2024 (11) TMI 1015 - AT - Income Tax

Assessee wins on interest disallowance and keyman insurance policy maturity profits under Section 10(10D) exemption (10D)

ITAT Mumbai allowed the assessee's appeal on two issues. First, regarding interest disallowance, the tribunal found that the assessee had already suo moto ... Disallowance of interest on his own funds - AO found that the assessee has paid interest @ 12% to the people from whom he had borrowed the money and received interest @ 12.5% from the company whom he had lent the money - HELD THAT:- The undisputed fact is that the assessee had lent money out of the borrowed funds. Assessee was charging interest @ 12.5% and was paying interest @12%. It is also not in dispute that the assessee has lent out funds out of borrowed capital till October, 2017 on which gross interest received - Thereafter, since November, 2017, the assessee has lent money out of his own funds. The total interest paid by the assessee was Rs. 2,42,26,347/-. Thus, the assessee was eligible for claim of deduction of interest payments totaling to Rs. 2,42,26,347/-. However, a perusal of the computation of income shows that the assessee has claimed deduction of interest only to the extent of Rs. 2,02,76,955/- which means that the assessee has suo moto disallowed Rs. 39,49,392/-, which can cover all the apprehensions of the AO. Therefore, no reason for a further disallowance of Rs. 63,48,487/-. The AO is directed to delete the disallowance.Decided in favour of assessee. Maturity profits from Keyman Insurance Policies which was taxed as profit in lieu of salary - We are of the considered opinion that on identical set of facts, the Co-ordinate Bench in the case of Mihir Parikh [2024 (2) TMI 1194 - ITAT DELHI] wherein held benefit inured owing to the combined effect of a prudent investment and statutory exemption provided under Section 10(10D) of the Act, the section does not envisage of any bifurcation in the amount received on maturity on any basis whatsoever. Nothing can be read in Section 10(10D) of the Act, which is not specifically provided because any attempt in that behalf as contended by Revenue would be tantamount to legislation and not interpretation.Therefore, in the light of above-mentioned binding precedents, we are of the considered view that the authorities below were not justified in denying the benefit of exemption to the assessee. Decided in favour of assessee. Issues:1. Disallowance of interest on own funds.2. Taxation of maturity profits from Keyman Insurance Policies.Analysis:1. The first issue pertains to the disallowance of interest on own funds by the Assessing Officer (AO). The AO disallowed Rs. 63,48,487/- of interest income earned by the assessee on his own funds, as it was against the provisions of Section 57 of the Act. The AO also raised concerns regarding the taxation of maturity profits from Keyman Insurance Policies. The AO found discrepancies in the deductions claimed by the assessee under various heads of income, leading to the disallowance of the interest amount. However, upon careful examination, the ITAT found that the assessee had already suo moto disallowed a certain amount, covering the apprehensions of the AO. Therefore, the ITAT directed the AO to delete the disallowance of Rs. 63,48,487/-, as the assessee was eligible for the claimed deductions.2. Moving on to the second issue, the AO made an addition of Rs. 1,66,68,184/- on account of surrender value of Keyman Insurance policy based on a CBDT Circular. However, the ITAT referred to a similar case where the Co-ordinate Bench decided in favor of the assessee, emphasizing that the character of the insurance policy changes upon assignment, affecting its taxability. Citing relevant case law, the ITAT held that the authorities were unjustified in denying the exemption to the assessee. Therefore, the ITAT directed the AO to delete the addition. The ITAT also referred to another case where a similar issue was decided in favor of the assessee, further supporting the decision to delete the impugned addition. Consequently, both appeals of the assessee were allowed, and the impugned additions were directed to be deleted.This detailed analysis showcases the ITAT's thorough examination of the issues raised by the assessee, the contentions of the authorities, and the legal precedents that influenced their decision.