2015 (1) TMI 1070 - HC - Income Tax

Keyman Insurance Premium - insurance cover for the life of two partners - CIT(A) deleted the addition - Held that - The record indicated that the partnership firm comprised of two partners. It was dealing in securities and shares. The policy was obtained for the benefit of the firm inasmuch as the firm s business would be adversely affected, in the event, one of the partners met with an untimely death. It is, therefore, concluded by the Tribunal that such being the nature of the expenses and the business of the firm being of dealing in securities for protecting it this policy was obtained. The premium expenditure was incurred in the above factual backdrop. There was no basis, therefore, for making any deduction or disallowance. The disallowance was purely a matter of conjecture and surmise on the part of the Assessing Officer. It is in these circumstances the Commissioner correctly deleted this disallowance. Decided in favour of assessee. Under valuation of closing stock of shares and bonds - Held that - We find that when the cost actually paid is considered, there is no concept of any notional valuation. The average cost is worked out by considering the total cost actually paid for purchasing the shares and the dividend by the number of shares. It has been held that the Assessee has been following this method of valuation of closing stock for the last 16 years. In these circumstances, unless some distinguishing features were on record, the Assessing Officer should not have interfered with this method of valuation, is the finding which the Tribunal renders. It concurs fully with the finding of the Commissioner when he holds that the method of valuation or stock followed by the Assessee was an accepted method and in consonance with law as well as Accounting Standards. We do not find that such a finding of fact rendered by the Tribunal can be termed as perverse. - Decided in favour of assessee.

Summary

Issues:
1. Deletion of addition of Keyman Insurance Premium under section 37(1) of the Act
2. Addition on account of under valuation of closing stock of shares and bonds

Analysis:
1. Deletion of addition of Keyman Insurance Premium:
The Revenue challenged the deletion of addition of Keyman Insurance Premium by the Commissioner of Income Tax (Appeals) under section 37(1) of the Act. The Revenue argued that the insurance premium expenditure was personal in nature and of the partners, not solely for the business of the Assessee's firm. The Tribunal, however, held that the insurance policy was taken by the firm on the life of the partners to protect the business from loss in case of their death. The Tribunal found that the premium expenditure was related to the partners and not personal expenses. The Commissioner and the Tribunal both concluded that the disallowance made by the Assessing Officer was unfounded and based on conjecture. The Tribunal upheld the Commissioner's decision, stating that the premium expenditure was allowable as business expenditure. The Court found that the factual position supported the Tribunal's decision, and no substantial question of law arose from this issue.

2. Addition on account of under valuation of closing stock:
The Revenue also challenged the addition on account of under valuation of closing stock of shares and bonds. The Tribunal found that the Assessee's method of valuation of closing stock using the "weighted average method" was acceptable and had been followed for 16 years. The Tribunal reasoned that unless some distinguishing features were present, the Assessing Officer should not have interfered with this method of valuation. The Tribunal concluded that the Assessee's method of valuation was in line with Accounting Standards and the law. The Court agreed with the Tribunal's finding, stating that it was not perverse and was supported by the factual record. Consequently, the Court dismissed the Appeal on this issue as well, as no substantial question of law was raised.

In conclusion, the High Court of Bombay upheld the decisions of the Commissioner and the Tribunal in both issues raised by the Revenue. The Appeal was dismissed, and no costs were awarded.