ACIT, Ludhiana V. M/s Paramount Impex, Ludhiana

ITA 762/CHANDI/2011

• Counselvise Citation: 76221514 RSA 2011
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 22-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Search and seizure
• Section: 10(10D)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL:A BENCH: CHA NDIGARH BEFORE SHRI D K SRIVASTAVA, AM AND MS. SUSHMA CHOWL A, JM ITA NO. 762/CHD/2011 ASSESSMENT YEAR: 2007-08 ACIT, CIRCLE-1, V M/S PARAMOUNT IMPEX, LUDHIANA. D-202, PHASE-VI, FOCAL POINT, LUDHIANA. PAN: AAEFP-3160G APPELLANT BY: SHRI AKHILESH GUPTA RESPONDENT BY: SHRI SUDHIR SEHGAL DATE OF HEARING : 29.11.2011 DATE OF PRONOUNCEMENT : 30.11.2011 ORDER D K SRIVASTAVA: THE APPEAL FILED BY THE DEPARTMENT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 20.05.201 1, ON THE FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITION OF RS.11,80,685/- MADE BY AO ON THE ISSUE OF KEYMAN INSURANCE PREMIUM PAID ON THE L IFE OF PARTNER. 2. THAT THE LD. CIT(A) HAS ERRED IN IGNORING THE C ORRECT MEANING OF EXPLANATION U/S 10(10D), WHICH SAY THAT, FOR THE PURPOSES THIS CLAUSE,KEYMAN INSURANCE POLICY MEANS A LIFE INSURANCE POLICY TAKEN BY A PERSON ON THE LI FE OF ANOTHER PERSON WHO IS OR WAS THE EMPLOYEE OF THE FI RST- MENTIONED PERSON OR IS OR WAS CONNECTED IN ANY MANN ER WHATSOEVER WITH THE BUSINESS OF THE FIRST MENTIONED PERSON. 3. THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AN D THAT OF THE AO BE RESTORED. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE FIRM HAD TAKEN A KEYMAN INSURANCE POLICY ON THE LIFE OF ONE OF ITS PARTNERS, NAMELY SHRI RAKESH KAPOOR DURING THE YEAR UNDER CON SIDERATION ON WHICH PREMIUM AMOUNTING TO RS.11,18,865/- WAS PAID AND CL AIMED AS EXPENDITURE BY THE ASSESSEE. THE AO HOWEVER DISALL OWED THE SAME ON THE GROUND THAT THE PARTNER IS NOT A SEPARATE AND I NDEPENDENT PERSON FROM THE PARTNERSHIP FIRM AND THEREFORE THE PAYMENT OF KEYMAN INSURANCE PREMIUM IN RESPECT OF POLICY TAKEN ON THE LIFE OF THE PARTNER ITA 762/CHD/2011 M/S PARAMOUNT IMPEX, LUDHIANA 2 AMOUNTS TO CLAIMING THE DEDUCTION FOR SELF AND THER EFORE IS NOT ALLOWABLE AS BUSINESS EXPENDITURE. 3. ON APPEAL, THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS: I HAVE GONE THROUGH THE SUBMISSIONS OF THE LD. COU NSEL AS WELL AS THE ASSESSMENT ORDER AND I AM AFRAID THAT THE AO HAS NOT CONSIDERED THE ISSUE IN THE CORRECT PERSPECTIVE. A PARTNER IN A FIRM IS GENERALLY RESPONSIBLE FOR RUNNING THE DAY-T O-DAY BUSINESS AS WELL AS IS REQUIRED TO TAKE THE MAJOR DECISIONS IN THE COURSE OF RUNNING SUCH BUSINESS. A PARTNERSHIP FIRM IS VE RY MUCH WITHIN ITS RIGHT TO OBTAIN KEYMAN INSURANCE POLICY ON THE LIFE OF ITS PARTNERS. THE CIRCULAR NO.762 DATED 18.2.1998 AS ISSUED BY THE CBDT CLARIFIES THAT KEYMAN INSURANCE PREMIUM PA ID BY AN ASSESSEE IS ALLOWABLE BUSINESS EXPENDITURE. BESIDES THE ABOVE, THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN T HE CASE OF CIT V B N EXPORTS 323 ITR 178 WHEREIN IT HAS BEEN H ELD THAT PREMIUM PAID FOR KEYMAN INSURANCE POLICY TAKEN ON T HE LIFE OF THE PARTNER IS ADMISSIBLE DEDUCTION IN THE HANDS OF THE PARTNERSHIP FIRM. THE HON'BLE HIGH COURT BY RELYIN G UPON THE HON'BLE SUPREME COURT JUDGEMENT IN THE CASE OF BIST & SONS 116 ITR 131 HAS ALSO REJECTED THE ARGUMENTS OF THE REVENUE THAT THE PARTNERSHIP FIRM AND THE PARTNER CANNOT BE CONSIDERED AS A SEPARATE ENTITY. IT HAS ALSO BEEN OBSERVED BY THE HON'BLE HIGH COURT THAT FOR THE PURPOSE OF TAKING A KEYMAN INSURANCE POLICY WITHIN THE MEANING OF SECTION 10(10D) OF THE ACT, IT IS NOT NECESSARY THAT THE PERSON ON WHOSE LIFE THE INS URANCE HAS BEEN TAKEN NEEDS TO BE AN EMPLOYEE. ANOTHER DIRECT JUDGMENT ON THIS ISSUE IS THE CASE OF MODI MOTORS 27 SOT 476 WHEREIN THE HON'BLE MUMBAI TRIBUNAL HAS DISCUSSED THE ISSUE OF KEYMAN INSURANCE POLICY TAKEN BY A PARTNERSHIP FIRM ON THE LIFE OF ITS PARTNER AT LENGTH AND IT HAS BEEN HELD THAT THE PRE MIUM PAID IS ALLOWABLE BUSINESS EXPENDITURE. THE JUDGMENT OF TH E DELHI BENCH OF THE TRIBUNAL IN THE CASE OF P G ELECTRONIC S 98 TTJ 896 RELIED UPON BY THE LD. COUNSEL IS ALSO IN FAVOUR OF THE APPELLANT. THUS, THE AO HAS ERRED IN CONCLUDING TH AT THE PARTNERS ARE NOT INDEPENDENT AND DISTINCT FROM THE PARTNERSHIP FIRM FOR THE PURPOSE OF SECTION 10(10D) OF THE ACT. EVEN THE JUDGMENTS RELIED UPON BY THE AO HAVE BEEN DISCUSSED AND CONSIDERED IN THE DECISIONS AS MENTIONED ABOVE FOR HOLDING THAT THE KEYMAN INSURANCE PREMIUM PAID BY A PARTNERSHIP FIRM ON ITA 762/CHD/2011 M/S PARAMOUNT IMPEX, LUDHIANA 3 THE LIFE OF THE PARTNER IS AN ALLOWABLE BUSINESS EX PENDITURE. IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FOLLO WING THE JUDGMENTS, THE ADDITION MADE BY THE AO IS HEREBY DE LETED AND THE ABOVE GROUNDS ARE ALLOWED. 4. WE HAVE HEARD BOTH THE PARTIES. WHILE THE LD. D R RELIED UPON THE ORDER PASSED BY THE AO, THE LD. COUNSEL FOR THE ASS ESSEE RELIED UPON THE ORDER PASSED BY THE CIT(A). IN OUR OPINION, THE LD . CIT(A) HAS CAREFULLY CONSIDERED THE ISSUE IN HIS APPELLATE ORDER AND DEC IDED THE SAME IN FAVOUR OF THE ASSESSEE FOLLOWING SEVERAL DECISIONS NAMELY CIT V B.N. EXPORTS 323 ITR 178, MODI MOTORS 27 SOT 476 AND P.G . ELECTRONICS 98 TTJ 896. ALL THE AFORESAID DECISIONS COVER THE ISS UE UNDER APPEAL AGAINST THE DEPARTMENT AND IN FAVOUR OF THE ASSESSEE. IN T HIS VIEW OF THE MATTER, THE ORDER PASSED BY THE LD. CIT(A) IS CONFI RMED. 5. APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED ON 30 TH NOV.,2011. SD/- SD/- (SUSHMA CHOWLA) (D K SRI VASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30 TH NOV.,2011 POONAM COPY TO: 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE CIT(A), 4. THE CIT 5. THE D.R, INCOME-TAX DEPARTMENT, CHANDIGARH ASSISTANT REGISTRAR, ITAT, CHANDIGARH