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TMI Blog2008 (2) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... s case, the selection for scrutiny of the case has not been as per the Board instructions referred to above. In view of the above we hold that the learned AO erred in assuming the jurisdiction under s. 143(2) of the Act in contravention of the CBDT instructions and in completing the assessment under s. 144 which is bad in law and the learned CIT(A) erred in confirming the order of the AO. The orders of the Revenue authorities are set aside. Disallowance out of Keyman Insurance Policy and out of the selling and administrative expenses - While the Act is amended in many places to the effect that the amount received will be taxable, it is nowhere provided that the premium paid on the Keyman Insurance Policy is allowable as business expenditure except by a circular of CBDT. The Circular No. 762 is binding on the Revenue authorities. The assessee s counsel has filed the xerox copies of the premium paid in respect of these policies. thus, we are of the considered opinion that the premium paid by the assessee on the Keyman Insurance Policy is allowable as business expenditure. We direct the AO to allow the claim of the assessee subject to verification of the premium paid by the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th in the law and on facts. 2. The learned CIT(A) erred in deleting the addition of Rs. 9,47,684 made by AO on account of setting off brought forward losses for which no evidences were produced, when called for, during scrutiny. 3. Therefore, the question of law arises whether, on the facts and circumstances of the case and in law, the learned CIT(A) was justified in, holding that the assessee is entitled for brought forward business losses on the basis of return earlier filed." 4. We shall first take up the preliminary objection raised by the learned counsel for the assessee that the learned AO erred in assuming the jurisdiction under s. 143(2) in contravention of CBDT instructions and in completing the assessment under s. 144 and the learned CIT(A) further erred in confirming the jurisdiction with the AO. 5. The learned counsel for the assessee brought to our notice the CBDT Instruction No. 9 of 2004, dt. 20th Sept., 2004 for the selection of cases for scrutiny assessments during current financial year 2004-05 for the corporate and non-corporate assessees. That a copy of the aforesaid instructions was filed on record of the learned AO (on 7th Nov., 2006) and on record of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [reported in (2005) 199 CTR (St) 1 to 5] which were published on 18th Nov., 2005. That these instructions were not available for selection of cases for scrutiny for returns filed in financial year 2004405. The Addl. CIT heavily relied on CBDT instructions of financial year 2005-06 when the same were not applicable for returns filed during current financial year 2004-05. That this is the patent mistake made by the Hon'ble Addl. CIT and thereby failed to take note of the fact that the CBDT Instruction No. 9 of 2004, dt. 20th Sept., 2004 were the only applicable instructions. That on account of this patent mistake, the directions issued under s. 144A issued on 20th Oct., 2006 and 24th Nov., 2006 are invalid in law. 9. He further submitted that the Addl. CIT had wrongly considered the date 10th Oct., 2005 as date of selection of case for scrutiny, when that date was factually date of issue Of notice under s. 143(2). That if the date of issue of notice is to be considered as date of selection the matter was already barred by limitation on 28th Jan., 2005. He pointed out that the stage of issue of notice under s. 143(2) would be secondary step after legally selecting the case for scruti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violation of the CBDT Instruction No. 9 of 2004 dt. 20th Sept., 2004, a copy of which is placed on record. Instruction No. 9 of 2004 will only operate to select cases for scrutiny having ample time for selection and to issue notice under s. 143(2). If the above instruction is presumed to be considered for the asst. yr. 2003-04, then the return filed on or before 31st July, 2003 shall have no scrutiny and the return filed on 31st Oct., 2003 shall render very meagre time for selection of the cases but that is not the intention of the CBDT. As per the interpretation of the Addl. CIT, if action plan for financial year 2005-06 published in (2005) 199 CTR (St) 1 on 28th Nov., 2005 is considered for returns for the asst. yr. 2004-05, then no time was available for selection for scrutiny cases of the asst. yr. 2004-05 except belated returns under s. 139(4). Even as per that instruction for the financial year 2005-06, the case is not fit for scrutiny. The judicial decisions relied upon by the learned counsel for the assessee clearly support the case of the assessee. In our considered view the CBDT instructions are binding on the Revenue authorities and, therefore, in this case, the selectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then, the total sum assured becomes Rs. 4,52,02,010. This is a very big policy which has been bought keeping in view the volume of business of the assessee where the turnover is just Rs. 45,76,599. The contribution of directors and their worth being so much have not been proved. It has also not been made clear as to why the premium paid should not be spread over the number of years for which the insurance cover is available. Normally speaking. the total premium paid should be spread over the entire period of insurance as otherwise, there will be a major claim against the Revenue which is not justified in the present circumstances of the case. If the huge premiums of a huge policy are claimed in one or few years, they can only be taken as capital expenditure rather than revenue ones as the policy will have an enduring benefit for more number of years than for the years for which the premium is being paid. As such, the sum assured and premium paid are taken to be excessive keeping in view the worth of the company. Since no details are available, a suitable disallowance being 30 per cent of this amount of Rs. 90,40,402 i.e. Rs. 27,12,120 is being made and added." 14. The AO also di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame may kindly be allowed. He also referred to the decision of Hon'ble Tribunal Delhi Bench reported in P.G. Electronics vs. ITO (2005) 98 TTJ (Del) 896. 17. Regarding the disallowance of Rs. 4,67,040,out of the selling and administrative expenses of Rs. 46,70,408, he referred to the chart filed on p. 95 of the paper book No. I which gives comparative position of turnover, GP and net profit and also the details of expenses. He submitted that the net profit of the assessee for the year under consideration is better. All the expenses are verifiable and vouched. He submitted that no disallowance is called for since the disallowance made by the AO is on ad hoc basis under s. 144. He brought to our notice that no disallowance was made out of directors' remuneration and for vehicle and telephone expenses etc. claimed by the assessee, he relied on the decisions reported in Dy. CIT vs. Surface Finishing Equipment (2003) 81 TTJ (Jd) 448, in ITA No. 147/Nag/1999, 22 ITC 766 (Ind), Sayaji Iron & Engg. Co. vs. CIT (2002) 172 CTR (Guj) 339 : (2002) 253 ITR 749 (Guj), Usha Rectifier Corporation (I) (P) Ltd. vs. IAC (1989) 35 TTJ (Del) 602 and Metallizing Equipment Co. (P) Ltd. vs. Dy. CIT (2001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emium paid by the assessee company. 19.2 Regarding the issue of disallowance of Rs. 4,67,040 out of selling and administrative expense, we find that the assessee has submitted the comparative position of the turnover and GP and the net profit in the chart filed on p. 95 of the paper book I. In the said chart, the assessee has given the details of expenses. All the expenses are vouched and verifiable. There should be no disallowances on account of vehicle running expenses and telephone (expenses) as per decisions cited above. It is also seen that the net profit disclosed by the assessee for the year under consideration is better as compared to the earlier years. Since all the expenses are verifiable and vouched and no other disallowances are made by the AO, we do not find any justification for the AO to disallow Rs. 4,67,040 out of selling and administrative expenses. No convincing reasons are given by the Revenue authorities to make the disallowance and confirm the same. The disallowance made by the AO is on ad hoc basis under the assessment framed under s. 144. In view of the above, since no disallowance is called for the AO is directed to delete the same. 19.3 Now coming to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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