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ITO, Ward-4 (2). Kolkata Versus M/s Marcopolo Products Private Limited and Vice-Versa

2016 (5) TMI 353 - ITAT KOLKATA

Addition of insurance premium - Held that:- Payment towards insurance premium under keyman policy is for the benefit of assessee’s company from any risk that it may sustain by losing the valuable services of their directors and its senior staff from any eventuality by any accident or death made by the AO and as held by the Hon’ble High Court Bombay in the case of COMMISSIONER OF INCOME TAX vs. B.N. EXPORTS reported [2010 (3) TMI 186 - BOMBAY HIGH COURT] it is an expenditure which is laid out for .....

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therefore, whatever may be the payment is in the opinion of AO in excessive or unreasonable shall not be allowed as a deduction. However, keeping in view that the services rendered by Sunil Kumar resulted in the business worth ₹ 614.86 lakhs, we find ourselves in agreement with the ld. CIT(A) that the remuneration paid to him cannot be considered as excessive or unreasonable to attract the provision of section 40A(2)(b). - Decided in favour of assessee

Disallowance of expenditu .....

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1(1) - Held that:- In the present the AO noted that the assessee admitted that the amount of ₹ 43,571/- has remained as unclaimed by creditors for a considerable period of time. Therefore the fact remains undisputed that the liability carried forward for many years and there was no cessation or remission in the case on hand. There are two conditions are to be fulfilled in order to attract provisions of Section 41 (1) of the Act, i.e cessation or remission and it should be of previous year .....

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d 25.02.2013 passed by the CIT(A)-IV, Kolkata for the assessment year 2009-10. 2. First we shall take up the Revenues appeal and The Revenue raised the following grounds: 1. For that the Ld. CIT(A) has erred in deleting the addition of insurance premium of ₹ 45,00,000/- 2. For that the Ld. CIT(A) has erred in deleting the addition of a part of Director s salary amounting to ₹ 10,00,000/-. 3. for that the Ld. CIT(A) has erred in deleting the addition of ₹ 27,168/- as club expens .....

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he assessee has paid an amount of ₹ 45 lakhs in cash towards insurance premium for its three directors having coverage for five years and the sum assured being 75 lakhs. The assessee submitted that its policy to protect the company from any risk that it may sustain by losing the valuable services of their directors and its senior staff from any eventuality by any accident or death. AO added ₹ 45 laks to the total income of the assessee for non explanation of how the services of the s .....

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case law of Bilaspur Bench of Tribunal and Hon ble Bombay High Court and held that the key man s insurance premium is as an allowable business deduction, thereby, directed the AO to allow the deduction. 5. In support of the ground no-1 raised by the revenue the learned DR relied on A.O. s order. The learned AR submits that the insurance premium under keyman policy paid for five years and it is taxable on maturity and relied on the CIT-A order. 6. Heard both parties, perused the relevant material .....

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larification issued by the CBDT. 7. The Hon ble HIGH COURT OF BOMBAY in the case of COMMISSIONER OF INCOME TAX vs. B.N. EXPORTS reported in 323 ITR 0178 where the Revenue therein raised a question of law before the Hon ble High Court as to Whether on the facts and circumstances of the case and in law, the Tribunal was justified in confirming the order of the CIT(A) deleting the addition of ₹ 31,68,775 being insurance premium paid by the assessee firm on a keyman insurance policy ?" Th .....

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as on a person on who is or was connected in any manner whatsoever with the business of the subscriber. The words "is or was connected in any manner whatsoever with the business" of the subscriber are wider that what would be subsumed under a contract of employment. The latter part makes it clear that a keyman insurance policy for the purposes of cl. (10D) is not confined to a situation where there is a contract of employment. Clause (10D) relates to the treatment for the purpose of t .....

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expenditure, there is a finding of fact by the Tribunal that the firm had not taken insurance for the personal benefit of the partner, but for the benefit of the firm, in order to protect itself against the set back that may be caused on account of the death of a partner. The object and purpose of a keyman insurance policy is to protect the business against a financial set back which may occur, as a result of a premature death, to the business or professional organization. There is no rational b .....

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s of business. 8. In the present case, the assessee s case is that its policy to protect the company from any risk that it may sustain by losing the valuable services of their directors and its senior staff from any eventuality by any accident or death. The Hon ble High Court taken into consideration the clarification issued by the CBDT vide its circular No.762 dated 18-2-1998 that the premium paid for a keyman insurance policy is allowable as business expenditure. We are of the view that the pa .....

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the CIT-A is justified in deleting the addition made by the AO. Ground No-1 raised by the Revenue is therefore dismissed. 9. Ground no.2 relates to disallowance of ₹ 10,00,000/- towards excess remuneration paid to one of the directors of the assessee company. The A.O. was of the opinion that the remuneration as paid by the assessee to its director was unreasonable and excessive having regard to the services rendered by the said director. The assessee submitted the said remuneration was pai .....

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that said director is based in Pune exclusively dealing with Tata Motors for the benefit of assessee and he raised business with Tata Motors worth ₹ 614.86lakhs and relied on the case laws. The CIT-A examined the details of the said Director Sri Sunil Kumar Jain and found that he studied in U.S.A. and has vast experience of business development with variety of industries. Having found his gross total income of ₹ 73,68,380/- for assessment year 2009-10 and payment of income tax of &# .....

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let us examine the said provision (2) (a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the [Assessing Officer] is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or acc .....

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il Kumar is one of the directors of assessee company and is located in Pune dealing with its important client. CIT-A during appellate proceedings found that the said Sunil Kumar was able to sell goods of assessee worth of ₹ 614.86 laks to its important client i.e Tata Motors in Pune. Now, the question before us whether the said disallowance of ₹ 10,00,000/- falls for consideration having regard to the fair market value of the services rendered by the said Sunil Kumar and whether the .....

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akhs, we find ourselves in agreement with the ld. CIT(A) that the remuneration paid to him cannot be considered as excessive or unreasonable to attract the provision of section 40A(2)(b). We therefore confirm the order of CIT-A and dismiss ground no.2. 14. Ground no.3 relating to disallowance of expenditure incurred towards club memberships. 15. We may refer to the provision of Section 37 which is reproduced herein below for the benefit of better understanding of the same in the context of case .....

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fication of expenditure under s. 37 of the Act is that it should be incurred wholly and exclusively for the purposes of business and the expenditure should not be towards capital account. 17. The Hon ble HIGH COURT OF DELHI in the case of COMMISSIONER OF INCOME TAX vs. SAMTEL COLOR LTD reported in 326 ITR 0425, the facts involved therein was that the assessee has paid corporate membership fee to Indian Habitat Centre and Sports & Cultural Club, Noida amounting to ₹ 5 lakhs and ₹ .....

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h Court held as follows: 5.1 The expenditure incurred towards admission fee, admittedly, was towards corporate membership. As correctly held by the Tribunal, the nature of the expenditure was one for the benefit of the assessee. The 'business purpose basis adopted for eligibility of expenditure under s. 37 of the Act was the correct approach. This is more so in view of the Tribunal s findings that it was the assessee which nominated the employee who would avail the benefit of the corporate m .....

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n expenditure incurred wholly and exclusively for the purposes of business of the assessee. 19. The MUMBAI 'B BENCH of ITAT in the case of DEPUTY COMMISSIONER OF INCOME TAX vs. BANK OF AMERICA SECURITIES (INDIA) (P) LTD reported in (2011) 136 TTJ 0441, the facts involved therein was that the assessee has made payment of entrance fee to a club namely Bombay Gymkhana amounting to ₹ 16 lacs. The AO disallowed ₹ 16 lacs as capital outlay and added to the income of the assessee. The C .....

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assessee wholly and exclusively for the purpose of business of the assessee. Further we find no merit in the plea of the learned Departmental Representative that the decision in Alembic Chemical Works Co. Ltd. (supra), is not applicable to the facts of the assessee s case. In fact, their Lordships referred to various decisions particularly the decision in the case of City of London Contract Corporation vs. Styles (1987) 2 Tax Cases 239 wherein broad area of distinction is pointed out. It is held .....

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e. If, on the other hand, it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure." 13. Respectfully following the above decisions of the Hon ble jurisdictional High Court and the Tribunal in the assessee s ow .....

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learned CIT(A) in deleting the disallowance of ₹ 16 lacs made by the AO. The grounds taken by the Revenue are, therefore, rejected. 20. In the present case, the assessee contended that the expenditure paid to club and did not bring into existence an asset or advantage for the enduring benefit of the business of assessee to treat the same as capital expenditure. The club expenditure, it only facilitates smooth and efficient running of a business of the assessee. Therefore, we hold that the .....

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is dismissed as not-pressed. 23. The assessee raised the following grounds in cross objection: 1. That on the facts and in the circumstances of the case, Ld. CIT(A) is wrong and unjustified in confirming disallowance of ₹ 1,82,917/- towards prior period expenses. 2. That on the facts and in the circumstances of the case, Ld. CIT(A) is wrong in confirming the action of Assessing Officer who considered liability of ₹ 43,571/- towards Sundry Creditors as deemed income U/s. 41(1) of IT .....

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e. Before the CIT-A the assessee contended that the addition made by the A.O. is not sustainable in the absence of any concrete proof that the suppliers given up their claim. The CIT-A was of the view that the onus is on assessee to establish that the liability is still existing having failed so confirmed the addition by the A.O. Before us, the learned AR submitted that the said issue is covered by order of B bench, Kolkata Tribunal in ITA1345/KOL/2011 for assessment year 2008-09 . 5. We find fr .....

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tions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year 2007-08 relevant to the assessment year 2008-09 which was the year under consideration. It is undoubtedly a curious Case. Even the liability itself seems u .....

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ablished through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that, therefore, the amount in question cannot be added back as a deemed income under section 41(1) of the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Hence, we have no alternative except to confirm the findings of CI .....

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