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2016 (8) TMI 68 - AT - Income TaxDisallowance of notional expenditure u/s.14A - Held that:- The assessment year involved herein is 2006-07 and Rule-8D came into statutory book only with effect from 24.03.2008. Thus, the Rule-8D is applicable from assessment year 2008-09 only and not applicable to the assessment year 2006-07. Being so we direct the AO to disallow 2% of exempted income towards notional expenditure incurred for the purpose of earning this income. Disallowance of compensation - Held that:- The amount of ₹ 30 lakhs was still appearing in the balance sheet of assessee under the head “‘provisions for claims and compensation” and it was not written off in the books of accounts of assessee. Being so, it cannot be treated as bad debt in the assessment year under consideration. As decided in the case of M/s.T.R.F. Ltd., reported in [2010 (2) TMI 211 - SUPREME COURT ]after the amendment of section 36(1)(vii) of the Income-tax Act, 1961, with effect from April 1, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish 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. Addition made in respect of surrender value of Key Man Insurance Policy as income of assessee - Held that:- once there is an assignment of Key Man Insurance Policy by employer company to employee, insurance policy gets converted into an ordinary policy and hence, in that case, maturity value received by employee would not be subject o tax in view of section 10(10D) of the Act. In our opinion, the argument of assessee’s counsel is totally misplaced that the two insurance policies were taken in the name of Managing Director of the assessee company i.e. present assessee for amounting to ₹ 100 lakhs each. The said policy was assigned to the assessee on 31.03.2006, and the surrender the value of that policy amounting to ₹ 58,74,752/- was offered as income as perquisite u/s. 17(3) of the Act for assessment year 2006-07. Subsequently, within a short time, the said policy was encashed at ₹ 97,03,083/- on 29.06.2006. In our opinion, the device adopted by the assessee by assigning the policy and encahsing the same is nothing but colorable device adopted to evade tax and we do not find any merit in the argument of assessee’s counsel
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