Goyal Sons Zaveri Pvt. Ltd., Haryana V. ACIT, Hisar

ITA 475/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0889 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 30-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHIVANI BANSAL
• Assessee Lawyers: S KRISHNAN
• Keywords: Business expenditure; Earning of tax free income; Proportionate interest; Notional interest; Rule 8D
• Section: 143(3); 14A; 10(10D); 37(1); 37

Judgement Text

PAGE | 1 IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH : C NEW DELHI ] BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 475/DEL/2017 (ASSESSMENT YEAR: 2012-13) M/S. G OYAL SONS ZAVERI PVT. LTD., SCF 97, RAJGURU MARKET, DISTT. HISAR, HARYANA. PAN: AACCG8213A VS. A CIT, HISAR CIRCLE, HISAR. (APPELLANT) (RESPONDENT) ASSESSEE BY : MR. S. KRISHNAN, ADVOCATE; DEPARTMENT BY : MS. S HIVANI BANSAL, SR. D.R. DATE OF HEARING 0 9 /06 / 2021 DATE OF PRONOUNCEMENT 1 4 / 07 / 2021 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT (A), HISAR DATED 23.12.2016 FOR ASSESSMENT YEAR 2012-13, WHEREIN, THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY LD ACIT-HISAR U/S 143(3) DATED 27.02.2014 WAS PARTLY ALLOWED. 2. THE ASSESSEE IS AGGRIEVED AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE FOLLOWING ADDITIONS MADE BY THE ASSESSING OFFICER :- A. RS. 3,44,000/- U/S 14A OF THE ACT; B. RS. 12,50,000/- BEING THE AMOUNT PAID TOWARDS KEYMAN INSURANCE POLICY OF THE DIRECTOR OF THE COMPANY TREATING THE SAME AS PAYMENT TOWARDS INVESTMENT PLAN; C. RS. 27,000/- BEING THE AMOUNT OF PAYMENT OF INSURANCE PREMIUM UNDER EMPLOYER /EMPLOYEE INSURANCE SCHEME; D. RS.1,91,00/- ON ACCOUNT OF COMMISSION PAID; E. RS. 71,507/- ON ACCOUNT OF NOTIONAL INTEREST TREATING THE SAME AS NON BUSINESS EXPENSES; 3. BRIEF FACTS OF THE CASE SHOWS THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF TRADING IN GOLD, SILVER AND DIAMOND JEWELLERY UNDER THE FRANCHISE TANISQ BRAND OF TITAN INDUSTRIES LTD. THE ASSESSEE FILED RETURN OF PAGE | 2 INCOME 29.09.2012 IF RS. 92,08,930/-. THE ASSESSMENT WAS PASSED U/S 143(3) OF THE ACT ON 27.02.2014 WHEREIN, THE LD AO MADE THE DISALLOWANCE U/S 14A OF THE ACT AMOUNTING TO RS. 6,88,228/-, DISALLOWANCES OF RS. 12,77,000/- BEING INSURANCE PAID FOR KEY MAN INSURANCE POLICY FOR THE DIRECTOR AND EMPLOYEE EMPLOYER INSURANCE POLICY FOR THE STAFF. THE DISALLOWANCE OF COMMISSION PAID OF RS. 1,91,500/- AND DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 71,507/-. OTHER DISALLOWANCES MADE BY THE LD AO ARE NOT ISSUE IN THIS APPEAL. CONSEQUENTLY, THE ASSESSMENT ORDER WAS PASSED AT TOTAL INCOME OF RS. 1,17,39,026/- AGAINST THE RETURNED INCOME OF RS. 92,08,930/-. 4. THE ASSESSEE FIELD BEFORE THE LD CIT(A) WHEREIN, DISALLOWANCES U/ 14A OF RS. 3,44,000/- WAS CONFIRMED PARTLY AND ALL OTHER BALANCE DISALLOWANCE WERE CONFIRMED AS IT IS. THEREFORE, THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE LEARNED AUTHORISED REPRESENTATIVE ON ALL THE GROUNDS. HE ALSO REFERRED TO THE VARIOUS DOCUMENTS FILED IN THE PAPER BOOK AS WELL AS ON THE SEVERAL JUDICIAL PRECEDENTS ON THE ISSUE. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. 7. THE FIRST GROUND OF APPEAL IS AGAINST DISALLOWANCES U/S 14A OF RS. 3,44,000/-. THE LD AO AFTER THE DETAILED ANALYSIS COMPUTED THE DISALLOWANCES APPLYING THE PROVISIONS OF RULE 8D AMOUNTING TO RS. 6,88,228/-. THE LD CIT(A) AFTER THE DETAILED DISCUSSION, RESTRICTED THE DISALLOWANCES @50% OF THE INTEREST ON THE AMOUNT SO INVESTED AND CONFIRMED THE DISALLOWANCES OF RS. 3,44,000/-. BEFORE THE LD CIT(A) THE ASSESSEE CATEGORICALLY STATED THAT IT HAS NOT EARNED ANY TAX FREE INCOME DURING THE YEAR. WE FIND THAT WHEN THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME, THE PROVISION OF SECTION 14A CANNOT APPLY AND NO DISALLOWANCE CAN BE MADE. SUCH IS THE MANDATE OF THE HONBLE DELHI HIGH COURT IN CHEMINVEST LIMITED VS. CIT 378 ITR 33 (DEL). EVEN OTHERWISE THE PROPORTIONATE DISALLOWANCE OF 50% OF THE INTEREST EXPENDITURE CANNOT BE UPHELD WHEN THERE IS A SPECIFIC FORMULA PROVIDED, PROVIDED THE ASSESSEE HAS ANY EXEMPT INCOME DURING THE YEAR. ACCORDINGLY, WE REVERSE THE ORDERS OF PAGE | 3 THE LOWER AUTHORITIES AND DIRECT THE LD AO TO DELETE THE DISALLOWANCE U/S 14A OF THE ACT. 8. THE SECOND AND THIRD GROUND OF APPEAL RELATES TO DISALLOWANCES OF KEYMAN INSURANCE POLICY OF THE DIRECTOR OF THE COMPANY PAID OF RS. 12,50,000/-AND RS. 27,000/- BEING THE AMOUNT OF PAYMENT OF INSURANCE PREMIUM UNDER THE EMPLOYER / EMPLOYEE INSURANCE SCHEME. REVENUE AUTHORITIES QUESTIONED THE ALLOWANCE OF THE ABOVE INSURANCE PREMIUM. THE ASSESSEE SUBMITTED THAT RS. 27,000/- WAS PAID ON ACCOUNT OF INSURANCE OF TWO EMPLOYEES UNDER THE EMPLOYEE/ EMPLOYER INSURANCE SCHEME. RS. 15,50,000/- WAS ALSO STATED TO HAVE BEEN PAID FOR KEYMAN INSURANCE POLICY FOR THE DIRECTOR SHRI SUMIT GOYAL. IT WAS ALSO STATED THAT THE BENEFICIARY OF THE KEYMAN INSURANCE POLICY IS THE COMPANY AND THEREFORE, THE ABOVE INSURANCE PREMIUM PAID BY THE ASSESSEE IS ALLOWABLE. THE LD AO PLACING RELIANCE ON THE DECISION OF THE COORDINATE BENCH IN FC SONDHI & COMPANY INDIA PVT. LTD VS. DCIT ITS 243 ITAT 2041 (ASR) MADE THE DISALLOWANCE. THE LD CIT(A) CONFIRMED THE ABOVE DISALLOWANCES STATING THAT THESE POLICIES DID NOT FALL IN THE DEFINITION OF KEYMAN INSURANCE POLICY AS PER SECTION 10(10D) OF THE ACT. IT WAS ALSO HELD THAT THESE ARE IN THE NATURE OF INVESTMENT PLANS. HE FURTHER STATED THAT THE ASSESSEE IS NOT ABLE TO CONTROVERT THE ABOVE FINDING OF THE LD AO. IT WAS ARGUED BY THE LD AR THAT THE ABOVE POLICY STOOD IN THE NAME OF THE COMPANY WHERE THE LIFE OF THE DIRECTOR MR. SUMIT GOYAL WAS INSURED AND IN FACT THE MATURITY PROCEEDS OF THE POLICY OF RS. 85 LAKHS WAS RECEIVED IN FY 2019 20 WHICH WAS ALSO OFFERED FOR TAXATION. IT WAS FURTHER NOTED THAT EXCEPT IN THIS YEAR IN ALL SUBSEQUENT YEAR STARTING FROM ASSESSMENT YEAR 2013-14 THE LD AO HAS CONSISTENTLY ALLOWED THE INSURANCE PREMIUM PAID TILL THE YEAR OF MATURITY. WE FIND THAT THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE HONBLE DELHI HIGH COURT IN CASE OF CIT VERSUS MR. RAJAN NANDA (2012) 18 TAXMANN.COM 98 (DELHI) WHEREIN, THE KEYMAN INSURANCE PREMIUM PAID BY THE COMPANY IS ALLOWED AS DEDUCTION TO THE COMPANY U/S 37 (1) OF THE ACT. THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF THIS WE FIND THAT THE DISALLOWANCES MADE BY THE LD AO AND CONFIRMED BY THE LD CIT(A) IS NOT SUSTAINABLE. ACCORDINGLY, THE PREMIUM PAID OF RS. 15,50,000/- FOR KEYMAN INSURANCE POLICY IS ALLOWABLE TO THE ASSESSEE U/S 37(1) OF THE ACT. SIMILARLY, RS. 27,000/- PAID AS INSURANCE PREMIUM OF THE EMPLOYEE IS PAGE | 4 ALSO ALLOWABLE TO THE ASSESSEE U/S 37(1). ACCORDINGLY, WE REVERSE THE ORDER OF THE LOWER AUTHORITIES AND DIRECTED THE LD AO TO DELETE THE DISALLOWANCE OF RS. 12,77,000/- ON ACCOUNT OF INSURANCE PREMIUM. 9. THE FOURTH GROUND OF APPEAL IS AGAINST THE DISALLOWANCES COMMISSION EXPENDITURE OF RS. 1,91,500/- TO TWO PERSONS. THE LD AO DISALLOWED THE COMMISSION PAID OF RS. 80,800/- TO MS. SONU GOYAL AS SHE COULD NOT BE PRODUCED FOR VERIFICATION AND FURTHER COMMISSION PAID TO MRS. AYUSHI GOYAL OF RS. 1,10,700/- WAS ALSO DISALLOWED BECAUSE IN HER STATEMENT RECORDED ON 18.09.2014 SHE WAS FOUND TO BE HOUSEWIFE AND SHE DID NOT DO ANY BUSINESS AS WELL AS NOT AWARE WHETHER HER INCOME TAX RETURN WAS FILED AND FOR WHAT REASONS. HOWEVER SHE CONFIRMED THAT SHE HAS INTRODUCED 25 26 CLIENTS TO THE ASSESSEE COMPANY HOWEVER SHE COULD NAME ONLY 4 OF THEM. THUS, THE LD AO DISALLOWED THE ABOVE COMMISSION. THE LD CIT(A) CONFIRMED THE ABOVE DISALLOWANCE FOR THE REASON THAT IN AY 2010-11 FOR IDENTICAL REASONS COMMISSION PAID TO SONU GOYAL AND AYUSHI GOYAL WAS DISALLOWED. BEFORE US IT WAS SUBMITTED THAT THE CONFIRMATION OF BOTH THE PARTIES ALONG WITH THE INCOME TAX RETURNS WERE SUBMITTED BEFORE THE LD AO. MS. SONU GOYAL COULD NOT BE PRODUCED HOWEVER HER CONFIRMATION AND INCOME TAX RETURN HAVE ALSO BEEN FILED. WITH RESPECT TO THE AYUSHI GOYAL IT WAS SUBMITTED THAT SHE CONFIRMED THAT SHE HAD TAKEN 25 TO 26 PEOPLE TO ZAVERI FOR PURCHASE OF JEWELLERY. SHE COULD ALSO IMMEDIATELY GIVE THE NAME OF 4 TO 5 PERSONS. THEREFORE, THE DISALLOWANCES CANNOT BE MADE. THE LD AR ALSO ARGUED THAT BOTH THE RECIPIENTS OF COMMISSION HAVE RENDERED THE SERVICES TO THE ASSESSEE AND THE EXPENDITURE ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, BOTH OF THEM HAVE OFFERED THE ABOVE INCOME IN THE RETURN OF INCOME AND THEREFORE, SHOULD BE ALLOWED. HOWEVER, WE FIND THAT IDENTICAL ISSUE HAS BEEN DEALT BY THE LD CIT(A) FOR ASSESSMENT YEAR 2010-11 IN THE CASE OF THE ASSESSEE WHEREIN, THE COMMISSION PAID HAS BEEN DISALLOWED. EVEN BEFORE THE LD CIT(A) EXCEPT FILING THE CONFIRMATION AND THE RETURN OF THE RECIPIENT, ASSESSEE COULD NOT PRODUCE ANYTHING. THE LD AR HAS INFACT RELIED UPON THE DECISION OF HONBLE GUJARAT HIGH COURT IN PCIT VS VISHAL ENGINEERING AND GALVANIZERS IN TAX APPEAL NO. 8/2019 DATED 13.01.2020. PAGE | 5 10. ON CAREFUL PERUSAL OF THE ABOVE DECISION IT WAS HELD THAT COMMISSION PAID TO THE COMMISSION AGENT FOR INTRODUCING POTENTIAL CUSTOMERS TO THE ASSESSEE IS ALLOWABLE U/S 37 OF THE ACT. IN THE PRESENT CASE IN CASE OF MS. AYUSHI GOYAL SHE HAS STATED THAT SHE HAS INTRODUCED 25 TO 26 PEOPLE TO THE ASSESSEE IN HER STATEMENT AND ALSO NAMED FOUR TO FIVE PEOPLES. THEREFORE, IT IS APPARENT THAT SHE HAS REFERRED THE CUSTOMERS TO THE ASSESSEE. THEREFORE, WE DIRECT THE LD AO TO DELETE THE DISALLOWANCE OF RS. 1,10,700/- IN CASE OF COMMISSION PAID TO AYUSHI GOYAL AS ALLOWABLE EXPENDITURE U/S 37(1) OF THE ACT. HOWEVER, IN CASE OF MS. SONU GOYAL NO SUCH INFORMATION IS FORTHCOMING BEFORE THE LOWER AUTHORITIES OR BEFORE US AND THEREFORE, THE DISALLOWANCE OF RS. 88,800/- DESERVED TO BE CONFIRMED. 11. THE NEXT GROUND OF APPEAL IS DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 71,507/-. THE LD AO NOTED THAT THE ASSESSEE HAS INVESTED RS. 1,20 CRORES ON 17.03.2012 IN ESSEL HOUSING PROJECT. THE ASSESSEE EXPLAINED THAT THE PURPOSE OF MAKING THE ABOVE INVESTMENT IS FOR BOOKING OF PROPERTY AT GURGAON HOWEVER, THE DEAL COULD NOT MATURE AND THE RECOVERY OF THE ADVANCE HAS BEEN MADE ON 05.05.2012. THE LD AO NOTED THAT THE ASSESSEE HAS DEBITED INTEREST EXPENDITURE OF RS. 1.41 CRORES ON ACCOUNT OF CC CASH CREDIT ACCOUNT WITH AXIS BANK FROM WHICH THE ABOVE PAYMENT WAS MADE AND THEREFORE, PROPORTIONATE INTEREST EXPENDITURE OF RS. 71,507/- WAS DISALLOWED. THE LD CIT(A) FOUND THAT THE ASSESSEE HAS MADE INVESTMENT OUT OF INTEREST BEARING FUND FROM CC ACCOUNT TOWARDS NON BUSINESS PURPOSES AND THEREFORE, THE LD CIT(A) HAS CORRECTLY MADE THE ABOVE DISALLOWANCE. 12. THE LD AR HAS SUBMITTED THAT THE ASSESSEE HAS INTEREST FREE OWNED FUNDS AND THEREFORE, THE DISALLOWANCES OF INTEREST CANNOT BE MADE. FOR THIS PROPOSITION THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS INTEREST FREE FUNDS AVAILABLE WITH IT OF RS. 1.99 CRORES WHICH IS HIGHER THAN THE AMOUNT OF INVESTMENT MADE AT RS. 1.20 CRORES AND THEREFORE, NO DISALLOWANCES CAN BE MADE. WE FIND THAT THE ASSESSEE HAS INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND THREE RESERVE AVAILABLE WITH IT OF RS. 2 CRORES APPROXIMATELY WHEREAS THE INVESTMENT MADE IS OF RS. 1.20 CRORES AND THEREFORE, THE PRESUMPTION WOULD ARISE IN FAVOUR OF THE ASSESSEE THAT THERE WAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. IN VIEW OF THIS DISALLOWANCE PAGE | 6 OF INTEREST EXPENDITURE OF RS. 71,507 CANNOT BE MADE. HENCE WE DIRECT THE LD AO TO DELETE THE ABOVE DISALLOWANCE. 13. CONSEQUENTLY, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/07/2021. SD/- SD/- (SUDHANSHU SRIVASTAVA) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 14/07/2021 *MEHTA* COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI PAGE | 7 DATE OF DICTATION 1 4 . 0 7 . 2 0 2 1 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 1 4 . 0 7 . 2 0 2 1 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 1 4 . 0 7 . 2 0 2 1 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/ PS 1 4 . 0 7 . 2 0 2 1 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 1 4 . 0 7 . 2 0 2 1 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS 1 4 . 0 7 . 2 0 2 1 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 1 4 . 0 7 . 2 0 2 1 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 1 4 . 0 7 . 2 0 2 1 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