TaxTMI 
TaxTMI 
2015 (12) TMI 46
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....ntenance of accounts. (iii) That after having upheld the rejections of book results as done by the learned A.O., the learned CIT(A) grossly erred in confirming further disallowance/additions as made by the learned A.O. (iv) The learned CIT(A), Jalandhar has erred in confirming the following disallowance out of expenses of Rs. 13,31,030/- under the head foreign traveling expenses made by Assessing Officer. Sr. No. Particulars Total expenses claimed Disallowance made by A.O Disallowanc e confirmed in appeal. 1 Ticker visa expenses of partner being for non business purpose Rs.4,96,808/- Rs.74,520/- i.e. 15% Nil 2 Foreign currency expenses being unvoched /without supportin g bills and also being for non business purposes. Rs.31,41,265/- Rs.12,56,510/- i.e. 40% 25% of 31,41,265/- i.e. Rs.7,85,316 /- (v) The learned CIT (A), Jalandhar has erred in confirming the disallowance of Rs. 17,00,000/- being expenditure on Keyman Insurance Policy. (vi) The learned CIT(A), Jalandhar has erred in confirming the disallowance of Rs. 1,50,000/- out o....
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....ble. (iii) That, it is prayed that the order of the learned CIT(A) be set aside and that of the Assessing Officer restored. (iv) That the appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed off." 4. The brief facts as noted in assessment order are that assessee is a manufacturer and exporter of garden tools, hand tools etc. and is also trading in certain items like PVC resin etc. The case of the assessee was selected for scrutiny. During the assessment proceedings, the A.O required the assessee to produce stock register which the assessee stated that in view of the number of items involved as raw material in the manufacturing process, it was not possible to maintain the stock register. The assessee was then required to furnish the breakup of finished goods, semi finished goods, and consumable stores and was also required to submit the basis of valuation of stocks. In the course of said verification and examination of books of account vis-à-vis bills produced of various items of raw material, the Assessing Officer observed a number of discrepancies in the quantity and valuation thereof. One of the major ....
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....f personal expenditure on these tours and therefore, he held the assessee had failed to prove that expenditure was wholly and exclusively for the purposes of business and therefore, he disallowed 40% of expenses of foreign currency, and 15% of ticket and visa expenses making in all additions of Rs. 13, 31,030/-. 6. The Assessing Officer also disallowed of claim of Rs. 17 lac which the assessee had claimed as Insurance Premium paid for 'Keyman Insurance Policy' of Sh. Deepk Aggarwal, partner of the firm. The Assessing Officer further held that wages labour charges salary and labour welfare expenses were paid by assessee in cash and were supported by only self made vouchers and therefore the Assessing Officer made a disallowance of Rs. 1,50,000/- representing approximately 10% of the total expenses under this head. 7. The Assessing Officer further observed that assessee had claimed deduction 80IB. The Assessing Officer held that export incentives, duty draw back, interest on FDR, interest on other deposits cannot be treated as profit derived from eligible business for the purposes of section 80IB and therefore, he disallowed deduction under section 80IB to the extent of Rs. 1,6....
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....is also noteworthy that the assessee has been showing almost the same GP rate for the past three years. It has been contended that the valuation of universal bracket as on 31.03.2006 was inadvertently taken at higher figure, which had now been corrected to the correct figure. This supports the AO's conclusion that the value of closing stock adopted by the assessee is to ensure a constant GP rate in its annual income tax returns, which have no relation with actual income of the assessee. It is income tax returns, which have no relation with actual income of the assessee. It is difficult to believe that the assessee, while valuing each item of finish product at sale price less GP rate, would value "Universal Brackets" at high rate of Rs. 10/- per pc for the purpose of valuation. It is also seen that the AO's observation that many payment vouchers for payment of wages and labour charges were not supported by signatures of the parties concerned. In this regard the appellant contended that it was maintaining wages register. However, only the maintenance of wages register without proper evidence of payment made to the persons concerned, will not justify the expenditure in its entirety. I....
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.... case, require revaluation of the opening stock as on 31-3-2005 which would, in turn, involve recomputing the income for assessment year 2005-06. In the case of V.K.J. Builders and Contractors (P) Ltd. Vs. CIT 228 CTR (SC) 143, the Hon'ble Apex Court have held that the closing stock of one year had necessarily to be the opening stock of the assessee of the subsequent year. Since the value of closing stock as on 31-3-2005 has been accepted, the same has to be taken the value of opening stock as on 1-4- 2005. The rate of Rs. 4 per pc applied by the appellant for valuing the closing stock has not been shown by the AO to be incorrect as per the normal system of valuing the stock. Under the circumstances, I am of the opinion that the higher value adopted on 31-3-2005 has only resulted in shifting the income of asst. years 2006-07 to the income of asst. year 2005-06 and should not call for any addition to the income of the assessee in the present year. 1.9 The appellant's contention that two comparable cases had been quoted by the AO without confronting it with the same is not material, since the AO has not used those rates for computing the income of the assessee. Nevertheless, in vi....
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....e upheld disallowance of varying percentages of foreign currency expenditure depending upon facts of the case. In the case of ACIT Vs. Archies International ITA No. 458 (ASR)/2004 relied upon by the AO, the Hon'ble ITAT have upheld the disallowance of 40% of the foreign currency expenditure wherein some othe decisions relied upon by the appellant lower disallowance had been upheld. The decisions relied upon by the appellant are not of the Hon'ble Jurisdictional ITAT. Disallowance of expenditure on estimate basis is essentially a matter of fact and no hard and fast rule can be laid down. I agree with the AO that, considering the quantum of the expenditure; the fact that the family members traveled with partner of assessee firm; the fact that no foreign exchange was stated to have been used for the expenditure in respect of family members of the partner; and the fact that no bills/vouchers in respect of utilization of foreign exchanges have been furnished/produced, disallowance out of foreign exchange expenditure claimed by the assessee firm is called for. In the facts of the case, I would estimate such expenditure at 25% of the foreign exchange utilized by the partners in place of 4....
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....in this case was proposed to be made in respect of purchase of goods which found part of trading account on which the GP rate was applied by the AO. In the case reported in 302 ITR 246, the Hon'ble Jurisdictional High Court upheld the view of the ITAT that in the facts of the case no separate addition in respect of cash credits was warranted after the warranted after the book results had been rejected. The facts in these cases are thus different than in the case of the present appellant. The AO has rejected the book results in respect of trading account and has estimated the gross profit. She has not estimated the net profit of the assessee on the facts of this case. Hence, I am of the opinion that specific addition/disallowances could be made in respect of expenses not covered by trading/manufacturing account of the assessee. 4.5 Considering the facts noted by the AO, the disallowance of Rs. 1,50,000/- out of salary and labour welfare expenditure is upheld. The Ground No.4 of appeal is rejected" 12. Disallowance under section 80IB. " 5.1 The AO has held that the assessee was not entitled to deduction u/s 80IB since after excluding the export incentives, duty drawback and ....
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....gards addition on account of payment of labour and wages, the learned AR submitted that complete register of wages was produced and therefore, the additions sustained by leaner CIT(A) was not justified. 14. Arguing upon Ground No.4, the learned AR submitted that leaned CIT(A) had upheld the disallowance on foreign currency expenses to the extent of 25% as against the 40% made by Assessing Officer. The learned AR submitted that in the case of assessee itself in Asst. Year 2005-06, the Hon'ble Tribunal in ITA No.83 was pleased to restrict similar disallowance to the extent of 10% and in this respect filed a copy of the said Tribunal Order. 15. Arguing upon Ground No. 5 regarding Keyman Insurance Policy, the learned AR submitted that similar matter has been decided in the case of M/s Ambika Overseas which has been decided in favour of assessee vide Tribunal Order dated 31st August, 2015 and therefore, the Ground No.5 needs to be allowed. 16. As regards Ground No. 6, the learned AR submitted that the addition sustained by learned CIT is arbitrarily and excessive and therefore needs to be allowed without prejudice to the above arguments. Without prejudice to the above arguments th....
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.... Officer had pointed out various discrepancies in the books of account and calculation of opening and closing stocks. The argument of learned AR the mere absence of stock register cannot lead to rejection of books of accounts is though correct but here is a case where not only stock register was not maintained but there were various discrepancies in the valuation of opening and closing stock and moreover the Assessing Officer has clearly held that Gross Profit declared by assessee in the present year was lower as compared to earlier years. Moreover, the Assessing Officer has also compared Gross Profit ratio of two parties for the same year, who were also engaged in the similar type of activities. Therefore, we do not find merit in the arguments of learned AR regarding further relief. As regards Ground No. 1 taken by assessee that no show cause notice was issued in terms of provisions of Section 144(1), we find that assessment was not completed u/s 144 and therefore, no notice was required to be issued u/s 144. The learned CIT(A) has very reasonably dealt with issue and has allowed appropriate relief to the assessee and therefore, we do not intend to interfere with his findings. In ....
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....pectively, where the Hon'ble Tribunal had allowed the relief to the assessee on account of payment of Keyman Insurance Policy. The relevant findings as recorded by Hon'ble Tribunal are contained in para 8 to 20 which are reproduced below. "8. Let us now come back to the core issue before us. The short question that we have to really adjudicate is as to whether the premium of Rs. 1,49,99,922 paid on the keyman insurance policies can be allowed on the facts of this case. As to what constitutes 'keyman insurance policy', we find guidance from the Explanation below Section 10(10D), as it stood at the relevant point of time, which defined the keyman insurance policy as follows: For the purposes of this clause, "Keyman insurance policy" means a life insurance policy taken by a person on the life of another person who is or was the employee of the firstmentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person 9. Vide Finance Act 2013, the following words have been added to this definition- "and includes such policy which has been assigned to a person, at any time during the term of the policy, with or without any consid....
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....Emphasis, by underlining, supplied by us) 12. We are in considered agreement with the views so expressed by our distinguished colleagues. As long as a policy is an insurance policy, whether it involves a capital appreciation or is under any other investment scheme, it meets the tests laid down under section 10(10D). 13. The requirement of pure insurance policy is something which is not laid down by the statute. Yet, it is this which has been inferred by the authorities below. 14. Even if such an inference is desirable, as long as it does not emerge from the plain words of the statute, it cannot be open to supply the same. The concepts of term policy, pure life policy and the IRDA guidelines find no mention in the statutory provisions. But even if these concepts ought to be incorporated in this statutory provision of the Income Tax Act to make it more meaningful and workable, it cannot be open to any judicial forum to supply these omissions. Relying upon Hon'ble Supreme Court's judgment in the case of Tarulata Shyam Vs CIT [(1977) 108 ITR 245 (SC)], a coordinate bench of this Tribunal, in the case of Tata Tea Limited Vs JCIT [(2003) 87 ITD 351 (Cal)], has explained this pri....
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.... itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute". 15. It is also important to bear in mind the fact that the IRDA guidelines, no matter how relevant as these guidelines may be, have no role to play in the interpretation of the statutory provisions. IRDA is a body controlling the insurance companies and its guidance is relevant on how the insurance companies should conduct their business. Beyond this limited role, these guidelines do not affect how the provisions of the Income Tax Act are to be construed. Whenever the provisions of the other statututes are to be taken into account, for interpreting the provisions of the Income Tax Act, the Income Tax Act specifically provides so, such as in the case of Explanation 2 to Section 2 (42A) which provides that "the expression "security" shall have the meaning assigned to it in clause (h) of section 2 of the Sec....
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...., POWERS AND FUNCTIONS OF AUTHORITY. (1) Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. (2) Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include, - (a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration; (b) protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance; (c) specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents; (d) specifying the code of conduct for surveyors and loss assessors; (e) promoting efficiency in the conduct of insurance business; (f) promoting and regulating professional organisations connected with....
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....ted in March 2005 and shall come up with detailed guidelines on the sale of keyman insurance at the appropriate time. In the meantime, it has been decided that only term insurance policy will henceforth be issued as 'keyman insurance cover'. Your company is requested to ensure that your company follows this circular till fresh guidelines are issued. 18. A plain look at the above circular shows that it deals with aberrations in sale of keyman insurance policies and it is was a direction to the insurance companies that effect 27th April 2005 only term insurance policies should be issued as keyman insurance cover. That is between the regulatory authority and the insurance companies as to what should be allowed to be marketed as keyman insurance cover. However, it does not alter the requirements of Section 10(10D) which is for 'life insurance policy'. What can be sold as a 'life insurance policy' taken by a business entity for its employee, former employee or any other person important for business of such an entity is between the insurance regulator and insurance service provider. However, once it has been sold as a life insurance policy on the keyman to the business, as l....
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....case of CIT Vs Rajan Nanda etc. [(2012) 349 ITR 8 (Del)]: 25. After giving our due and thoughtful consideration to the submissions of the parties of both sides, we feel that the assessee has been able to make out a case in its favour and order of the Tribunal does not call for any interference. We are persuaded by the following reasons in support of this view of ours: (i) The Department has itself allowed the expenditure incurred on the premium paid for keyman insurance policies in previous years as business expenditure under Section 37 of the Act. Right from 1991-92 upto 1993-94 and thereafter even in respect of Assessment Year 1997-98, the expenditure was allowed. Though thereafter, the expenditure was disallowed, but again the claim was accepted for the Assessment Years 2001-02 and 2002-03. Principle of consistency would, therefore, by applicable in such a case. (ii) The Tribunal has rightly referred to and relied upon the CBDT's Circular dated 18.2.1998. This Circular is binding on the Income Tax Department, which categorically stipulates that premium on keyman policy should be allowed as business expenses. The assessee would, naturally, take into....
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....an insurance policy is to protect the business against a financial set back which may occur, as a result of a premature death, to the business or professional organization. There is no rational basis to confine the allowability of the expenditure incurred on the premium paid towards such a policy only to a situation where the policy is in respect of the life of an employee. A Keyman insurance policy is obtained on the life of a partner to safeguard the firm against a disruption of the business that may result due to the premature death of a partner. Therefore, the expenditure which is laid out for the payment of premium on such a policy is incurred wholly and exclusively for the purposes of business." (iv) The argument of Mr. N.P. Sahni, learned counsel for the Revenue that taking such keyman insurance policy every year and thereafter assigning the same to the beneficiaries may be treated as colourable device, may not be correct. Though this argument appears to be attractive when we look into the fact that the assessee had been taking the policies and thereafter assigning the same year after year in favour of the beneficiaries, what cannot be ignored that this course of ac....