TMI Blog2015 (7) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... s of respondent-assessee firm - disallowance on the ground that interest paid was excessive - CIT(A) deleted the addition - Held that:- AO had not brought any comparable rate of interest which is reasonable. No disallowance can be made based on mere suspicion. Therefore we are of the opinion that there is no basis to hold that payment of interest at 15% is excessive and accordingly we hereby confirm the order of the CIT(A) on this ground of appeal and therefore the ground of appeal filed by the revenue is dismissed.- Decided against revenue. Disallowance of keyman insurance policy - CIT(A) has allowed it after observing that there is no restriction under the Act that only the premium paid in respect of one person only to be allowed as deduction - Held that:- AO had not disputed the allowability of the premium paid for keyman insurance policy. He was of the only view that the premium paid in respect of only one person can be allowed. He had no dispute at all about allowability of the keyman insurance policy premium. Similarly the provisions of the Income Tax Act does not stipulates that the premium paid in respect of only one partner or director is alone allowable. In absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has not incurred this expenditure, the disallowance of expenditure is not justified. No disallowance can be made on round some basis without pointing out the defects in the books of accounts. Hence we are of the considered opinion that the CIT(A) is not justified in confirm the disallowance to the extent of ₹ 50,000/- out of staff welfare expenses.- Decided against revenue. - ITA No: 2913/Del/2011, CO No. 235/Del/2011 - - - Dated:- 30-6-2015 - SHRI G.C. GUPTA AND SHRI INTURI RAMA RAO, JJ. For the Petitioner :Shri T. Vasanthan, Sr. DR For the Respondent :Shri Rakesh Gupta, Advocate Shri Ashwani Taneja, Advocate ORDER PER INTURI RAMA RAO, AM This is an appeal filed by the revenue against the order of Commissioner of Income Tax (Appeals) Faridabad dated 16 th March, 2011 for the asstt. year 2006-07. The revenue raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the disallowance of interest liability of ₹ 14,28,230/- made by AO under section 36(l)(iii)of the Income Tax Act, without taking into consideration the ratio of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 4,97,3001- paid to Mr. Karl Neuchal for the period prior to 01.01.2006 when there is clear mention in the agreement that the contract relationship starts on 01.01.2006 and will end on 31.12.2008 as timeout . Thus there was stipulation regarding payment of commission starting from 01.01.2006. 6. That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal. 2.The facts of the case are that the appellant is a partnership firm engaged in the business of manufacturing of auto components and sheet metal and fabricated components. The respondent-assesee firm filed return of income on 26.10.2006 disclosing income of ₹ 56,24,340/- for the asstt. year 2006-07. The return was processed u/s 143(1) on 22 nd March, 2007. Subsequently the case was taken up for scrutiny and the assessment was completed u/s 143 (3) vide order dated 19.12.2008 at a total income of ₹ 1,46,65,599/- by the Additional Commissioner of Income Tax, Range 2, Faridabad. While doing so, the AO made the following disallowances :- Disallowance of interest on advances for land and buildings ₹ 14,28,230/- Disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions :- SA Builders Ltd. vs. CIT (2007) 288 ITR 1(SC) Munjal Sales Corporation vs. CIT (2008) 215 CTR 105 (SC) CIT vs. Rockman Cycle Industries Ltd. (2009) 176 Taxman 21 (P H) 5.CIT(A) after considering the submissions deleted the addition vide para 6.1 of his order by holding as follows :- The principle that emerges from the above discussion and judicial rulings is that when the sale proceeds and internal accruals etc. are deposited by the assesee in cash credit account or over draft account and the investment in assets is made which are not put to use in business, the disallowance of interest cannot be made only on the ground that the payments have been made from cash credit or over draft account, provided the profits generated during the year are more than the investment made in the assets. In these facts and circumstances and the principles emanating from the above judicial rulings, there appears to be no justification for disallowance of interest of ₹ 14,28,230/- when the internal accruals of ₹ 279.88 lacs of the appellant are far in excess of investment made in assets during the year. Therefore, the addition of ₹ 14,28,230/- mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of keyman insurance policy of ₹ 6,53,752/-. The assessee firm paid premium for keyman interest policy taken in the name of two partners namely Shri S.K. Jain and Shri Anand Kumar Jain. The premium paid was ₹ 8,41,320/- and ₹ 6,53,762/- respectively. The AO while allowing the premium paid for Keyman Insurance Policy taken in the name of Shri S.K. Jain and disallowed the premium paid in respect of Shri Anand Kumar Jain by holding that the premium can be allowed as a deduction only in respect of one partner. The CIT(A) has allowed it after observing that there is no restriction under the Act that only the premium paid in respect of one person only to be allowed as deduction. He further relied on the decision of Hon ble Coordinate bench in respect of Escorts Heart Institute Research Centre Ltd. vs. ACIT 128 ITD 108 . The CIT(A) following the above decision held that the understanding of the AO that the assessee can purchase Keyman Insurance Policy in respect of one employee only and not more than 1 is not in conformity with provisions of law. We note that the AO had not disputed the allowability of the premium paid for keyman insurance policy. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o submitted a certificate from Mr. Karl Neuchel regarding the receipt of commission payment form the appellant. Which reveals that for the period from 1.4.2005 to 31.12.2005, he has been paid commission @ 1000 Euro per month. This leads to inference that commission to Mr. Karl Neuchel was paid at the fixed rate. In these facts, it is not in dispute that Mr. Karl Neuchel rendered services for the appellant throughout the year which resulted in procuring sales to the extent of ₹ 18 17,584/- . The genuineness of the invoices raised by him for the period in dispute has neither been doubted by the AO nor the payment made through the banking channels. In making the disallowance, the AO has relied upon the agreement which stipulated the commencement of contractual relationship from 1.1.2006 and completely ignored the bills raised by him and payments received for the period from April to December 2005. It is correct that the sales made through him in that period were not commensurance with the amount of commission paid, but when he was paid commission at fixed rate, the quantum of sales becomes irrelevant. Therefore, the entire expenditure on commission paid to Mr. Karl Neuchel wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order that the same relates to purchase of doors, windows and flooring material but when looking to the total expenditure of ₹ 12,46045/- incurred on building repairing, the expenditure on such items clearly points to replacement only, which by itself does not bring into existence an asset of enduring nature. The term repairs or renovation means only to restore the life to former stage and does not bring a new asset into existence and it does not involve any capital expenditure. I therefore, do not agree with the contention of the AO that the expenditure of ₹ 1,58,482/- debited in the repair maintenance account of building resulted in the acquisition of a capital asset. Hence, the addition of ₹ 1, 42,634/ - is deleted and this ground of appeal is allowed. 14.The finding of CIT(A) is based on the well settled principle of law that the expenditure not resulting in creation of asset should be allowed as a revenue expenditure as held by Supreme Court in the case of Empire Jute Company Ltd. Vs. CIT 124 ITR 1. Therefore the order of CIT(A) is in conformity with the well settled principle of law, hence we uphold the order of the CIT(A) in deletin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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