M/s. Banpal Oil Chem Pvt.Ltd., Palanpur V. The Dy.CIT., B.K. Circle, Palanpur

ITA 1550/AHD/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0658 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-08-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 13-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: T P HEMANI
• Keywords: Proportionate interest; Commercial expediency
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. ./ I.T.A. NO.1550/AHD/2012 2. ./ I.T.A. NO.1683/AHD/2012 ( / ASSESSMENT YEAR : 2008-09) 1. BANPAL OIL CHEM PVT.LTD. 7 TH FLOOR, POPULAR HOUSE ASHRAM ROAD AHMEDABAD-380 009 2. THE ACIT BANASKANTHA CIRCLE PALANPUR`` / VS. 1. THE ACIT BANASKANTHA CIRCLE PALANPUR 2. BANPAL OIL CHEM PVT.LTD. AHMEDABAD-380 009 $ ./ ./ PAN/GIR NO. : AAACB 8589 Q ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) $&) / APPELLANT BY : SHRI T.P. HEMANI, AR '($&*) / RESPONDENT BY : SHRI JAMES KURIAN, SR.DR +* / DATE OF HEARING 04/08/2016 ,-./* / DATE OF PRONOUNCEMENT 29/08/2016 / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : THESE CROSS-APPEALS BY THE ASSESSEE AND THE REVEN UE ARE DIRECTED AGAINST THE ORDER OF THE LD.COMMISSIONER OF INCOME-TAX (APPEALS)-XX AHMEDABAD DATED 21/05/2012 PASSED FOR ASSESSMENT YEAR ITA NO.1550/AHD/2012 (BY ASSESSEE) ITA NO.1683/AHD/2012 (BY REVENUE) BANPAL OIL CHEM PVT.LTD. VS. ACIT (CROSS-APPEALS) ASST.YEAR 2008-09 - 2 - (AY) 2008-09. THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER FOR T HE SAKE OF CONVENIENCE. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- 2.1. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF COLD PROCESS CASTOR OIL AND OTHER BY-PRODUCTS. ASSESSEE FILED ITS RETURN OF INCOME FOR AY 2008-09 AND DECLARED TOTAL INCOME OF RS. 18,41,470/-. THE CASE WAS SELECTED F OR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') VIDE OR DER DATED 31/12/2010 AND THE TOTAL INCOME WAS DETERMINED AT RS.1,53,52,8 32/-. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER (AO), ASSESSEE C ARRIED THE MATTER BEFORE THE LD.CIT(A), WHO VIDE ORDER DATED 21/05/20 12 (IN APPEAL NO.CIT(A)-XX/704-10-11) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE AND R EVENUE ARE NOW IN APPEAL(S) BEFORE US. THE GROUNDS RAISED BY THE R EVENUE IN ITA NO.1683/AHD/2012 READ AS UNDER:- 1) THE LD.COMMISSIONER OF INCOME-TAX (APPEALS)-XX, AHM EDABAD HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSIN G OFFICER TO EXCLUDE ONLY THE INCOME ON SALE OF DEPB WHILE COMPUTING THE DEDUCTION ITA NO.1550/AHD/2012 (BY ASSESSEE) ITA NO.1683/AHD/2012 (BY REVENUE) BANPAL OIL CHEM PVT.LTD. VS. ACIT (CROSS-APPEALS) ASST.YEAR 2008-09 - 3 - U/S.80IB OF THE ACT AFTER FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS VS. CIT, REPORT ED IN 67 DTR 185, WITHOUT APPRECIATION THE FACT THAT THE HONBLE SC H AS HELD THAT BOTH THE FACT VALUE AND THE PROFIT ON SALE OF DEPB IS TAXABL E AS REVENUE RECEIPTS AND THE SAME IS NOT DERIVED FROM ELIGIBLE BUSINESS / UNIT AS HELD BY THE HONBLE SC IN THE CASE OF LIBERTY INDIA VS. CIT REP ORTED IN 317 ITR 218, MORE PARTICULARLY WHEN SUCH DEPB INCOME (BOTH FACE VALUE OR / AND PROFIT ON SALE OF SAME) IS CREDITED IN THE P&L ACCOUNT. 2) THE LD.COMMISSIONER OF INCOME-TAX (APPEALS)-XX, AHM EDABAD HAS ERRED IN LAW AND ON FACTS TO DIRECT ASSESSEE TO DEM ONSTRATE BEFORE THE ASSESSING OFFICER AS WELL AS DIRECTING THE ASSESSIN G OFFICER TO VERIFY WHETHER THE INVESTMENT/ADVANCES WERE NOT OUT OF INT EREST BEARING FUNDS AND MODIFY THE ORDER ACCORDINGLY AND THEREBY EFFECT IVELY SETTING ASIDE THE MATTER WHICH IS NOT PERMITTED UNDER PROVISION O F SECTION 251(1)(A) OF THE ACT AS AMENDED W.E.F.01/10/1998. 2.2 ON THE OTHER HAND, THE GROUNDS RAISED BY THE AS SESSEE IN ITA NO.1550/AHD/2012 READ AS UNDER:- 1. THE HONBLE CIT(A) HAS GROSSLY ERRED BOTH IN LAW A ND ON FACTS IN CONFIRMING THE REDUCTION OF DEPB AMOUNT FROM THE DE DUCTION ALLOWABLE U/S.80IB OF THE INCOME TAX ACT. 2. THE HONBLE CIT(A) HAS GROSSLY ERRED IN DIRECTING T HE AO TO DECIDE THE AMOUNT OF DISALLOWANCE TO BE MADE OUT OF TOTAL DISALLOWANCE OF INTEREST EXPENDITURE OF RS.27,27,514 U/S. 14A AND 3 6(1)(III) OF THE INCOME TAX ACT. IN FACT HE OUGHT TO HAVE DELETED T HE DISALLOWANCE BASED ON THE SUBMISSION OF THE APPELLANT. 3. THE HONBLE CIT(A) ERRED IN LAW AND IN FACTS IN CON FIRMING DISALLOWANCE OF KEYMAN INSURANCE PREMIUM OF RS.1,00 ,00,000 INCURRED ON THE LIFE OF THE EMPLOYEE HOLDING THAT T HE SAME IS NOT INCURRED FOR THE PURPOSE OF BUSINESS AND IS PERSONA L EXPENSE AND HENCE DISALLOWABLE U/S.37 OF THE INCOME TAX ACT. ITA NO.1550/AHD/2012 (BY ASSESSEE) ITA NO.1683/AHD/2012 (BY REVENUE) BANPAL OIL CHEM PVT.LTD. VS. ACIT (CROSS-APPEALS) ASST.YEAR 2008-09 - 4 - 4. THE HONBLE CIT(A) HAS ERRED IN LAW AND IN FACTS IN NOT ADJUDICATING THE GROUND RELATING TO NON-ALLOWANCE O F DEDUCTION U/S.80IB ON ADDITION MADE DURING THE COURSE OF ASSE SSMENT. 3. FIRST GROUND OF REVENUE IS WITH RESPECT TO EXCLU DING THE INCOME ON SALE OF DEPB FOR THE PURPOSE OF DEDUCTION U/S.80IB OF THE ACT. THE LD.AR SUBMITTED THAT THIS GROUND IS INTER-CONNECTED WITH GROUND NO.1 OF ASSESSEES APPEAL. 3.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A O NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION U/S.80IB OF THE ACT AND THE CLAIM OF DEDUCTION INCLUDED THE DEPB BENEFIT. AO WAS OF THE VIEW THAT IN VIEW OF THE DECISION OF HONBLE APEX COURT IN THE CASE O F LIBERTY INDIA VS. CIT REPORTED IN (2009) 317 ITR 218 (SC), DEDUCTIO N U/S.80IB OF THE ACT CANNOT BE CLAIMED ON DEPB INCOME AND THEREFORE IT N EEDED TO BE EXCLUDED WHILE CALCULATING DEDUCTION U/S.80IB OF TH E ACT. HE ACCORDINGLY WORKED OUT THE DEDUCTION AND DISALLOWED THE EXCESS CLAIM TO THE EXTENT OF RS.7,83,848/-. AGGRIEVED BY THE ORDE R OF AO, ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A), WHO DECIDE D THE ISSUE HOLDING AS UNDER:- 3.2. VIDE PARA-3 OF THE ASSESSMENT ORDER, AO OBSER VED THAT THE APPELLANT CLAIMED DEDUCTION U/S.80IB OF RS.7,83,848 /-; THE SAID CLAIM WAS REVISED TO RS.9,12,158/- DURING THE ASSES SMENT PROCEEDINGS; IN VIEW OF SUPREME COURT DECISION CITE D AT 317 ITR 218, DEPB INCOME WAS TO BE EXCLUDED WHILE CALCULATI NG THE ITA NO.1550/AHD/2012 (BY ASSESSEE) ITA NO.1683/AHD/2012 (BY REVENUE) BANPAL OIL CHEM PVT.LTD. VS. ACIT (CROSS-APPEALS) ASST.YEAR 2008-09 - 5 - DEDUCTION U/S.80IB AND ACCORDINGLY THE DEDUCTION CL AIMED OF RS.7,83,848/- WAS BEING DISALLOWED. THE CONTENTION OF THE LD.A.R. IS THAT IN VIEW OF THE RECENT SUPREME COURT DECISIO N IN THE CASE OF TOPMAN EXPORTS VS. CIT, ONLY THE INCOME ON SALE OF DEPB IS TO BE EXCLUDED FOR CALCULATION OF THE DEDUCTION (AND N OT THE ENTIRE SALE PROCEEDS OF DEPB). SINCE THE SAID DECISION OF THE SUPREME COURT IS SQUARELY ON THE ISSUE UNDER CONSIDERATION, AO IS DIRECTED TO WORK OUT THE INCOME ARISING ON THE SALE OF DEPB AND EXCLUDE THE SAID AMOUNT FOR WORKING OUT THE ELIGIBLE PROFIT AND THE ALLOWABLE DEDUCTION U/S.80IB. THE DISALLOWANCE GET S REDUCED ACCORDINGLY. THIS GROUND OF APPEAL IS PARTLY ALLOW ED. 3.2. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE A ND ASSESSEE ARE NOW IN APPEAL BEFORE US. 4. BEFORE US, LD.AR REITERATED THE SUBMISSION MADE BEFORE THE AO & LD.CIT(A) AND FURTHER SUBMITTED THAT THE WHOLE FACE VALUE OF DEPB CANNOT BE STATED TO BE THE INCOME OF THE ASSESSEE B UT ONLY THE PREMIUM, IF ANY, RECEIVED BY THE ASSESSEE CAN BE STATED TO BE I NCOME ARISING OUT OF DEPB AND FOR THIS PROPOSITION, HE RELIED ON THE DEC ISION OF HONBLE APEX COURT IN THE CASE OF TOPMAN EXPORTS VS. CIT REPORTE D IN (2012) 342 ITR 49(SC). LD.SR.DR ON THE OTHER HAND SUPPORTED THE ORDER OF AO. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO CL AIM OF DEDUCTION U/S.80IB OF THE ACT ON THE PROFIT EARNED FROM DEPB INCOME. WE FIND THAT LD.CIT(A) WHILE DECIDING THE ISSUE AND AFTER P LACING THE RELIANCE ON ITA NO.1550/AHD/2012 (BY ASSESSEE) ITA NO.1683/AHD/2012 (BY REVENUE) BANPAL OIL CHEM PVT.LTD. VS. ACIT (CROSS-APPEALS) ASST.YEAR 2008-09 - 6 - THE DECISION IN THE CASE OF TOPMAN EXPORTS VS. CIT( SUPRA) HAS HELD THAT ONLY THE INCOME ON SALE OF DEPB IS TO BE EXCLUDED A ND NOT THE ENTIRE SALE OF DEPB FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S.80IB OF THE ACT. BEFORE US, NEITHER OF THE PARTIES HAVE PLACED ANY C ONTRARY BINDING DECISION IN THEIR SUPPORT. WE THEREFORE FIND NO RE ASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A). THUS, THIS GROUND(S) O F REVENUE AND ASSESSEE ARE DISMISSED. 6. NEXT GROUND IS WITH RESPECT TO DISALLOWANCE OF I NTEREST EXPENDITURE. 6.1. THE LD.AR SUBMITTED THAT THIS GROUND OF REVENU E IS INTER- CONNECTED WITH GROUND NO.2 OF ASSESSEES APPEAL AND THEREFORE THE GROUND OF REVENUE AND ASSESSEE ARE CONSIDERED TOGET HER. 6.2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AN D ON PERUSING THE BALANCE-SHEET, AO NOTICED THAT THE ASSESSEE HAD MAD E INVESTMENT TO THE TUNE OF RS.1,45,47,000/- IN BANPAL AGROTECH PVT.LTD . HE ALSO NOTICED THAT ASSESSEE HAD GIVEN INTEREST-FREE ADVANCES OF R S.1,74,76,692/- AND HAD CLAIMED INTEREST EXPENDITURE OF RS.1,56,74,752/ -. AO OBSERVED THAT ON ONE HAND ASSESSEE HAS GIVEN INTEREST-FREE ADVANC E AND ON THE OTHER HAND ASSESSEE HAS CLAIMED INTEREST EXPENDITURE ON T HE LOANS BORROWED FROM BANKS AND UNSECURED LOANS. HE WAS THEREFORE OF THE VIEW THAT PROPORTIONATE INTEREST ON THE AMOUNT UTILIZED FOR T HE PURPOSE OF PURCHASE OF SHARES OF BANPAL AGRO TECH PVT.LTD. CANNOT BE CO NSIDERED TO BE FOR THE PURPOSE OF BUSINESS AND THEREFORE THE INTEREST ON THE AMOUNTS USED FOR ITA NO.1550/AHD/2012 (BY ASSESSEE) ITA NO.1683/AHD/2012 (BY REVENUE) BANPAL OIL CHEM PVT.LTD. VS. ACIT (CROSS-APPEALS) ASST.YEAR 2008-09 - 7 - MAKING INVESTMENTS WAS REQUIRED TO BE DISALLOWED. HE ACCORDINGLY, AFTER CONSIDERING THE RATE OF INTEREST @12%, WORKED OUT THE DISALLOWANCE OF RS.27,27,514/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A) WHO DECIDED THE ISSUE B Y HOLDING AS UNDER:- 4.2. VIDE PARA-6 OF THE ASSESSMENT ORDER, AO OBSER VED THAT THE APPELLANT MADE INVESTMENT TO THE TUNE OF RS.1,45,47 ,000/- IN M/S.BANPAL AGRO TECH PVT.LTD. DURING THE YEAR; INTEREST-FREE A DVANCES TO THE EXTENT OF RS.1,74,76,692/- WERE MADE; INTEREST OF RS.1,56, 74,752/- WAS DEBITED TO THE PROFIT & LOSS ACCOUNT; IN RESPONSE TO THE SH OW CAUSE NOTICE ISSUED, APPELLANT CONTENDED THAT THE INVESTMENT IN M/S.BANPAL AGRO TECH PVT.LTD. WAS OUT OF COMMERCIAL EXPEDIENCY; SAI D EXPLANATION WAS NOT SATISFACTORY AND PROPORTIONATE INTEREST DISALLO WANCE @12% ON THE AMOUNT OF RS.2,27,29,285/- WAS BEING MADE U/S.36(1) (III), WHICH WORKED OUT TO RS.27,27,514/-. THE LD.ARS CONTENTIONS ARE THREE PRONGED. THE FIRST ONE IS THAT NO DISALLOWANCE IS CALLED FOR U/S .14A. IN THIS CONNECTION, IT IS SEEN THAT THE DISALLOWANCE WAS NO T MADE U/S.14A AND THEREFORE THIS CONTENTION IS BESIDE THE POINT. SEC OND CONTENTION OF THE LD.AR THAT THE AMOUNT INVESTED/ADVANCED WAS OUT OF COMMERCIAL EXPEDIENCY REMAINS UNSUBSTANTIATED. THIS LEAVES ON LY THE THIRD CONTENTION THAT NO DISALLOWANCE IS CALLED FOR, SINC E NO INTEREST BEARING FUNDS WERE INVESTED/ADVANCED. AS SEEN FROM THE ASS ESSMENT ORDER THAT THIS ARGUMENT WAS NOT ADVANCED BEFORE THE AO. THER EFORE, I DEEM IT FIT TO DIRECT THE APPELLANT TO DEMONSTRATE BEFORE THE A O THAT THE INVESTMENT/ADVANCES WERE NOT OUT OF INTEREST BEARIN G FUNDS. AO IS DIRECTED TO VERIFY THE EVIDENCE PRODUCED IN THIS RE GARD AND MODIFY THE ORDER ACCORDINGLY. THUS, SUBJECT TO VERIFICATION, THIS GROUND OF APPEAL IS TREATED AS ALLOWED. 6.3. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), REVE NUE IS NOW IN APPEAL BEFORE US. ITA NO.1550/AHD/2012 (BY ASSESSEE) ITA NO.1683/AHD/2012 (BY REVENUE) BANPAL OIL CHEM PVT.LTD. VS. ACIT (CROSS-APPEALS) ASST.YEAR 2008-09 - 8 - 7. BEFORE US, LD.SR.DR SUPPORTED THE ORDER OF AO. HE FURTHER SUBMITTED THAT LD.CIT(A) HAD REMITTED THE ISSUE TO THE FILE OF AO TO VERIFY THE EVIDENCES AND THEREAFTER DECIDE THE ISSUE. LD. SR.DR SUBMITTED THAT THE PROVISIONS OF SECTION 251(1)(A) OF THE ACT WAS AMENDED WITH EFFECT FROM 01/10/1998 AND CIT(A) IS NOT EMPOWERED TO REM AND THE ISSUE. HE THEREFORE SUBMITTED THAT THE ORDER OF AO BE UPHELD. LD.AR, ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND SUBMITTED THAT NO BORROWED FUNDS HAVE BEEN UTILIZED BY ASSESSEE FOR ACQUIRING THE INVESTMENTS AND THAT THE INVESTMENTS WERE ACQUIRED FOR COMMERCIAL EXPEDIENCY. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE DECIDING THE ISSU E HAD DIRECTED THE A.O TO VERIFY THE VARIOUS EVIDENCES SUBMITTED BY TH E ASSESSEE AND THEREAFTER DELETE THE ADDITION. AT THIS MOMENT IT W ILL BE RELEVANT TO REFER TO RELEVANT PROVISIONS OF SECTION 251 WHICH READS A S UNDER:- POWERS OF THE COMMISSIONER (APPEALS) 251 (1) IN DISPOSING OF AN APPEAL, THE COMMISSIONER (APPEALS) SHALL HAVE THE FOLLOWING POWERS- (A) IN AN APPEAL AGAINST AN ORDER OF ASSESSMENT, HE MAY CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT. 8.1 THE PERUSAL OF PROVISIONS OF SECTION 251(1)( A) REVEALS THAT CIT(A) IN AN APPEAL AGAINST AN ORDER OF ASSESSMENT CAN CON FIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT. THE POWER OF SETTING ASIDE WHICH WAS AVAILABLE ITA NO.1550/AHD/2012 (BY ASSESSEE) ITA NO.1683/AHD/2012 (BY REVENUE) BANPAL OIL CHEM PVT.LTD. VS. ACIT (CROSS-APPEALS) ASST.YEAR 2008-09 - 9 - TO CIT(A) IS NO MORE AVAILABLE TO CIT(A) BY VIRTUE OF AMENDMENT MADE BY FINANCE ACT 2001 WITH EFFECT FROM 1.06.2001. THU S IT CAN BE SEEN THAT CIT(A) HAS SET ASIDE THE ISSUE TO THE FILE OF A.O, THE POWERS OF WHICH ARE NOT AVAILABLE TO HIM AT THE RELEVANT TIME. WHILE D ECIDING THE ISSUE, WE FIND THAT LD.CIT(A) HAS NOTED THAT ASSESSEE COULD N OT SUBSTANTIATE THAT THE AMOUNT USED BY THE ASSESSEE FOR ACQUISITION OF SHAR ES OF BANPAL AGRO TECH PVT.LTD. WAS ON ACCOUNT OF COMMERCIAL EXPEDIEN CY AND THAT THE ARGUMENT OF NOT UTILIZING THE INTEREST-FREE FUNDS F OR MAKING INVESTMENTS WAS MADE BY ASSESSEE BEFORE AO. WE FIND THAT ON TH OSE ISSUES APART FROM ORAL SUBMISSIONS, THERE IS NO MATERIAL PLACED ON RECORD BY ASSESSEE TO SUBSTANTIATE ITS CLAIM, AT THE SAME TIME REVENU E HAS ALSO NOT PLACED ANY MATERIAL ON RECORD TO CONTROVERT THE OBSERVATIO NS OF LD.CIT(A). IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT THE M ATTER NEEDS TO BE RESTORED TO THE FILE OF AO FOR CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE AND THEREAFTER DECIDING THE ISSUE ON THE BASIS OF F ACTS AND CIRCUMSTANCES OF THE CASE AND IN ACCORDANCE WITH LAW. NEEDLESS T O STATE THAT AO SHALL GRANT ADEQUATE OPPORTUNITY OF HEARING TO ASSESSEE. THUS, THIS GROUND OF REVENUE AND ASSESSEE ARE ALLOWED FOR STATISTICAL PU RPOSES. 9. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1550/AHD/2012 (BY ASSESSEE) ITA NO.1683/AHD/2012 (BY REVENUE) BANPAL OIL CHEM PVT.LTD. VS. ACIT (CROSS-APPEALS) ASST.YEAR 2008-09 - 10 - 10. NOW WE LEFT WITH THE ASSESSEES GROUND NO.3 WH ICH IS WITH RESPECT TO DISALLOWANCE OF PREMIUM PAID ON KEYMEN I NSURANCE. 10.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSEE HAD PAID INSURANCE PREMIUM OF RS.1 CRORE FOR TAKING KEYMEN INSURANCE POLICIES IN THE NAMES OF THE 5 PERSONS LISTED AT PAGE NO.6 OF THE ASSESSMENT ORDER. AO WAS OF THE VIEW THAT THE EXPENSES WERE PERSONAL EXPENSES OF THE DIRECTORS AND THEIR FAMILY MEMBERS. ACCORDING TO HIM, THE OBJECT AND PURPOSE OF KEYMEN INSURANCE POLICY WAS TO PROTECT THE BUSINESS AGAINST FINANCIAL LOSS WHICH MAY OCCUR FROM THE EMPLOYEES PREMATURE DEATH AND THAT KEYMEN WOULD BE ANY PERSON EMPLOYED BY COMPANY HAVING A SPECIAL SKILL SET OR B ENEFICIAL RESPONSIBILITIES AND WHO CONTRIBUTES SIGNIFICANTLY TO THE PROFITS OF THE ORGANIZATION. HE, THEREAFTER RELYING ON THE CBDT C IRCULAR NO.18/02/1998 REPORTED IN 230 ITR ST.12, HELD THAT IN THE PRESENT CASE THERE WAS NO BENEFIT THAT WAS AVAILABLE TO THE COM PANY AND THE BENEFIT WAS TO BE RECEIVED BY LIFE INSURED AT THE TIME OF R ETIREMENT AS LUMP SUM CASH AND HAD ANNUITY OPTIONS. HE THEREFORE CONCLU DED THAT THE EXPENSES WAS PERSONAL IN NATURE AND NOT ALLOWABLE U/S.37(1) OF THE ACT AND ACCORDINGLY DISALLOWED THE EXPENSES. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A), W HO UPHELD THE DISALLOWANCE MADE BY THE AO BY HOLDING AS UNDER:- ITA NO.1550/AHD/2012 (BY ASSESSEE) ITA NO.1683/AHD/2012 (BY REVENUE) BANPAL OIL CHEM PVT.LTD. VS. ACIT (CROSS-APPEALS) ASST.YEAR 2008-09 - 11 - 5.3. I HAVE CONSIDERED THE FACTS OF THE MATER. TH E DISALLOWANCE WAS MADE BY THE AO PRIMARILY ON THE GROUND THAT THE APP ELLANT IS NOT THE BENEFICIARY OF THE POLICIES AND INSTEAD THE PERSONS CONCERNED ARE THE BENEFICIARIES. THE ADMISSIBILITY OF THE PREMIUM ON KEYMAN INSURANCE POLICY IS TO BE CONSIDERED U/S.37. FOR ANY EXPENDI TURE TO BE ALLOWED U/S.37(1), IT HAS TO BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. IN ACCORDANCE WITH C BDTS CIRCULAR NO.762, PREMIUM PAID ON KEYMAN INSURANCE POLICY TAK EN BY A BUSINESS ORGANIZATION IN ORDER TO PROTECT THE BUSINESS AGAIN ST THE FINANCIAL LOSS WHICH MAY OCCUR FROM THE PERSONS PREMATURE DEATH I S ALLOWABLE EXPENDITURE. IN THE INSTANT CASE, AS OBSERVED BY T HE AO RIGHTLY, THERE IS NOTHING TO INDICATE THAT THE POLICIES WERE TAKEN IN ORDER TO PROTECT THE BUSINESS. INSTEAD IN ALL THE FIVE POLICIES, THE BE NEFICIARIES WERE THE INDIVIDUALS CONCERNED AND THE POLICIES WERE IN THE NATURE OF RETIREMENT PLAN. THEREFORE, IT CAN BE SAFELY INFERRED THAT TH E PREMIUM PAID ON THE POLICIES WAS NOT WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF BUSINESS. ON THE CONTRARY, IT WAS WHOLLY AND EXCLUSIVELY FOR THE PERSONAL BENEFIT OF THE CONCERNED INDIVIDUALS. IN THE LIGHT OF THESE U NDISPUTED FACTS, IT IS TO BE SEEN WHETHER THE CASE LAWS RELIED ON BY THE LD.A .R. ARE APPLICABLE OR NOT. IN THE CASE CITED AT 323 ITR 178 (BOM.) THE I SSUE INVOLVED WAS WHETHER A PARTNER OF THE FIRM COULD BE CONSIDERED A KEYMAN. THERE WAS A CLEAR FINDING THAT THE POLICY WAS TAKEN FOR THE B ENEFIT OF THE FIRM AND NOT FOR THE PERSONAL BENEFIT OF THE PARTNER. IN TH E CASE OF CIT VS. RAJAN NANDA (DELHI), AT THE TIME OF TAKING THE POLICY IT WAS FOR THE BENEFIT OF THE BUSINESS. THE POLICIES WERE ASSIGNED IN FAVOUR OF THE BENEFICIARIES SUBSEQUENTLY. THEREFORE, IT WAS HELD THAT THE SUBS EQUENT ACTION OF ASSIGNING THE POLICIES TO THE BENEFICIARIES DID NOT CHANGE THE CHARACTER OF THE POLICIES AT THE TIME OF OBTAINING THE POLICI ES. IN THE CASE OF M/S.P.G. FOILS LTD., THE ISSUE INVOLVED WAS WHETHER THE POLICY TAKEN AT A MUCH HIGHER VALUE THAN THE NORMS FIXED BY IRDA WAS ELIGIBLE FOR ALLOWANCE OR NOT. IN THE CASE OF PRAKASH CHEMICAL PVT.LTD., THE ISSUE WAS WHETHER THE PERSONS (ON WHOM POLICIES WERE TAKE N) COULD BE CONSIDERED KEYMEN OR NOT. THUS, THE RATIO OF ALL T HE DECISIONS RELIED ON BY THE LD.A.R. WAS ON A TOTALLY DIFFERENT SET OF FA CTS. IN NONE OF THE CASES, THE INSURANCE POLICIES WERE OBTAINED FOR THE BENEFIT OF THE BENEFICIARIES. THEREFORE, I AM OF THE CONSIDERED V IEW THAT THE APPELLANT ITA NO.1550/AHD/2012 (BY ASSESSEE) ITA NO.1683/AHD/2012 (BY REVENUE) BANPAL OIL CHEM PVT.LTD. VS. ACIT (CROSS-APPEALS) ASST.YEAR 2008-09 - 12 - FAILED THE LITMUS TEST TO ESTABLISH THAT THE EXPEND ITURE WAS LAID OUT FOR THE PURPOSES OF THE BUSINESS. I DO NOT SEE ANY INF IRMITY IN THE ACTION OF THE AO IN DISALLOWING THE IMPUGNED EXPENDITURE OF R S.1 CRORE. DISALLOWANCE IS UPHELD. THIS GROUND OF APPEAL IS D ISMISSED. 11. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE I S NOW IN APPEAL BEFORE US. 11.1 BEFORE US, LD.AR REITERATED THE SUBMISSIONS M ADE BEFORE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT THE GENUINENES S OF THE EXPENSES WAS NOT IN DISPUTE AND THE AOS OBJECTION THAT THE CONC ERNED PERSON BEING NOT QUALIFIED OR HAVING HIGHER DESIGNATION WAS TOTALLY IRRELEVANT. HE FURTHER SUBMITTED THAT THE ISSUE IS SQUARELY COVERED VIDE P ARA-14.4 OF CBDT CIRCULAR NO.762 DATED 18/02/1998. HE THEREFORE SU BMITTED THAT THE ADDITION BE DELETED. LD.SR.DR ON THE OTHER HAND SUPPORTED THE ORDER OF LOWER AUTHORITIES. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE IN THE PRESENT CASE IS WITH REFERENCE TO ALLOWABILITY OF PREMIUM PAID FOR KEYMEN INSURANCE POLICY. IN THE PRESENT C ASE, WE FIND THAT ASSESSEE HAS PAID INSURANCE PREMIUM TOWARDS KEYMEN INSURANCE POLICY FOR THE FOLLOWING PERSONS:- NAME DESIGNATION PREMIUM PAID SH. YASHWANT BACHANI DIRECTOR RS.20 LAKHS ITA NO.1550/AHD/2012 (BY ASSESSEE) ITA NO.1683/AHD/2012 (BY REVENUE) BANPAL OIL CHEM PVT.LTD. VS. ACIT (CROSS-APPEALS) ASST.YEAR 2008-09 - 13 - SH. SHANTIDAN THAKOR DIRECTOR RS.20 LAKHS SH. ARUNBHAI DESAI DIRECTOR RS.20 LAKHS SH. MUKESH GADHVI PRODUCTION DEPT. (DIRECTORS SON) RS.20 LAKHS SH. JIGAR BACHANI HELPER (DIRECTORS SON) RS.20 LAKHS 12.1. ON PERUSING THE ABOVE TABLE, IT IS SEEN THAT OUT OF THE PREMIUM PAID FOR 5 POLICIES, 3 PERSONS NAMELY SHRI YASHWANT BACHANI, SHRI SHANTIDAN THAKOR AND SHRI ARUNBHAI DESAI ARE THE DI RECTORS OF THE ASSESSEE-COMPANY WHEREAS SHRI MUKESH GADHVI IS DIRE CTORS SON WORKS IN PRODUCTION DEPARTMENT AND SHRI JIGAR BACHANI IS DIRECTORS SON AND WORKS AS HELPER. THE OBJECT OF THE KEYMEN INSURANC E POLICY IS TO ENABLE BUSINESS ORGANIZATION TO INSURE THE LIFE OF A KEYMA N IN ORDER TO PROTECT THE BUSINESS AGAINST FINANCIAL LOSS WHICH MAY OCCUR IN THE LIKELY EVENT OF PREMATURE DEATH OF THE KEY PERSON. THUS KEYMAN IS AN EMPLOYEE OR A DIRECTOR, WHOSE SERVICES ARE PERCEIVED TO HAVE A SI GNIFICANT EFFECT ON THE PROFITABILITY OF THE BUSINESS. AS FAR AS THE PREMI UM PAID FOR 2 PERSONS, WHO ARE NOT THE DIRECTORS OF ASSESSEE, ASSESSEE HAS NOT PLACED ANY MATERIAL ON RECORD TO SHOW THEIR NATURE OF WORK, SI NCE HOW LONG THEY ARE ASSOCIATED WITH THE ASSESSEE, WHETHER ASSESSEE HAS PAID FOR PREMIUM FOR OTHER PERSONS WHO WORK IN ASSESSEES COMPANY IN SAM E CAPACITY AS THAT OF THESE TWO PERSONS AND HOW THESE TWO PERSONS CAN BE CONSIDERED TO BE THE KEY PERSONS TO THE ASSESSEES BUSINESS. IN SUC H A SITUATION, WE ARE OF THE VIEW THAT AO HAS RIGHTLY DISALLOWED THE EXPENSE S TOWARDS INSURANCE ITA NO.1550/AHD/2012 (BY ASSESSEE) ITA NO.1683/AHD/2012 (BY REVENUE) BANPAL OIL CHEM PVT.LTD. VS. ACIT (CROSS-APPEALS) ASST.YEAR 2008-09 - 14 - PREMIUM (RS.20 LACS) FOR THESE 2 PERSONS. AS FAR AS PAYMENT OF INSURANCE PREMIUM FOR OTHER 3 PERSONS ARE CONCERNED , IT IS AN UNDISPUTED FACT THAT THEY ARE THE DIRECTORS OF ASSESSEE-COMPAN Y. THE DIRECTORS OF THE COMPANY, EVEN BY THE CIRCULAR NO.762 DATED 18/0 2/1998 CAN BE CONSIDERED TO BE A KEY PERSON. IN SUCH A SITUATION , AND IN THE ABSENCE OF ANY CONTRARY MATERIAL PLACED BY THE REVENUE THAT TH E 3 DIRECTORS ARE NOT THE KEY PERSONS, WE ARE OF THE VIEW THAT THE INSURA NCE PREMIUM PAID FOR THE 3 DIRECTORS NEEDS TO BE ALLOWED. IN VIEW OF TH E AFORESAID FACTS, WE DIRECT THE RESTRICTING THE DISALLOWANCE OF KEYMEN I NSURANCE PREMIUM ONLY TO THE EXTENT OF RS.40 LACS AS AGAINST RS.1,00 ,00,000/- MADE BY AO. THUS, THIS GROUND OF ASSESSEE IS PARTLY ALLOWED. 13. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES, WHEREAS ASSESSEES APPEAL IS PARTLY ALLOW ED. THIS ORDER PRONOUNCED IN OPEN COURT ON 29/08/2016 SD/- SD/- () () (RAJPAL YADAV) ( ANIL CHATURVEDI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 29/ 08 /2016 3..,.../ T.C. NAIR, SR. PS ITA NO.1550/AHD/2012 (BY ASSESSEE) ITA NO.1683/AHD/2012 (BY REVENUE) BANPAL OIL CHEM PVT.LTD. VS. ACIT (CROSS-APPEALS) ASST.YEAR 2008-09 - 15 - !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT. 3. 456 7 / CONCERNED CIT 4. 7 ( ) / THE CIT(A)- 5. 89:'56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<=+ / GUARD FILE. / BY ORDER, (8' //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 4.8.16(DICTATION-PAD 13+ PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 19.8.16/26.8.16 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.29.8.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29.8.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER