APURVA INDIA LTD,MUMBAI vs. ACIT 6(1), MUMBAI

आदेश / O R D E R

PER AMARJIT SINGH, JM:

“1. On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the disallowance of provision of insurance expenses of Rs.30,00,000.

2. On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in considering disallowance of insurance expense of Rs. 30,00,000/- twice; first by separately disallowing and second by considered while apportioning insurance expenses between SEZ and non SEZ units. This has resulted in considering the same amount twice for disallowance.

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3. The brief facts of the case are that the assesse filed its return of income on 30.09.2011 declaring total income to the tune of Rs.12,88,310 . The return was processed u/s 143(1) of the I.T. Act. The Assessee has returned book profit of Rs.57,59,175/- and the paid taxes on the same. The case was selected for scrutiny and a notice u/s 143(2) dated 12.09.2012 was M/s. Apurva India Ltd. Mumbai issued and served upon the Assessee. Thereafter, notice u/s 143(2) & 142(1) dated 09.07.2013 alongwith a questionnaire were issued and served upon the Assessee. The Assessee company was engaged in the business of Manufacturing of Paints and Epoxy flooring, Applicators of Paints and Epoxy flooring. The Assessee raised the claim u/s 10AA(9) r.w.s.80-A(8) in respect of Apportionment of Expenses. The Assessee has claimed the exempt income u/s 10AA an amount of Rs.1,18,65,674/-. The Assessee was asked to submit copy of certificate in Form 56-F and Unit-wise P& L account in comparative format which were submitted by the Assessee vide letter dated 23.10.2013. Thereafter, on appraisal of the document, it was observed that the Assessee had disclosed Profits derived by the eligible SEZ Unit (at Indore) at Rs.153.02 lakhs on a turnover of Rs.497.04 lakhs, against the Profits at Rs.23.77 lakhs on the turnover Rs.1364.60 lakhs from the non-eligible unit (at Mumbai). Thus, the rate of net profit in respect of SEZ unit came at 30.79%, as against in respect of Non-SEZ unit at 1-75% only. The Assessing Officer did not found apportionment in accordance with law, therefore, disallowed an amount of Rs.63,24,267/- on account of eligible unit. The Assessee also claimed the provision for Insurance of Rs.30,00,000/- which was also disallowed and the income of the Assessee was assessed to the tune of Rs.1,06,12,570/-. Feeling aggrieved, the appeal was filed by the Assessee before the CIT(A) and the CIT(A) allowed the claim of the Assessee in connection with the disallowance of Rs.63,24,265/- but disallowed the insurance expenses to the tune of Rs.30,00,000/-, therefore, the Assessee as well as the Revenue filed the present appeal before us.

M/s. Apurva India Ltd. Mumbai ISSUE NO.1 to 3 4. Under these issues, the Assessee has challenged the disallowance of the provision of the Insurance expenses to the tune of Rs.30,00,000/-. The learned representative of the Assessee has argued that the matter of controversy has been adjudicated by the Mumbai Tribunal in the case of Shri Nidhi Corporation Vs. ACIT circle - 23 (3) (2014) 44 Taxman.com 31 (Mumbai tribunal), Suri Sons Vs. ACIT (2015) 155 ITD 825. On the other hand, Ld. Representative of the Revenue has refuted the said contention. Keeping in view argument advanced learned representative of the parties and perusing the record. We noticed that the Hon’ble ITAT Mumbai bench has decided the matter of controversy in favour of Assessee in case Shri Nidhi Corporation Vs. ACIT circle -23 (3) (2014) 44 Taxman.com 31 (Mumbai tribunal) . Thereafter, the Hon’ble ITAT Amritsar Bench has passed the fresh order in which the claim of the assessee in connection with Keyman Insurance Policy was allowed in case titled as Suri Sons Vs. ACIT (2015) 155 ITD 825. This order was passed on the basis of the law settled by the ITAT Mumbai Bench in the case of Shri Nidhi Corporation Vs. ACIT circle -23 (3) (2014) 44 Taxman.com 31 (Mumbai tribunal), the relevant para in the said case is hereby reproduced as under.:-

