M/s Sharu Steels (P) Ltd., Ludhiana V. ACIT, Ludhiana

ITA 873/CHANDI/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90165 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-11-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 03-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Section: 148

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI. BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 873/CHD/2013 ASSESSMENT YEAR: 2005-06 M/S SHARU STEELS (P) LTD., VS. THE ACIT, CIRCLE V II, LUDHIANA LUDHIANA PAN NO.AAICS1296D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SMT JYOTI KUMARI DATE OF HEARING : 01/06/2015 DATE OF PRONOUNCEMENT : 05/06/2015 ORDER PER T.R.SOOD, A.M. THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 01.08.2013 OF CIT(A)-II, LUDHIANA 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS:- 1. THAT THE WORTHY CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN REOPENING THE CASE U/S 148 OF THE ACT. 2. (A) THAT WITHOUT PREJUDICE TO GROUND NO.1 ABOVE, TH E WORTHY CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 20,00,0 00/- (TWENTY LACS) BEING THE KEYMAN INSURANCE PREMIUM PAID ON TH E LIFE OF TWO DIRECTORS NAMELY SHRI GAURAV JAIN RS. 10,00,000/- A ND SHRI N.K.JAIN RS. 10,00,000/- OUT OF KEYMAN INSURANCE PR EMIUM RS. 41,27,000/- PAID ON THE LIFE OF THREE DIRECTORS. 2 ()B) THAT THE WORTHY CIT(A) HAS WRONGLY INTERPRETED THE CIRCULAR NO. 726 DATED 18.2.1998 OF THE CBDT REGARDING ADMIS SIBILITY OF PREMIUM PAID ON THE EMPLOYEES UNDER THE KEYMAN INSU RANCE POLICY. 3. GROUND NO.1 WAS NOT PRESSED BEFORE US AND, THERE FORE, THE SAME IS DISMISSED AS NOT PRESSED. 4. GROUND NOS. 2 (A) & (B) : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT ASSESSEE HAS PAID A SUM OF RS. 41,27,001/- ON ACCOUNT OF KEYMAN INSURANCE POLICY IN THE NAME OF FOLLOWING PERSONS WHO WERE DIRECTORS OF THE COMPANY. S.NO. NAME OF THE PERSONS AMT (IN RS.) 1. SHRI N.K. JAIN 10,00,000/- 2 SHRI GAURAV JAIN 10,00,000/- 3 SHRI K.K. GARG 10,00,000/- 4 SHRI K.K. GARG 11,27,001/- TOTAL RS. 41,27,001/- 5. THE ASSESSING OFFICER NOTED THAT SINCE THE WORD KEYMAN WAS USED IN CIRCULAR NO. 762 DATED 18.2.1998 AND, THEREFORE, TH E SAME IS TO BE CONSTRUED AS MAKING REFERENCE TO A SINGLE PERSON, THEREFORE, ASS ESSEE WAS ASKED TO JUSTIFY THE PAYMENT ON ACCOUNT OF KEYMAN INSURANCE PREMIUM IN RESPECT OF MANY DIRECTORS. IN RESPONSE VIDE LETTER DATED 5.2.2012 IT WAS STATE D AS UNDER:- 'SIR, DURING THE ABOVE SAID YEAR THE COMPANY HAS PA ID KEYMAN INSURANCE POLICY PREMIUM FOR THE THREE DIREC TORS AND ALL SUCH DIRECTORS WERE KEYMAN OF THEIR OWN FIE LDS. THE COMPANY IS HAVING TURNOVER IN CRORES AND TO HANDLE THE BIG VOLUME OF 'THE COMPANY THE THREE DIRECTORS HAVE BEE N ASSIGNED FOR DIFFERENT FIELDS WHICH, ARC AS UNDER:- 3 I) SH.K.K GARG, DIRECTOR TECHNICAL AND WORLDS, DIPLOMA ELECT. ENGG. II) SH. N.K. JAIN, DIRECTOR FINANCE. III) SHRI GAURAV JAIN, DIRECTOR MARKETING & SAL ES SO, KEEPING IN VIEW THE ABOVE ASSIGNED JOBS TO EACH DIRECTOR ALL THE DIRECTORS WERE THE KEYMAN IN THEIR FIELDS A ND THAT IS THE REASON THE COMPANY HAS PAID KEYMAN INSURANCE PR EMIUM FOR THE ALL THE ABOVE THREE DIRECTORS. 3. NOW, COMING TO THE CIRCULAR NO. 762 DATED 18.02 . 1998 'A KEYMAN INSURANCE POLICY, OF THE LIFE INSURA NCE. CORPORATION OF INDIA, ETC., PROVIDES FOR AN INSURAN CE POLICY TAKEN BY A BUSINESS ORGANIZATION OR A PROFESSIONAL ORGANIZATION ON THE LIFE OF AN EMPLOYEE, IN ORDER TO PROTECT THE BUSINESS AGAINST THE FINANCIAL LOSS, WHICH MAY OCCUR FROM THE EMPLOYEE'S PREMATURE DEATH. THE 'KEYMAN' IS AN EMPLOYEE OR A DIRECTOR, WHOSE SERVICES ARE PERCEIVED TO HAVE A SIGNIFICANT EFFECT ON THE PROFITABILITY, OF THE BUS INESS. THE PREMIUM IS PAID BY THE EMPLOYER.' SIR, IN THE ABOVE SAID CIRCULAR THE CBDT HAS CATEGORICALLY HAS MENTIONED I N THE CIRCULAR THAT PREMIUM PAID 'AN THE LIFE OF AN EMPLO YEE' AND HAS NOT MENTIONED THAT ON THE LIFE OF ONLY ONE EMPL OYEE. SO, AS PER CIRCULAR ALSO THE COMPANY IS ENTITLED TO CLA IM THE KEYMAN INSURANCE POLICY PREMIUM PAID FOR ALL THE DI RECTORS AS ALL ARE THE KEYMAN OF THEIR OWN FIELDS. SO, NO D ISALLOWANCE IS CALLED FOR KEEPING IN VIEW THE CIRCULAR NO. 762 DATED 18.02.1998. 4.. HOWEVER, WITHOUT PREJUDICE TO THE RIGHTS OF THE ASSESSEE IT IS SUBMITTED THAT KEYMAN INSURANCE PREMIUM PAID TOW ARDS THE DIRECTORS SH. K.K. GARY TOTALLING RS.21,27,001/- MA Y PLEASE BY ALLOWED. THE REASON FOR CHOOSING SH. K.K. GARG, DIRECTOR IS THAT AS HE HAS BEEN ASSIGNED THE FIELD OF TECHNI CAL & WORKS WHICH INVOLVES MORE RISKS TO THE LIFE AS THE CHANCE S OF ACCIDENT IS MORE IN MORE RISKS IN COMPARISON TO THE OTHER DIRECTORS AND THAT IS THE REASONS THE COMPANY HAS P AID RS.21,27,001 /-TOWARDS KEYMAN INSURANCE PREMIUM POL ICY IN COMPARISON TO THE DIRECTORS FOR WHOM THE COMPANY HA VE PAID RS. 10 LACS FOR EACH DIRECTOR FOR THE KEYMAN INSURA NCE POLICY PREMIUM. SO THAT IS THE REASON FOR CHOOSING SH. K.K. 4 GARG, DIRECTORS WHOSE KEYMAN INSURANCE PREMIUM PAID TOTALLING RS.21,27,001/~ MAY PLEASE BE ALLOWED.' 6. THE ASSESSING OFFICER DID NOT FIND ANY FORCE IN THESE SUBMISSIONS AND ADDED A SUM OF RS. 31,27,001 AFTER ALLOWING THE PAY MENT IN RESPECT OF SHRI N.K. JAIN. 7. BEFORE LD. CIT(A) THE SUBMISSIONS MADE BEFORE TH E ASSESSING OFFICER WERE REITERATED. HE DID NOT FIND FORCE IN THESE SUBMISSI ONS AND CONFIRMED THE ADDITION. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT SUCH INSURANCE PREMIUM WAS ALLOWED IN THE CASE OF LAJ EXPORTS VS A CIT IN ITA NO. 668/CHD/2010. IN THAT CASE ALSO, MANY PARTNERS WERE INVOLVED. LATER ON, THIS DECISION HAS BEEN CONFIRMED BY THE HON'BLE PUNJAB & HARYANA HIGH COURT . 9. ON THE OTHER HAND LD. DR SUPPORTED THE IMPUGNED ORDER. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT IN CASE OF CIT VS. LAJ EXPORTS, THE HON'BLE PUNJAB & HARYANA HIGH COU RT IN ITA NO. 251 OF 2012 HAS DISMISSED THE REVENUES APPEAL BY OBSERVING THA T SUCH PAYMENTS ARE ALLOWABLE IN VIEW OF THE CIRCULAR ISSUED BY THE CEN TRAL BOARD OF DIRECTOR TAXES. READING OF THE SECOND PARA OF THIS ORDER WOULD SHOW THAT IT REFERS TO THE PARTNERS OF THE FIRM. THE HIGHLIGHTED PORTION CLEARLY SHOWED THAT WORD PARTNERS HAS BEEN USED BY THE COURT WHICH REFERS TO THE MULTIPLE PERS ONS. IN ANY CASE, IN OUR OPINION, THERE MAY BE MANY KEYMEN IN A BUSINESS O RGANIZATION AND SUCH DECISION HAS TO BE TAKEN BY THE BUSINESS ENTITY. TH EREFORE, FOLLOWING THE DECISION OF HON'BLE HIGH COURT IN THE CASE OF CIT V LAJ EXPO RTS (SUPRA), WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND WE SET ASIDE TH E ORDER OF LD. CIT(A) AND 5 DIRECT THE ASSESSING OFFICER TO ALLOW PAYMENT OF K EYMAN INSURANCE IN RESPECT OF ALL THE DIRECTORS. 11. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/06/2015. SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 5 TH JUNE, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR