TMI Blog2017 (2) TMI 1106X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Income Tax Appellate Tribunal, Bench Indore in I.T.A. No. 147/Ind/2015 for the assessment year 2011/2012. Facts of the case as stated in the appeal reveal that the assessee Company is engaged in the manufacture of HDP Containers and PP closers. The return of the Income declaring total income of ₹ 6,52,57,590/- was filed on 22/9/2011 and the case was selected for scrutiny. The Assessing Officer made additions of ₹ 49,75,054/- on account of Keyman Insurance Policy of ₹ 23,23,241/- on account of disallowance of commission under Section 40A(2)(a) and 40A(2)(b) and ₹ 4,25,032/- on account of expenses. The assessee being aggrieved by the order passed by the Assessing Officer preferred an appeal before the CIT (A) and the CIT (A) has partly allowed the appeal. The CIT(A) has deleted the addition of ₹ 49,75,054/- on account of Keyman Insurance Policy stating that the documents regarding expenses were produced before the CIT(A) and it was held that the amount of withdrawal / redemption will be the income of the Company. The CIT(A) also deleted the addition of ₹ 23,23,241/- on account of disallowance of commission expenses as expenses were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 762 dated 18.2.1998, which has provided Explanatory Notes on the provisions relating to Direct Taxes contained in Finance (No.2) Act, 1996. The matter relating to Keyman insurancepolicy has been explained in para 14.4 of the circular. We find that in the case of DelT vs. M/s Navinchandra Securities Pvt. Ltd. ITA No. 2564/Ahd/2008, it was held that the premium paid on the keyman insurance policy is to be allowed as business expenditure. The only thing to be seen is whether the Keyman falls within the definition laid down in the Explanation below section 10(10D). The Explanation states that Explanation: For the purposes of this clause, Keyman insurance policy means a life insurance policy taken by a person on the life of another person is or was the employee of the first-mentioned person or is or was connected in any manner whatsoever with the business of the first- mentioned person;. As per the Explanation, the only requirement is that Keyman should be an employee or a director and/or should be connected in some manner with the business of the firm. The Board's circular no. 762 has further clarified that the keyman would be an employee or a director, whose services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) deleted this addition holding that the AO has not givenemphasis on the nature and scope of the work and the services rendered and as per Section 40A(2), which made it apparent that regard must be had to the fair market value of the services, as well as to the legitimate needs of the business . The assessee has proved that these two criteria were satisfied and hence no disallowance was warranted and the ld. CIT(A) deleted the addition amounting to ₹ 23,23,241/- . 11. The Ld. DR relied upon the order of the AO. 12. The ld. Authorized Representative contended that the addition has been made on irrelevant fact, hypothetical ground and on conjunctures. During the year he assessee has paid commission of ₹ 71,02,500/- on sale to M/s Padma Polytex Pvt. Ltd and ₹ 35,98,604/- to M/s Arpit Plastic Pvt. Ltd. The commission agents were engaged for the sale of products of the Company. The ld. Authorized Representative further contended that the commission of ₹ 71,02,500/- was paid to M/s. Padma Polytex (India) Pvt. Ltd, @ 5.7 % on sale of ₹ 12,37,65,528/- made to M/s Lupin Limited. The said agent has registered sale of ₹ 12.38 Crore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the nature of work involved. The Id. AO has not given emphasis on the nature and scope of the work and the services rendered. In fact, section 40A(2) itself makes it apparent that regard must be had to the 'fair market value' of the services, as well as to the 'legitimate needs of the business'. The assessee has proved that these two criteria are satisfied and hence no disallowance was warranted. The ld. Authorized Representative further relied on the decision in the case of Hive Communication (P.) Ltd. v. CIT [2011) 201 Taxman 99/12 taxmann.com 287, in which the Hon'ble Delhi High Court observed that the question whether the expenditure was excessive or unreasonable in a given case had to be examined, keeping in mind the actual services for which payment was made, and that, in the process, the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to the assessee from such services was also to be kept in mind. The Hon'ble High Court also cited reference to the decision of the Calcutta High Court in the case of CIT v. Edward Keventer (P.) Ltd. [1972] 86 ITR 370, later affirmed by the Supreme Court in CIT v. Edw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany should be and he is only to judge the legitimacy of the business needs from the angle of a prudent businessman, and (iii) the benefit derived or accruing to the company must also be considered from the angle of a prudent businessman. The Hon'ble Court also observed that 'the term 'benefit' to a company in relation to its business has a very wide connotation and may not necessarily be capable of being accurately measured in terms of pound, shillings and pence in all cases. Both these aspects have to be considered judiciously, dispassionately without any bias of any kind from the view point of a reasonable and honest person in business. On the facts of the case, the High Court held that the Tribunal was not correct in law in upholding the disallowance of ₹ 13.20 lakhs out of the remuneration paid by the assessee to'SP' by invoking the provisions of section 40A(2) of the Act. Accordingly, the High Court deleted the addition made, and allowed the appeal. We, therefore, uphold the action of the ld. CIT(A) in deleting the addition amounting to ₹ 23,23,241/-. Our interference is not called for. This ground of the Revenue also fails. The Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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