The ACIT, Circld-4,, Ahmedabad v. Ideal Sheet Metal Stamping and Pressing, Ahmedabad

ITA 511/AHD/2008 | 2004-2005
Pronouncement Date: 02-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 51120514 RSA 2008
Assessee PAN AAACI3670D
Bench Ahmedabad
Appeal Number ITA 511/AHD/2008
Duration Of Justice 2 year(s) 9 month(s) 20 day(s)
Appellant The ACIT, Circld-4,, Ahmedabad
Respondent Ideal Sheet Metal Stamping and Pressing, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 02-12-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 02-12-2010
Date Of Final Hearing 29-11-2010
Next Hearing Date 29-11-2010
Assessment Year 2004-2005
Appeal Filed On 12-02-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL VP AND BHAVNESH SAINI JM) ITA NO. 511/AHD/2008 A. Y.: 2004-05 THE A. C. I. T. CIRCLE-4 1 ST FLOOR NAVJEEVAN TRUST BUILDIGN OFF ASHRAM ROAD AHMEDABAD VS IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. KALIDAS MILL COMPOUND GOMTIPUR AHMEDABAD PA NO. AAACI 3670 D (APPELLANT) (RESPONDENT) C. O. NO.71/AHD/2008 (IN ITA NO. 511/AHD/2008 A. Y.: 2004-05) THE A. C. I. T. CIRCLE-4 1 ST FLOOR NAVJEEVAN TRUST BUILDIGN OFF ASHRAM ROAD AHMEDABAD VS IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. KALIDAS MILL COMPOUND GOMTIPUR AHMEDABAD PA NO. AAACI 3670 D (CROSS OBJECTOR ) (RESPONDENT) DEPARTMENT BY SHRI M. MATHIVANAN DR RESPONDENT BY SHRI SANJAY R. SHAH AR O R D E R PER BHAVNESH SAINI JM: THE DEPARTMENTAL APPEAL AS WELL AS THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AG AINST THE ORDER OF THE LEARNED CIT(A)-VIII AHMEDABAD DATED 23-11-2007 FO R ASSESSMENT YEAR 2004-05. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. ITA NO.511/AHD/208 AND C. O. NO.71/AHD/2008 IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. 2 3. GROUND NO.1 OF THE DEPARTMENTAL APPEAL READS AS UNDER: 1. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF INTEREST EXPENSES O F RS.25 517/- AND RESTRICTING THE DISALLOWANCE OF PROPORTIONATE ADMINISTRATIVE EXPENSES OF RS.6 59 57 0/- TO RS.25 000/- U/S 14A OF THE ACT. 4. GROUNDS NO.1 AND 2 OF THE CROSS OBJECTIONS OF TH E ASSESSEE READ AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING DISALLOWANCE UNDER SECTION 14A OF THE ACT. IN THE FACTS AND CIRCUMSTANCES OF THE CASE IT IS SUBMITTED THAT DISALLOWANCE MADE U/S 14A IS NOT JUSTIFIED. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE U/S 14A OF RS.25 000/- BEING ADMINISTRATIVE EXPENSES. IN THE F ACTS AND CIRCUMSTANCE OF THE CASE IT IS SUBMITTED THAT NO EXPENSES ARE INCURRED IN RESPECT OF TAX FREE INCOME HENCE NO DISALLOWANCE WAS REQUIRED TO BE MADE U/S 14A OF THE ACT .IT IS SUBMITTED THAT IT BE SO HELD NOW. 5. THE AO DISALLOWED PROPORTIONATE ADMINISTRATIVE E XPENSES OF RS.6 59 570/- AND INTEREST EXPENSES OF RS.25 517/- U/S 14A OF THE IT ACT. THE AO OBSERVED THAT THE ASSESSEE HAS EARNED D IVIDEND INCOME OF RS.1 43 695/- AND TAX FREE INTEREST OF RS.1 11 82 0 05/-. AS THE DIVIDEND INCOME WAS EXEMPT FROM TAX THE AO PROPOSED TO DISA LLOW PROPORTIONATE INTEREST EXPENSE AND ADMINISTRATIVE EXPENSE. THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AND THE REPLY OF THE ASSESSE E IS REPRODUCED AT PAGE 2 OF THE ASSESSMENT ORDER IN WHICH THE ASSESSEE EXP LAINED THAT IT HAS NOT OBTAINED ANY SPECIFIC BORROWINGS FOR THE PURPOSE OF INVESTMENT IN TAX FREE SECURITIES AND THAT INVESTMENTS ARE MADE FROM OWN F UNDS AND NO BORROWINGS HAVE BEEN USED. THEREFORE NO DISALLOWAN CE SHOULD BE MADE U/S 14A OF THE IT ACT. THE AO HAS NOT ACCEPTED THE CONTENTION OF THE ASSESSEE STATING THAT THE ASSESSEE HAS NOT FURNISHE D DETAILS OF EXACT ITA NO.511/AHD/208 AND C. O. NO.71/AHD/2008 IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. 3 SOURCE OF INVESTMENT IN SHARES AND MUTUAL FUNDS DUR ING THE YEAR IN APPEAL AND THERE IS NO MENTION THAT THE ASSESSEE HA S MAINTAINED SEPARATE ACCOUNTS OF INTEREST BEARING FUNDS AND NON -INTEREST BEARING FUNDS UTILIZED FOR INVESTMENT. AS NO DETAILS WERE F URNISHED BY THE ASSESSEE THE AO INFERRED THAT THE ASSESSEE-COMPANY HAS UTILIZED INTEREST BEARING FUNDS FOR MAKING INVESTMENT IN SHARES/MUTUA L FUNDS. THEREFORE PROPORTIONATE INTEREST EXPENSES FOR MAKING INVESTME NT IN SHARES/MUTUAL FUNDS TO THE EXTENT OF RS.25 570/- WAS DISALLOWED B Y THE AO BY RELYING UPON THE DECISION OF ITAT AHMEDABAD BENCH IN THE CA SE OF HARISH KRISHNAKANT BHATT VS ITO 91 ITD 311. FURTHER THE A O DISALLOWED PROPORTIONATE ADMINISTRATIVE EXPENSES OF RS.6 59 57 0/- BY INVOKING PROVISIONS OF SECTION 14A OF THE IT ACT. 6. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE DISALLOWANCE IS MADE MERELY ON ASSUMPTION. IT WAS SUBMITTED THAT MA KING SUCH INVESTMENTS IS NOT REGULAR ACTIVITY. FURTHER SECTI ON 14A OF THE IT ACT REQUIRES THAT EXPENDITURE WHICH HAS DIRECT NEXUS WI TH EARNING EXEMPT INCOME IS REQUIRED TO BE DISALLOWED U/S 14A OF THE ACT. THE AO HAS NO POWER TO ESTIMATE EXPENDITURE WHICH THE ASSESSEE WO ULD HAVE IN THE OPINION OF THE AO INCURRED IN RELATION TO EXEMPTED INCOME. IT WAS SUBMITTED THAT THE ASSESSEE HAS FUNDS GENERATED DUR ING THE YEAR AS WELL AS ACCUMULATED RESERVES TO MEET THE LIABILITY AND FURTHER NO NEXUS HAS BEEN ESTABLISHED BETWEEN THE INTEREST BEARING FUND S INVESTED FOR EARNING INTEREST FREE INCOME. THE LEARNED CIT(A) ACCEPTED T HE CONTENTION OF THE ASSESSEE BY OBSERVING THAT NO NEXUS HAS BEEN PROVED BETWEEN THE BORROWED FUNDS AND THE INVESTMENT MADE IN TAX FREE INVESTMENT AND THE ASSESSEE HAS SUFFICIENT FUNDS. THEREFORE THE DISAL LOWANCE OF THE INTEREST IS NOT JUSTIFIED. THE LEARNED CIT(A) HOWEVER NOTED THAT IN THE PRECEDING YEAR THE LEARNED CIT(A) SUSTAINED THE ADDITION OF R S.25 000/-. THEREFORE ADDITION OF RS.20 000/- WAS MAINTAINED. ITA NO.511/AHD/208 AND C. O. NO.71/AHD/2008 IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. 4 7. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT THE ISSUE IS NOW FINALLY SETTLED BY THE HONBLE BOM BAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING CO. LTD. VS DCIT AND ANOTHER 328 ITR 81 IN WHICH THE HONBLE BOMBAY HIGH COURT H ELD THAT SECTION 14A IS APPLICABLE TO DIVIDEND INCOME AND INCOME FRO M MUTUAL FUNDS EXEMPT UNDER SECTION 10(33) OF THE IT ACT. HE FURTHER SUBMITTED THAT THE HONBLE HIGH COURT HAS ALSO HELD THAT RULE 8 D IS NOT RETROSPECTIVE AND IS APPLICABLE FROM THE ASSESSMENT YEAR 2008-09 AND THE DISALLOWANCE FOR EARLIER PERIOD TO BE DETERMINE D ON REASONABLE BASIS. THE LEARNED DR FURTHER SUBMITTED THAT THE LEARNED C IT(A) HAS NOT GIVEN ANY SPECIFIC FINDINGS ON THE ISSUE AND NO REASONED ORDER IS PASSED THEREFORE THE MATTER REQUIRES RE-CONSIDERATION AT THE LEVEL OF THE AO. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT DISPUTE TH E DECISION OF THE HONBLE BOMBAY HIGH COURT HE HAS HOWEVER REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T NO SPECIFIC BORROWINGS HAVE BEEN OBTAINED FOR THE PURPOSE OF IN VESTMENT IN TAX FREE SECURITIES AND SUFFICIENT MATERIAL WAS FILED BEFORE THE AUTHORITIES BELOW TO SHOW THAT INVESTMENTS IN THE TAX FREE SECURITIES WE RE MADE FROM OWN FUNDS AND NO BORROWED FUNDS HAVE BEEN USED. THEREFO RE SECTION 14A OF THE IT ACT WOULD NOT APPLY IN THE MATTER. 8. ON CONSIDERATION OF THE ABOVE FACTS AND SUBMISSI ON OF THE PARTIES WE ARE OF THE VIEW THAT THE MATTER IS COVERED BY TH E DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING CO. LTD. VS DCIT AND ANOTHER 328 ITR 81 IN WHICH IT WAS HELD AS UNDER: HELD THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24 2008 WOULD APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-0 9. EVEN PRIOR TO ASSESSMENT YEAR 2008-09 WHEN RULE 8D WAS NOT APPLICABLE THE ASSESSING OFFICER HAD TO EN FORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. F OR THAT ITA NO.511/AHD/208 AND C. O. NO.71/AHD/2008 IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. 5 PURPOSE THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST AD OPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL TH E RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON RECORD. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHOULD DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED A NY EXPENDITURE (DIRECT OR INDIRECT) IN RELATION TO DIV IDED INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECT ION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION THE ASSESSING OFFICER SHOULD PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 9. IT MAY ALSO BE NOTED HERE THAT THE LEARNED CIT(A ) WITHOUT CONSIDERING THE FACTUAL ASPECTS IN THE IMPUGNED ORD ER HAS DELETED THE ADDITION. THE LEARNED CIT(A) HAS NOT MENTIONED AS T O WHAT WERE THE FUNDS AVAILABLE WITH THE ASSESSEE AND WHETHER BORRO WED FUNDS HAVE BEEN INVESTED IN THE INVESTMENT IN TAX FREE SECURITIES. IN THE ABSENCE OF ANY SPECIFIC FINDINGS ON THE ISSUE THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. MORE SO THE LEARNED CIT(A) HAS NOT GIVEN ANY FINDING WITH REGARD TO ADMINISTRATIVE EXPENSES. NO SPECIFIC DETAILS WERE ALSO FILED BEFORE THE AO. THE LEARNED COUNSEL FOR T HE ASSESSEE ALSO REFERRED TO THE ORDER OF ITAT AHMEDABAD BENCH IN TH E CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2002-03 DATED 07-07-20 07 IN WHICH ADDITION OF RS.25 000/- HAS BEEN MAINTAINED ON THE ABOVE ISSUE. HOWEVER NO DETAILED DISCUSSIONS ARE FOUND IN THE O RDER OF THE TRIBUNAL FOR MAINTAINING THE FINDINGS OF THE AUTHORITIES BEL OW. THEREFORE NO RELIANCE COULD BE PLACED UPON THE SAME DUE TO THE A BOVE REASONS AS WELL AS IN THE LIGHT OF THE RECENT DECISION OF THE HONB LE BOMBAY HIGH COURT IN ITA NO.511/AHD/208 AND C. O. NO.71/AHD/2008 IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. 