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TMI Blog2008 (2) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... ling and administrative expenses merely on presumption and surmises and the learned CIT(A) erred in confirming the same." 3. In the Revenue's appeal, the following grounds have been raised: "1. The order of learned CIT(A) is erroneous. both in the law and on facts. 2. The learned CIT(A) erred in deleting the addition of Rs. 9,47,684 made by AO on account of setting off brought forward losses for which no evidences were produced, when called for, during scrutiny. 3. Therefore, the question of law arises whether, on the facts and circumstances of the case and in law, the learned CIT(A) was justified in, holding that the assessee is entitled for brought forward business losses on the basis of return earlier filed." 4. We shall first take up the preliminary objection raised by the learned counsel for the assessee that the learned AO erred in assuming the jurisdiction under s. 143(2) in contravention of CBDT instructions and in completing the assessment under s. 144 and the learned CIT(A) further erred in confirming the jurisdiction with the AO. 5. The learned counsel for the assessee brought to our notice the CBDT Instruction No. 9 of 2004, dt. 20th Sept., 2004 for the selection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in October, 2005 (wrong date given) that would mean that the matter was already barred by limitation as prescribed in CBDT Instruction No. 9 of 2004, dt. 20th Sept., 2004. The CBDT had issued instructions relating to financial year 2005-06 [reported in (2005) 199 CTR (St) 1 to 5] which were published on 18th Nov., 2005. That these instructions were not available for selection of cases for scrutiny for returns filed in financial year 2004405. The Addl. CIT heavily relied on CBDT instructions of financial year 2005-06 when the same were not applicable for returns filed during current financial year 2004-05. That this is the patent mistake made by the Hon'ble Addl. CIT and thereby failed to take note of the fact that the CBDT Instruction No. 9 of 2004, dt. 20th Sept., 2004 were the only applicable instructions. That on account of this patent mistake, the directions issued under s. 144A issued on 20th Oct., 2006 and 24th Nov., 2006 are invalid in law. 9. He further submitted that the Addl. CIT had wrongly considered the date 10th Oct., 2005 as date of selection of case for scrutiny, when that date was factually date of issue Of notice under s. 143(2). That if the date of issue of noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons made by the learned counsel for the assessee and the decisions and Board instructions relied upon him, we find force in the submissions of the learned counsel of the assessee. We find that in this case scrutiny of case has been done in violation of the CBDT Instruction No. 9 of 2004 dt. 20th Sept., 2004, a copy of which is placed on record. Instruction No. 9 of 2004 will only operate to select cases for scrutiny having ample time for selection and to issue notice under s. 143(2). If the above instruction is presumed to be considered for the asst. yr. 2003-04, then the return filed on or before 31st July, 2003 shall have no scrutiny and the return filed on 31st Oct., 2003 shall render very meagre time for selection of the cases but that is not the intention of the CBDT. As per the interpretation of the Addl. CIT, if action plan for financial year 2005-06 published in (2005) 199 CTR (St) 1 on 28th Nov., 2005 is considered for returns for the asst. yr. 2004-05, then no time was available for selection for scrutiny cases of the asst. yr. 2004-05 except belated returns under s. 139(4). Even as per that instruction for the financial year 2005-06, the case is not fit for scrutiny. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remium. Be that as it may, even a Keyman Insurance Policy has to pass the test of s. 40A(2)(b) and the excessiveness of expenditure has to be determined. If it is taken that this is the premium paid @ 20 per cent of the whole sum assured, then, the total sum assured becomes Rs. 4,52,02,010. This is a very big policy which has been bought keeping in view the volume of business of the assessee where the turnover is just Rs. 45,76,599. The contribution of directors and their worth being so much have not been proved. It has also not been made clear as to why the premium paid should not be spread over the number of years for which the insurance cover is available. Normally speaking. the total premium paid should be spread over the entire period of insurance as otherwise, there will be a major claim against the Revenue which is not justified in the present circumstances of the case. If the huge premiums of a huge policy are claimed in one or few years, they can only be taken as capital expenditure rather than revenue ones as the policy will have an enduring benefit for more number of years than for the years for which the premium is being paid. As such, the sum assured and premium pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns have been misinterpreted by the AO. He submitted that on maturity the amount is taxable under s. 10(10D)(c) of the Act. He submitted that the claim of the assessee is in accordance with law and within the ambit of CBDT circular and the same may kindly be allowed. He also referred to the decision of Hon'ble Tribunal Delhi Bench reported in P.G. Electronics vs. ITO (2005) 98 TTJ (Del) 896. 17. Regarding the disallowance of Rs. 4,67,040,out of the selling and administrative expenses of Rs. 46,70,408, he referred to the chart filed on p. 95 of the paper book No. I which gives comparative position of turnover, GP and net profit and also the details of expenses. He submitted that the net profit of the assessee for the year under consideration is better. All the expenses are verifiable and vouched. He submitted that no disallowance is called for since the disallowance made by the AO is on ad hoc basis under s. 144. He brought to our notice that no disallowance was made out of directors' remuneration and for vehicle and telephone expenses etc. claimed by the assessee, he relied on the decisions reported in Dy. CIT vs. Surface Finishing Equipment (2003) 81 TTJ (Jd) 448, in ITA No. 147/N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above, we are of the considered opinion that the premium paid by the assessee on the Keyman Insurance Policy is allowable as business expenditure. We direct the AO to allow the claim of the assessee subject to verification of the premium paid by the assessee company. 19.2 Regarding the issue of disallowance of Rs. 4,67,040 out of selling and administrative expense, we find that the assessee has submitted the comparative position of the turnover and GP and the net profit in the chart filed on p. 95 of the paper book I. In the said chart, the assessee has given the details of expenses. All the expenses are vouched and verifiable. There should be no disallowances on account of vehicle running expenses and telephone (expenses) as per decisions cited above. It is also seen that the net profit disclosed by the assessee for the year under consideration is better as compared to the earlier years. Since all the expenses are verifiable and vouched and no other disallowances are made by the AO, we do not find any justification for the AO to disallow Rs. 4,67,040 out of selling and administrative expenses. No convincing reasons are given by the Revenue authorities to make the disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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