M/s. Apurva India Ltd. Mumbai

“We have heard the rival contentions, perused the findings of the authorities below as well as the material available on record. It is seen that the assessee has bought two keyman Insurance Policies viz., Tata AIG life insurance policy and Bajaj Allianz on 28th March 2005, in favour of two partners. These policies are life insurance policies which are evident from the clause mentioned in the policy documents placed before us in the paper book. The premium of these policies has been paid by the assessee firm and the same has been claimed as deduction under Keyman Insurance Policy. It appears that after the assessee has purchased these policies, IRDA came up with circular dated 27th April 2005 that partnership insurance in the name of partner will not be covered under Keyman insurance but as a term insurance cover. Thus, such IRDA circular cannot be adversely viewed in case of the assessee as when the assessee has taken the policy under Keyman Insurancne Scheme from two reputed insurance companies there was no such regulation. The other objections of the revenue are that the deduction of the premium under keyman insurance cannot be allowed in the case of partnership firm, is not tenable in view2 of the decision of the Hon’ble Jurisdictional High Court in B.N. Exports (supra), wherein, it has been held that if the Keyman Insurance Policy is obtained on a life of a partner, to safeguard the firm against a disruption of business, then the payment for premium on such policy is liable for deduction as business expenditure. Thus, even if a Keyman insurance has been taken in the name of a partner by the partnership firm then also the deduction has to be allowed on the payment of premium. The other main objections of the Ld. Commissioner(Appeals) has been that firstly, these are not insurance policy as such but are mainly for capital appreciation under the investment scheme and secondly, the assessee has not received the maturity sum but it has been assigned to the partners, therefore, the assessee cannot be given deduction for any premium paid. Insofar as the first objection of the Ld. Commissioner (Appeals) is concerned, we declined to agree with this conclusion because once the assessee has bought a policy under a life insurance scheme, then whether the insurance company is making investment in mutual funds for capital appreciation or under any other investment scheme, will not make any material difference. Insofar as the assessee is concerned, it has bought a life insurance policy, under Keyman

M/s. Apurva India Ltd. Mumbai

Insurance Policy on which premium has been paid. On a perusal of these documents, it is clearly evident from the clauses of that it is these policies that it is for life insurance only. Now, coming to the second objection of the Ld. Commissioner (Appeals) it is seen from the policy document that if the assessee surrenders the policy within the period of three years, then there is no surrender or maturity value. Under both the policies, the maturity value up to three years is zero. Once it is an admitted fact that the policy has been surrendered and it has been assigned to the policy holders on which no maturity amount or surrender value has been received, then such an observation of the Ld. Commissioner(Appeals) does not make any difference. Moreover, once the assessee after nursing these policies for some time by paying premium thereupon, has been assigned to the partners, then also the payment of such a premium has to be allowed as deduction in view of the decision of the Hon’ble Delhi High Court in Rajan Nanda (supra). Thus, the reasoning and conclusion drawn by the Ld. Commissioner (Appeals), cannot be upheld consequently, we set aside the impugned order passed by the Ld. Commissioner (Appeals) and hold that the assessee is eligible for claiming deduction of Rs. 10,00,481/- towards premium paid in respect of Keyman insurance policy and should be allowed accordingly. Thus, the ground raised by the assessee is treated as allowed.”

5. On appraisal of the above said finding, we noticed that he factual position in this case is also the same. Honoring the order of the Hon’ble ITAT in the case of Shri Nidhi Corporation Vs. ACIT circle -23 (3) (2014) 44 Taxman.com 31 (Mumbai tribunal), we set aside the finding of the CIT(A) on this issue and allowed the claim of the assessee. Therefore, accordingly, this issue is being decided in favour of the Assessee against the Revenue.

M/s. Apurva India Ltd. Mumbai

1.Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in holding that the disallowance of Rs.63,24,265/- u/s 10AA(9) r.w.s.80IA(8) of the I.T. Act made by the A.O. on the basis of turnover is incorrect. 2.Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to restrict disallowance to Rs.12,35,831/- as against Rs.63,24,265/- disallowed u/s10AA(9) r.w.s. 80IA(8) of the I.T. Act based on fresh evidence/details produced at the appellate stage for the first time without giving an opportunity of examination to the AO in contravention of Rule46A of the I.T. Act. 1961 3.The appellant prays that the order of CIT(A) on the above grounds be set aside to the file of AO or confirm the order of the AO. 4.The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.

ISSUE NO. 1 TO 2

M/s. Apurva India Ltd. Mumbai had disclosed Profits derived by the eligible SEZ Unit (at Indore) at Rs.153.02 lakhs on a turnover of Rs.497.04 lakhs, against the Profits at Rs.23.77 lakhs on the turnover Rs.1364.60 lakhs from the non-eligible unit (at Mumbai). Thus, the rate of net profit in respect of SEZ unit came at 30.79%, as against in respect of Non-SEZ unit at 1-75% only. The Assessing Officer did not found apportionment in accordance with law, therefore, disallowed an amount of Rs.63,24,267/- on account of eligible unit. No doubt, the said finding was challenged before the CIT(A) who allowed the claim of assessee. It is required to be seen in which circumstances the CIT(A) has allowed the claim of the assessee. The finding of the CIT(A) is hereby reproduced below:- “I have considered the facts of the case, assessment order and submission of the appellant. There is no dispute on the eligibility of SEZ unit for deduction under section 10AA. There is no dispute on the genuineness of the expenditure incurred. The dispute is only on the apportionment of expenses between SEZ and Non-SEZ unit. For better appreciation of facts, the reason of the AO submission of the appellant for appropriation of expenses is reproduced in tabular form”

M/s. Apurva India Ltd. Mumbai

Comparative Chart Sr.No Nature of Expenditure AO’s reason Appellant’s argument

1 Labour Charges The assessee is engaged Assessee manufactures paints and epoxy floorings. Non-SEZ unit also in manufacturing activity undertakes application contracts for Total Rs.80,76,943/- SEZ: NIL both at its which it engages sub-contractors and pays them as per the work Mumbai(Tarapur & SEZ assigned, complete details as (Indore) units, but still regards names, amounts and site locationof each sub-contract service has not shown any was given in the details of labour Labour charges under the charges submitted to AO SEZ unit, which is highly Entire billing for such application unimaginable contract has been done from Mumbai office i.e. non SEZ unit. SEZ unit only manufactures and exports. No service is provided from SEZ unit( in fact the unit in SEZ is precluded from providing any service. Factual explanation has been completely ignore.

Expenses shown under Employees are deployed at various 2 Personnel Expenses SEZ unit is locations which were explicitly disproportionately low, stated in the details submitted to AO Total:Rs.2,95,89,785/- being less than 10% of total expenses, compared SEZ unit has been set up in August to Mumbai unit. 2009. SEZ:Rs.27,87,5237- Personnel expenses of assessee(excluding SEZ): FY2007- 08Rs.206,20lakhs-No SEZ FY2008- 09:Rs.261.40lakhs-(No SEZ) FY2009-10: Rs.222.65lakhs(excl.SeZ) FY2010-11:Rs.268,02 lakhs(excl.SEZ) SEZ personnel cost:

M/s. Apurva India Ltd. Mumbai

FY2009-10:Rs.12.91 lakhs(for 8months) FY2010- 11:Rs.27.87lakhs Company’s products are meant for building industry; Company’s additional manpower is due to marketing thrust in domestic market. SEZ manufactures only against specific export orders. In other words, when there are no export orders there is virtuallyno activity in SEZ.(Number of production days of SEZ unit enclosed herewith) Further, full salary of a director has been apportioned to SEZ even though he also handless Mumbai office. SEZ unit does not require excessive manpower. Rs. 83,865/- paid to SEZ employees from Mumbai has been debited in Mumbai accounts through oversight. Travelling- Expenses shown under These are origin/destination/purpose 3 SEZ unit is based. There can’t be any percentage Local:Rs.27,57,313/- SEZ disproportionately low, based comparison. Rs.9,229/- being less than 0.33% of total expenses, compared Rs.41,549/- relating to SEZ has to Mumbai unit. been debited in Mumbai through oversight. 4 Travelling expenses- The assessee itsel has Includes Rs.1,97,652/- related to admitted that all such application contracts carried out Foreign Total expenses are treated as abroad for which billing has been non-SEZ expenses, even done from Mumbai. though the orders Rs.5,64,608/- involving exports of goods are executed from SEZ NIL SEZ 5 Conveyance:Total Expenses shown under These are origin/destination/purpose SEZ unit is based. There can’t be any percentage Rs.18,37,503/- SEZ disproportionately low, based comparison. Rs.2,50,028/- being less than 1.36% of total expenses, compared SEZ related expenditure has been to Mumbai unit. debited in SEZ

M/s. Apurva India Ltd. Mumbai

6 Audit Fees: Total Audit fee has not been apportioned to SEZ unit, Rs.1,10,300/- even though those accounts are also subject to audit. 7 Consultancy Charges: Expenses shown under These are assignment specific SEZ unit is expenses mainly related to Total Rs.22,51,911/- SEZ disproportionately low, marketing activity in domestic Rs.15000/- being less than 0.67% of market. total expenses, compared to Mumbai init. There can’t be any percentage based comparison 8 Printing & Stationery: Expenses shown under These are located based expenses SEZ unit is There can’t be any percentage based Total Rs.7,93,531/- SEZ disproportionately low, comparison. being less than 1.56% of Rs.12,390/- total expenses, compared It is pertinent to note that there are to Mumbai unit. only 47 invoices from SEZ as compared to 1929 invoices from Mumbai 9 Insurance: Total The Insurance premium Insurance is asset/risk specific includes premium for expenditure. AO has completely Rs.36,08,411/- SEZ Keyman Insurance policy ignored submissions despite giving Rs.23,458/- for G.S. Gupta and Anil specific details about the Pawaskar of assets/risks. Rs.2,34,363/- and Provision made for Insurance Premium Payable on Employer Employee Policy of G.S. Gupta and Anil Pawaskar of 30,00,000/- while the amount spent on insurance of Keyman cannot be solely attributed to Mumbai unit, the aforesaid provision made of Rs.30,00,000/- is considered for disallowance separately, hence deducted from the overall insurance expenses under this para. 10 Bad Debts Written off: The assessees has not SEZ has come into existence from submitted any details, August 2009. All the details were Rs.28,06,878/- though mentioned as such submitted during the proceeding. in the covering letter, Even by looking at the names of the hence the said parties it is very clear that they are explanation cannot be local parties accepted. Invoice-wise details of exports from SEZ from inception till31.3.2011 are enclosed. It would thus be clear that the bad debts written off do not relate to any export sales effected from SEZ and cannot be apportioned

M/s. Apurva India Ltd. Mumbai to SEZ From perusal of the aforesaid expenses I agree with the argument of the Ld. AR that percentage allocation of expenses is not correct in all the heads. The expenses have to be analyzed and allocated on actual. Each item of expenditure needs analysis and then inference has to be drawn whether it is incurred for SEZ or Non-SEZ unit. 4.5 Decision 4.5.1 Personnel Expenses and local travelling expenses, Conveyance Consultancy Charges, Printing & Stationary Bad Debts written off:- On analysis of the expenses incurred the argument of the appellant is in order. The allocation done by the appellant is on actual expenditure incurred. Therefore, the apportionment made by the AO is incorrect as it is not bound by any credible or cogent evidence. The apportionment made on this account is deleted. 4.5.2 Local travelling expense, Audit Expense and insurance expense The local travelling expenses of Rs.5,64,608 was discussed with the Ld. AR at the time of appellate proceedings. On verification of details produced he agreed that an amount of Rs.3,66,956 to SEZ. Based on sales turnover the AO is directed to take Rs.29450 as audit expenses incurred for SEZ. 4.5.3 Similarly Based on sales turnover the AO is directed to take Rs.8,39,425/- as insurance expenses incurred for SEZ 4.5.4 The AO is directed to allocate the expense between SEZ and No. SEZ unit as per above direction.”