6 THE CASE OF GODREJ AND BOYCE MANUFACTURING CO. LTD. VS DCIT AND ANOTHER (SUPRA). CONSIDERING THE RECENT DECISION OF THE HONBLE BOMBAY HIGH COURT AND THE FACT THAT THE ISSUE IN DETAIL HA S NOT BEEN CONSIDERED BY THE LEARNED CIT(A) WE SET ASIDE THE ORDERS OF T HE AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH D IRECTION TO RE-DECIDE THE SAME AFRESH AS PER DECISION OF THE HONBLE BOMBAY H IGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING CO. LTD. VS DCIT AND ANOTHER (SUPRA). THE AO SHALL GIVE REASONABLE SUFFICIENT OP PORTUNITY TO THE ASSESSEE FOR PRESENTING THE RELEVANT MATERIALS BEFO RE HIM ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 10. IN THE RESULT GROUND NO.1 OF THE APPEAL OF THE REVENUE AND THE CROSS OBJECTIONS OF THE ASSESSEE ARE ALLOWED FOR ST ATISTICAL PURPOSES. 11. GROUND NO.2 AND 3 OF THE DEPARTMENTAL APPEAL RE AD AS UNDER: 2. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.30 80 838/- TOWA RDS KEYMAN INSURANCE PREMIUM. 3. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE PROPORTIONATE DISALLOWANCE OUT OF I NTEREST EXPENSES AMOUNTING TO RS.2 59 563/- ON ACCOUNT OF FUNDS UTILIZED FOR PAYMENT OF KEYMAN POLICIES. 12. THE AO DISALLOWED RS.30 80 838/- TOWARDS KEYMA N INSURANCE PREMIUM . THE ASSESSEE CLAIMED DEDUCTION U/S 37(1) OF THE IT ACT BUT IN THE BOOKS OF ACCOUNTS THE SAID AMOUNT HAS BEEN SHOW N AS INVESTMENT. ACCORDING TO THE AO THE POLICIES ARE IN THE NAMES OF RAJIBEN AND KUSHIBEN AND THESE ARE THE PERSONAL POLICIES I.E. N EW JEEVAN SHRI OF LIC OF INDIA AND NOT KAYMAN INSURANCE POLICIES AS CLAIM ED BY THE ASSESSEE. THE CLAIM WAS ACCORDINGLY DISALLOWED. IT WAS SUBMIT TED BEFORE THE LEARNED CIT(A) THAT JEEVAN SHREE POLICIES HAVE BEEN TAKEN BY THE ASSESSEE ON THE LIVES OF ITS EXECUTIVE DIRECTORS I. E. KEYMAN AND THE ASSESSEE-COMPANY HAS PAID THE PREMIUM ON SUCH POLIC IES. IT WAS ITA NO.511/AHD/208 AND C. O. NO.71/AHD/2008 IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. 7 SUBMITTED THAT JEEVAN SHRI POLICIES OF LIC OF INDIA IS KEYMAN POLICY. THE ASSESSEE REFERRED TO THE POLICIES FILED BEFORE THE LEARNED CIT(A) AND IT WAS SUBMITTED THAT ACCOUNTING OF PREMIUM PAID AS IN VESTMENT DOES NOT RENDER THE PREMIUM KEYMAN INSURANCE POLICIES DISALL OWABLE. THE FACT THAT JEEVAN SHREE POLICY IS KEYMAN POLICY IS BORN O UT FROM TAXMANS MASTER GUIDE TO INCOME TAX ACT 2005. THE LEARNED C IT(A) CONSIDERING THE MATERIAL ON RECORD ACCEPTED THE CONTENTION OF T HE ASSESSEE THAT THE POLICY IS KEYMAN POLICY AND ACCORDINGLY DELETED THE ADDITION. AS REGARDS DISALLOWANCE OF INTEREST THE AO OBSERVED THAT THE ASSESSEE HAS UTILIZED THE INTEREST BEARING FUNDS FOR INVESTMENT IN KEYMAN INSURANCE POLICY AND IS NOT ENGAGED IN THE BUSINESS OF FINANCING OR MONEY LENDING THEREFORE INTEREST PAID ON THE LOANS TAKEN BY THE ASSESSEE WAS DISALLOWABLE. IT WAS SUBMITTED BEFORE THE LEARNED C IT(A) THAT ACCOUNTING OF TRANSACTION IS NOT DECISIVE OF ALLOWABILITY OF E XPENDITURE. PREMIUM ON KEYMAN INSURANCE POLICY IS DEDUCTIBLE BUSINESS EXPE NDITURE; THEREFORE NO INTEREST SHOULD BE DISALLOWED. THE LEARNED CIT(A ) ACCEPTED THE CONTENTION OF THE ASSESSEE BECAUSE THE PREMIUM PAID ON KEYMAN INSURANCE POLICY WAS DEDUCTIBLE EXPENDITURE THEREF ORE INTEREST PAID ON BORROWED FUNDS ON PAYMENT OF PREMIUM IS ALSO ALLOWA BLE EXPENDITURE. THE ADDITION OF RS.2 59 563/- WAS ACCORDINGLY DELET ED. 13. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND LEARNED COUNSEL FOR THE ASSESSEE REITERATED T HE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT COP IES OF THE KEYMAN INSURANCE POLICIES ARE FILED IN THE PAPER BOOK AND THAT SUFFICIENT MATERIAL IS ALSO ADDUCED BEFORE THE AUTHORITIES BELOW TO SHO W THAT THE SAME POLICIES ARE OBTAINED BY THE ASSESSEE IN THE NAME O F ITS EXECUTIVE DIRECTORS ARE ALSO KNOWN AS KEYMAN POLICY. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MA TERIAL AVAILABLE ON RECORD. THE ASSESSEE IS A COMPANY AND ADMITTEDLY OBTAINED KEYMAN ITA NO.511/AHD/208 AND C. O. NO.71/AHD/2008 IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. 8 INSURANCE POLICIES IN THE NAMES OF ITS DIRECTORS. T HE ITAT AHMEDABAD BENCH IN THE CASE OF M/S. PARMESHWAR ENGINEERS VS A CIT IN ITA NO.4369/AHD/2007 CONSIDERING THE BOARD CIRCULAR AND THE DECISION OF THE HONBLE BOMBAY HIGH COURT ALLOWED THE APPEAL OF THE ASSESSEE VIDE ORDER DATED 20-08-2010. THE FINDINGS OF THE TRIBUNA L IN PARA 7 8 AND 9 ARE REPRODUCED AS UNDER: 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS RELI ED UPON THE CIRCULAR NO.762 DATED 18-02-1998 PARA 14.4 OF WHICH ARE REPRODUCED AS UNDER: 14.4 THE ACT ALSO LAYS DOWN THAT THE SUMS RECEIVED BY THE SAID ORGANISATION ON SUCH POLICIES BE TAXED AS BUSINESS PROFIT; THE SURRENDER VALUE OF TH E POLICY ENDORSED IN FAVOUR OF THE EMPLOYEE (KEYMAN) OR THE SUM RECEIVED BY HIM AT THE TIME OF RETIREMENT B E TAKEN AS PROFITS IN LIEU OF SALARY FOR TAX PURPOS ES; AND IN CASE OF OTHER PERSONS HAVING NO EMPLOYER-EMPLOYE E RELATIONSHIP THE SURRENDER VALUE OF THE POLICY OR SUM RECEIVED UNDER THE POLICY BE TAKEN AS INCOME FROM O THER SOURCES AND TAXED ACCORDINGLY. THE PREMIUM PAID ON THE KEYMAN INSURANCE POLICY IS ALLOWED AS BUSINESS EXPENDITURE. THE PREMIUM PAID ON KIP HAS BEEN ALLOWED AS BUSINES S EXPENDITURE. THE AMOUNT RECEIVED IN KIP HAS BEEN MA DE TAXABLE AND ACCORDING TO SECTION 28 (VI) OF THE IT ACT WITH EFFECT FROM 01-10-1996 WHICH PROVIDES THAT A SUM RECEIVED UNDER KIP INCLUDING THE SUM ALLOCATED BY WAY OF BONUS ON SUCH POLICY WILL BE TREATED AS INCOME CHARGEABLE TO INCO ME TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROF ESSION. EXPLANATION TO SECTION 10(10D) IS REPRODUCED ABOVE IN THE FINDING OF THE LEARNED CIT(A) FIND MENTION THE WORD IS OR WAS CONNECTED IN ANY MANNER WHATSOEVER WITH THE BUSINES S WOULD HAVE WIDER MEANING. THE SAME IS CONSIDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. B. N. EXPORTS (SUPRA) AND IT WAS HELD AS UNDER: HELD FOR THE PURPOSE OF S. 10(10D) A KEYMAN INSURANCE POLICY MEANS A LIFE INSURANCE POLICY TAKE N BY A PERSON ON THE LIFE OF ANOTHER PERSON WHO IS OR WA S IN ITA NO.511/AHD/208 AND C. O. NO.71/AHD/2008 IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. 