SVS Tex O Fab Pvt. Ltd., Surat V. The Income Tax Officer, Circle-2(1)(2), Surat

ITA 489/AHD/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3695 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 27-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

SVS TEX O FAB PVT LTD., VS. ITO, CIR-2(1)(2), SURAT /ITA NO.489/AHD/2017 FOR A.Y. 2012-13 PAGE 1 OF 5 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI SANDEEP GOSAIN, HON'BLE JUDICIAL MEMBER AND SHRI O.P.MEENA, HON'BLE ACCOUNTANT MEMBER . . ./ I.T.A NO.489/AHD/2017 [ [ / ASSESSMENT YEAR: 2012-13 SVS TEX O FAB PVT LTD., SHOP # 7, RUBY TRADE CENTRE, (BUILDING # 7), NR GEETANJALI PETROL PUMP, VARACHHA ROAD, SURAT. [PAN: AANCS 8465 R] V S. THE INCOME TAX OFFICER, CIRCLE-2(1)(2), SURAT. / APPELLANT /RESPONDENT [ /ASSESSEE BY SHRI S.K.KABRA CA /REVENUE BY MRS. ANUPAM SINGLA SR.DR / DATE OF HEARING: 11.02.2020 /PRONOUNCEMENT ON: 12.02.2020 /O R D E R PER SANDEEP GOSAIN, JM: 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD.COMMISSIONER OF INCOME TAX(APPEALS)-2, SURAT DATED 20.12.2016 FOR THE ASSESSMENT YEAR 2012-13. 2. GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: 1. AS REGARDS DISALLOWANCE OF RS.68,54,621/- BEING PREMIUM PAID ON POLICIES TAKEN ON LIFE OF EMPLOYEE-DIRECTORS UNDER LTRP OF HDFC LIFE. 1.1 THE LD ASSESSING OFFICER HAS ERRED AND WAS NOT JUSTIFIED ON THE FACTS OF THE CASE AND IN LAW IN DISALLOWING THE PAYMENT MADE TOWARDS PREMIUM ON POLICIES TAKEN ON THE PAYMENT MADE TOWARDS PREMIUM ON POLICIES TAKEN ON THE LIFE OF EMPLOYEE-DIRECTORS UNDER LTRP OF HDFC LIFE. 2. THE APPELLANT PRAYS THAT SVS TEX O FAB PVT LTD., VS. ITO, CIR-2(1)(2), SURAT /ITA NO.489/AHD/2017 FOR A.Y. 2012-13 PAGE 2 OF 5 2.1 THE DISALLOWANCE OF RS 68,54,621/- ON ACCOUNT OF INSURANCE PREMIUM MAY KINDLY BE ALLOWED. 2.2 PERSONAL HEARING MAY BE GRANTED. 2.3 ANOTHER RELIEF THAT YOUR HONOURS MAY DEEM FIT MAY BE GRANTED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE DEBITED INSURANCE EXPENSES AMOUNTING TO RS.68,54,621/- IN THE PROFIT AND LOSS ACCOUNT. THE SAID EXPENSES WERE DISALLOWED BY THE LD.ASSESSING OFFICER(AO) WHILE PASSING ORDER OF ASSESSMENT U/S.143)3) BY HOLDING THAT THE POLICY TAKEN BY THE ASSESSEE DOES NOT FALL UNDER KEYMAN INSURANCE. 4. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD.CIT(A), AND THE LD.CIT(A) ALSO DISMISSED THE APPEAL FILED BY THE ASSESSEE AGAINST WHICH THE ASSESSEE FILED APPEAL BEFORE THIS TRIBUNAL ON THE GROUNDS MENTIONED HEREINABOVE. 5. THE SOLITARY GROUND RAISED BY THE ASSESSEE RELATES TO CHALLENGING THE ORDER OF LD.CIT(A) IN UPHOLDING THE ORDER OF THE LD.AO IN DISALLOWING THE PAYMENT TOWARDS PREMIUM OF POLICIES TAKEN ON THE LIFE OF EMPLOYEE- DIRECTORS UNDER LTRP OF HDFC LIFE. 6. THE LD.AUTHORISED REPRESENTATIVE(AR) APPEARING ON BEHALF OF THE ASSESSEE REITERATED THE SAME ARGUMENTS AS WAS RAISED BEFORE THE LD.CIT(A) AND THE SAME ARE CONTAINED IN PARA NO.5 OF THE ORDER OF THE LD.CIT(A) WHICH REPRODUCED AS BELOW: 5. DURING THE APPELLATE PROCEEDINGS, THE A.R. OF THE APPELLANT HAS FILED WRITTEN SUBMISSION AND THE CASE