HIMANSHU CHIMANLAL ENGINEER, MUMBAI V. ACIT 19(2), MUMBAI

ITA 2821/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101095 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 18-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 10-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RADHA KATYAL NARAN G
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN , AM AND PAWAN SINGH , JM ./ I.T.A. NO . 2 821 / MUM/20 1 3 ( / ASSESSMENT YEA R : 20 0 7 - 08 ) SHRI HIMANSHU C HIMANLAL ENGINEER, 33, CHAMUNDA NIWAS, B WIND, 3 RD FLOOR, TAGORE ROAD, SAMNTA CRUZ (W), MUMBAI - 400054 / VS. ASSTT. COMMISSIONER OF INCOME TAX, 19(2), MUMBAI. ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./P AN. : AAAPE0548H / APPELLANT S BY SHRI ANANT N PAI / R EVENUE BY MS.RADHA KATYAL NARAN G , / DATE OF HEARING : 2 2 .9 . 201 5 / DATE OF PRONOUNCEMENT: 22. 9. 201 5 / O R D E R P ER B R BASKARAN, AM : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 24.01.2013 PASSED BY LD CIT(A) - 11 , MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 200 7 - 08 . 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) ON THE FOLLOWING ISSUES: - (A) D ISALLOWANCE OF PREMIUM PAID TOWARDS KEYMAN INSURANCE POLICIES; (B) DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. ITA NO. 2 821 / MUM/20 1 3 2 3. WE HEARD THE PARTIES AND PERUSED T HE RECORD. THE LD. AR SUBMITTED THAT THE ASSESSEE IS AN INDENTING AGENT FOR FOREIGN MACHINERY SUPPLIERS. THE ASSESSEE HAD TAKEN KEYMAN INSURANCE POLICIES IN THE NAME OF HIS SON AND DAUGHTER AND CLAIMED THE PREMIUM PAID THEREON AS EXPENDITURE . THE AO DI D NOT CONSIDER THE CHILDREN OF THE ASSESSEE AS KEY M E N IN THE BUSINESS ACTIVITIES OF THE ASSESSEE . ACCORDINGLY, HE DISALLOWED THE CLAIM MADE BY THE ASSESSEE . THE LD. CIT(A), HOWEVER, TOOK TH E VIEW THAT THE INSURANCE POLICIES TAKEN BY THE ASSESSEE CANN OT BE CONSIDERED AS KEYMAN INSURANCE POLICIES AND HENCE HE DID NOT GO INTO THE MERITS OF THE CLAIM. IN SUPPORT OF HIS DECISION , THE LD CIT(A) PLACED RELIANCE ON THE CIRCULAR ISSUED BY LIFE INSURANCE CORPORATION , WHICH WAS IN TURN ISSUED ON THE BASIS OF A CIRCULAR DATED 2 7 . 4 .2005 ISSUED BY IRDA . ACCORDING TO THE ABOVE SAID CIRCULARS, ONLY TERM INSURANCE PLANS ALONE CAN BE CONSIDERED AS KEY MAN INSURANCE POLICIES. THE ASSESSEE HEREIN HAD TAKEN UNIT LINKED INSURANCE PLANS, WHICH DO NOT FALL UNDER THE CAT EGORY OF TERM INSURANCE PLANS. ACCORDINGLY, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO ON A DIFFERENT REASONING. