2011 (6) TMI 736 - AT - Income Tax

Summary

Issues involved:
The judgment involves the challenge against the deletion of addition of Rs. 4,15,20,000/- on account of Keyman Insurance Premium for assessment year 2006-07.

Summary:

Issue 1: Disallowance of Keyman Insurance Premium
The Assessing Officer (AO) disallowed a portion of the Keyman Insurance Premium claimed by the assessee, citing guidelines from the insurance company. The assessee argued that the insurance policy was accepted by the company and was allowable u/s 31(1) of the Income Tax Act. The CIT(A) accepted the claim, noting that a similar claim in the previous year was also allowed. The Tribunal upheld the CIT(A)'s decision, emphasizing that the insurance policy was valid and not against public policy.

Issue 2: Compliance with Insurance Regulatory Guidelines
The Departmental Representative (DR) contended that the policy was against public policy as it did not comply with guidelines issued by the Insurance Regulatory and Development Agency (IRDA). However, the assessee demonstrated that the policy was approved by seniors and was a valid contract. The Tribunal held that the IRDA circular cited by the DR was not relevant in this case, as the policy was lawful and beneficial for the business.

Issue 3: Tax Treatment of Keyman Insurance Premium
The Tribunal referred to Circular No.762 dated 18-02-1998, which allowed the premium paid on Keyman Insurance Policy as business expenditure. It was clarified that the policy was for the benefit of the firm, not individual partners, and was a revenue expenditure. The Tribunal relied on previous decisions and upheld the deletion of the addition to the premium amount.

In conclusion, the Tribunal dismissed the departmental appeal, affirming the deletion of the addition to the Keyman Insurance Premium, as the policy was found to be valid, beneficial for the business, and compliant with relevant tax regulations.