ASOKAN RAMDASS,COIMBATORE vs. ACIT NCC-2,, COIMBATORE

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ITA 1001/CHNY/2026Status: DisposedITAT Chennai06 November 2026AY 2021-2211 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held in favour of the assessee on both grounds. Regarding Section 40(a)(ia), it was held that since the remuneration was paid as premiums for insurance policies that had not vested in the employees and were not taxable in their hands during the assessment years, there was no default in not deducting TDS under Section 192. The incidence of tax was deferred, attracting Section 194DA. The Tribunal directed the deletion of disallowances made under Section 40(a)(ia). Concerning Section 40A(2)(b), the Tribunal found that the AO failed to establish that the payments were excessive, having regard to the fair market value of services or the legitimate needs of the business. The qualifications and functions of the family members were not disputed, and the business results justified the remuneration. The Tribunal noted that the AO did not determine the fair market value and used inapposite comparisons. Therefore, the Tribunal directed the deletion of disallowances made under Section 40A(2)(b). As both disallowances were deleted, all other grounds became academic.

What were the facts?

The assessee, Asokan Ramdass, an individual running a wholesale gold jewellery manufacturing business, filed appeals against three orders of the CIT(A) for Assessment Years (AY) 2021-22, 2022-23, and 2024-25. These appeals arose from assessment orders passed under Section 143(3) r.w.s. 144B of the Income Tax Act, 1961. The Assessing Officer (AO) made disallowances on remuneration paid to four family members employed in the business. This remuneration was remitted directly to an insurer as premiums for Employer-Employee insurance policies under conditional assignment. The total disputed amounts for the three AYs were Rs. 1,13,41,724, Rs. 95,94,186, and Rs. 1,09,89,871 respectively. The AO initially disallowed 50% of the remuneration for AY 2021-22, which the CIT(A) reduced to 40%.

What were the issues?

The Tribunal had to decide the following issues: 1. Whether the disallowance under Section 40(a)(ia) of the Act, at 30% of the amounts debited for want of deduction of tax at source under Section 192 of the Act, is justified. 2. Whether the disallowance under Section 40A(2)(b) of the Act of 40% (initially 50% by the AO for AY 2021-22) of the remuneration as excessive or unreasonable is justified. Assessee's contentions: - Regarding Section 40(a)(ia), the assessee argued that tax deduction under Section 192 is required at the time of payment of salary. Since the remuneration was paid as premiums for insurance policies that had not vested in the employees and were not taxable in their hands during the assessment years, TDS was not deductible. The taxability would arise only on vesting, attracting Section 194DA. - Regarding Section 40A(2)(b), the assessee contended that the remuneration paid to family members was reasonable and justified by their qualifications, functions, and the business results. The AO failed to ascertain the fair market value of services and made arbitrary disallowances by comparing with unrelated staff or drivers. Revenue's contentions: The judgment does not explicitly record the revenue's contentions for these issues. However, the AO's actions and the CIT(A)'s partial relief indicate the revenue's position was that the payments were either subject to TDS or excessive/unreasonable.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 192,Section 40A(2)(b),Section 194DA,Section 17(2)(v),Section 10(10D),Section 17(3)(ii),Section 143(3),Section 144B,Section 44AB,Section 38

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI

Before: SHRI SS VISWANETHRA RAVI & SHRI S.R. RAGHUNATHA

For Respondent: Ms. Anshu Sharawat, Addl. CIT
Hearing: 04.09.2026Pronounced: 06.11.2026

आदेश /O R D E R

PER S. R. RAGHUNATHA, AM : These appeals by the assessee are directed against three orders of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (in short “the CIT(A)”) passed u/s.250 of the Income- tax Act, 1961 (in short “the Act”), namely: (i) order dated 18.02.2026 for AY 2021-22; (ii) order dated 18.02.2026 for AY 2022-23; and (iii) order dated 20.02.2026 for AY 2024-25. The first appeals before ld.CIT(A) arose out of the assessment orders passed u/s.143(3) r.w.s. 144B of the Act dated 27.12.2022, 21.03.2024 and 05.12.2025 respectively.

ITA Nos.1001 to 1003/Chny/2026 Asokan Ramdass :- 2 -: 2. The facts and the issues in all three appeals are common. In each year, the Assessing Officer (“AO”) has made two disallowances out of the very same expenditure, namely the remuneration debited in respect of four family members of the assessee who are employed in his business, the remuneration having been remitted directly to an insurer as premium on Employer–Employee insurance policies under conditional assignment. The appeals were therefore heard together and are disposed of by this consolidated order for the sake of convenience. AY 2021-22 is treated as the lead year, and the variations in the other two years are noticed wherever they are material.

3.

The assessee has raised eighteen grounds in each appeal, which are worded identically save for the figures. On a fair reading, they raise the following effective issues: (a) Grounds 2 to 8 – the disallowance u/s.40(a)(ia) of the Act at 30% of the amounts debited, for want of deduction of tax at source u/s.192 of the Act; (b) Grounds 9 to 11 – the disallowance u/s.40A(2)(b) of the Act of 40% (50% by the AO in AY 2021-22) of the same amounts as being excessive or unreasonable; (c) Ground 12 to 18 – Other supporting grounds; 4. The amounts involved in the three appeals are as under: AY Returned Assessed u/s 40(a)(ia) u/s 40A(2)(b) Total income income @ 30% as sustained amount (Rs.) (Rs.) (Rs.) by CIT(A) (Rs.) disputed in appeal (Rs.) 2021-22 3,31,06,130 4,60,68,098 48,60,740 64,80,984 1,13,41,724 (40%) 2022-23 3,34,84,080 4,30,78,266 41,11,794 54,82,392 95,94,186 (40%) 2024-25 4,90,71,670 6,00,61,541 47,09,945 62,79,926 1,09,89,871 (40%)

5.

For AY 2021-22, the AO had disallowed 50% of Rs.1,62,02,460/-, i.e., Rs.81,01,230, u/s.40A(2)(b) of the Act. The ld.CIT(A), “for a consistent

ITA Nos.1001 to 1003/Chny/2026 Asokan Ramdass :- 3 -: approach” with the later years, restricted it to 40%, i.e., Rs.64,80,984/-, granting relief of Rs.16,20,246/- (para 5.5 of the impugned order).

6.

The brief facts of the case emanating from the records are that the assessee is an individual carrying on, as a proprietor at Coimbatore, the business of manufacturing gold jewellery on a wholesale basis. The bullion is converted into ornaments through karigars engaged on job-work, and the ornaments are supplied to jewellery showrooms. The assessee does not carry on retail trade. The turnover was Rs.238.76 crores in AY 2020-21, Rs.263.37 crores in AY 2021-22 and Rs.230.65 crores in AY 2022-23 (Table-3 of the assessment order for AY 2021-22; Ratio Analysis at page 128 of the Paper Book for AY 2022-23). The accounts are audited u/s.44AB of the Act. In each year the assessee employed about 450 karigars and workers, besides about 20 to 50 staff, and paid making charges to the karigars of Rs.15.56 crores in AY 2021-22 and Rs.13.25 crores in AY 2022- 23.

7.

The assessee's wife, his two daughters and his son are employed in the business. Their qualifications and the functions assigned to them were furnished before the AO in each year, and the AO has reproduced them in the assessment orders without disputing them. They are summarised below, together with the remuneration debited: Name / Qualification Functions AY 2021- AY 2022- AY 2024- relationship 22 (Rs.) 23 (Rs.) 25 (Rs.) Smt. A. B.A. Collection from 19,56,960 19,56,960 19,56,960 Jayashree (Economics), debtors; (wife) Nirmala supervision of College, accounts Coimbatore Ms. C.A. B.Tech. Ornament 50,23,680 49,15,488 49,15,488 Akshaya (Fashion design; in Shree Technology), charge of (daughter) PSG Tech; machine M.Sc. (Luxury production

ITA Nos.1001 to 1003/Chny/2026 Asokan Ramdass :- 4 -:

Brand team; sales co- Management), ordination with University of corporate Leeds, UK dealers Ms. C.A. B.Sc. (Fashion Systems; order 50,21,820 49,13,532 49,13,532 Niranjana Technology), processing; Shree PSG Tech; PG issue and (daughter) Diploma in receipt of gold Web Designing to karigars and its movement inside and outside the factory Shri A. B.Com., CBM Manager – 42,00,000 19,20,000 39,13,836 Sairam (son) College, Administration; Coimbatore; in charge of the MBA accounts team; (Accounting & cross-check of Finance), physical gold University of movement with Hertfordshire, accounts UK Total 1,62,02,46 1,37,05,98 1,56,99,81 0 0 6

8.

In AY 2022-23 the amount of Rs.19,20,000/- relating to Shri A.Sairam was paid directly to him after deduction of tax at source of Rs.3,26,040/- (ledger at page 134 of the Paper Book for AY 2022-23). It was not a payment for the insurance scheme. Except for the said amount, the remuneration of the four persons was not disbursed to them during the said assessment year. The ledgers (pages 130 to 133 of the Paper Book for AY 2022-23) show that the amounts were credited each month to “Salary Payable – EES” accounts and remitted by banking channel directly to Aditya Birla Sun Life Insurance Company Ltd. (“ABSLI”). The remittances were the annual premium on ABSLI “Vision Life Income Plan” policies taken under the Employer–Employee scheme on the lives of the respective employees. The assessee's concern is the proposer and the premium payer while the policies were conditionally assigned in favour of the respective employees u/s.38 of the Insurance Act, 1938, and ABSLI registered the conditional

ITA Nos.1001 to 1003/Chny/2026 Asokan Ramdass :- 5 -: assignments (letters of assignment at pages 445 and 591 to 595 of the Paper Book for AY 2021-22, and pages 532 to 536 of the Paper Book for AY 2024-25). The premium paying term of each policy is fifteen years. The employee's right under the policy vests only on completion of that term, and until then nothing is receivable by the employee except on death.

9.

ABSLI issued a status report dated 14.08.2025 for each of the four policies (pages 494 to 497 of the Paper Book for AY 2024-25). Each report certifies: - type of policy – “Employer–Employee”; - conditional assignment in force – “Yes”; - benefit paid to the employee – “NIL”; - benefit due or accrued to the employee – “Nil”; - status – “Not vested in current year to employee”; - benefit paid to the employer – “NIL”; and - whether TDS will be deducted – “Yes u/s.194DA”.

The vesting date and the date of first disbursal to the employee falls in 2033 for Smt.Jayashree and in 2035 for the other three employees. The policies, the assignment letters and the premium receipts were before the lower authorities.

10.

The tax auditor disclosed the arrangement in the Tax Audit Report in Form 3CD for each year. For AY 2021-22, the auditor noted that the salary was contributed to the EES scheme with a conditional assignment clause, that taxability would arise only on vesting, and that tax was therefore not deducted u/s.192 of the Act (page 81 of the Paper Book for AY 2021-22). The payments were also reported in the section 40A(2)(b) schedule as “Salary thru EES” (pages 89 and 90). For AY 2024-25, the schedule describes them as “Jobwork Management Charges – EES”.

ITA Nos.1001 to 1003/Chny/2026 Asokan Ramdass :- 6 -: 11. For AY 2021-22, the case was selected for complete scrutiny on the issue of “large turnover from the Gems and Jewellery business and low returned income”. In the order dated 27.12.2022, the AO accepted the books of account and the returned income in all other respects. He made only the following two disallowances: (i) Section 40(a)(ia): The AO held that once an amount is debited under the head “Salaries” it becomes due to the employee and attracts section 192. In his view, the premium paid was “nothing but application of salary income”, and in any event an employer's payment of premium on a policy for the employee is a perquisite u/s.17(2)(v) of the Act. He accordingly disallowed 30% of Rs.1,62,02,460/-, i.e., Rs.48,60,740/-. (ii) Section 40A(2)(b): The AO noted that the remuneration of the four family members formed 68.20% of the total salary bill of Rs.2,37,58,765/-, whereas the highest salary paid to an unrelated employee was Rs.2,62,700/-. He relied on screenshots from recruitment websites (ambitionbox.com, glassdoor.com and indeed.com) showing salaries of store managers and sales executives in retail jewellery showrooms of Rs.5 to 10 lakhs per annum. He recorded that “actual services provided by the family members cannot be ascertained” and observed that, being future inheritors, the family members would be motivated without high salaries. He also held that the premium arrangement was a colourable device, because the salary of each person had been fixed to match the premium on the policy taken in his or her name. He made an adhoc disallowance of 50% for assessment year 2021-22 (restricted to 40% in the first appeal). The AO made standalone disallowances by invoking provisions in Section 40(a)(ia) and Section 40A(2)(b) aggregating to total disallowance of 70% of the amount claimed as deduction. 12. By the order dated 21.03.2024 for the assessment year 2022-23, the AO disallowed 30% of Rs.1,37,05,980/-, i.e., Rs.41,11,794/-, u/s.40(a)(ia) of the Act. In doing so, he recorded at para 5.6 that “It is already examined that TDS on payment towards EES policy non applicable, however TDS is mandatory and required to deduct TDS on such payment made to these four people on account of salary.” The base of Rs.1,37,05,980/- includes the Rs.19,20,000/- paid to Shri A.Sairam on which tax had in fact been deducted. On section 40A(2)(b), the AO opined that the work of Smt.Jayashree could be done by an outsider for Rs.30,000/- to Rs.35,000/-

ITA Nos.1001 to 1003/Chny/2026 Asokan Ramdass :- 7 -: per month and that no supporting evidence had been filed. Following the order for AY 2021-22, he disallowed 40%, i.e., Rs.54,82,392/-.

13.

By the order dated 05.12.2025 for the assessment year 2024-25, the AO made similar disallowances of Rs.47,09,945/- (30% of Rs.1,56,99,816/-) u/s.40(a)(ia) and Rs.62,79,926/- (40%) u/s.40A(2)(b) of the Act. The assessee specifically pleaded that, in the scrutiny assessment for the immediately preceding AY 2023-24, the very same payments to the very same employees had been accepted in full without any disallowance. The AO did not deal with that plea. He relied instead on the fact that the additions for AYs 2021-22 and 2022-23 “have not been deleted or disturbed in appellate proceedings and, therefore, continue to remain intact”.

14.

The ld.CIT(A) disposed of all three appeals by substantially identical orders. On section 40(a)(ia), the ld.CIT(A) repeated the AO's view that the debit under “salaries” attracts section 192 of the Act and that the premium is in any event a perquisite u/s.17(2)(v) of the Act. On section 40A(2)(b) of the Act, the ld.CIT(A) agreed that the salaries were excessive “considering the prevailing market rates and other similar payments made by the assessee to the unrelated parties”. The ld.CIT(A) added that the trade “seems to be driven more by the inputs from specialist craftsmen/workers”, and that “these salaries are apparently not offered by these persons also in their ITRs”. The appeal for AY 2021-22 was partly allowed by restricting the disallowance to 40%. The appeals for AYs 2022-23 and 2024-25 were dismissed.

15.

The learned Authorised Representative (“ld.AR”) for the assessee contended that neither section 40(a)(ia) nor section 40A(2)(b) was attracted on the facts. The ld.AR submitted that the remuneration was remitted directly to the insurer under the Employer–Employee scheme and that

ITA Nos.1001 to 1003/Chny/2026 Asokan Ramdass :- 8 -: nothing was chargeable as salary in the hands of the employees in these years. The ld.AR further submitted that the AO had made ad hoc disallowances without determining the fair market value of the services, and had disallowed the same expenditure twice. Reliance was placed on the paper books and on judicial precedents.

16.

The learned Departmental Representative (“ld.DR”) supported the orders of the authorities below. It was submitted that the remuneration was debited as “salary” in the books and therefore attracted section 192 of the Act. The premium was in any case a perquisite u/s.17(2)(v) of the Act. The family members were paid many times what unrelated employees received, and the assessee had not produced any comparable instance. The arrangement was designed to claim a deduction in the hands of the employer while deferring tax in the hands of the recipients.

17.

We have heard the rival submissions and perused the material on record, including the paper books. The following facts are not in dispute: (i) the four family members are employees of the business creating value addition to the business and the payments are genuine, which is why the AO allowed 50% to 60% of the same remuneration; (ii) apart from the Rs.19,20,000/- paid to Shri Sairam in AY 2022-23, the remuneration was remitted directly to ABSLI as premium on Employer–Employee policies conditionally assigned to the employees; (iii) ABSLI has certified that nothing was paid or accrued to any employee and that the policies vest only in 2033 or 2035 (pages 494 to 497 of the Paper Book for AY 2024-25); (iv) the arrangement was disclosed in the Tax Audit Report from the first year; and (v) tax of Rs.3,26,040/- was deducted on the Rs.19,20,000/- paid directly to Shri Sairam.

ITA Nos.1001 to 1003/Chny/2026 Asokan Ramdass :- 9 -: 18. We find merit in the contention of the ld.AR on section 40(a)(ia) of the Act. Section 192 of the Act requires tax to be deducted “at the time of payment” of “income chargeable under the head ‘Salaries”. We note that wherever there is direct payment of salary, the assessee had scrupulously complied with the TDS provisions under the Act and only with respect to the payments made directly to the insurance company under the abovementioned scheme had not deducted TDS on the ground that the incidence of tax gets deferred attracting the provisions of Section 194-DA of the Act. It is a fact that the amounts paid were not matured during the assessment year(s) under consideration and hence not taxable in the hands of the recipients. It is a settled position that the nomenclature given in the books of accounts is neither conclusive nor decisive of the true nature of the payment and in the present case, we note that the premium paid would not fall under the scope of perquisite u/s.17(2)(v) of the Act, because an employer's contribution is taxable as a perquisite only when the employee acquires a vested right in it. (CIT v. L.W. Russel, (1964) 53 ITR 91 (SC)). The Act itself fixes the point of taxation of such a policy at receipt and the sum received under a keyman insurance policy under Explanation 1 to section 10(10D) is taxable u/s.17(3)(ii) of the Act and tax is to be deducted by the insurer u/s.194DA of the Act in the year of such payment. The arrangement therefore defers the incidence of tax in the hands of recipient and hence there cannot be any default in terms of Section 40(a)(ia) for such sum. Hence, we direct the AO to delete the disallowances of Rs.48,60,740/- (AY 2021-22), Rs.41,11,794/- (AY 2022-23) and Rs.47,09,945/- (AY 2024- 25) in its entirety by allowing the related grounds of appeal.

19.

With respect to the disallowance u/s.40A(2)(b) of the Act, the AO is required to show, on material, that the payment is excessive having regard to the fair market value of the services, the legitimate needs of the business

ITA Nos.1001 to 1003/Chny/2026 Asokan Ramdass :- 10 -: or the benefit derived by it. Reasonableness is to be judged from the standpoint of a businessman and not from that of the Revenue. (CIT v. Walchand & Co. (P) Ltd., (1967) 65 ITR 381 (SC); CIT v. Voltamp Transformers (P) Ltd., (1981) 129 ITR 105 (Guj)). It is a settled legal position that the Revenue cannot sit in the arm-chair of the businessman questioning the commercial decisions taken. Having said so, the payments being made to the related parties and invocation of Section 40A(2)(b) of the Act necessitate the fair market value to be ascertained. In the present case, the AO did not determine the fair market value in any year and the only data used were website salaries of retail showroom staff, and the comparison with the assessee's own drivers, clerks and watchmen is equally inapposite. Neither has any bearing on people supervising the manufacture and movement of gold in a wholesale manufacturing unit. The AO for AY 2021- 22 recorded that the “actual services provided by the family members cannot be ascertained”. The percentages adopted for identical payments (50%, 40%, nil in AY 2023-24) are plainly ad hoc.

20.

On the other hand, the record supports the assessee’s contention. The qualifications and functions of the four persons are not disputed, and they supervise about 450 karigars handling hundreds of kilograms of gold and manage collections, accounts and design. Their remuneration is about 10% of the making charges paid to those karigars, and it has not been increased over the years. During the same period, debtors were realised in 38.46 days against an industry norm of 90 to 120 days, the net profit ratio was maintained despite rising turnover, and the returned income rose from Rs.3.31 crores to Rs.4.91 crores. Hence, we agree with the contentions of the assessee that the business results justify the remuneration paid to the related parties and the mode of payment through an insurance policy has no bearing on the fair market value of the services. Therefore, we direct the AO

ITA Nos.1001 to 1003/Chny/2026 Asokan Ramdass :- 11 -: to delete the disallowances made by the AO by invoking the provisions of Section 40A(2)(b) of the Act for the assessment years 2021-22, 2022-23 and 2024-25 by allowing the related grounds of appeal.

21.

Since both disallowances made by the AO are deleted, all other grounds would become academic and are left open.

22.

In the result, all the three appeals of the assessee are allowed.

Order pronounced on 06th day of November, 2026 at Chennai. . Sd/- Sd/- (यस यस �व�वने� र�व) (एस. आर. रघुनाथा) (S.R. Raghunatha) (S.S. Viswanethra Ravi) लेखा सद�य /Accountant Member �या�यक सद�य / Judicial Member चे�नई/Chennai, %दनांक/Dated: 06th November, 2026. E Durga Naresh, Sr. P.S EJTADA Digitally signed by आदेश क� ��त(ल)प अ*े)षत/Copy to: EJTADA DURGA NARESH DURGA 1. अपीलाथ�/Appellant Date: 2026.11.10 NARESH 17:00:33 +05'30' 2. ��थ�/Respondent 3. आयकर आयु�/CIT 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF

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