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIRCULAR ISSUED BY THE LIFE INSURANCE CORPORATION IS BASED UPON THE D ECISION TAKEN BY INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA) IN THEIR CIRCULAR DATED 27.4.2005. THE LD. AR SUBMITTED THAT THE ASSESSEE HA D TAKE N THREE INSURANCE POLICIES, OUT OF WHICH TWO POLICIES HAD BEEN TAKEN PRIOR TO 27.4.2005. THE LD. COUN SEL SUBMITTED THAT THE CIRCULAR ISSUED BY IRDA SHALL HAVE APPLICATION PROSPECTIVELY AND HENCE THE KEY MAN POLICIES TAKEN BY THE ASSESSEE PRIOR TO 27.4.2005, EVEN THOUGH THEY ARE NOT TERM PLANS, SHALL NOT BE AFFECTED BY THE CIRCULAR ISSUED BY IRDA. HE FURT HER SUBMITTED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE CO - ORDINATE BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF M/S SHRI NIDHI CORPORATION V/S ADDL.CIT IN ITA NO. 2 821 / MUM/20 1 3 3 ITA NO.961/MUM/2012 (AY - 2006 - 07) DATED 12.2.2014 , WHEREIN THE TRIBUNAL HELD THAT THE POLICIES P URCHASED BY THE ASSESSEE PRIOR TO THE ISSUANCE OF CIRCULAR BY IRDA WILL NOT BE AFFECTED BY THAT CIRCULAR . THE LD. COUNSEL FURTHER SUBMITTED THAT THE SAID DECISION OF MUMBAI TRIBUNAL WAS ALSO FOLLOWED BY THE AMRITSAR BENCH OF THE TRIBUNAL IN THE CASE OF SU RI SONS V/S ADDL.CIT (2015) ( 61 TAXMANN.COM 141 ). ACCORDINGLY, THE LD. COUNSEL SUBMITTED THAT THE TWO POLICIES WHICH HAVE BEEN TAKEN BY THE ASSESSEE PRIOR TO ISSUANCE OF THE CIRCULAR BY IRDA SHOULD BE CONSIDERED AS KEYMAN INSURANCE POLICIES . WITH REG ARD TO THE THIRD POLICY TAKEN AFTER 27.4.2005, THE LD A.R FAIRLY CONCEDED THAT THE SAME SHALL BE HIT BY THE CIRCULAR ISSUED BY IRDA. HE FURTHER SUBMITTED THAT THE LD.CIT(A) HAS NOT CONSIDERED THE ISSUE ON MERITS AND ACCORDINGLY PRAYED THAT THIS ISSUE MAY BE SET ASIDE TO THE FILE OF THE LD. CIT(A) FOR HIS FRESH CONSIDERATION. 5 . WE HEARD THE LD. DR AND ALSO PERUSED THE RECORD. ACCORDING TO THE ASSESSEE, HE HAS TAKEN THREE KEYMAN INSURANCE POLICIES OUT OF WHICH TWO POLICIES HAVE BEEN TAKEN PRIOR TO 2 7.4.2005 I.E. THE DATE ON WHICH IRDA ISSUED CIRCULAR, WHEREIN IT HAS SPECIFIED THAT ONLY TERM INSURANCE POLICY CAN BE CONSIDERED AS KEYMAN INSURANCE POLICY. ADMITTEDLY THE POLICIES TAKEN BY THE ASSESSEE WERE NOT TERM INSURANCE PLANS. THE LD. AR ALSO PLACED HIS RELIANCE ON THE TRIBUNAL ORDERS REFERRED (SUPRA), W HEREIN, THE TRIBUNAL HAS TAKEN THE VIEW THAT THE CIRCULAR ISSUED BY THE IRDA SHALL HAVE PROSPECTIVE APPLICATION, MEANING THEREBY KEYMAN INSURANCE POLICY TAKEN PRIOR TO 27.4.2005 NEED NOT BE TE RM INSURANCE PLANS . ACCORDINGLY, WE NOTICE THAT THE VIEW TAKEN BY THE LD. CIT(A) IS AGAINST THE DECISION TAKEN BY THE CO - ORDINATE BENCH OF TRIBUNAL, REFERRED SUPRA AND HENCE WE ARE NOT ABLE TO AGREE WITH HIS VIEW IN RESPECT OF THE INSURANCE POLICIES TAKEN PRIOR TO 27.4.2005 . ITA NO. 2 821 / MUM/20 1 3 4 6. THE LD A.R SUBMITTED THAT TWO POLICIES HAVE BEEN PURCHASED BEFORE 27.4.2005. WE HAVE EARLIER NOTICED THAT THE STAND OF THE AO WAS THAT THE CHILDREN OF THE ASSESSEE CANNOT BE CONSIDERED TO BE KEY MEN IN THE BUSINESS. WE HAV E NOTICE D THAT THE LD.CIT(A) HAS NOT EXAMINE D THE ISSUE ON MERITS. IN OUR VIEW, THE LD CIT(A) IS REQUIRED TO EXAMINE THIS ISSUE IN RESPECT OF TWO POLICIES TAKEN PRIOR TO 27.4.2005 ON MERITS, I.E.,HE IS REQUIRED TO EXAMINE THE VIEW TAKEN BY THE AO. ACCOR DINGLY, WE SET ASIDE T HE ORDER OF THE LD.CIT(A) IN RESPECT OF TWO POLICIES TAKEN PRIOR TO 27.4.2005 AND RESTORE THE SAME TO HIS FILE FOR CONSIDERING THEM ON MERITS. 7 . THE NEXT ISSUE RELATES TO DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT . THE LD. COU NSEL SUBMITTED THAT THE AO HAS COMPUTED THE DISALLOWANCE BY APPLYING THE RULE 8D OF THE INCOME TAX RULES, 1962 , E VEN THOUGH THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION IN VIEW OF THE DECISION OF THE HON'BLE BOMBAY HIGH COU RT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. ( 328 ITR 81 ) . THE LD. COUNSEL FURTHER SUBMITTED THAT THE OWN FUNDS AVAILABLE WITH THE ASSESSEE IS MORE THAN THE INVESTMENT MADE BY THE ASSESSEE AND HENCE, THERE IS NO REQUIREMENT TO MAKE DISALLOWA NCE OUT OF INTEREST EXPENDITURE. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S HDFC BANK LTD. [2014] 366 ITR 505 (BOM) . WITH REGARD TO THE DISALLOWANCE MADE OUT OF ADMINISTRATIVE EXPENSES, THE LD . COUNSEL SUBMITTED THAT THE ASSESSEE EARNED DIVIDEND INCOME ABOUT RS.5 LAK HS AND HENCE THE DISALLOWANCE OF RS.58,262/ - MADE BY THE AO OUT OF ADMINISTRATIVE EXPENSES IS ON THE HIGHER SIDE. 8. WE HEARD LD D.R AND PERUSED THE RECORD. ON A PERUSAL OF T HE BALANCE SHEET FURNISHED BY THE ASSESSEE AT PAGE 4 OF THE PAPER BOOK, WE NOTICE THAT THE ASSESSEE IS HAVING OWN FUNDS TO THE TUNE OF RS.2.34 CRORES ITA NO. 2 821 / MUM/20 1 3 5 AS AGAINST THE INVESTMENT OF RS.1.43 CRORES. THE LOANS TAKEN BY THE ASSESSEE CONSISTED OF CAR LOAN AND PR EMISES LOAN, BESIDES SMALL LOANS TAKEN FROM THE INDIVIDUALS. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS ONLY. ACCORDINGLY, THERE IS NO REQUIREMENT T O MAKE DISALLOWANCE OUT OF INTEREST EXPENDITURE IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF HDFC BANK (SUPRA). WITH REGARD TO THE DISALLOWANCES MADE OUT ADMINISTRATIVE EXPENSES, WE ARE OF THE VIEW THAT THE SAME HAS TO BE EXAMINED FROM THE POINT OF THE EXPENSES INCURRED BY THE ASSESSEE. CONSIDERING THE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT PLACED AT PAGE 5 OF THE PAPE BOOK, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF RS.58,262/ - WORKED OUT BY THE AO IS REASONABLE. ACCORDINGLY WE MODIFY THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO RS.58,262/ - . 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNC ED ACCORDINGLY ON 22 - 9 - 2015. 22 ND S EPT , 2015 SD SD ( PAWAN SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 22 ND SEPT , 2015 . . . ./ SRL , SR. PS ITA NO. 2 821 / MUM/20 1 3 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLAN T 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE CO PY (ASSTT. REGISTRAR) , /ITAT, MUMBAI