FACTS, WE FULLY CONCUR WITH THE FINDINGS OF THE LEARNED CIT(APPEALS) THAT ONLY DIFFERENCE OF PAYMENT AND RECEIPT SHOULD HAVE BEEN ADDED AND THE WHOLE CONSIDERATION AMOUNT WHICH WAS RECEIVED BACK AS A REFUND COULD NOT BE TAXED. WE THUS DO NOT FIND REASON TO INTERFERE WITH THE FIR ST APPELLATE ORDER IN THIS REGARD. THE SAME IS UPHELD. THE GROUND NO.2 INVOLVING THE ISSUE IS THUS DECIDED AGAINST THE REVENUE. THE GROUND NO.2 IS ACCORDINGLY REJECTED. 12 16. ISSUE NO.3 : HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE LEARNED CIT(APPEALS) HAS RESTORED BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO BE ALLOWED AFTER PROPER VERIFICATION. HE HAS NOTED THAT THE ASSESSING OFFICER MADE ADDITION OF RS.2 LACS UNDER SEC. 14A OF THE ACT THOUGH IN THE BODY OF THE ASSE SSMENT ORDER, THE ASSESSING OFFICER HAS DISCUSSED THAT AN AMOUNT OF RS.1.5 LACS IS ADDED UNDER SEC. 14A OF THE ACT. THE LEARNED CIT(APPEALS) HAS NOTED FURTHER THAT IN THE COMPUTATION OF INCOME, THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS. 2 LACS. UN DER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) HAS RIGHTLY COME TO THE CONCLUSION THAT THERE IS POSSIBILITY OF A MISTAKE ON THE PART OF THE ASSESSING OFFICER WHICH REQUIRES TO BE REMOVED AFTER VERIFICATION AS TO WHETHER DISALLOWA NCE OF RS.1. LACS IS CORRECT OR RS. 2 LACS. IT IS ONLY A QUESTION OF VERIFICATION BY THE ASSESSING OFFICER FOR WHICH THE LEARNED CIT(APPEALS) HAS RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER. THUS, THERE IS NO GRIEVANCE TO THE PARTIES. W E ARE THUS NOT INCLINED TO INTERFERE WITH THE FI RST APPELLATE ORDER ON THE ISSUE . THE SAME IS UPHELD. GROUND NO.3 INVOLVING THE ISSUE IS THUS DECIDED AGAINST THE REVENUE . IT IS ACCORDINGLY REJECTED. 17. IN RESULT, THE APPEAL IS DISMISSED. 13 18. ITA NO. 14 42/DEL/2011 : THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER ON THE SOLE GROUND THAT THE LEARNED CIT(APPEALS) HAS ERRED IN HOLDING THAT THE ASSESSING OFFICER WAS JUSTIFIED IN TREATING NET LOSS OF RS.23,63,910 FROM BUSINESS OPERATION AS SPECULATIVE BUSINE SS LOSS AND THEREBY DENYING THE SET OFF OF SUCH LOSS AGAINST THE OTHER INCOME. THE RELEVANT FACTS ARE THAT THE ASSESSING OFFICER ON PERUSAL OF PROFIT AND LOSS ACCOUNT FOUND THAT THE ASSESSEE HAD SHOWN SALE OF SHARES TO THE TUNE OF RS.3,62,38,894 AND PURCHA SE OF SHARES TO THE TUNE OF RS. 4,55,62,,042 AND ACCORD IGNLY DECREES OF STOCK WAS SHOWN AT RS.69,59,228. THUS, THERE WAS A LOSS OF RS.23,63,920. THE ASSESSING OFFICER NOTED THAT THE LOSS WAS SHOWN WITHOUT CONSIDERATION OF EXPENSES IN THE PROFIT AND LOSS A CCOUNT. HE ASKED THE ASSESSEE TO FILE THE DETAILS. IN RESPONSE THE ASSESSEE COMPLIED WITH AND ALSO FILED BROKER S NOTE TO SUBSTANTIATE ITS SHARE TRADING ACTIVITIES. THE ASSESSING OFFICER NOTED FROM THE BROKER S NOTE THAT ASSESSEE COMPANY HAD INDULGED IN SH ARE TRADING ACTIVITIES BUT NOT TRADING ON DELIVERY BASIS. ON THE BASIS OF BROKER S NOTE, HE CAME TO THE CONCLUSION THAT IN THESE SALE S AND PURCHASE S OF SCRIPT/SCRIPTS, THE NATURE OF TRANSACTION IS NOTHING BUT SPECULATIVE AS AT THE END OF THE DATED TRANSAC TION EITHER SUBSCRIPTED OR ADDED AS THE CASE MAY BE , THE BALANCE AMOUNT WAS GIVEN. HE NOTED THAT IF SALES VALUE WAS MORE THAN PURCHASE VALUE THEN IT WAS WRITTEN AS DUE TO YOU AND VICE - VERSA IN THE CASE OF 14 PURCHASE . DURING THE YEAR UNDER CONSIDERATION , ASSESSEE HAD SHOWN INTEREST INCOME, DIVIDEND INCOME AND CAPITAL GAINS. AS PER THE ASSESSING OFFICER, THE FACTS INDICATED THAT THE ASSESSEE HAD ADJUSTED THE SPECULATIVE LOSSES ALONG WITH EXPENDITURE INCURRED IN PROFIT AND LOSS ACCOUNT AGAINST THESE RECEIP TS. AFTER HAVING HELD THE ASSESSEE HAS INCURRED SPECULATIVE LOSS AMOUNTING TO RS.23,63,910, THE ASSESSING OFFICER HELD THAT SPECULATIVE LOSS IS NOT ALLOWED TO SET OFF AGAINST INCOME FROM OTHER SOURCES. THE LEARNED CIT(APPEALS) HAS UPHELD THIS ACTION OF THE ASSESSING OFFICER AGAINST WHICH ASSESSEE IS IN APPEAL. 19. IN SUPPORT OF THE GROUNDS, THE LEARNED AR SUBMITTED THAT ALL THE TRANSACTIONS ARE DELIVERY BASIS TRANSACTION AND EXECUTED THROUGH THE D - MAT ACCOUNT. THE LEARNED CIT(APPEALS) WAS THUS NOT JUSTIF IED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IGNORING THE SUBMISSIONS AND EVIDENCES FILED BY THE ASSESSEE. HE SUBMITTED THAT THE ASSESSEE HAD DONE TRADING OF SHARES THROUGH UP STOCK EXCHANGE. ALL THE TRANSACTIONS OF S ALES AND PURCHASES WERE DONE TH ROUGH D - MAT ACCOUNT AND HENCE THE ALLEGATIONS OF THE ASSESSING OFFICER THAT THE LOSS IS SPECULATIVE LOSS IS BASELESS. HE DREW OUR ATTENTION TO PAGE NOS. 118 TO 122 OF THE PAPER BOOK , WHEREIN COPY OF D - MAT ACCOUNT HAS BEEN MADE AVAILABLE. LEARNED AR SUBMITT ED FURTHER THAT IT IS NOT THE CASE OF 15 THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY IS COVERED BY THE RIGORS OF EXPLANATION OF SECTION 73, PARTICULARLY IN VIEW OF THE FACT THAT THE ASSESSEE IS A NBFC (NON - BANKING FINANCE COMPANY) AND HAVE INCOME FROM DIV IDEND TO THE TUNE OF RS.62,14,447, INCOME FROM CAPITAL GAIN AT RS.50 LACS AND INTEREST INCOME OF RS.57,65,012. ALL THESE INCOME ARE HIGHER THE LOSSES SUFFERED I.E. WHY THE ASSESSING OFFICER HAS DELIBERATELY NOT INVOKED THE PROVISIONS OF EXPLANATION E TO SE C. 73 OF THE ACT. HE ALSO REFERRED PAGE NO.11 OF THE PAPER BOOK TO EXPLAIN THE NATURE OF THE TRANSACTION. 20. THE LEARNED AR SUBMITTED FURTHER THAT THE ASSESSEE TRANSACTED INTO 31 SCRIPTS AS EVIDENT FROM PAGE NO. 117 OF THE PAPER BOOK I.E. THE COPY OF STO CK SUMMARY OF SHARES FOR THE YEAR SHOWING OPENING, PURCHASES, SALE AND CLOSING QUANTITIES OF SHARES. THIS DOCUMENT WOULD SHOW THAT OUT OF 31, ONLY 13 SCRIPTS WERE PURCHASED AND SOLD DURING THE YEAR UNDER CONSIDERATION. IT IS ALSO PERTINENT TO MENTION HERE THAT OUT OF THIS 13, NOT EVEN A SINGLE SCRIPT HAS BEEN SOLD WITHOUT TAKING DELIVERY. THEREFORE, IT CANNOT BE SAID THAT ASSESSEE HAS CONDUCTED SPECULATIVE BUSINESS. HE SUBMITTED THAT IF THESE SCRIPTS ARE RECONCILED WITH D - MAT ACCOUNT THEN IT WILL BE FOUND THAT NONE OF THE SCRIPTS WAS SOLD ON THE SAME DAY. THE LEARNED AR SUBMITTED THAT THE ASSESSEE VIDE HIS SUBMISSION DATED 30.11.2009 HAD POINTED OUT THAT ALL THE TRANSACTIONS OF SALE AND PURCHASES WERE ENTERED THROUGH UP STOCK EXCHANGE SECURITY LTD. 16 AND NONE OF THE TRANSACTIONS IS NON - DELIVERY BASIS. THE LEARNED AR SUBMITTED THAT IN ORDER TO PROVE ITS CASE, THE ASSESSEE HAD FLED ALL THE NECESSARY DOCUMENTS AND DETAILS. IN THIS REGARD, HE REFERRED LEDGER ACCOUNT OF SALE AND PURCHASE OF SHARES MADE AVAILABLE AT PAGE NO. 107 TO 116 OF THE PAPER BOOK, COMPLETE STOCK SUMMARY AT PAGE NO. 117, D - MAT ACCOUNT AT PAGES 118 TO 122 WHICH ALSO INCLUDED DELIVERY INSTRUCTIONS AT PAGE NO. 122 ONWARDS. THE ASSESSING OFFICER COULD NOT BRING ANY MATERIAL ON RECORD TO REVIEW THIS AVERMENT OF THE ASSESSEE , CONTENDED THE LEARNED AR. 21. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AR SUBMITTED THAT EVEN IF IT IS PRESUMED THAT TRANSACTIONS OF SALES AND PURCHASE ARE TO BE SEEN IN THE LIGHT OF EXPLANATION TO SECTION 73 THEN ALSO THE ASSESSEE IS NOT COVERED BECAUSE THE INCOME FROM OTHER SOURCES IS HIGHER THAN THE SPECULATIVE INCOME. 22. WHILE CONCLUDING HIS ARGUMENTS, THE LEARNED AR FURTHER POINTED OUT THAT IN EARLIER YEARS I.E. ASSESSMENT YEARS 2005 - 06 AND 2006 - 07 WHEREIN THE ASSES SMENTS HAVE BEEN FRAMED UNDER SEC. 143(3) OF THE ACT , T HE ASSESSEE HAS BEEN ASSESSED AS A SHARE TRADER AND INCOME FROM SHARE TRADING HAS BEEN ASSESSED AS BUSINESS INCOME AND THE LOSS HAS BEEN ASSESSED AS BUSINESS LOSS. 17 HE SUBMITTED THAT THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES OF THE CASE, THUS, THE REVENUE IS SUPPOSED TO MAINTAIN CONSISTENCY O N THIS ISSUE AS PER THE RECENT DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF EXCELL INDUSTRIES 350 ITR 295 (S.C.). 23. THE LEARNED SR.DR ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW. 24. IN REJOINDER, THE LEARNED AR POINTED OUT FURTHER THAT EVEN IN THE SUBSEQUENT ASSESSMENT YEAR 2008 - 09, NO SUCH DISALLOWANCE HAS BEEN MADE. 25. CONSIDERING THE ABOVE SUBMISSIONS, WE F IND SUBSTANCE IN THE CONTENTION OF THE LEARNED AR THAT THE AUTHORITIES BELOW WHILE DECIDING THE ISSUE SHOULD HAVE NOT IGNORED D - MAT ACCOUNT AND OTHER EVIDENCE DISCUSSED ABOVE . THE AUTHORITIES BELOW HAVE GIVEN WEIGHTAGE TO THE BROKER S NOTE WHICH IN OUR VI EW IS RELEVANT ONLY FOR THE PURPOSE OF SA L E AND PURCHASE OF SHARES. IT IS D - MAT ACCOUNT WHICH WOULD SHOW THAT DELIVERY OF THE SHARES TRANSACTED WERE TAKEN. IN OUR VIEW, THE ASSESSEE HAD FURNISHED NECESSARY DOCUMENTS LIKE LEDGER ACCOUNT OF SALE AND PURCHASE OF SHARES , STOCK SUMMARY, D - MAT ACCOUNT AND DELIVERY INSTRUCTIONS IN SUPPORT OF THE 18 AVERMENT THAT TRANSACTIONS WERE DELIVERY BASE. IT IS ALSO PERTINENT TO NOTE HERE THAT TRADE OF SHARES HAVE BEEN DONE THROUGH UP STOCK EXCHANGE AS WELL AS D - MAT ACCOUNT. UN DER THESE CIRCUMSTANCES, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE HAD INCURRED SPECULATIVE LOSS AMOUNTING TO RS.23,63,910 WHICH IS NOT TO BE ALLOWED TO SET OFF AGAINST THE INCOME FROM OTHER SOURCES. WE THUS WHILE SETTING ASIDE T HE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD DIRECT THE ASSESSING OFFICER TO ALLOW THE SET OFF OF THE CLAIMED LOSS AGAINST THE OTHER INCOME. THE GROUND IS ACCORDINGLY ALLOWED. 26. IN THE RESULT, THE APPEAL IS ALLOWED. ITA NO.588/DEL/2012 : 27. THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER ON THE SOLE GROUND THAT THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.50,89,113 ON ACCOUNT OF KEYMAN INSURANCE PREMIUM. 28. SIMILAR ARE THE FACTS OF THE CASE AND SIMILAR ARGUMENTS HAVE BEEN ADOPTED BY THE PARTIES AS ADVANCED BY THEM IN SUPPORT OF THEIR RESPECTIVE CASES IN THE CASE OF ASSESSEE ITSELF ON IDENTICAL ISSUE IN THE ASSESSMENT YEAR 2007 - 08 DISCUSSED HEREINABOVE. THIS ISSUE HAS BEEN ADJUDICATED UPON IN THE 19 APPEAL IN GROUND NO.1. FOLLOWING THE SAME, WE CONCUR WITH THE FINDING OF THE LEARNED CIT(APPEALS) AS THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE OF RS.50,89,113 ON ACCOUNT OF KEYMAN INSURANCE PREMIUM. THE FIRST APPELLATE ORDER IN THIS REGARD IS THUS UPHE LD. THE GROUND IS ACCORDINGLY REJECTED. 29. IN RESULT, THE APPEAL IS DISMISSED. 30. IN SUMMARY, THE APPEALS PREFERRED BY THE REVENUE ARE DISMISSED AND THAT PREFERRED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 .12.2014 SD/ - SD/ - ( J.S. REDDY ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29 /12/2014 MOHAN LAL COPY FORWARDED TO: 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR:ITAT ASSISTANT REGISTRAR