9 EMPLOYMENT AS WELL AS ON A PERSON WHO IS OR WAS CONNECTED IN ANY MANNER WHATSOEVER WITH THE BUSINES S OF THE SUBSCRIBER. THE WORD IS OR WAS CONNECTED IN ANY MANNER WHATSOEVER WITH THE BUSINESS OF THE SUBSCRIBER ARE WIDER THAN WHAT WOULD BE SUBSUMED UNDER A CONTRACT OF EMPLOYMENT. THE LATER PART MAKE S IT CLEAR THAT A KEYMAN INSURANCE POLICY FOR THE PURPOS ES OF CL. (10D) IS NOT CONFINED TO A SITUATION WHERE THER E IS A CONTRACT OF EMPLOYMENT. CIRCULAR NO.762 DATED 18 TH FEB. 1998 ISSUED BY THE CBDT CLARIFIES THE POSITIO N BY STIPULATING THAT THE PREMIUM PAID FOR A KEYMAN INSURANCE POLICY IS ALLOWABLE AS BUSINESS EXPENDITU RE. THERE IS A FINDING OF FACT BY THE TRIBUNAL THAT THE FIRM HAD NOT TAKEN FOR THE PERSONAL BENEFIT OF THE PARTN ER BUT FOR THE BENEFIT OF THE FIRM IN ORDER TO PROTEC T ITSELF AGAINST THE SET BACK THAT MAY BE CAUSED ON ACCOUNT OF THE DEATH OF A PARTNER. THE OBJECT AND PURPOSE OF A KEYMAN INSURANCE POLICY IS TO PROTECT THE BUSINESS AGAINST A FINANCIAL SET BACK WHICH MAY OCCUR AS A RESULT OF A PREMATURE DEATH TO THE BUSINESS OR PROFESSIONAL ORGANIZATION. THERE IS NO RATIONAL BAS IS TO CONFINE THE ALLOWABILITY OF THE EXPENDITURE INCURRE D ON THE PREMIUM PAID TOWARDS SUCH A POLICY ONLY TO A SITUATION WHERE THE POLICY IS IN RESPECT OF THE LIF E OF AN EMPLOYEE. A KEUMAN INSURANCE POLICY IS OBTAINED ON THE LIFE OF A PARTNER TO SAFEGUARD THE FIRM AGAINST A DISRUPTION OF THE BUSINESS THAT MAY RESULT DUE TO T HE PREMATURE DEATH OF A PARTNER. THEREFORE THE EXPENDITURE WHICH IS LAID OUT FOR THE PAYMENT OF PREMIUM ON SUCH A POLICY IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HENCE THE APPEAL BY THE REVENUE DOES NOT RAISE ANY SUBSTANTIA L QUESTION OF LAW. 8. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO FILED COPY OF THE KEYMAN INSURANCE POLICY IN THE MATTER IN RESPEC T OF TWO OF THE PARTNERS IN WHICH PAYMENT OF RS.10 00 000/- AND RS.1 00 000/- HAVE BEEN PAID. IN THIS KIP THE ASSE SSEE FIRM IS A PROPOSER FIRM AND THE NAME OF THE LIFE INSU RED IS THE PARTNER OF THE ASSESSEE FIRM. THE PERIODICAL PREMIU M PAYMENT IS PRESCRIBED YEARLY AND THAT THE BENEFITS OUT OF T HE POLICY WAS PAYABLE TO THE PROPOSER I.E. THE ASSESSEE FIRM. IN THE CASE OF DISSOLUTION OF PARTNERSHIP FIRM FOR ANY REASON OTHER THAN DEATH OF ANY OF THE PARTNERS INSURED UNDER THE POLICY THAN THE MENTIONED POLICY SHALL BE EITHER SURRENDERED TO THE COMPANY FOR ITS CASH VALUE ITA NO.511/AHD/208 AND C. O. NO.71/AHD/2008 IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. 10 IF ANY OR MAY PAID UP FOR VALUE IF ANY AS ACQUIRED UNDER THE POLICY AS ON THE DATE OF THE DISSOLUTION OF THE PAR TNERSHIP AND SUCH PAID UP POLICY SHALL BE ABSOLUTELY ASSIGNED IN FAVOUR OF THE PARTNERS INSURED UNDER THE POLICY. IT WOULD MEA N THAT THE ASSESSEE FIRM HAD NOT TAKEN INSURANCE FOR THE PERSO NAL BENEFIT OF THE PARTNERS BUT FOR THE BENEFIT OF THE FIRM IN ORDER TO PROTECT ITSELF AGAINST THE SET BACK THAT MAY BE CAU SED ON ACCOUNT OF DEATH OF A PARTNER. THEREFORE THE ASSES SEE FIRM BEING PROPOSER AND ULTIMATE BENEFICIARY OUT OF KIP HAS BEEN ABLE TO PROVE THAT POLICY WAS OBTAINED WITH THE OBJ ECT TO PROTECT THE INTEREST OF THE ASSESSEE FIRM IN THE EV ENT OF DEATH OF ANY OF THE PARTNERS. THEREFORE THE KIP IS OBTAI NED BY THE ASSESSEE FIRM FOR THE PURPOSE OF ITS BUSINESS. IN T HE CASE OF DISSOLUTION THE BENEFITS WOULD GO TO THE PARTNERS MEANING THEREBY THE PARTNERS OF THE ERSTWHILE FIRM. IN THAT EVENT NO PERSONAL BENEFIT HAS BEEN ASSIGNED TO THE PARTNERS. THUS THE ASSESSEE FIRM PROVED THAT IT HAS TAKEN THE KIP FOR ITS PARTNERS WHO ARE CONNECTED WITH THE BUSINESS OF THE ASSESSEE FIRM EXCEPT THE SLEEPING PARTNER. THE PARTNERS ARE DIREC TLY CONNECTED WITH THE BUSINESS OF THE ASSESSEE FIRM AN D ARE KEY PERSONS TO TAKE DECISION IN THE BUSINESS OF THE ASS ESSEE. AS NOTED ABOVE THE POLICY WAS TAKEN FOR THE BENEFIT O F THE BUSINESS OF THE ASSESSEE THEREFORE THE AMOUNT INC URRED FOR OBTAINING KIP POLICY SHALL HAVE TO BE CONSIDERED AS REVENUE EXPENDITURE. THE KIP IS NOT CONFINED TO A SITUATION WHERE THERE IS A CONTRACT OF EMPLOYMENT PREMIUM OF KIP OF PART NERS OF THE FIRM IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF B USINESS AND IS ALLOWABLE AS BUSINESS EXPENDITURE. THE SAME VIEW IS TAKEN BY THE ITAT AHMEDABAD BENCH IN THE CASE OF M/S. GEM ART (SUPRA) IN WHICH DEPARTMENTAL APPEAL HAS BEEN DISMI SSED ON THE IDENTICAL ISSUES. THE VIEW OF THE AO THAT IT IS CAPITAL EXPENDITURE IS NEGATED BY THE LEARNED CIT(A) AND TH ERE IS NO CHALLENGED TO THE FINDING OF THE LEARNED CIT(A) IN THIS REGARD. SINCE THE AMOUNT IS LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THAT ACCORDING TO SECTION 2 8(VI) OF THE IT ACT WITH EFFECT FROM 01-10-1996 THE SUM RECEIVED UNDER KIP IS TAXABLE INCOME THEREFORE THE AUTHORITIES BELOW SHOULD HAVE HELD THAT THE AMOUNT INCURRED BY THE ASSESSEE FOR O BTAINING KIP WAS A REVENUE EXPENDITURE EXCEPT IN THE CASE OF SLEEPING PARTNER WHO HAS NOT BEEN TAKING ANY ACTIVE PART IN THE BUSINESS OF THE ASSESSEE AND HAD NOT BEEN CONNECTED WITH DAY TO DAY BUSINESS ACTIVITY OF THE ASSESSEE. 9. CONSIDERING THE ABOVE DISCUSSIONS WE ARE OF THE VIEW THAT KIP OBTAINED BY THE ASSESSEE FIRM IN THE NAMES OF THE ITA NO.511/AHD/208 AND C. O. NO.71/AHD/2008 IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. 11 PARTNERS MR. ASHISHBHAI M. AMIN ON PAYMENT OF RS.10 00 000/- IS ALLOWABLE AS REVENUE EXPENDITURE. WE ACCORDINGLY SET SIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS.10 00 000/-. THE ADDITION OF RS.1 00 000/- IS HOWEVER CONFIRMED IN RESPECT OF T HE SLEEPING PARTNER. IN THE RESULT GROUND NO.1 OF THE APPEAL O F THE ASSESSEE IS PARTLY ALLOWED. 15. THE LEARNED DR HAS NOT PRODUCED ANY MATERIAL ON RECORD CONTRARY TO THE FINDINGS OF THE LEARNED CIT(A). THE LEARNED CIT(A) ON THE BASIS OF THE MATERIAL BEFORE HIM RIGHTLY CAME TO THE CONCLUS ION THAT THE ADDITION SHALL HAVE TO BE DELETED. IN THE ABSENCE OF ANY MAT ERIAL ON RECORD AGAINST THE ASSESSEE WE DO NOT FIND IT TO BE A FIT CASE TO INTERFERE. THERE IS NO REBUTTAL TO THE FINDINGS OF THE LEARNED CIT(A) THRO UGH RELEVANT MATERIAL OR EVIDENCE. 16. IN THE RESULT GROUNDS NO.2 AND3 OF THE APPEAL OF THE REVENUE ARE DISMISSED. 17. GROUND NO.4 OF THE APPEAL OF THE REVENUE READS AS UNDER: 4. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN RESTRICTING THE DISALLOWANCE OF BAD DEBTS AT RS.20 488/- TO RS.5 450/- 18. THE AO DISALLOWED RS.20 488/- BECAUSE THE ASSES SEE HAS NOT PRODUCED CORRESPONDENCE BETWEEN THE DEBTORS FOR REC OVERY OF THE AMOUNT. ACCORDING TO THE AO THE ASSESSEE HAS NOT T AKEN ADEQUATE STEPS FOR RECOVERY OF THE AMOUNT WRITTEN OFF. THE ADDITIO N WAS ACCORDINGLY MADE. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) TH AT PRE-REQUISITE FOR ALLOWABILITY OF THE BAD DEBTS WRITTEN OFF IS THAT T HE AMOUNT SHOULD BE ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNT AND TH AT THE ASSESSEE HAS ACTUALLY WRITTEN OFF THE AMOUNT IN QUESTION WHICH A RE VERY OLD. IT WAS FURTHER SUBMITTED THAT IN THE ASSESSMENT YEAR 2003- 04 SIMILAR ADDITION HAS BEEN DELETED BY THE LEARNED CIT(A). THE LEARNED CIT(A) ON ITA NO.511/AHD/208 AND C. O. NO.71/AHD/2008 IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. 12 CONSIDERATION OF THE ABOVE FACTS NOTED THAT THE BAD DEBT IS ALLOWABLE OF RS.15 038/- AND THAT THE AMOUNT OF RS.5 450/- IS NO T ALLOWABLE BECAUSE IT REPRESENTS SHARE WRITTEN OFF. 19. THE LEARNED DR CONCEDED THAT THE ISSUE IS NOW C OVERED IN FAVOR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. VS CIT 323 ITR 397 IN WHICH IT WAS HE LD AS UNDER: THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL 1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTAB LISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER IN THE PRESENT C ASE THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS IN FACT BEEN WRITTEN OFF IN ACCOUNTS OF THE A SSESSEE. WHEN BAD DEBT OCCURS THE BAD DEBT ACCOUNT IS DEBIT ED AND THE CUSTOMERS ACCOUNT IS CREDITED THUS CLOSI NG THE ACCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATE D ABOVE THE ASSESSING OFFICER HAS NOT EXAMINED WHETH ER IN FACT THE BAD DEBT OR PART THEREOF IS WRITTEN OF F IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEE N UNDERTAKEN BY THE ASSESSING OFFICER. HENCE THE MAT TER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE-MENTIONED ASPECT ONLY AN D THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. 20. ON CONSIDERATION OF THE ABOVE FACTS WE ARE OF THE VIEW THAT THE ASSESSEE HAS SATISFIED THE REQUIREMENTS OF SECTION 36(1) (VII) OF THE IT ACT. THE ISSUE IS NOW COVERED IN FAVOR OF THE ASSESSEE B Y THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. (SUPRA). BY FOLLOWING THE SAME DECISION WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 21. IN THE RESULT THIS GROUND OF APPEAL OF THE REV ENUE IS DISMISSED. 22. NO OTHER POINT IS ARGUED OR PRESSED. ITA NO.511/AHD/208 AND C. O. NO.71/AHD/2008 IDEAL SHEET METAL STAMPING & PRESSING PVT. LTD. 13 23. IN THE RESULT THE DEPARTMENTAL APPEAL IS PARTL Y ALLOWED FOR STATISTICAL PURPOSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 2-12-2010. SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 2-12-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR ITAT AHMEDABAD