TaxTMI 
TaxTMI 
2014 (2) TMI 370
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.... of the assessment proceedings to have claimed expenses in cash, i.e., apart from those supported by third party vouchers, per self-made vouchers (at Rs.43,26,193/-). Being, thus, unsubstantiated by evidence, the Revenue, relying on decisions by the tribunal, disallowed 25% of such expenses, i.e., at Rs.10,81,548/- (the reference to the figures in this order, which is only instructive, would be for AY 2006-07). Aggrieved, the assessee is in appeal. 3. We have heard the parties, and perused the material on record. The basis of the disallowance is that the relevant expenditure is un-vouched, i.e., unsubstantiated and, therefore, unverifiable and unreliable. Following the decisions by the tribunal, as under, the disallowance to account for the leakage of revenue and the inflation attending the claim, has been made at 25%: i. A.P.L. (India) (P.) Ltd. vs. Dy. CIT [2005] 96 ITD 227 (Mum); ii. Corrosion Roadlines vs. Dy. CIT [2005] 92 TTJ 631 (Pun) (TM); and iii. ACIT vs. Kamath & Co. (in ITA No.7453/Mum/2002 dated 21.02.2006) No improvement in its case being made before the first appellate authority, the same stood confirmed, and which position continues to obtain even bef....
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....ance being not warranted and, in any case, excessive, being only in the nature of bald claims. The assessee has sought to advance its case by placing reliance on the decision in the case of M/s. Parekh Corporation (in ITA Nos. 3293, 3939, 3294 & 3910/M/2008 dated 30.05.2012). The tribunal in that case, on the basis of the material on record, found that the assessee had established that no expenditure had in fact been claimed by it and, therefore, was of the view that no disallowance whatsoever could be made. How, we wonder, the said decision, rendered in the facts of that case, shall be of assistance to the assessee, with we being unable to render any such finding in the facts and circumstances of the case? This decides the said Gd. 1 for all the years. 4. The second issue arising in this appeal is the disallowance (of Rs.6.50 lacs) claimed as compensation paid to Shri Deepak Karnani, the assessee's younger brother. The firm, M/s. Saraswati Clearing Agency, under which trade name the CHA business is being run by the assessee as its proprietor, belonging to his father, Shri Ram Nathumal Karnani, the said business was bequeathed by him to his elder son, Shri Rajesh R. Karnani, the....
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....er a portion of one's own income, which has been received and is since applied.' What, therefore, is to be seen is if the legal charge or obligation is to apply the income which has accrued or arisen in the facts and circumstances of the case - a matter of fact, in which case it would an application of income and not its diversion, or not (also refer CIT vs. Bombay Oilseeds & Oil Exchange Ltd. [1993] 202 ITR 198 (Bom) [113 CTR 404]. 5.2 In the facts of the present case, it is apparent that the father wanted both his sons to join his business, and work together. However, being not certain if the same would interest his younger son, Deepak Karnani, or that he would be eligible to do so, he enjoined on his elder son, the assessee, to pay his younger brother compensation linked to profit, also stipulating a minimum amount. What, therefore, is made incumbent on the assessee as an elder brother is to part with a share of its profits in the event of his younger brother not joining the business as a full-fledged partner. Nothing more and, of course, nothing less. The two eventualities are thus at par, or have to be considered as in parity, representing only the different outcomes of ....
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....d circumstances of the case, obligations, as explained by the apex court in Sitaldas Tirathdas (supra), being there in every case. We have already noted that the business under reference requires, to begin with, qualification. The younger brother could not clear the professional qualifying examination, so that he could, even if he was otherwise willing to join his brother as a partner, not do so. The business requires license from the Customs Department, and even the assessee, but for acquiring the necessary qualification, could not, despite his parents will and intention, conduct the said business. The younger brother has, in our view, been appointed as a de facto partner, albeit with the lesser share. One may not dwell on the other aspects of the present case, as sought to be indicated above; suffice to add that the profits in the service industry arise principally due to the delivery - and on a continuing basis, of the services rendered, including their quality. The profit, leave alone its quantum, is itself not certain. The same cannot be, in any case, considered at par with a property, as shares or a house property, yielding income merely primarily on account of ownership. The....
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.... assessment by the insurer, a third person, and a professional at that. Keyman, as any other insurance, is only to safeguard against a defined loss that could arise in the course of carrying on the business and, therefore, where in relation to an asset of the trade, a deductible expense. Expense on preservation of a profit earning asset, it is trite, is a deductible business expense (refer: CIT vs. Delhi Safe Deposit Co. Ltd. [1982] 133 ITR 756 (SC)). The question of the applicability of section 40A(2)(a) should not therefore ordinarily arise under such circumstances. 7.2 At the same time, however, we observe a complete lack of evidence being led by the assessee in pursuance of his case, and are as such at loss to understand the same. Even though the incurring of the expenditure is not in doubt, it has not placed any material on record to substantiate the value of the capital asset - in the form of its prime human resource, which it has sought to insure. The basis of the said valuation, which is fundamental to an insurance contract, premium to keep in force which is being claimed as incurred wholly and exclusively for business purposes, being ostensibly only the loss that would ....
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....e to leave at any time? This shall emphasize the crucial and critical significance of retention in the case of Keyman insurance plan. Further on, how would, one may ask, the assessee as a businessman ensure that the employee, Shri Deepak Karnani, continues to work for the same remuneration (or even with a moderate increase), which at Rs.4 lacs p.a. is meager compared to the insurance premium of about Rs.30 lacs p.a.? He may, at any time, ask for a huge hike, even as a lesser one would cause to grossly disturb the assessee's working of his value to its business, to secure which only the insurance contract has been entered into. Further still, there being no disallowance for the third year (A.Y. 2008-09), it was on enquiry confirmed by the ld. AR that the policy stands since assigned to the insured, so that the assessee is no longer liable for payment of the premium, which, therefore, is not claimed and, resultantly, no disallowance for that year. This is all the more perplexing. There is no explanation on record for this volte face. While it may be argued that no expenditure has, therefore, been claimed for the third year, the same misses the point completely. The whole and the v....
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....nly be said to be the expenditure incurred in relation to the risk, actuarially valued, the balance amount only represents an excess. Life insurance policies are, besides insurance covers, investment plans in the main, investing the entire excess in avenues so as to ensure a reasonable return on maturity. A policy without such investment portfolio would yield nil value on maturity. 7.3 Under the circumstances, the inference drawn by the Revenue of the expense having been incurred for personal considerations, so that it is not allowable, is the only reasonable inference one can draw under the circumstances. In any case of the matter, the assessee cannot be said to have discharged the onus on it to establish that the expenditure has been incurred wholly and exclusively for the purposes of his business. It could, even assuming the same to be for business, be in fact validly considered as capital expenditure or a capital loss inasmuch as, as afore-noted, the dominant part of the insurance premium is toward financial investment. Either way, no deduction u/s.37(1) is admissible in view of non satisfaction of its mandate, and for which we may advert to the decision in the case of Delhi....