2017 (2) TMI 1106 - HC - Income Tax

Additions on account of Keyman Insurance Policy on account of disallowance of commission under Section 40A(2)(a) and 40A(2)(b) - Held that - Tribunal has taken into account the position of two Directors and they were certain key-persons keeping in view Sec.40(2) and has arrived arrived at a conclusion that the Insurance Policy could not have been rejected in the manner and method it has been rejected and he has upheld the view taken by the CIT(A). This Court is of the considered opinion that the findings of fact arrived at by the Income Tax Appellate Tribunal are purely findings of facts and no substantial question of law arises in the present case. In absence of any substantial question of law, the question of interference by this court in the peculiar facts and circumstances of the case, does not arise.

Summary

Issues Involved:
1. Addition on account of Keyman Insurance Policy.
2. Disallowance of commission expenses under Section 40A(2)(a) and 40A(2)(b).
3. Addition on account of other expenses.

Issue-wise Detailed Analysis:

1. Addition on account of Keyman Insurance Policy:

The assessee Company, engaged in the manufacture of HDP Containers and PP closers, filed a return declaring a total income of ?6,52,57,590/-. The Assessing Officer (AO) made an addition of ?49,75,054/- on account of Keyman Insurance Policy. The CIT(A) deleted this addition, noting that the documents regarding expenses were produced and held that the amount of withdrawal/redemption would be the income of the Company. The ITAT upheld this view, stating that the Directors, being highly qualified, played vital roles in the Company. The policy was taken to protect the business against financial loss due to the premature death or termination of employment of these key persons. The Tribunal referenced CBDT Circular no. 762 and relevant case law, concluding that the premium paid on the Keyman Insurance Policy is allowable as business expenditure. It emphasized that the maturity amount under the policy is taxable, thus disallowing the premium would result in double taxation. The Tribunal found no requirement for interference, affirming the CIT(A)'s decision.

2. Disallowance of Commission Expenses under Section 40A(2)(a) and 40A(2)(b):

The AO disallowed ?23,23,241/- out of the commission paid to M/s. Padma Polytex (India) Pvt. Ltd. and M/s. Arpit Plastics Pvt. Ltd., citing excessive rates compared to other parties. The CIT(A) deleted this addition, emphasizing that the AO did not consider the nature and scope of work and services rendered. The CIT(A) found that the assessee met the criteria of fair market value and legitimate business needs. The ITAT upheld this, noting that the commission paid was justified by the services rendered, such as achieving higher sales and shorter payment terms. The Tribunal referenced case law, including Hive Communication (P.) Ltd. v. CIT and CIT v. Edward Keventer (P.) Ltd., to support its decision that the AO's comparison was flawed and the disallowance was unwarranted. The Tribunal concluded that the assessee had proved the bona fide nature of the expenses, and no disallowance was warranted.

3. Addition on Account of Other Expenses:

The AO made an addition of ?4,25,032/- on account of other expenses. The CIT(A) restricted this addition to ?2,12,515/-. The ITAT upheld the CIT(A)'s decision, finding no substantial question of law arising from the facts of the case. The Tribunal concluded that the findings of fact by the CIT(A) and ITAT were correct and did not warrant interference.

Conclusion:

The High Court dismissed the appeal, stating that the findings of fact by the Income Tax Appellate Tribunal were correct and no substantial question of law arose. Therefore, there was no basis for interference by the court. The appeal was accordingly dismissed.