ADDL CIT CIR 4(2), MUMBAI V. SONAL SHARES & STOCK BROKERS P. LTD, MUMBAI

ITA 5947/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55886 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 23-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 09-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIPUL B JOSHI
• Keywords: Business expenditure

Judgement Text

1 SONAL SHARES & STOCK BROKERS P LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI J SUDHAKAR REDDY , AM & SHRI VIJAY PAL RAO, JM ITA NO. 5947/MUM/2009 (ASST YEAR 2006-07) THE ADDL COMMR OF INCOME TAX CIR 4(2), MUMBAI VS SONAL SHARES & STOCK BROKERS P LTD 6 & 7 NANABHAIMANSON 1 ST FLOOR, SIR P M ROAD, FORT MUMBAI 400 001 (APPELLANT) (RESPONDENT) PAN NO. AAACS8221N ASSESSEE BY SH VIPUL B JOSHI REVENUE BY SH G P TRIVEDI DT.OF HEARING 23.11.2011 DT OF PRONOUNCEMENT 30 TH , NOV 2011 PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 17.8.2009 OF THE CIT(A) FOR THE AY 2006-07. 2 THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GR OUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DELETING ADDITION MADE ON ACCOUNT OF PENAL TY OF RS. 24,418/- PAID TO STOCK EXCHANGE ON VIOLATION OF THE BYELAWS OF THE S TOCK EXCHANGE, WHICH ARE STATUTORY IN CHARACTER AND THUS AMOUNTED TO INFRINGEM ENT OF LAW. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW DED UCTION OF PREMIUM PAID TO KEYMAN INSURANCE POLICIES WHEN IT APPERTAINS TO THE PERIOD BEYOND 31.3.2006. 3 GROUND NO.1 IS REGARDING ADDITION MADE ON ACCOUNT OF PENALTY OF RS. 24,418/- PAID TO STOCK EXCHANGE FOR VIOLATION OF BYELAWS OF THE STOCK EXCHANGE. 2 SONAL SHARES & STOCK BROKERS P LTD 4 WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF T HE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THE TRIBUNAL WHILE DECIDING THE APPEAL OF THE REVENUE IN THE CASE OF T HE PUNEET SECURITIES P LTD IN ITA NO. 5429/MUM/2010 VIDE ORDER 5 TH OCT 2011 DECIDED SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE AS UNDER: 4.2 AS FAR AS THE ISSUE OF DISALLOWANCE OF PENALTY PAID TO THE STOCK EXCHANGE IS CONCERNED, THE SAME IS FOR VIOLATION OF B YE-LAWS AND QUESTION ARISES WHETHER FALLS UNDER EXPLANATION TO SEC. 37(1 ) OR NOT ?. 5 WE HAVE HEARD THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THIS ISSUE IS AL SO COVERED BY FOLLOWING DECISIONS OF THE TRIBUNAL: I) ITO-4(2)(2) VS. VRM SHARE BROKING (P) LTD. -27 SOT 469 (MUM) II) ITO VS. GDB SHARE & STOCK BROKING SERVICES LTD. -3 SOT 569 (KOL) -88 TTJ 352 (KOL) III) MASTER CAPITAL SERVICES LTD. VS. DCIT-23 SOT 60 (CHD). IV) NATIONAL PLASTIC INDUSTRIES P LTD VS ITO 11 SOT 415 5.1 IT HAS BEEN CONSISTENTLY HELD BY THE TRIBUNAL T HAT PENALTY PAID TO THE STOCK EXCHANGE IN VIOLATION OF BYE-LAWS DOES NOT AM OUNT, AN EXPENDITURE INCURRED FOR THE PURPOSES, WHICH IS OFFENCE OR WHICH I S PROHIBITED BY LAW. SINCE THE BYE-LAWS OF STOCK EXCHANGE ARE NOT STATUTO RY PROVISION; THEREFORE, THE PENALTY IS NOT FOR ANY VIOLATION/INFRACTION OF L AW. ACCORDINGLY, RESPECTFULLY FOLLOWING THE VARIOUS DECISIONS OF THE TRIBUNAL, WE FIND NO ERROR OR ILLEGALITY IN THE ORDER OF THE CIT(A), QUA, THIS ISSUE. 5 ACCORDINGLY, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL (SUPRA), WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGA INST THE REVENUE. 6 NEXT ISSUE IS REGARDING DISALLOWANCE OF PREMIUM P AID TO KEYMAN INSURANCE POLICIES. 7 WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF T HE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ONLY OBJECTIO N OF THE LD DR THAT THE DEDUCTION OF THE PREMIUM CAN BE ALLOWED IN PROPORTION OF THE DURATION. THE INSURANCE POLICY COVERED UPTO 31.3.2006 AND NOT THE WHOLE PERIOD BEY OND 31.3.2006. 3 SONAL SHARES & STOCK BROKERS P LTD 7.1 ON THE OTHER HAND, THE LD AR OF THE ASSESSEE HA S SUBMITTED THAT THE INSURANCE PREMIUM IS PAID ON THE DUE DATE WHEN THE INSURANCE PREMIUM BECAME DUE DURING THE FINANCIAL YEAR UNDER CONSIDERATION. THUS, THE E NTIRE PREMIUM PAID IS ALLOWABLE. HE HAS FURTHER SUBMITTED THAT IN ALL OTHER EARLIER YEARS, INSURANCE PREMIUM PAID ON KEYMAN INSURANCE HAS BEEN ALLOWED BY THE REVENUE. 8 AFTER CONSIDERING THE RIVAL CONTENTION AND OTHER RELEVANT MATERIAL ON RECORD, WE NOTE THAT THIS IS A CONTINUOUS INSURANCE POLICY AND THE PREMIUM PAID BY THE ASSESSEE IS ONLY FOR THE RENEWAL OF THE ANNUAL POLI CY. FURTHER, THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBU NAL IN THE CASE OF KASI PRASAD IN ITA NO.6016/MUM/2008 VIDE ORDER DT 27.8.2010. THE R ELEVANT PORTION OF THE ORDER OF THE TRIBUNAL IS AS UNDER: 23. WE HAVE CONSIDERED THE RIVAL CONTENT IONS AND RE LEVANT RECORD. WE FIND THAT UNDISPUTEDLY, MR.YOGESH AGARWAL IS INVOLVED IN THE BUSINESS OF THE ASSESSEE CONCERN. HE BEING THE SON OF THE ASSESSEE - KARTA IS NO DOUBT IS A CRUCIAL PERSON FOR THE BUSINESS. THE AO WAS OF THE V IEW THAT THE KEY MAN CAN ONLY BE A DIRECTOR OR OTHER EMPLOYEE OF THE ASSESSEE . SECONDLY, THE AO HAS QUEST ION THE AMOUNT OF POLICY AND PREMIUM IS NOT C OMMENSURATE WITH THE REMUNERATE ION RECEIVED BY MR. YOGESH AGARWAL . AS PER SECT ION 10(10D), KEYMAN INSURANCE POLICY MEANS LIFE INSURANCE POLICY TAKEN BY ANY PERSON ON THE LIFE OF ANOTHER PERSONS WHO IS OR WAS THE EMPLOY EE OR IS/WAS CONNECTED WITH IN ANY MANNER OF THE BUSINESS OF THE FIRST PER SON. FOR THE PURPOSES OF KEYMAN INSURANCE POLICY THE EMPLOYEE OR THE DI REC TOR IS NOT NECESSARY BUT THE PERSONS WHO IS CONNECT ION IN ANY MANNER WITH TH E BUSINESS OF THE SUBSCRIBER IS ALSO CONSIDERED AS A KEYMAN. IN THE CASE OF CIT V/S B N EXPORT (SUPRA) , THE HONOURABLE JURISDICTION IONAL HIGH COU RT HAS HELD AS UNDER : BUSINESS EXPENDITURE- ALLOWABILITY- INSURANCE PREMI UM PAID BY FIRM ON KEYMAN INSURANCE POLICY OF PARTNER -AS PER EXPLANATION ION TO S.10(10D), A KEYMAN INSURANCE POLICY IS A LIFE INSU RANCE POLICY TAKEN BY A PERSON ON THE LIFE OF ANOTHER PERSON WHO IS OR WAS THE EMPLOYEE OF THE PERSON WHO SUBSCRIBES TO THE POLICY OF INSURANC E OR IS OR WAS CONNECTED IN ANY MANNER WHATSOEVER WITH THE BUSINES S OF THE SUBSCRIBER TO THE POLICY. LATTER PART OF THE DEFINITIO N MAKES IT CLEAR THAT A KEYMAN INSURANCE POLICY IS NOT CONFINED TO A SITU ATION WHERE THERE IS A CONTRACT ON EMPLOYMENT- ASSESSEE FIRM HAS NOT TAKE N THE INSURANCE FOR THE PERSONAL BENEFIT OF THE PARTNER BUT TO PROTE CT ITSELF AGAINST THE SET BACK THAT MAY BE CAUSED ON ACCOUNT OF PREMATURE DEATH OF THE PARTNER. THEREFORE, EXPENDITURE LAID OUT FOR PAYMENT OF PREMIUM ON 4 SONAL SHARES & STOCK BROKERS P LTD THE POLICY IS INCUR RED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND IS ALLOWABLE AS BUSINESS EXPENDITURE 24. THUS I T IS CLEAR FROM THE ABOVE DECISION OF THE JURISDICTIONAL HIGH COURT, THE ALLOWABILITY OF THE EXPENDITURE INCUR RED ON THE PREMI UM PAID TOWARDS THE KEYMAN POLICY IS NOT CONFINED TO THE POLICY TAKEN ON A LIFE OF AN EMPLOYEE BUT KEYMAN INSURANCE ON THE LIFE OF PERSONS TO SAFE GUARD AGAINST THE DESTRUCTION OF BUSINESS DUE TO PREMATURE DEATH IS ALSO AN EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. AS REGAR DS COMMENSURATION OF THE AMOUNT IS CONCERNED WHEN THE LIC OF INDIA PROPERLY EX AMINED THE PROPOSAL AND FOUND THAT ONLY POLICY OF RS.1 CRORES IS PROPER T HEN, THERE IS NO SCOPE OF ANY DOUBT. EVEN OTHERWISE WHEN NO BENEFIT IS ARISEN T O THE KEYMAN, THEN THE ASSESSING OFFICER CANNOT ASSUME THE POSITION OF BUSI NESSMAN FOR TAKING THE BUSINESS DECISION. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY ERROR OR ILLEGALITY QUA THIS ISSUE; THE SAME IS DECIDED AGAI NST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 9 ACCORDINGLY, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL (SUPRA), WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGA INST THE REVENUE. 10 IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON THE 30 TH , DAY OF NOV 2011. SD/ SD/ ( J SUDHAKAR REDDY ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 30 TH , NOV 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI