In a recent ruling, the Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) allowed the appeal in favour of the assessee regarding the disallowance of deductions claimed under Section 57 of the Income Tax Act 1961.
The dispute was on two main issues, and they are interest income from personal funds and maturity profits from Keyman Insurance Policies.
Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here
In the case for Assessment Year 2018-19, the Assessing Officer ( AO ) disallowed the appellant, Mr. Atul Hirji Maru’s claim of interest deduction totaling Rs. 63,48,487. This AO was of the opinion that the interest was earned from Mr. Maru’s personal funds, thereby disqualifying it from deduction under Section 57 of the Income Tax Act.
The ITAT noted that the assessee had indeed lent money partly out of borrowed funds, incurring interest expenses at a rate of 12% while receiving interest income at 12.5%. On further examination, the bench observed that he had already disallowed Rs. 39,49,392 on his own, covering the AO’s concerns about the source of funds. Thus, the ITAT directed the AO to delete the disallowance of Rs. 63,48,487.
The second issue was related to the maturity proceeds of Keyman Insurance Policies. The assessee had claimed deductions for premiums paid after acquiring two Keyman policies from Shemaroo Entertainment Ltd., with which the assessee is a partner. By referring to CBDT Circular No. 762 dated 18/02/1998, the AO was of the opinion that the assignee is liable to pay tax on the surrender value of Keyman Insurance policy value at the time of assignment and thus made the addition of Rs. 1,66,68,184.
Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here
The ITAT bench, after referring the precedent, Smt. Harleen Kaur Bhatia vs. PCIT in ITA No. 150/Ind/2019, directed AO to delate the impugned addition.
The bench comprising of Raj Kumar Chauhan ( Judicial Membar ) and Narendra Kumar Billaiya ( Accountant Member ) allowed both the appeals filed by the assessee.
The assessee was represented by Mr. Rajeev Waglay and the revenue by Mr. Lieder Panicker.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
