Appeal details
Counselvise Citation
[2014] 140 COUNSELVISE.COM (IT) 77189 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
24-07-2014
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Assessment Year
2007-2008
Appeal Filed On
09-04-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 377/CHD/2014 ASSESSMENT YEAR : 2007-08 M/S LAJ EXPORTS, VS THE A.C.I.T., E-597-598, PHASE VII, CIRCLE I, FOCAL POINT, LUDHIANA. LUDHIANA PAN : AAAFL3811A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHOK GOYAL RESPONDENT BY : SHRI ASHWIN.S., DR DATE OF HEARING : 26.06.2014 DATE OF PRONOUNCEMENT : 24.07.2014 O R D E R PER SUSHMA CHOWLA, JM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIA NA DATED 14.02.2014 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST THE ORD ER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE A CT'). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN UPHOLDING THE CONTENTION OF THE ASSES SING OFFICER TO ALLOW KEYMAN INSURANCE PREMIUM WITH RESPECT TO O NLY ONE PARTNER AS PER PARA 4.5. OF THE ORDER. 2. THAT THE WORTHY CIT (A) HAS ERRED IN NOT CONSIDERIN G THAT THE CBDT HAS CATEGORICALLY MENTIONED IN HIS CIRCULAR NO . 762, DATED 18.02.1998 THAT PREMIUM PAID ON THE LIFE OF AN EMPL OYEE AND THE SAID CIRCULAR HAS NOT MENTIONED THAT THE SAME SHALL BE ALLOWABLE ONLY ON THE LIFE OF ONLY ONE EMPLOYEE. SUCH AS FIND ING GIVEN BY THE WORTHY CIT (A) ON PAGE-6 OF THE ORDER THAT IT HAS BEEN CLEARLY AND UNAMBIGUOUSLY EXPLAINED IN THE CIRCULAR THAT THERE CAN BE ONLY ONE KEYMAN TO WHOM PAYMENT OF INSURANCE PRE MIUM IS ALLOWABLE EXPENSE IS NOT CORRECT AND DESERVES TO BE QUASHED. 2 3. THAT THE WORTHY CIT (A) HAS ERRED IN NOT CONSIDERIN G THAT EVEN IN THE ASSESSEE'S OWN CASE, THE KEYMAN INSURAN CE POLICIES ON ALL THE PARTNERS HAVE BEEN ALLOWED BY THE CIT (A)-L, LUDHIANA VIDE APPEAL NO. 229/IT/CIT(A)/LDH/2010-11 AND SAME WAS FURTHER AFFIRMED BY THE HON'BLE INCOME TAX APP ELLATE TRIBUNAL, CHANDIGARH BENCH IN FAVOUR OF ASSESSEE VIDE ORD ER IN ITA NOS. 668/CHD/2010 & 558CHD/2011 RESPECTIVELY AND BY THE HON'BLE PUNJAB & HARYANA HIGH COURT. 4. THAT THE WORTHY CIT (A) HAS ERRED IN HOLDING THAT EXPENDITURE INCURRED ON PURCHASE OF POWER FACTOR CO NTROL SYSTEM AMOUNTING TO RS. 50,000/- WAS RIGHTLY CAPITALIZED A S CAPITAL EXPENDITURE BY THE ASSESSING OFFICER AS PER PARA 5. 4 OF HIS ORDER. 5. I) THAT THE WORTHY CIT (A) HAS ERRED IN NOT CONSI DERING I. THAT POWER FACTOR CONTROL SYSTEM IS A TYPE OF STABI LIZER THAT IS ALSO A PART OF TRANSFORMER. II. THAT IT IS MADE MANDATORY BY THE STATE ELECTRIC ITY BOARD TO INSTALL THE SAME ALONGWITH THE TRANSFORMER AND IN THE ABSENCE OF WHICH, THE PENALTY IS LEVIED BY THE DEPARTMENT. SUCH AS REPLACEMENT OF PART OF THE MACHINERY IS ALS O REVENUE EXPENDITURE. 6. THAT ADDITION AS MENTIONED IN THE AFORESAID PARAS H AS BEEN UPHELD BY THE WORTHY CIT(A) AGAINST THE FACTS AND C IRCUMSTANCES OF THE CASE. 3. THE ISSUE IN GROUND NOS. 1 TO 3 RAISED BY THE AS SESSEE IS AGAINST THE DISALLOWANCE OF KEYMAN INSURANCE PREMIUM PAID BY TH E ASSESSEE. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING, TRADING A ND EXPORTING OF BICYCLE PARTS. DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE HAD DEBITED RS. 10,58,187/- ON ACCOUNT OF INSURANCE EXP ENDITURE. FROM THE DETAILS OF THE SAID EXPENDITURE, THE ASSESSING OFFI CER NOTED THAT RS. 5,00,000/- HAD BEEN PAID ON ACCOUNT OF KEYMAN INSUR ANCE PREMIUM FOR THE PARTNERS SHRI KRISHAN KUMAR GUPTA, SHRI CHAMAN PRAKASH AND SHRI GIAN CHAND SINGH. THE ASSESSING OFFICER SHOW CAUSE D THE ASSESSEE TO EXPLAIN AS TO WHY THE PARTNER WAS A KEYMAN IN A PAR TNERSHIP FIRM AND WHY THE PREMIUM PAID ON ACCOUNT OF KEYMAN INSURANCE POL ICY WAS AN ALLOWABLE EXPENDITURE. IN REPLY, THE ASSESSEE PLACE D RELIANCE ON THE CIRCULAR NO. 762 DATED 18.02.1998 ISSUED BY THE CBD T UNDER WHICH KEYMAN INSURANCE PREMIUM WAS DIRECTED TO BE ALLOWED AS BUSINESS 3 EXPENDITURE AND THE AMOUNT RECEIVED ON MATURITY EIT HER BY THE FIRM OR THE PERSON WOULD BE FULLY TAXED. THE ASSESSING OFFICER , HOWEVER WAS OF THE VIEW THAT THE PARTNER SHOULD NOT BE TERMED AS ANOTH ER PERSON AND WITHIN THE MEANING OF SECTION 10/10D AND THE PREMIUM PAID OF RS. 5,00,000/- WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSES SEE. 5. THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER E LABORATING UPON THE ISSUE VIDE PARA 4.5 HELD THAT THE KEYMAN INSURA NCE PREMIUM PAID ON THE LIFE OF THE PARTNER WAS ALLOWABLE EXPENDITURE I N THE HANDS OF THE FIRM. HOWEVER, THE COMMISSIONER OF INCOME TAX (APPEALS) W AS OF THE VIEW THAT THERE COULD BE ONLY ONE KEYMAN IN AN ORGANIZATION W ITH REGARD TO WHOM THE SAID EXPENDITURE WAS ALLOWABLE. IN VIEW THEREO F, THE COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO ALLOW KEYMAN INSURANCE PREMIUM WITH RESPECT TO ONE PARTNER. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 6. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT THE ISSUE OF ALLOWABILITY OF KEYMAN INSURANCE PREMIUM IN THE HAN DS OF THE ASSESSEE AROSE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2005-0 6 AND THEREAFTER IN ASSESSMENT YEAR 2006-07 WHERE THE CLAIM OF THE ASSE SSEE HAS BEEN ALLOWED. FURTHER RELIANCE WAS PLACED UPON THE ORDE R OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN ASSESSEE'S OWN CASE RELATING TO ASSESSMENT YEAR 2006-07. IT WAS FURTHER POINTED OU T BY THE LD. AR FOR THE ASSESSEE THAT THE ALLOWABILITY OF THE CLAIM OF EXPE NDITURE ON THE LIVES OF THE PARTNERS ALSO AROSE BEFORE THE TRIBUNAL IN ACIT VS PARAMOUNT IMPEX ITA NO. 371/CHD/2012 A.Y. 2008-09. 7. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON TH E ORDER OF THE AUTHORITIES BELOW. 4 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE IN THE PRESENT APPEAL IS IN RELATION TO THE KEYMAN INSURANCE PREMIUM PAID BY THE ASSESSEE ON THE LIVES OF ITS PA RTNERS. THE ASSESSEE FIRM HAD PAID THE SAID PREMIUM ON THE LIVES OF THRE E OF THE PARTNERS WHICH WAS DISALLOWED BY THE ASSESSING OFFICER. HOWEVER, T HE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE SAID EXPENDITURE WAS ALLOWABLE BUT ONLY IN RESPECT OF ONE OF THE PARTNERS. IN OTHER W ORDS, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS HELD THAT THE KEYMAN IN SURANCE PREMIUM PAID ON THE LIFE OF ONE OF THE PARTNER IS DULY ALLO WABLE AS BUSINESS EXPENDITURE. THE SAID STAND OF THE COMMISSIONER OF INCOME TAX (APPEALS) HAS BEEN ACCEPTED THE DEPARTMENT AS NO AP PEAL HAS BEEN FILED BY THE REVENUE. THE ONLY ISSUE ARISING IN THE PRESENT APPEAL IS WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE ON THE LIVES O F THREE PARTNERS IS ALLOWABLE AS A DEDUCTION. 