WAS HEARD. DURING THE COURSE OF THE APPELLATE PROCEEDINGS, VIDE HIS LETTER DTD. 16.08.2016 THE APPELLANT SUBMITTED THAT 'DURING THE YEAR UNDER ASSESSMENT, THE ASSESSEE COMPANY HAD PAID INSURANCE PREMIUM ON POLICIES TAKEN FROM HDFC LIFE ON THE LIVES OF EMPLOYEE DIRECTORS SHRI JAGDISH BODRA AND SMTSANGITA BODRA. SVS TEX O FAB PVT LTD., VS. ITO, CIR-2(1)(2), SURAT /ITA NO.489/AHD/2017 FOR A.Y. 2012-13 PAGE 3 OF 5 SINCE THE PREMIUM PAID WAS UNDER LONG TERM REWARD PROGRAM TO THE EMPLOYEE DIRECTOR, WHO WERE IMPORTANT KEY EMPLOYEES OF THE COMPANY, THE PREMIUM PAID WAS DULY CLAIMED AS EXPENDITURE OF THE COMPANY AS WHOLLY AND EXCLUSIVELY LAID OUT AND EXPENDED FOR THE PURPOSES OF THE BUSINESS OF THE COMPANY. THE POLICY PAPERS AND PREMIUM RECEIPTS WERE SUBMITTED TO THE LD ASSESSING OFFICER (PG # OF PB). THE COMPANY IS EARNING GOOD PROFITS SO AS TO INCUR SUCH EXPENDITURE. FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAD PAID A SUM OF RS 14.15 LAKH AS INCOME TAX ON A GROSS TOTAL INCOME OF RS 46.81 LAKH. DURING THE LAST PREVIOUS YEAR THE COMPANY HAD SHOWN A NET PROFIT OF RS 74.41 LAKH AS PER P&L A/C. THE COPY OF THE CTI FOR THE YEAR AND THE COPY OF THE P&L A/C IS ENCLOSED HEREWITH (PG #_______________OF PB). THE LD ASSESSING OFFICER HAD SOLELY RELIED ON THE PHRASE 'KEYMAN INSURANCE'. THE HDFC LIFE HAD CATEGORICALLY STATED THAT THE POLICIES ARE UNDER THE LONG TERM REWARD PLAN FOR EMPLOYEE. THE PLAN IS NOT EXACTLY SAME AS KEYMAN INSURANCE POLICY. FROM THE ABOVE LETTER OF HDFC LIFE (PG # 6 OF THE ASSESSMENT ORDER), IT IS VERY MUCH CLEAR THAT THE POLICY IS TAKEN TO REWARD THE EMPLOYEE OF THE COMPANY. THE DIRECTOR WHO IS RECEIVING REMUNERATION IS ALSO AN EMPLOYEE OF THE COMPANY AND ALSO AND IMPORTANT AND TOP RANKED PERSON IN THE DECISION MAKING PROCESS OF WORKING OF THE COMPANY. ANY INSURANCE POLICY BE IT LIFE OR HEALTH OR ACCIDENT IS FOR THE BENEFIT OF THE COMPANY TO SAVE FROM FINANCIAL BURDEN, THE COMPANY MAY HAVE TO INCUR AT SOME POINT OF TIME. THUS SIMPLY BECAUSE A POLICY IS NOT TITLED AS KEYMAN POLICY DOES NOT MAKE ANY DIFFERENCE TILL THE POLICY AIMS AT BENEFITTING THE COMPANY FROM HEDGING IT FROM THE FUTURE FINANCIAL LOSS. VIDE CIRCULAR # 762 DATED 18/02/1998, THE CBDT HAD CLARIFIED THAT KEYMAN INSURANCE IS AN ALLOWABLE EXPENDITURE. TAKING ANALOGY FROM THE SAID CIRCULAR, IT CAN BE SAFELY ARGUED THAT INSURANCE PREMIUM ON KEY EMPLOYEES ARE ALLOWABLE AS EXPENDITURE. THE DETAILS OF THE CIRCULAR ONLY SUGGEST THIS ASPECT OF THE ALLOWABILITY OF THE EXPENDITURE,. THE DETAIL OF THE CIRCULAR IS AVAILABLE ON PG # 4-5 OF THE ASSESSMENT ORDER.' 7. ON THE OTHER HAND, THE LD.DEPARTMENTAL REPRESENTATIVE(DR) RELIED UPON THE ORDERS PASSED BY THE REVENUE AUTHORITIES. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD, AS WELL AS ORDERS PASSED BY THE REVENUE AUTHORITIES. FROM THE RECORDS, WE NOTICE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD PAID INSURANCE PREMIUM ON POLICIES TAKEN FROM THE HDFC LIFE OF THE LIVES OF EMPLOYEE-DIRECTORS SHRI JAGDISHCHANDRA KARAM BODRA AND SMT.SANGEETA JAGDISH BODRA. THE ASSESSEE SUBMITTED THAT SINCE THE PREMIUM PAID WAS UNDER LONG TERM REWARD PROGRAMME TO THE EMPLOYEE- DIRECTORS, WHO WERE IMPORTANT KEY EMPLOYEES OF THE COMPANY, THE PREMIUM PAID WAS THUS DULY CLAIMED AS EXPENDITURE OF THE COMPANY AS SVS TEX O FAB PVT LTD., VS. ITO, CIR-2(1)(2), SURAT /ITA NO.489/AHD/2017 FOR A.Y. 2012-13 PAGE 4 OF 5 THE SAME WAS WHOLLY AND EXCLUSIVELY LAID OUT AND EXPENDED FOR THE PURPOSE OF BUSINESS OF THE COMPANY. IT WAS ALSO SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE COMPANY HAD EARNED GOOD PROFIT AND EVEN DURING THE LAST PREVIOUS YEAR, THE COMPANY SHOWN A NET PROFIT OF RS.74.41 LAKHS AS PER PROFIT AND LOSS ACCOUNT. 9. WHEREAS, THE REVENUE AUTHORITIES REJECTED THE CLAIM OF ASSESSEE BY HOLDING THAT HDFC LIFE HAS CATEGORICALLY STATED THAT THE POLICIES ARE UNDER THE LONG TERM REWARD PLAN FOR EMPLOYEES. SINCE THE PLAN WAS NOT EXACTLY SAME AS KEYMAN INSURANCE POLICY, THUS, THE CLAIM OF THE ASSESSEE WAS NOT MAINTAINABLE. AFTER CAREFUL PERUSAL AND KEEPING IN VIEW OF THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND DOCUMENTS PLACED ON RECORD BY THE LD.AR, MORE PARTICULARLY PAGE NO.7 OF THE PAPER BOOK WHEREIN THE HDFC LIFE WHILE GIVING THE DETAILED PLAN HAS CATEGORICALLY MENTIONED AS UNDER: EMPLOYER THE POLICY UNDER THE REWARD PLAN SAVE THE EMPLOYER FROM FINANCIAL BURDEN IN THE EVENT OF EMPLOYEE DIRECTOR MEETING WITH ANY EVENTUALITY. THE INSURANCE COMPANY PROVIDES THE FUND IN CASE OF THE DEATH OF THE INSURED EMPLOYEE-DIRECTOR. AS THE POLICY IS FOR THE BENEFIT OF THE EMPLOYEE DIRECTOR, WHICH IN TURN SAVES THE COMPANY FROM FINANCIAL BURDEN, THE PREMIUM PAID ON SUCH POLICY IS ALLOWABLE AS AN EXPENSE UNDER THE IT ACT. 10. WE FIND THAT DIRECTORS WHO ARE RECEIVING REMUNERATION ARE ALSO EMPLOYEES OF THE COMPANY AND ARE HOLDING IMPORTANT AND TOP RANKING. SINCE THE EMPLOYEE-DIRECTORS ARE PART IN THE DECISION MAKING PROCESS OF WORKING OF THE COMPANY. THEREFORE, THEY ARE IMPORTANT IN THE FUNCTIONING OF THE COMPANY. THUS, ANY INSURANCE POLICY BE IT LIFE OR HEALTH OR ACCIDENTAL IS FOR THE BENEFIT OF THE COMPANY TO SAVE FROM FINANCIAL BURDEN, THAT COMPANY MAY HAVE TO INCUR AT SOME POINT OF TIME. THUS, ACCORDING SVS TEX O FAB PVT LTD., VS. ITO, CIR-2(1)(2), SURAT /ITA NO.489/AHD/2017 FOR A.Y. 2012-13 PAGE 5 OF 5 TO US, SIMPLY BECAUSE OF POLICY IS NOT TITLED AS KEYMAN POLICY DOES NOT MAKE ANY DIFFERENCE TILL THE POLICY AIMS AT BENEFITTING THE COMPANY FROM HEDGING IT FROM THE FUTURE FINANCIAL LOSSES. SINCE THE TERMS AND THE PURPOSE OF HDFC LIFE IS ALSO AKIN TO THE PURPOSE WHICH IS CONTAINED IN KEYMAN POLICY, THEREFORE, ANY EXPENDITURE INCURRED BY THE COMPANY FOR MAKING PAYMENT OF INSURANCE PREMIUM OF KEY EMPLOYEES ARE ALLOWABLE, ACCORDINGLY GROUNDS OF APPEAL BY THE ASSESSEE ARE ALLOWED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. 12. ORDER PRONOUNCED IN THE OPEN COURT ON 12-02-2020. SD/- SD/- (O.P.MEENA) (SANDEEP GOSAIN) ( /ACCOUNTANT MEMBER) ( /JUDICIAL MEMBER) / SURAT, DATED : 12 TH FEBRUARY , 2020/ S.GANGADHARA RAO, SR.PS COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT