ARCADIA SHARE & STOCK BROKERS P.LTD, MUMBAI V. ADDL CIT RG 4(1), MUMBAI

ITA 5854/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7421 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 30-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Rule of consistency
• Section: 143(3); 10(10D); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR , ACCOUNTANT MEMBER ITA NO. 5854 /MUM./2016 ( ASSESSMENT YEAR : 20 11 12 ) M/S. ARCADIA SHARE & STOCK BROKERS PVT. LTD. , 328/329, NANAD CHS 1 ST FLOOR, BLDG NO.7, SERVICE ROAD NEAR BHAVISHYA NIDHI BHAVAN OPP. WESTERN EXPRESS HIGHWAY BANDRA (EAST), MUMBAI 400 051 PAN AAACA4562G . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX RANGE 4(1), MUMBAI . RESPONDENT ITA NO. 5855/MUM./2016 ( ASSESSMENT YEAR : 20 12 13 ) M/S. ARCADIA SHARE & STOCK BROKERS PVT. LTD., 328/329, NANAD CHS 1 ST FLOOR, BLDG NO.7, SERVICE ROAD NEAR BHAVISHYA NIDHI BHAVAN OPP. WESTERN EXPRESS HIGHWAY BANDRA (EAST), MUMBAI 400 051 PAN AAACA4562G . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX RANGE 4(1), MUMBAI . RESPONDENT ASSESSEE BY : DR. K. SHIVRAM A/W MS. NEELAM JADHAV REVENUE BY : SHRI SAURABH KUMAR RAI DATE OF HEARING 1 0 . 04 .201 8 DATE OF ORDER 25.04.2018 2 M/S. ARCADIA SHARE & STOCK BROKERS PVT. LTD. O R D E R PER SAKTIJIT DEY, J.M. AFORESAID APPEAL S BY THE ASSESSEE ARE AGAINST TWO SEPARATE ORDERS , BOTH DATED 27 TH JULY 2016, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 9, MUMBAI, PERTAINING TO ASSESSMENT YEARS 2011 12 AND 2012 13. 2 . THE ONLY COMMON ISSUE RAISED IN BOTH THE APPEALS ARE CONCERNING DISALLOWANCE OF KEYMAN INSURANCE PREMIUM PAID OF ` 13,06,512 AND ` 13,08,552 FOR THE ASSESSMENT YEAR S 2011 12 AND 2012 13 RESPECTIVELY. 3 . FACTS RELATING TO THE DISPUTED ISSUE WHICH ARE MORE OR LESS COMMON IN BOTH THE APPEALS ARE , THE ASSESSEE A COMPANY IS ENGAGED IN THE BUSINESS OF SHARE AND STOCK BROKING. IN COURSE OF AS SESSMENT PROCEEDINGS FOR THE IMPUGNED ASSESSMENT YEAR S THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF PREMIUM PAID TOWARDS KEYMAN INSURANCE POLICY TAKEN IN THE NAME OF TWO DIRECTORS OF THE COMPANY CALLED UPON THE ASSES SEE TO FURNISH NECESSARY DETAILS . A FTER VERIFYING THE DETAILS FURNISHED BY THE ASSESSEE AND REFERRING TO THE CHARACTERISTIC OF KEYMAN INSURANCE THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO JUSTIFY THE DEDUCTION CLAIMED. AS 3 M/S. ARCADIA SHARE & STOCK BROKERS PVT. LTD. OBSERVED BY THE ASSESSING OF FICER , THE ASSESSEE SUBMITTED SOME LITERATURES OF KEYMAN INSURANCE POLICY AND DID NOT FURNISH ANY DOCUMENT TO PROVE THAT THE POLICIES TAKEN ARE KEYMAN INSURANCE POLICY. FURTHER, ON VERIFYING THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT THE PREMIUM P AID BY THE ASSESSEE IS TOWARDS L IFE I NSURANCE POLICY AND NOT KEYMAN INSURANCE POLICY. ACCORDINGLY, HE HELD THAT THE PROVISIONS OF SECTION 37(1) AND SECTION 10(10D) OF THE ACT WOULD NOT APPLY TO THE PREMIUM PAID, HENCE, CANNOT BE ALLOWED AS BUS INESS EXPENDITURE. ACCORDINGLY, HE DISALLOWED ASSESSEES CLAIM OF DEDUCTION ON ACCOUNT OF PREMIUM PAID IN BOTH THE ASSESSMENT YEARS. BEING AGGRIEVED BY THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, ASSESSEE PREFERRED APPEAL S BEFORE THE LEARNED COMMISSION ER (APPEALS). HOWEVER, THE LEARNED COMMISSIONER (APPEALS) HELD THAT THE POLICY IN RESPECT OF WHICH THE ASSESSEE HAS PAID PREMIUM CANNOT BE CONSIDERED AS KEYMAN INSURANCE POLICY AS THE NAME OF NOMINEE IN CASE