ITO 26(2)(4), MUMBAI vs. PHARMA SEARCH, MUMBAI

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ITA 2679/MUM/2016Status: DisposedITAT Mumbai02 January 2017AY 2006-073 pages

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

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that expenditure incurred on keyman insurance premium is to be allowed as business expenditure, following its own previous orders and a Delhi High Court judgment.

What were the facts?

The assessee-firm claimed an expense of Rs. 50,00,000/- for insurance premiums on policies taken for its key persons. The Assessing Officer disallowed this amount, treating it as personal benefit to partners and not business expenditure.

What were the issues?

Whether the insurance premium paid on policies taken for key persons of the firm constitutes a business expenditure deductible under Section 37(1) of the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES “A” MUMBAI

Before: SHRI MAHAVIR SINGH & SHRI N.K. PRADHAN

For Appellant: Shri Devendra Jain,AR
For Respondent: Shri M.V. Rajguru,DR, Shri Devendra Jain,AR
Hearing: 02/01/2017Pronounced: 02/01/2017

ORDER

PER N.K. PRADHAN, AM

1.

This is an appeal filed by the revenue. The relevant assessment year 2006-07. The appeal is directed against the order of the Commissioner (Appeals) – 38, Mumbai and arises out of the order under section 143(3) read with section 147 of the Income Tax Act, 1961 (the “Act’’).

2.

The ground of appeal raised by the revenue in this appeal is that the learned CIT(A) has erred in deleting the addition of Rs. 50,00,000/- made by the Assessing Officer (AO) u/s 37(1) without interpreting the provisions of the section in its right perspective and true meaning. It is further stated that the learned CIT(A) has erred in not appreciating that the assessee has subscribed to a plan of an endowment policy and not to a Keyman Insurance Policy.

3. The AO during the course of assessment proceedings noticed that the assessee-firm had claimed an expense of Rs. 50,00,000/- relating to insurance premium. The assessee-firm had arranged to draw insurance policy numbering 25 in all, involving the payment of premia of Rs. 2,00,000/- each per annum. The period for which such premia were required to be paid was stated to be 3 years. The assessee – firm as a proposer of the policies had effected to provide insurance cover to indemnify against the risk of loss of lives in their key persons i.e. Shri Vikas Puri and Smt. Chitra Iyer Puri, who were partners during the impugned assessment year. The AO disallowed Rs. 50,00,000/- u/s 37(1) holding that the cost of insurance premia on the lives of the partners made by the assessee-firm from its own funds would be in the nature of expenses incurred for the enjoyment of personal benefits of the partners and, therefore, did not amount to being in the nature of business expenditure.

4. The assessee-firm preferred an appeal against the order of the AO before the learned CIT(A). We find that the learned CIT(A) followed the order of the ITAT ‘’C’’ Bench, Mumbai (ITA No. 7303/Mum/2010) dated 02.05.2012 in the case of the assessee for the A.Y. 2007-08 and allowed the appeal. 5. The learned DR supports the order of the AO. The learned counsel of the assessee relies on the order passed by the Tribunal in the case of the assessee for the A.Y. 2007-08 and 2008-09. 6. We have heard the rival submissions and perused the relevant material on record. We find that the same issue arose before the ITAT ‘’C’’ Bench Mumbai in the case of the assessee for the A.Y. 2007-08 (ITA No. 7303/Mum/2010). The Tribunal relied on the judgement of the Hon'ble Delhi High Court in the case of CIT vs. Escorts Health Institute & Research Centre Ltd. (ITA No. 398/2009) and held that the expenditure incurred on keyman insurance premium was to be allowed as business expenditure. 6.1 Also the same issue arose before the ITAT “SMC’’ Bench, Mumbai in the case of the assessee for the A.Y. 2008-09 (ITA No. 2680/Mum/2016). The Tribunal followed its order for the A.Y. 2007- 08 and dismissed the appeal filed by the revenue.

7.

As the facts are similar, we follow the order of the Co-ordinate Bench for the A.Y. 2007-08 and 2008-09 and dismiss the appeal filed by the revenue.

8.

In the result, the appeal is dismissed. Order pronounced in the open court on 02/01/2017

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