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2021 (7) TMI 794 - AT - Income TaxDisallowance u/s.14A - CIT-A restricted the disallowances @50% of the interest on the amount so invested and confirmed the disallowances partly - HELD THAT - 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 Hon'ble Delhi High Court in Cheminvest Limited 2015 (9) TMI 238 - DELHI HIGH COURT 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 the lower authorities and direct the ld. AO to delete the disallowance u/s. 14A of the Act. Disallowance of keyman insurance policy of the director of the company paid - amount of payment of insurance premium under the employer/employee insurance scheme - HELD THAT - We find that the identical issue has been decided by the Hon'ble Delhi High Court in case of CIT v. Mr. Rajan Nanda 2011 (12) TMI 392 - DELHI HIGH COURT 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 for keyman insurance policy is allowable to the assessee u/s. 37(1) of the Act. Similarly insurance premium of the employee is 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 on account of insurance premium. Disallowance commission expenditure to two persons - AO disallowed the commission paid to Ms. Sonu Goyal as she could not be produced for verification and further commission paid to Mrs. Ayushi Goyal 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 - 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 in case of commission paid to Ayushi Goyal as allowable expenditure u/s. 37(1). However, in case of Ms. Sonu Goyal no such information is forthcoming before the lower authorities or before us and therefore, the disallowance deserved to be confirmed. Disallowance of interest expenditure - AO noted that the assessee has invested in in Essel Housing Project - 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 - HELD THAT - We find that the assessee has interest free funds in the form of share capital and three reserve available with it of ₹ 2 crores approximately whereas the investment made is of ₹ 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 of interest expenditure of ₹ 71,507 cannot be made. Hence we direct the ld. AO to delete the above disallowance.
Issues:
- Disallowance under section 14A of the Act - Disallowance of insurance premiums for keyman insurance policy and employer/employee insurance scheme - Disallowance of commission expenditure - Disallowance of interest expenditure Analysis: 1. Disallowance under section 14A of the Act: - The Assessing Officer (AO) disallowed expenses under section 14A totaling ?6,88,228, which was partly confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)) at ?3,44,000. - The appellant contended that no tax-free income was earned, rendering section 14A inapplicable, citing the Cheminvest Limited case. The ITAT agreed and directed the AO to delete the disallowance. 2. Disallowance of insurance premiums for keyman insurance policy and employer/employee insurance scheme: - The AO disallowed ?12,77,000 for keyman insurance and ?27,000 for employee insurance, which was upheld by the CIT(A). - The ITAT ruled in favor of the appellant, citing a Delhi High Court case, allowing the deduction under section 37(1) for keyman insurance premiums and employee insurance premiums. 3. Disallowance of commission expenditure: - Commission payments of ?1,91,500 were disallowed by the AO due to verification issues and lack of business activity by the recipients. - The ITAT allowed the commission paid to one individual as she introduced potential customers, following a Gujarat High Court precedent, but upheld the disallowance for the other recipient due to insufficient evidence. 4. Disallowance of interest expenditure: - The AO disallowed ?71,507 of interest expenditure related to a property deal, considering it non-business in nature. - The ITAT disagreed, noting the availability of interest-free funds exceeding the investment amount, directing the AO to delete the disallowance. In conclusion, the ITAT partly allowed the appeal, overturning various disallowances made by the lower authorities based on legal interpretations and precedents.
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