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2005 (10) TMI 226 - AT - Income TaxOrder passed by CIT u/s 263 - Erroneous And Prejudicial Order - sum received under "Keyman Insurance Policy" charged to tax under which income head out of 5 source of income head - HELD THAT:- Various amendments were made to the IT Act, 1961, simultaneously by the Finance (No.2) Act, 1996, w.e.f. 1st Oct., 1996 relating to the subject of Keyman Insurance Policy. Thus, in the light of the amendments and the circular clarifying the position relating to the allowability of the premium paid on Keyman Insurance Policy, the CIT, in my view, was not justified in directing the AO to disallow the premium paid by the assessee-firm in respect of the life of partner Anurag Gupta, assured under the Keyman Insurance Policy. There is no doubt regarding the fact that the policy is a Keyman Insurance Policy, as can be seen from para 2 of the order of the CIT. Therefore, the order of the CIT cannot be sustained as it runs counter to the amendments made to the Act as clarified by the circular issued by the CBDT. It is well-settled that circulars issued by the CBDT regarding the execution of the Act are binding on the IT authorities. The amended law is applicable to the year under consideration, The CIT was, therefore, not justified in assuming jurisdiction to revise the assessment u/s 263, contrary to the law and circular issued by the Board. He could not have considered the assessment erroneous since the allowance of the premium as a deduction as business expenditure was in conformity with the circular of the Board which was binding on the AO. Even on merits, his view that the premium paid on Keyman Insurance Policy should be disallowed is not tenable, also because of the circular cited above. I therefore cancel the order u/s 263 on both counts and allow the appeal.
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