MILES SOFTWARE SOLUTIONS P.LTD, MUMBAI V. ADDL CIT CIR 4(2), MUMBAI

ITA 1292/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92510 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 30-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-02-2012
• Court: TRIBUNAL
• Keywords: Revenue expenditure
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K ** CH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI JH TH + ,L + IUUW] YS[KK LNL; ,OA JH VFER KQDYK] U;KF;D LNL; DS LE{KA BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER VK;DJ VIHY LA[;K@ ITA NO 1292/MUM/20112 ( FU/KKZJ.K OKZ / ASSESSMENT YEAR: - 2007 - 08) M/S MILES SOFTWARE SOLUTIONS PVT. LTD., 311, BUSSA INDUSTRIAL ESTATE, SHANKAR NARAM PATH, LOWER PAREL (WEST), MUMBAI - 400 013. VS.` ADDITIONAL COMMISSIONER OF INCOME TAX, CIRCLE 4(2), MUMBAI. LFKK;H YS[KK LA[;K@TH VKB VKJ LA[;K@ PAN/GIR NO. AABCM5940R APPELLANT RESPONDENT ORDER PER G.S. PANNU, AM THE CAPTIONED APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE C OMMISSIONER OF I NCOME T AX (A PPEALS ) (HEREINAFTER REFERRED TO AS THE CIT(A) DATED 3.12.2009 WHICH IN TURN HAS ARISEN FROM AN ORDER PASSED BY THE A SSESSING O FFICER U/S 143(3) OF THE INCOME TAX ACT, 1961( HEREINAFTER REFERRED TO AS THE ACT) DATED 03.12.2009 PERTAINING TO A SSESSMENT Y EAR 2007 - 08 . FU/KZKFJFR FD VKSJ LS @ ASSESSEE BY SHRI RAJESH D. SHAH JKTLO FD VKSJ LS @ REVENUE BY SHRI S.J. SINGH LQUOKBZ FD RKJH[K @ DATE OF HEARING 30.4.2015 ?KKSK.KK FD RKJH[K@ DATE OF PRONOUNCEMENT 8 . 5 .2015 ITA NO 1292/MUM/20112 ASSESSMENT YEAR: - 2007 - 08 2 | P A G E IN THIS APPEAL, THE SOLITARY G ROUND RAISED BY THE ASSESSEE IS AS UNDER: - ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX APPEALS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER, OF MAKING THE ADDITION OF KEY MAN INSURANCE PREMIUM OF RS. 99,17,768/ - AS PREPAID EXPENSES AND NOT ALLOWING THE ENTIRE EXPENDITURE IN THE YEAR OF PAYMENT WITHOUT APPRECIATING THE FACT THAT THE AMOUNT BECAME DUE FOR PAYABLE AND THE SAME WAS PAID AS INSURANCE PREMIUM FOR THE YEAR. 2. THE APPELLANT BEFORE US IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956 AND IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT. IN THE R ETURN OF INCOME FILED FOR THE ASSESSMENT Y EAR 2007 - 08, THE A SSESSING O FFICER NOTED THAT THE ASSESSEE HAD INCURRED EXPENDITURE BY WAY OF PREMIUM ON KEYMAN INSURANCE POLICY TAKEN OUT IN THE NAME OF ONE OF ITS DIRECTO RS , MR. MILAN GANATRA . THE ASSESSEE PAID PREMIUM OF RS. 99,99,960/ - ON SAID INSURANCE POLICY ON 28.03.2007. THE A SSESSING O FFICER HELD THAT THE PREMIUM PAID WAS RELATABLE FOR THE PERIOD FROM 28.03.2007 TO 28.03.2008 AND, THEREFORE, ONLY THE PREMIUM PAID PR OPORTIONATE TO THE PERIOD ENDING ON 31.03.2007 WAS TO BE ALLOWED AS DEDUCTION IN COMPUTING THE INCOME FOR THE INSTANT YEAR, AND THE BALANCE OF IT WAS DISALLOWABLE. ACCORDINGLY, THE A SSESSING O FFICER ALLOWED THE DEDUCTION OF RS. 82,191/ - ON PROPORTIONATE BA SIS TREATING THE SAME AS THE AMOUNT OF PREMIUM RELATABLE TO THE PERIOD UNDER CONSIDERATION AND THE BALANCE OF RS. 99,17,768/ - WAS DISALLOWED. THE CIT(A) ALSO CONFIRMED THE STAND OF THE A SSESSING O FFICER ON THE GROUND THAT IN THE PRECEDING A SSESSMENT YEAR 2006 - 07, SIMILAR DISALLOWANCE WAS UPHELD BY THE THEN CIT(A). NOT BEING SATISFIED WITH THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 3. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT FOR ASSESSMENT YEAR 2006 - 07, SIMILAR ISSUE TRAVELLED TO THE TRIBUNAL AND VIDE ORDER IN ITA NO. 4968 /MUM/200 9 DATED 16.03.2011, THE STAND OF THE ASSESSEE WAS ALLOWED. ITA NO 1292/MUM/20112 ASSESSMENT YEAR: - 2007 - 08 3 | P A G E THE FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL DATED 16.03.2011 (SUPRA) IS RELEVANT. WE HAVE HEARD THE PARTIES, PERUSED T HE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE ASSESSED HAD TAKEN A KEYMAN INSURANCE POLICY FOR 40 YEARS PREMIUM IN RESPECT OF WHICH PREMIUM WAS PAYABLE FOR THREE YEARS @ RS. 50 LACS PER YEAR. DURING THE YEAR THE ASSESSEE HAD PAID THE FIRST INSTALLMEN T OF RS. 50 LACS ON 28.03.2006 AS THE SAME HAD BECOME DUE. THE AO HAD ALLOWED ONLY THE PROPORTIONATE PREMIUM FOR THE THREE DAYS FOR WHICH THE POLICY WAS IN FORCE DURING THE YEAR WHICH HAS BEEN UPHELD BY THE CIT(A). THERE IS NO DISPUTE THAT THE PREMIUM PA YABLE IN RESPECT OF KEYMAN INSURANCE POLICY IS ALLOWABLE AS REVENUE EXPENDITURE. IN A MERCANTILE SYSTEM OF ACCOUNTING INCOME/EXPENDITURE IS ACCOUNTED WHEN IT BECOMES RECEIVABLE/PAYABLE. IN THIS CASE THE FIRST INSTALLMENT OF PREMIUM RS. 50 LACS BECAME PAYAB LE DURING THE YEAR AND THEREFORE IN A MERCANTILE SYSTEM THE ENTIRE PAYMENT WHICH HAS BECOME DUE DURING THE YEAR HAS TO BE ALLOWED AS EXPENDITURE. WHEN THE ENTIRE SUM OF RS. 50 LACS BECAME DUE FOR PAYMENT DURING THE YEAR IT COULD NOT BE SAID THAT HE EXPEND ITURE WILL BE ALLOWABLE ONLY FOR 3 DAYS FOR WHICH THE INSURANCE POLICY WAS IN FORCE DURING THE YEAR. IN OUR VIEW ENTIRE EXPENDITURE OF RS. 50 LACS HAS TO BE ALLOWED. WE THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND ALLOWED THE CLAIM OF THE ASSESSEE . 4. TH E LD. DR HAS NOT DISPUTED THE AFORESAID FACTUAL MATRIX BUT CONTENDED THAT ONLY THE EXPENDITURE PROPORTIONATE TO THE PERIOD UNDER CONSIDERATION WAS ALLOWABLE AND THUS THE A SSESSING O FFICER MADE NO MISTAKE IN DISALLOWING A SUM OF RS. 99,17,768/ - . 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THE APPELLANT COMPANY IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND IT IS NOT DISPUTED THAT THE PREMIUM OF THE IMPUGNED KEYMAN INSURANCE POLICY WAS P AYABLE ON A DUE DATE , WHICH F ELL WITHIN THE PREV IOUS YEAR RELEVANT TO THE A SSESSMENT Y EAR UNDER CONSIDERATION. IN FACT, THE PREMIUM AMOUNTING TO RS. 99,17,768/ - HAS BEEN PAID O N 23.08.2007, AS THE SAME HAD BECOME DUE. OSTENSIBLY, THE OBLIGATION OF THE ASSESSEE TO INCUR THE EXPENDITURE BY WAY OF PREMIUM PAYMENT HAD ARISEN DURING THE YEAR UNDER CONSIDERATION AND, THEREFORE, THE ASSESSEE WAS JUSTIFIED IN CLAIMING THE ENTIRE ITA NO 1292/MUM/20112 ASSESSMENT YEAR: - 2007 - 08 4 | P A G E EXPENDITURE AS A DEDUCTION WHILE COMPUTING THE INCOME FOR THE YEAR UNDER CONSIDERATION. THE TRIBUNAL IN THE ASSESSES OWN CASE FOR A.Y . 2006 - 07 (SUPRA) HAS NOTED THAT SINCE THE PREMIUM PAYMENT HAD BECOME DUE DURING THE YEAR ITSELF, THE SAME WOULD BE AN ALLOWABLE EXPENDITURE IN THE YEAR IN WHICH SUCH PREMIUM BECOME DUE. FOLLOWING THE PRECEDENT IN THE ASSESSEES OWN CASE, IN OUR VIEW, THE CIT(A) ERRED IN NOT ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF ENTIRE PREMIUM PAYMENT OF RS. 99,99,960/ INSTEAD OF RS. 82,191/ - ALLOWED BY THE A SSESSING O FFICER . THEREFORE, WE SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE A SSESSING O FFICER TO ALLO W THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF PAYMENT OF INSURANCE PREMIUM IN ITS ENTIRETY. THUS, ASSESSEE SUCCEEDS ON THIS GROUND OF APPEAL. 6. IN THE RESULT APPEAL , OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 8 TH DAY OF MAY 2015. SD/ - SD/ - (AMIT SHUKLA) (G.S. PANNU) (JUDICIAL MEMBER/ U;KF;D LNL; ) (ACCOUNTANT MEMBER/ YS[KK LNL; ) MUMBAI DATED 8 - 0 5 - 2015 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI