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2016 (10) TMI 686 - AT - Income TaxExclusion of income on sale of DEPB for the purpose of deduction u/s.80IB - Held that - CIT(A) while deciding the issue and after placing the reliance on the decision in the case of Topman Exports vs. CIT (2012 (2) TMI 100 - SUPREME COURT OF INDIA ) has held that only the income on sale of DEPB is to be excluded and not the entire sale of DEPB for the purpose of calculation of deduction u/s.80IB of the Act. Before us neither of the parties have placed any contrary binding decision in their support. We therefore find no reason to interfere with the order of the ld.CIT(A). Thus this ground(s) of Revenue and Assessee are dismissed. Disallowance of interest expenditure - Held that - 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 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 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 Directors of assessee assessee has not placed any material on record to show their nature of work since how long they are associated with the assessee whether assessee has paid for premium for other persons who work in assessee s company in same capacity as that of these two persons and how these two persons can be considered to be the key persons to the assessee s business. In such a situation we are of the view that AO has rightly disallowed the expenses towards insurance premium (Rs.20 lacs) for these 2 persons. As far as payment of insurance premium for other 3 persons are concerned it is an undisputed fact that they are the Directors of assessee-company. The Directors of the company even by the Circular No.762 dated 18/02/1998 can be considered to be a key person. In such a situation and in the absence of any contrary material placed by the Revenue that the 3 Directors are not the key persons we are of the view that the insurance premium paid for the 3 Directors needs to be allowed. In view of the aforesaid facts we direct the restricting the disallowance of Keymen Insurance Premium only to the extent of 40 lacs as against 1, 00, 00, 000/- made by AO - Decided partly in favour of assessee.
Issues Involved:
1. Exclusion of DEPB income for deduction under Section 80IB. 2. Disallowance of interest expenditure. 3. Disallowance of Keyman insurance premium. 4. Non-allowance of deduction under Section 80IB on additions made during assessment. Issue-wise Detailed Analysis: 1. Exclusion of DEPB Income for Deduction Under Section 80IB: The Assessee claimed a deduction under Section 80IB, including DEPB income. The AO disallowed this, citing the Supreme Court's decision in Liberty India vs. CIT, which held that DEPB income is not derived from eligible business. The CIT(A) partially allowed the appeal by directing the AO to exclude only the income on the sale of DEPB, not the entire sale proceeds, based on the Supreme Court's decision in Topman Exports vs. CIT. Both the Revenue and Assessee appealed. The Tribunal upheld the CIT(A)'s decision, finding no contrary binding decisions. 2. Disallowance of Interest Expenditure: The AO disallowed interest expenditure, observing that the Assessee made significant investments and interest-free advances while claiming interest on borrowed funds. The CIT(A) directed the Assessee to demonstrate that the investments were not from interest-bearing funds and instructed the AO to verify the evidence. The Tribunal noted that CIT(A) no longer had the power to set aside issues post-amendment of Section 251(1)(a) and remanded the matter to the AO for verification and decision based on facts and law. 3. Disallowance of Keyman Insurance Premium: The AO disallowed the premium paid for Keyman Insurance Policies, considering them personal expenses, not incurred for business purposes. The CIT(A) upheld this, stating the policies were for the benefit of individuals, not the business. The Tribunal partially allowed the Assessee's appeal, allowing the premium paid for Directors (considered key persons) but disallowing the premium for two other individuals, as the Assessee failed to prove their significance to the business. 4. Non-Allowance of Deduction Under Section 80IB on Additions Made During Assessment: This issue was not separately adjudicated by the CIT(A) in the detailed analysis provided. The Tribunal's order did not specifically address this ground, focusing on the other three primary issues. Conclusion: The Tribunal's decision provided partial relief to both parties. It upheld the CIT(A)'s decision on DEPB income exclusion, remanded the interest expenditure issue for verification, allowed Keyman insurance premium for Directors, and partially disallowed it for other individuals. The appeal outcomes were mixed, with some grounds allowed for statistical purposes and others dismissed or partially allowed.
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