9. WE FIND THAT THE TRIBUNAL IN ITA 668/CHD/2010 IN ASSESSEE'S OWN CASE RELATING TO ASSESSMENT YEAR 2005-06 HAD ALLOWE D SIMILAR EXPENDITURE. FURTHER THE TRIBUNAL IN ITA 558/CHD/2011 IN ASSESSE E'S OWN CASE RELATING TO ASSESSMENT YEAR 2006-07 IN THE APPEAL FILED BY T HE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX PASSED UNDER SE CTION 263 OF THE ACT HAD CANCELLED THE SAID ORDER UNDER WHICH THE COMMIS SIONER OF INCOME TAX HAD HELD THE ORDER OF ASSESSING OFFICER IN ALLOWING THE KEYMAN INSURANCE PREMIUM AS BUSINESS EXPENDITURE TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. FURTHER, THE HON'BLE PUNJAB & HARYANA HIGH COURT IN ITA 251 OF 2013 VIDE DECISION DATED 08.11.2013 HAS UPHELD THE ORDER OF TRIBUNAL IN ANNULLING THE REVISION ORDER PASSED BY THE COMMISSIONER OF INCOME TAX UNDER SECTION 263 OF THE ACT UNDER WHICH THE COMMISSIONER OF INCOME TAX HAD HELD THAT KEYMAN INSURANCE PREMIU M WAS NOT AN ALLOWABLE EXPENDITURE. FURTHER, THE TRIBUNAL IN IT A 371/CHD/2012 IN ACIT VS PARAMOUNT IMPEX RELATING TO ASSESSMENT YEAR 2008-09 VIDE ORDER 5 DATED 05.06.2012 HAS IN-TURN RELYING UPON THE RATI O LAID DOWN BY THE CIT VS B.N. EXPORTS 323 ITR 178 (BOM) HAS HELD THAT THE CLAIM OF EXPENDITURE OF KEYMAN INSURANCE PREMIUM PAID BY THE ASSESSEE FIRM ON THE LIVES OF THE PARTNERS WAS AN ALLOWABLE EXPENDIT URE. 10. THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE SIMILAR TO THE FACTS AND CIRCUMSTANCES ARISING IN ACIT VS PARAMOUN T IMPEX (SUPRA) AND ALSO THE ISSUE BEING DECIDED IN THE CASE OF THE ASS ESSEE CONCERN BY THE TRIBUNAL AND ALSO BY THE HON'BLE PUNJAB & HARYANA H IGH COURT ON THE ALLOWABILITY OF THE SAID EXPENDITURE, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE SAID CLAIM OF EXPENDITURE IN ENTIRETY. ACCO RDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE ON KEYMA N INSURANCE PREMIUM IN ENTIRETY. THE GROUNDS OF APPEAL NOS. 1 TO 3 RAI SED BY THE ASSESSEE ARE THUS, ALLOWED. 11. THE ISSUE IN GROUND NOS. 4 TO 6 IS IN RESPECT O F THE EXPENDITURE INCURRED ON PURCHASE OF POWER FACTOR CONTROL SYSTEM AMOUNTING TO RS. 50,000/-. THE ASSESSING OFFICER HELD THE SAID EXPE NDITURE TO BE CAPITAL IN NATURE THOUGH THE PLEA OF THE ASSESSEE WAS THAT IT WAS A REPLACEMENT OF OLD MACHINE. 12. THE COMMISSIONER OF INCOME TAX UPHELD THE ORDER OF ASSESSING OFFICER. 13. ON THE PERUSAL OF THE RECORD, WE FIND THAT THE ASSESSEE HAD PURCHASED CONTROL SYSTEM FOR CONTROLLING THE MACHIN ES IN PROCESS. AS PER THE ASSESSING OFFICER, THE ASSESSEE HAD PURCHASED N EW SYSTEM VIDE BILL DATED 01.03.2007 AS INDEPENDENT MACHINE WHICH IN-TU RN WOULD ENHANCE THE BENEFIT AVAILABLE TO THE ASSESSEE. THE ASSESSE E HAD AN OLD SYSTEM INSTALLED FROM THE FIRST DATE OF START OF BUSINESS AND POWER FACTOR CAPITAL PANEL WAS PURCHASED TO ENHANCE THE CONTROL SYSTEM. THE SAME CANNOT BE 6 TERMED AS REPAIR BUT IS DEFINITELY AN INSTALLATION OF A NEW ASSET WHICH, AS PER THE CLAIM OF THE ASSESSEE WOULD ENHANCE THE WOR KING OF THE MACHINERY OF THE ASSESSEE. IN VIEW THEREOF, WE UPHOLD THE OR DERS OF AUTHORITIES BELOW IN TREATING THE SAID EXPENDITURE AS CAPITAL I N NATURE. THUS, GROUNDS OF APPEAL NOS. 4 TO 6 RAISED BY THE ASSESSEE ARE DI SMISSED. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JULY,2014. SD/- SD/- ( T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIA L MEMBER DATED: 24 TH JULY,2014 POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR/ITAT/CHD
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