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2016 (10) TMI 686

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..... the issue to the file of A.O, the powers of which are not available to him at the relevant time. While deciding the issue, we find that ld.CIT(A) has noted that assessee could not substantiate that the amount used by the assessee for acquisition of shares of Banpal Agro Tech Pvt.Ltd. was on account of commercial expediency and that the argument of not utilizing the interest-free funds for making investments was made by assessee before AO. We find that on those issues apart from oral submissions, there is no material placed on record by assessee to substantiate its claim, at the same time Revenue has also not placed any material on record to controvert the observations of ld.CIT(A). In view of these facts, we are of the view that the matter needs to be restored to the file of AO for considering the submissions of the Assessee and thereafter deciding the issue on the basis of facts and circumstances of the case and in accordance with law. Needless to state that AO shall grant adequate opportunity of hearing to Assessee. Thus, this ground of Revenue and Assessee are allowed for statistical purposes. Disallowance of premium paid on Keymen Insurance - Held that:- As out of the premi .....

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..... ax (Appeals)-XX Ahmedabad dated 21/05/2012 passed for Assessment Year (AY) 2008-09. These appeals were heard together and are being disposed of by way of this consolidated order for the sake of convenience. 2. The relevant facts as culled out from the materials on record are as under:- 2.1. Assessee is a company stated to be engaged in the business of manufacturing of Cold Process Castor Oil and other by-products. Assessee filed its return of income for AY 2008-09 and declared total income of ₹ 18,41,470/-. The case was selected for scrutiny and thereafter assessment was framed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide order dated 31/12/2010 and the total income was determined at ₹ 1,53,52,832/-. Aggrieved by the order of the Assessing Officer (AO), assessee carried the matter before the ld.CIT(A), who vide order dated 21/05/2012 (in Appeal No.CIT(A)-XX/704-10-11) granted partial relief to the assessee. Aggrieved by the order of ld.CIT(A), Assessee and Revenue are now in appeal(s) before us. The grounds raised by the Revenue in ITA No.1683/Ahd/2012 read as under:- 1) The Ld.Commissioner of Income-Tax (Appeals)-XX, Ahmed .....

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..... The ld.AR submitted that this ground is inter-connected with ground No.1 of Assessee s appeal. 3.1. During the course of assessment proceedings, AO noticed that assessee has claimed deduction u/s.80IB of the Act and the claim of deduction included the DEPB benefit. AO was of the view that in view of the decision of Hon ble Apex Court in the case of Liberty India vs. CIT reported in (2009) 317 ITR 218 (SC), deduction u/s.80IB of the Act cannot be claimed on DEPB income and therefore it needed to be excluded while calculating deduction u/s.80IB of the Act. He accordingly worked out the deduction and disallowed the excess claim to the extent of ₹ 7,83,848/-. Aggrieved by the order of AO, assessee carried the matter before the ld.CIT(A), who decided the issue holding as under:- 3.2. Vide para-3 of the assessment order, AO observed that the appellant claimed deduction u/s.80IB of ₹ 7,83,848/-; the said claim was revised to ₹ 9,12,158/- during the assessment proceedings; in view of Supreme Court decision cited at 317 ITR 218, DEPB income was to be excluded while calculating the deduction u/s.80IB and accordingly the deduction claimed of ₹ 7,83,848/- was b .....

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..... f ₹ 1,45,47,000/- in Banpal Agrotech Pvt.Ltd. He also noticed that assessee had given interest-free advances of ₹ 1,74,76,692/- and had claimed interest expenditure of ₹ 1,56,74,752/-. AO observed that on one hand assessee has given interest-free advance and on the other hand assessee has claimed interest expenditure on the loans borrowed from banks and unsecured loans. He was therefore of the view that proportionate interest on the amount utilized for the purpose of purchase of shares of Banpal Agro Tech Pvt.Ltd. cannot be considered to be for the purpose of business and therefore the interest on the amounts used for making investments was required to be disallowed. He accordingly, after considering the rate of interest @12%, worked out the disallowance of ₹ 27,27,514/-. Aggrieved by the order of AO, assessee carried the matter before the ld.CIT(A) who decided the issue by holding as under:- 4.2. Vide para-6 of the assessment order, AO observed that the appellant made investment to the tune of ₹ 1,45,47,000/- in M/s.Banpal Agro Tech Pvt.Ltd. during the year; interest-free advances to the extent of ₹ 1,74,76,692/- were made; interest of S .....

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..... r (Appeals) 251 (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers- (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment. 8.1 The perusal of provisions of Section 251(1)(a) reveals that CIT(A) in an appeal against an order of assessment can confirm, reduce, enhance or annul the assessment. The power of setting aside which was available to CIT(A) is no more available to CIT(A) by virtue of amendment made by Finance Act 2001 with effect from 1.06.2001. Thus it can be seen that CIT(A) has set aside the issue to the file of A.O, the powers of which are not available to him at the relevant time. While deciding the issue, we find that ld.CIT(A) has noted that assessee could not substantiate that the amount used by the assessee for acquisition of shares of Banpal Agro Tech Pvt.Ltd. was on account of commercial expediency and that the argument of not utilizing the interest-free funds for making investments was made by assessee before AO. We find that on those issues apart from oral submissions, there is no material placed on record by assessee to substantiate its claim, at the same time Rev .....

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..... d wholly and exclusively for the purposes of the business. In accordance with CBDT s Circular No.762, premium paid on keyman insurance policy taken by a business organization in order to protect the business against the financial loss which may occur from the persons premature death is allowable expenditure. In the instant case, as observed by the AO rightly, there is nothing to indicate that the policies were taken in order to protect the business. Instead in all the five policies, the beneficiaries were the individuals concerned and the policies were in the nature of retirement plan. Therefore, it can be safely inferred that the premium paid on the policies was not wholly and exclusively for the purpose of business. On the contrary, it was wholly and exclusively for the personal benefit of the concerned individuals. In the light of these undisputed facts, it is to be seen whether the case laws relied on by the ld.A.R. are applicable or not. In the case cited at 323 ITR 178 (Bom.) the issue involved was whether a partner of the firm could be considered a keyman. There was a clear finding that the policy was taken for the benefit of the firm and not for the personal benefit of the .....

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..... Sh. Shantidan Thakor Director Rs.20 lakhs Sh. Arunbhai Desai Director Rs.20 lakhs Sh. Mukesh Gadhvi Production dept. (Director s son) Rs.20 lakhs Sh. Jigar Bachani Helper (Director s son) Rs.20 lakhs 12.1. On perusing the above table, it is seen that out of the premium paid for 5 policies, 3 persons namely Shri Yashwant Bachani, Shri Shantidan Thakor and Shri Arunbhai Desai are the Directors of the assessee-company whereas Shri Mukesh Gadhvi is Director s son works in production department and Shri Jigar Bachani is Director s son and works as helper. The object of the Keymen Insurance Policy is to enable business organization to insure the life of a Keyman in order to protect the business against financial loss which may occur in the likely event of premature death of the key person. Thus Keyman is an employee or a Director, whose services are perceived to have a significant effect on the profitability of the business. As far as the premium paid for 2 persons, who are not the Di .....

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