The ACIT, Circle-5,, Ahmedabad V. N.K. Proteins Ltd., Ahmedabad

ITA 1962/AHD/2012

• Counselvise Citation: 196220514 RSA 2012
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 03-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SINGH
• Assessee Lawyers: A C SHAH
• Keywords: Business income; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE SHRI G. C. GUPTA, VP AND SHRI A. MOHAN ALAN KAMONY, AM) ITA NO.1962/AHD/2012 A. Y.: 2005-06 THE A. C. I. T., CIRCLE-5, 4 TH FLOOR, B WING, PRATYAKSH KAR BHAVAN, NR. POLYTECHNIC COLLEGE, AMBAWADI, AHMEDABAD 15 VS N. K. PROTIENS LTD., 9 TH FLOOR, POPULAR HOUSE, ASHRAM ROAD, AHMEDABAD 9 P. A. NO. AAACN 9377 N (APPELLANT) (RESPONDENT) APPELLANT BY SHRI D. K. SINGH, SR. DR RESPONDENT BY SHRI A. C. SHAH, AR DATE OF HEARING: 01-11-2012 DATE OF PRONOUNCEMENT: 09 -11-2012 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A )-XI, AHMEDABAD IN APPEAL NO. CIT(A)-XI/394/ACIT CIR.5/11-12 DATED 27- 06-2012, FOR THE ASSESSMENT YEAR 2005-06 PASSED U/S 250 READ WITH S ECTION 143(3) AND 147 OF THE IT ACT. 2. THE REVENUE HAS RAISED FOUR ELABORATE GROUNDS IN ITS APPEAL. HOWEVER, THE CRUX OF THE ISSUE INVOLVED IN THE APPE AL IS REGARDING THE QUASHING OF THE REOPENING U/S 147/148 OF THE ACT AN D DELETION OF ADDITION MADE ON EXCESS PREMIUM PAID ON KEYMANS INSURANCE P OLICY BY THE LEARNED CIT(A). THE ASSESSEE COMPANY HAD DEBITED RS .210.72 LACS ON ACCOUNT OF KEYMAN INSURANCE PREMIUM EXPENSES. HOWEV ER, BASED ON THE IRD GUIDELINES, THE LEARNED AO WORKED OUT THE ALLOW ABLE PREMIUM AT 1/5 TH OF THE SUM ASSURED OF RS.157.20 LACS WHICH COMES TO RS.31.44 LACS AND ITA NO.1962/AHD/2012 (AY: 2005-06) ACIT, CIR-5, AHMEDABAD VS N. K. PROTIENS LTD. 2 DISALLOWED THE BALANCE SUM OF RS.178.56 LACS (210 L ACS 31.44 LACS) AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. WHEN THE MATTER CROPPED UP BEFORE THE LEARNED CIT(A), HE DELETED THE DISALLOWANCE MADE BY THE LEARNED AO BY OBSERVING IN PARA 3.12 AND 3.13 A S UNDER: 3.12 THE ADDITION OF RS.1.79 CRORES MADE BY THE A. O. IN THE ASSESSMENT ORDER IS NOT TENABLE ON MERITS ALSO. IT IS SEEN THAT KEYMAN INSURANCE POLICY PREMIUM IS AN ALLOWABLE DED UCTION AS PER THE PROVISIONS OF SECTION 37(1) OF THE I. T. ACT. I N THIS REGARD, CBDT HAD ALSO ISSUED CIRCULAR NO.762 DTD. 18-2-1998. IT IS PRESCRIBED IN THIS CIRCULAR THAT PREMIUM PAID ON KEYMAN INSURANCE POLICY IS AN ALLOWABLE BUSINESS EXPENDITURE AS THE RECEIPT FROM KEYMAN INSURANCE POLICY AT THE TIME OF MATURITY IS TAXABLE AS BUSINESS RECEIPTS. TAKING THESE FACTS IN VIEW, HONBLE MUMBA I HIGH COURT IN THE CASE OF CIT V/S. B. N. EXPORTS 323 ITR 178 HAD DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT. SIMILAR VIEW HAS ALSO BEEN HELD BY HONBLE ITAT, A BENCH, AHMEDABAD IN THE CASE OF D CIT, CIRCLE-5, AHMEDABAD VS. P. G. FOILS LTD., AHMEDABAD IN ITA NO.2184/AHD/2009. 2.13 IN VIEW OF THESE FACTS, I AM OF THE CONSIDERED VIEW THAT APPELLANT IS ENTITLED TO CLAIM DEDUCTION TOWARDS KE YMAN INSURANCE POLICY PREMIUM AND DISALLOWANCE MADE BY THE A. O. I S UNWARRANTED. THIS GROUND OF APPEAL IS ALLOWED. 3. BEFORE US THE LEARNED DR RELIED ON THE ORDER OF THE LEARNED AO. ON THE OTHER HAND, THE LEARNED AR SUPPORTED THE ORDER OF THE LEARNED CIT(A). FURTHER, THE LEARNED AR HAS ALSO RELIED ON THE FOLL OWING DECISIONS AND PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SUSTAINED: (I) CIT VS B. N. EXPORTS, 323 ITR 178 (BOM.) (II) ESCORTS HEAR INSTITUTE & RESEARCH CENTRE LTD. VS ACIT, 128 ITD 108 (DEL) (III) SUNITA FINLEASE LTD. VS DCIT, 118 TTJ VS ACIT , 118 TTJ 263 (BILASPUR) ITA NO.1962/AHD/2012 (AY: 2005-06) ACIT, CIR-5, AHMEDABAD VS N. K. PROTIENS LTD. 3 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORD INCLUDING THE PAPER BOOK SUBMIT TED BY THE LEARNED AR CONTAINING PAGES 1 TO 38. THE LEARNED CIT(A) RELYI NG ON THE CBDT CIRCULAR NO.762 DATED 18-02-1998 HAS DELETED THE AD DITION MADE BY THE LEARNED AO ON ACCOUNT OF DISALLOWANCE OF RS.1,78,56 ,000/- WITH REGARD TO EXPENSES INCURRED BY THE ASSESSEE IN RESPECT OF PR EMIUM ON KEYMAN INSURANCE POLICY. WHILE DOING SO, THE LEARNED CIT(A ) ALSO RELIED UPON THE DECISION OF THE HONBLE MUMBAI HIGH COURT IN THE CA SE OF CIT VS B. N. EXPORTS, 323 ITR 178 WHEREIN THE AFORESAID CIRCULA R OF THE CBDT WAS FOLLOWED BY THE HONBLE HIGH COURT IN DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. FURTHER RELIANCE WAS PLACED BY THE LEARNE D CIT(A) ON THE DECISION OF THE ITAT AHMEDABAD A BENCH IN THE CAS E OF DCIT, CIRCLE-5, AHMEDABAD VS P. G. FOILS LTD. IN ITA NO.2184/AHD/20 09 IN THIS REGARD. 4.1 WE ALSO FIND THAT WHILE DECIDING THE ISSUE OF A LLOWABILITY EXPENSES OF KEYMAN INSURANCE POLICY PREMIUM, ITAT BILASPUR BENC H IN THE CASE OF SUNITA FINLEASE LTD. VS DCIT REPORTED IN [2008] 118 TTJ (BILASPUR) 263 HAS HELD AS UNDER: THE POLICY KNOWN AS KEYMAN INSURANCE POLICY PROV IDES FOR AN INSURANCE POLICY TAKEN BY A BUSINESS ORGANIZATION O N THE LIFE OF SOME IMPORTANT PERSONS IN THE ORGANIZATION, GENERAL LY CALLED AS KEYMAN IN THE INSURANCE NOMENCLATURE. UNDER THE IT ACT, THIS CONCEPT OF KEYMAN INSURANCE POLICY IS FOR THE FIRST TIME INTRODUCED BY THE FINANCE (NO.2) ACT, 1996. SO, BEFORE THE AME NDMENT, THERE WAS NO PROVISION EXPLAINING THE TREATMENT OF PREMIU M PAID, SUM RECEIVED ON MATURITY ETC. UNDER THE ACT. PREVIOUSLY , ONE SIDE, THE INSURANCE PREMIUM WAS DEDUCTED AS EXPENDITURE BUT O N THE OTHER SIDE THE RECEIPTS ON MATURITY WERE CLAIMED AS EXEMP TED FOR TAXATION UNDER THE PROVISIONS OF S. 10(10D). TO CURB THIS PR ACTICE, SOME AMENDMENTS WERE MADE BY THE AFORESAID AMENDMENT ACT . BUT AS USUAL, THE AMENDMENT HAS CREATED MORE CONFUSION THA N THE SOLUTION OF THE PROBLEMS. WHILE THE ACT IS AMENDED IN MANY P LACES TO THE EFFECT THAT THE AMOUNT RECEIVED WILL BE TAXABLE, IT IS NOWHERE ITA NO.1962/AHD/2012 (AY: 2005-06) ACIT, CIR-5, AHMEDABAD VS N. K. PROTIENS LTD. 4 PROVIDED THAT THE PREMIUM PAID ON THE KEYMAN INSURA NCE POLICY IS ALLOWABLE AS BUSINESS EXPENDITURE EXCEPT BY A CIRCU LAR OF CBDT. THE CIRCULAR NO.762 DT. 18 TH FEB., 1998, CLARIFYING WITH REGARD TO THE TREATMENT OF THE PREMIUM PAID OF KEYMAN INSURANCE P OLICY WHETHER IT SHOULD BE ALLOWED AS A CAPITAL EXPENDITURE OR A REVENUE EXPENDITURE, THE BOARD HAS CLARIFIED THAT THE PREMI UM PAID ON THE KEYMAN INSURANCE POLICY BE ALLOWED AS BUSINESS EXPE NDITURE. THIS CIRCULAR IS BINDING ON THE REVENUE AUTHORITIES. IN VIEW OF THE ABOVE, THE PREMIUM PAID BY THE ASSESSEE ON THE KEYMAN INSU RANCE POLICY IS ALLOWABLE AS BUSINESS EXPENDITURE. THE AO IS DIR ECTED TO ALLOW THE CLAIM OF THE ASSESSEE SUBJECT TO VERIFICATION OF TH E PREMIUM PAID BY THE ASSESSEE COMPANY. 4.2 WE HAVE ALSO PERUSED THE CIRCULAR NO.762 DATED 18-02-1998 ISSUED BY THE CBDT WHEREIN THE PREMIUM PAID TOWARDS KEYMAN INSURANCE POLICY IS DEALT WITH, AND THE SAME IS REPRODUCED HEREIN FO R REFERENCE (PAPER BOOK PAGE NO.10. TAXATION OF A SUM RECEIVED UNDER THE KEYMAN INSURAN CE POLICY 14.1 A KEYMAN INSURANCE POLICY OF THE LIFE INSURANC E CORPORATION OF INDIA, ETC., PROVIDES FOR AN INSURANCE POLICY TA KEN BY A BUSINESS ORGANIZATION OR A PROFESSIONAL ORGANIZATION ON THE LIFE OF AN EMPLOYEE, IN ORDER TO PROTECT THE BUSINESS AGAINST THE FINANCIAL LOSS, WHICH MAY OCCUR FROM THE EMPLOYEES PREMATURE DEATH . THE KEYMAN IS AN EMPLOYEE OR A DIRECTOR, WHOSE SERVIC ES ARE PERCEIVED TO HAVE A SIGNIFICANT EFFECT ON THE PROFI TABILITY OF THE BUSINESS. THE PREMIUM IS PAID BY THE EMPLOYER. THE LEARNED AR ALSO AFFIRMED BEFORE US THAT THE ASS ESSEE HAD PAID THE KEYMAN INSURANCE PREMIUM TO LIFE INSURANCE CORPORAT ION OF INDIA AS PER THE AFORESAID CIRCULAR. FROM THE ABOVE DISCUSSIONS, WE FIND THAT THE LEARNED CIT(A) HAS RIGHTLY DELETED THE ADDITION IN QUESTION AND HENCE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). HOWEVER, DUE TO ABUNDANT CAUTION, WE HEREBY DIRECT THE LEARNED AO TO VERIFY THAT THE APPELLANT HAS MADE PAYMENT OF KEYMA N INSURANCE PREMIUM ITA NO.1962/AHD/2012 (AY: 2005-06) ACIT, CIR-5, AHMEDABAD VS N. K. PROTIENS LTD. 5 TO LIFE INSURANCE CORPORATION OF INDIA AND IF SO, D ELETE THE ADDITION. SINCE, WE HAVE DECIDED THE ISSUE ON MERITS IN FAVOUR OF TH E ASSESSEE, THE GROUND RAISED BY THE REVENUE FOR QUASHING THE REOPENING OF THE ASSESSMENT U/S 147/148 OF THE ACT BY THE LEARNED CIT(A) HAS BECOME ACADEMIC AND, THEREFORE, WE DO NOT FIND IT NECESSARY TO ADJUDICAT E THE ISSUE AT THIS STAGE. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09-11-2012 SD/- SD/- (G. C. GUPTA) VICE PRESIDENT (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANT LAKSHMIKANT LAKSHMIKANT LAKSHMIKANTA AA A DEKA/ DEKA/ DEKA/ DEKA/ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER A SST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 1-11-12 DIRECT ON COMPUTER 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 02-11-12/ 06-11-12 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR.P.S ./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: