N.K. Proteins Ltd.,, Ahmedabad vs Department Of Income Tax on 9 November, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL'C' BENCH - AHMEDABAD
(BEFORE SHRI G. C. GUPTA, VP AND SHRI A. MOHAN ALANKAMONY, AM)
ITA No.1962/Ahd/2012
A. Y.: 2005-06
The A. C. I. T., Circle-5, Vs N. K. Protiens Ltd., 4th Floor, "B" Wing, 9th Floor, Popular House, Pratyaksh Kar Bhavan, Ashram Road, Ahmedabad - 9 Nr. Polytechnic College, P. A. NO. AAACN 9377 N Ambawadi, Ahmedabad - 15
(Appellant) (Respondent)
Appellant by Shri D. K. Singh, Sr. DR
Respondent by Shri A. C. Shah, AR
Date of hearing: 01-11-2012
Date of pronouncement: 09 -11-2012
ORDER
PER A. MOHAN ALANKAMONY: This appeal is filed by the revenue aggrieved by the order of the learned CIT(A)-XI, Ahmedabad in appeal No. CIT(A)-XI/394/ACIT Cir.5/11-12 dated 27-06-2012, for the assessment year 2005-06 passed u/s 250 read with section 143(3) and 147 of the IT Act.
2. The revenue has raised four elaborate grounds in its appeal. However, the crux of the issue involved in the appeal is regarding the quashing of the reopening u/s 147/148 of the Act and deletion of addition made on excess premium paid on Keyman's Insurance Policy by the learned CIT(A). The assessee company had debited Rs.210.72 lacs on account of Keyman Insurance Premium Expenses. However, based on the IRD guidelines, the learned AO worked out the allowable premium at 1/5th of the sum assured of Rs.157.20 lacs which comes to Rs.31.44 lacs and ITA No.1962/Ahd/2012 (AY: 2005-06) 2 ACIT, Cir-5, Ahmedabad Vs N. K. Protiens Ltd. disallowed the balance sum of Rs.178.56 lacs (210 lacs - 31.44 lacs) and added the same to the income of the assessee. When the matter cropped up before the learned CIT(A), he deleted the disallowance made by the learned AO by observing in Para 3.12 and 3.13 as under:
"3.12 The addition of Rs.1.79 crores made by the A. O. in the assessment order is not tenable on merits also. It is seen that keyman insurance policy premium is an allowable deduction as per the provisions of section 37(1) of the I. T. Act. In this regard, CBDT had also issued Circular No.762 dtd. 18-2-1998. It is prescribed in this circular that premium paid on keyman insurance policy is an allowable business expenditure as the receipt from keyman insurance policy at the time of maturity is taxable as business receipts. Taking these facts in view, Hon'ble Mumbai High Court in the case of CIT v/s. B. N. Exports 323 ITR 178 had decided the issue in favour of the appellant. Similar view has also been held by Hon'ble ITAT, 'A' Bench, Ahmedabad in the case of DCIT, Circle-5, Ahmedabad vs. P. G. Foils Ltd., Ahmedabad in ITA No.2184/AHD/2009.
2.13 In view of these facts, I am of the considered view that appellant is entitled to claim deduction towards keyman insurance policy premium and disallowance made by the A. O. is unwarranted. This ground of appeal is allowed."
3. Before us the learned DR relied on the order of the learned AO. On the other hand, the learned AR supported the order of the learned CIT(A). Further, the learned AR has also relied on the following decisions and prayed that the order of the learned CIT(A) may be sustained:
(i) CIT Vs B. N. Exports, 323 ITR 178 (Bom.) (ii) Escorts Hear Institute & Research Centre Ltd. Vs ACIT, 128 ITD 108 (Del)
(iii) Sunita Finlease Ltd. Vs DCIT, 118 TTJ Vs ACIT, 118 TTJ 263 (Bilaspur)
ITA No.1962/Ahd/2012 (AY: 2005-06) 3 ACIT, Cir-5, Ahmedabad Vs N. K. Protiens Ltd.
4. We have heard the rival submissions and carefully perused the materials on record including the paper book submitted by the learned AR containing pages 1 to 38. The learned CIT(A) relying on the CBDT Circular No.762 dated 18-02-1998 has deleted the addition made by the learned AO on account of disallowance of Rs.1,78,56,000/- with regard to expenses incurred by the assessee in respect of premium on Keyman Insurance Policy. While doing so, the learned CIT(A) also relied upon the decision of the Hon'ble Mumbai High Court in the case of CIT Vs B. N. Exports, 323 ITR 178 wherein the aforesaid Circular of the CBDT was followed by the Hon'ble High Court in deciding the issue in favour of the assessee. Further reliance was placed by the learned CIT(A) on the decision of the ITAT Ahmedabad "A" Bench in the case of DCIT, Circle-5, Ahmedabad Vs P. G. Foils Ltd. in ITA No.2184/Ahd/2009 in this regard.
4.1 We also find that while deciding the issue of allowability expenses of Keyman Insurance Policy Premium, ITAT Bilaspur Bench in the case of Sunita Finlease Ltd. Vs DCIT reported in [2008] 118 TTJ (Bilaspur) 263 has held as under:
"The policy known as "Keyman Insurance Policy" provides for an insurance policy taken by a business organization on the life of some important persons in the organization, generally called as Keyman in the insurance nomenclature. Under the IT Act, this concept of Keyman Insurance Policy is for the first time introduced by the Finance (No.2) Act, 1996. So, before the amendment, there was no provision explaining the treatment of premium paid, sum received on maturity etc. under the Act. Previously, one side, the insurance premium was deducted as expenditure but on the other side the receipts on maturity were claimed as exempted for taxation under the provisions of s. 10(10D). To curb this practice, some amendments were made by the aforesaid amendment Act. But as usual, the amendment has created more confusion than the solution of the problems. While the Act is amended in many places to the effect that the amount received will be taxable, it is nowhere ITA No.1962/Ahd/2012 (AY: 2005-06) 4 ACIT, Cir-5, Ahmedabad Vs N. K. Protiens Ltd. provided that the premium paid on the Keyman Insurance Policy is allowable as business expenditure except by a Circular of CBDT. The Circular No.762 dt. 18th Feb., 1998, clarifying with regard to the treatment of the premium paid of Keyman Insurance Policy whether it should be allowed as a capital expenditure or a revenue expenditure, the Board has clarified that the premium paid on the Keyman Insurance Policy be allowed as business expenditure. This circular is binding on the Revenue authorities. In view of the above, the premium paid by the assessee on the Keyman Insurance Policy is allowable as business expenditure. The AO is directed to allow the claim of the assessee subject to verification of the premium paid by the assessee company."
4.2 We have also perused the Circular No.762 dated 18-02-1998 issued by the CBDT wherein the premium paid towards keyman insurance policy is dealt with, and the same is reproduced herein for reference (paper book page No.10.
"Taxation of a sum received under the keyman insurance policy
14.1 A Keyman Insurance Policy of the Life Insurance Corporation of India, etc., provides for an insurance 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 business. The premium is paid by the employer."
The learned AR also affirmed before us that the assessee had paid the keyman insurance premium to Life Insurance Corporation of India as per the aforesaid circular. From the above discussions, we find that the learned CIT(A) has rightly deleted the addition in question and hence we do not find any reason to interfere with the order of the learned CIT(A). However, due to abundant caution, we hereby direct the learned AO to verify that the appellant has made payment of keyman insurance premium ITA No.1962/Ahd/2012 (AY: 2005-06) 5 ACIT, Cir-5, Ahmedabad Vs N. K. Protiens Ltd. to Life Insurance Corporation of India and if so, delete the addition. Since, we have decided the issue on merits in favour of the assessee, the ground raised by the revenue for quashing the reopening of the assessment u/s 147/148 of the Act by the learned CIT(A) has become academic and, therefore, we do not find it necessary to adjudicate the issue at this stage.
5. In the result, the appeal filed by the revenue is dismissed. Order pronounced in the open Court on 09-11-2012
Sd/- Sd/-
(G. C. GUPTA) (A. MOHAN ALANKAMONY) VICE PRESIDENT ACCOUNTANT MEMBER
Lakshmikanta
Lakshmikanta Deka/
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
1. Date of Dictation: 1-11-12 - direct on computer
2. Date on which the typed draft is placed before the Dictating Member: 02-11-12/ 06-11-12 other Member:
3. Date on which approved draft comes to the Sr.P.S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement:
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk:
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order:
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