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TMI Blog2016 (3) TMI 1225X X X X Extracts X X X X X X X X Extracts X X X X ..... te the same. Otherwise also we see that in the original assessment the assessing officer has placed a specific query regarding the Keyman insurance policy premium paid by the assessee vide its note sheet entry and a detailed reply has been filed by the assessee together with the relevant evidences. Thus the assessing officer has made enquiry regarding the Keyman insurance which had been duly replied by the assessee. The AO was open to the issue of Keyman insurance and has applied his mind while allowing this expenditure to the assessee. The order passed by the CIT under section 263 of the Act is not as per law - Decided in favour of assessee. - ITA No.462/Chd/2011 - - - Dated:- 10-3-2016 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER, AND MS. RANO JAIN, ACCOUNTANT MEMBER For The Appellant : Shri Sudhir Sehgal For The Respondent : Shri Manoj Mishra, CIT DR ORDER PER RANO JAIN, A.M. : This appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax-I, Ludhiana dated 15.03.2011, passed under section 263 of the Income Tax Act, 1961 (in short the Act ). 2. Briefly, the facts of the case are that the assessee filed its re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT that in his order for the earlier Assessment Year, dated 30.3.2010 passed under section 263 of the Act he has accepted the fact that the policy is actually a keyman insurance policy and proceedings under section 263 were dropped on this account. 4. After going through the submissions of the assessee the CIT did not find favour with the same and stated that the facts of the case for assessment year 2005 06 are different from the assessment year 2006 07. He referred to the two circulars issued by IRDA dated 27.04.2005 and 30.01.2006. Referring to these circulars he stated that the insurance authority IRDA had categorically mentioned that an employer buying key man insurance policy for his own benefit cannot have insurable interest beyond a certain cover protecting against death of a key employee and had advised the insurers that where the premium for insurance on the life of an employee is paid by him, the scope of cover is not wider than the term insurance. In view of this, he held that any contribution to key man insurance policy, which is beyond the scope of the IRDA instructions will not qualify deduction because they do not satisfy the condition of a key man insurance po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith this letter. A copy of order sheet was also placed before us whereby vide order sheet noting dated 21.07.2008 a specific query has been raised by the assessing officer and assessee was also asked to file the copy of Keyman insurance together with justification of its claim. 7. As regards the merits of the case the counsel of the assessee drew our attention to the copies of premium receipts filed with the paper book whereby it was clearly mentioned that the life assured was that of the partners of the firm, payment was being made by the firm and therefore it was a Keyman insurance policy. Further it was also argued that only on the basis of circulars issued by the insurance regulatory authority, the CIT was not justified in invoking the provisions of section 263 of the Act. 8. Ld. DR relied on the order of the CIT and further stated that since the insurance policies were in contravention of the terms as declared by the circular of the IRDA, the insurance premium paid in pursuance of such policies cannot be allowed to the assessee. 9. We have heard the Ld. representatives of both the parties, perused the findings of the authorities below and considered the material avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave a significant effect on the profitability of the business. The premium is paid by the employer. 14.2 There were some doubts on the taxability of the income including bonus, etc, from such policy and also regarding the treatment of the premium paid-whether it should be allowed as a capital expenditure or as a revenue expenditure. The Act, therefore, lays down the tax treatment of the Keyman Insurance Policy. 14.3 Clause (10D) of section 10 of the Income-tax Act, exempts certain income from tax. The Act amends the clause (10D) of section 10 may exclude any sum received under a Keyman Insurance Policy including the sum allocated by way of bonus on such policy for this purpose. 14.4 The Act also lays down that the sums received by the said organisation on such policies, be taxed as business profit; the surrender value of the policy, endorsed in favour of the employee (keyman), or the sum received by him at the time of retirement be taken as profits in lieu of salary for tax purposes; and in case of other persons having no employer-employee relationship, the surrender value of the policy or the sum received under the policy be taken as income from other sources a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We are in total disagreement with the CIT in holding that the premium paid by the assessee on the Keyman insurance policies are not allowable in view of the fact that the policies are not the valid policies. The policies are issued by the insurer and premiums are being paid as per the policy terms and conditions. There is no condition of the Income Tax Act which has been not complied with while making payment of these premiums. Therefore the premium paid by the assessee on the life insurance of its key man being the partner of the firm are therefore allowable expenditure. 12. Since the issue of allowability of premium on accrual basis has not been dealt with by the CIT in his order, we do not find any need to adjudicate the same. Otherwise also we see that in the original assessment the assessing officer has placed a specific query regarding the Keyman insurance policy premium paid by the assessee vide its note sheet entry and a detailed reply has been filed by the assessee together with the relevant evidences. In view of this we see that the assessing officer has made enquiry regarding the Keyman insurance which had been duly replied by the assessee. The AO was open to the issu ..... 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