OF DEATH OF THE POLICY HOLDER HAS NOT BEEN MENTI ONED. AS A RESULT OF WHICH THE BEN EFIT OF THE SUM INSURED WILL GO TO THE DESCENDANT OF THE POLICY HOLDER. HE OBSERVED, NEITHER THE COMPANY HAS BEEN MADE A NOMINEE IN THE INSURANCE POLICY NOR HAS BEEN AUTHORIZED TO RECEIVE THE INSURANCE AMOUNT SO AS TO COVE R THE BUSINESS RISK OF THE ASSESSEE. THEREFORE, HE HELD THAT THE INSURANCE POLICY CANNOT BE SAID TO BE FOR THE BENEFIT OF THE COMPANY, HENCE, THE 4 M/S. ARCADIA SHARE & STOCK BROKERS PVT. LTD. EXPENSES INCURRED IN RESPECT OF SUCH POLICY CANNOT BE ALLOWED AS BUSINESS EXPENDITURE. IN THIS REGARD, HE ALSO ENDORSED THE REASONING OF THE ASSESSING OFFICER. 4 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS TAKEN THE KEYMAN INSURANCE POLICY IN THE NAME OF TWO OF ITS DIRECTORS IN THE YEAR 2004. HE SUBMITTED, THE AFORESAID KEYMAN INSURANCE PO LICY WAS TAKEN AS PER THE BOARD RESOLUTION DATED 24 TH FEBRUARY 2004. HE SUBMITTED THAT CONSIDERING THE EXPERIENCE OF THE DIRECTORS AND THEIR CONTRIBUTION TO THE BUSINESS OF THE COMPANY THE BOARD DECIDED TO TAKE KEYMAN INSURANCE POLICY IN THE NAME OF THE DI RECTOR S . HE SUBMITTED THAT THE FIRST PREMIUM OF THE AFORESAID POLICIES WAS PAID ON 27 TH FEBRUARY 2004. HE SUBMITTED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2007 08, THE ASSESSING OFFICER ENQUIRED INTO AND EXAMINED IN DETAIL THE NAT URE OF KEYMAN INSURANCE POLICY AND ALLOWED DEDUCTION CLAIMED BY THE ASSESSEE TOWARDS PREMIUM PAID FOR KEYMAN INSURANCE POLICY. HE SUBMITTED THAT IN THE ASSESSMENT YEARS 2005 06 AND 2006 07 ALSO THE PREMIUM PAID BY THE ASSESSEE ON THE KEYMAN INSURANCE POLIC Y WERE ALLOWED IN THE ASSESSMENT ORDER S PASSED UNDER SECTION 143(3) OF THE ACT. IN THIS REGARD, HE DREW OUR ATTENTION TO THE COPIES OF THE ASSESSMENT ORDER S PLACED IN THE PAPER BOOK. THE LEARNED AUTHORISED REPRESENTATIVE 5 M/S. ARCADIA SHARE & STOCK BROKERS PVT. LTD. SUBMITTED THAT THE SAME POLICIES CO NTINUED FOR THESE ASSESSMENT YEARS AS WELL. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, THERE BEING NO CHANGE IN FACTS , ASSESSEES CLAIM OF DEDUCTION IN RESPECT OF PREMIUM PAID IN SUC H POLICIES CANNOT BE DISALLOWED, AS RULE OF CONSISTENCY SHOULD APPLY. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS) THAT , IN ABSENCE OF MENTIONING THE NAME OF THE ASSESSEE AS NOMINEE IN THE INSURANCE POLICY THE SUM INSURED WILL GO TO THE D E SCENDENTS OF THE COMPANY , IS TOTALLY IRRELEVANT AND WITHOUT ANY BASIS SINCE , THE POLICY DOCUMENT CLEARLY PROVIDE THAT IN CASE OF DEATH OF THE POLICY HOLDER THE SUM ASSURED WILL COME TO THE ASSESSEE , AS THE ASSESSEE IS THE OWNER OF THE KEYMAN INSURANCE POLICY. THE LEARNED A UTHORISED REPRESENTATIVE SUBMITTED THAT CONSIDERING THE IMPORTANCE OF THE DIRECTORS TO THE COMPANY DUE TO THEIR EXPERIENCE , THE ASSESSEE HAS THOUGHT IT PRUDENT TO MAKE THE KEYMAN INSURANCE POLICY IN THEIR NAME. THE DECISION OF THE ASSESSEE AS A PRUDENT BUS INESSMAN CANNOT BE CALLED INTO QUESTION AS IT IS THE ASSESSEE WHO CAN ONLY DECIDE HOW TO CONDUCT THE AFFAIRS OF THE BUSINESS AND WHAT IS BENEFICIAL TO THE BUSINESS. THUS, IT WAS SUBMITTED THAT ASSESSEES CLAIM OF DEDUCTION ON ACCOUNT OF PREMIUM PAID TOWARD S KEYMAN INSURANCE POLICY SHOULD BE ALLOWED. IN SUPPORT OF HIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: 6 M/S. ARCADIA SHARE & STOCK BROKERS PVT. LTD. I ) PHARMA SEARCH V/S ACIT, [2012] 53 SOT 1 (MUM.) (TRIB.); II ) SHRI NIDHI CORPORATION V/S ACIT, [2014] 151 ITD 470 (MUM.) (TRIB.); III ) ITO V/S MACROPOLO PRODUCTS P. LTD. ITA NO.1390/MUM./2013 DATED 06.05.2016; AND IV ) CIT V/S AGARWAL ENTERPRISES, [2015] 374 ITR 240 (BOM.). 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTING THE DECISIONS OF THE DEPARTMENTAL AU THORITIES SUBMITTED THAT THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE PERSONS IN WHOSE NAME THE INSURANCE POLICIES WERE TAKEN ARE KEYMAN AND IN THE EVENT OF THEIR DEMISE ASSESSEE WILL SUFFER LOSS. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED, NO MATE RIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO PROVE THE AFORESAID FACT. HE, THEREFORE, SUBMITTED THAT THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF PREMIUM PAID HAS BEEN RIGHTLY DISALLOWED. 6 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. UNDISPUTEDLY, THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF PREMIUM PAID IS IN RESPECT OF KEYMAN INSURANCE POLICY MADE IN THE NAME OF TWO DIRECTORS OF THE COMPANY. IT IS ALSO NOT DISPUTED THAT THESE INSURANCE POLICIES WITH BIRLA SUNLIFE INSURANCE CO. WERE MADE IN THE YEAR 2004 AND THE ASSESSEE HAD CLAIMED DEDUCTION OF THE PREMIUM PAID IN RESPECT OF SUCH INSURANCE POLICY FROM 7 M/S. ARCADIA SHARE & STOCK BROKERS PVT. LTD. ASSESSMENT YEAR S 2005 06 , 2006 07 AND 2007 08. NOTABLY, AFTER EXAMINING ASSESSEES CLAIM O F DEDUCTION IN THESE ASSESSMENT YEARS THE ASSES SING OFFICER IN ASSESSMENTS COMPLETED UNDER SECTION 143(3) OF THE ACT HA S ALLOWED DEDUCTION IN RESPECT OF PREMIUM PAID. IN FACT, THE LEARNED COUNSEL FOR THE ASSESSEE HAS MADE A STATEMENT BEFORE US THAT , EXCEPT , THE IMPUGNED ASSESSMENT YEAR IN NO OTHER ASSESSMENT YEAR DEDUCTION CLAIMED ON ACCOUNT OF PREMIUM PAID HAS BEEN DISALL OWED. THUS, WHEN IT IS A FACT ON RECORD THAT THE INSURANCE POLICIES ARE CONTINUING FROM THE YEAR 2004 AND IN THE PRECEDING ASSESSMENT YEAR S ASSESSEES CLAIM OF DEDUCTION IN RESPECT OF PREMIUM PAID HAVE BEEN ALLOWED BY THE ASSESSING OFFICER IN SCRUTINY ASSE SSMENT S, I N THE ABSENCE OF ANY MATERIAL CHANGE IN FACTS THE DEDUCTION CLAIMED IN RESPECT OF PREMIUM PAID CANNOT BE DISALLOWED IN THE IMPUGNED ASSESSMENT YEAR, AS THE RULE OF CONSISTENCY MUST BE APPLIED. THE LEARNED DEPARTMENTAL REPRESENTATIVE EXCEPT STATIN G THAT IN THE PRECEDING ASSESSMENT YEAR S THE ASSESSING OFFICER HAS NOT PROPERLY EXAMINED THE ISSUE HAS NOT BROUGHT TO OUR NOTICE ANY MATERIAL CHANGE IN FACT S WHICH COULD HAVE INFLUENCED THE ASSESSING OFFICER TO TAKE A DIFFERENT VIEW IN THE IMPUGNED ASSESSM ENT YEAR DEPARTING FROM THE VIEW TAKEN IN THE PRECEDING ASSESSMENT YEAR S . WE HAVE FURTHER TAKEN NOTE OF THE FACT THAT THE KEYMAN INSURANCE POLICIES WERE TAKEN IN THE NAME OF DIRECTORS IN PURSUANCE TO RESOLUTION DATED 24 TH FEBRUARY 2004 8 M/S. ARCADIA SHARE & STOCK BROKERS PVT. LTD. OF BOARD OF DIRECTOR S AND IT HAS ALSO BEEN SUBMITTED BEFORE US BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SUM ASSURED UNDER THE INSURANCE POLICY AS PER THE TERMS AND CONDITIONS WILL COME BACK TO THE ASSESSEE ON THE DEATH OF POLICY HOLDERS. IN VIEW OF THE AFORESAID, WE ALLOW ASSESSEES CLAIM OF DEDUCTION OF PREMIUM PAID IN BOTH THE ASSESSMENT YEARS. 7 . IN THE RESULT, ASSESSEES APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25.04.2018 SD/ - RAJESH KUMAR ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 25.04.2018 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (ASSTT. REGISTRAR /SR.P.S ) ITAT, MUMBAI