2016 (3) TMI 1225 - AT - Income Tax

Tribunal overturns Commissioner's order, allows deduction for Keyman Insurance Premiums.

M/s Ramesh Steels Versus The A.C.I.T., Circle-1, Ludhiana

M/s Ramesh Steels Versus The A.C.I.T., Circle-1, Ludhiana - Tmi Issues Involved:1. Jurisdiction under Section 263 of the Income Tax Act, 1961.2. Validity of Keyman Insurance Policy and its deduction.3. Allegation of change of opinion by the Commissioner of Income Tax (CIT).4. Relevance of previous CIT's decision on the same issue.5. Applicability of Insurance Regulatory and Development Authority (IRDA) circulars.6. Adequacy of enquiry by the Assessing Officer (AO).Detailed Analysis:1. Jurisdiction under Section 263 of the Income Tax Act, 1961:The CIT issued a notice under Section 263, questioning the deduction of Rs. 14,99,998/- claimed as insurance charges for Keyman Insurance Policies. The CIT considered the assessment order erroneous and prejudicial to the interest of revenue. The assessee argued that the AO had already examined this issue during the original assessment proceedings, thus CIT's assumption of jurisdiction under Section 263 was erroneous.2. Validity of Keyman Insurance Policy and its deduction:The CIT disallowed the deduction claimed for Keyman Insurance Policies, arguing that the policies did not qualify as Keyman Insurance Policies according to IRDA guidelines. The assessee contended that the policies were indeed Keyman Insurance Policies, as evidenced by certificates from ICICI Prudential and that the premium paid should be allowed as a business expenditure under Section 10(10D) and Circular No. 762 dated 18.02.1998.3. Allegation of change of opinion by the Commissioner of Income Tax (CIT):The assessee argued that the CIT's action was based on a change of opinion, which is not permissible. The CIT had previously accepted the same policies as Keyman Insurance Policies in the earlier assessment year, thus contradicting his current stance.4. Relevance of previous CIT's decision on the same issue:The assessee highlighted that in the previous assessment year, the CIT had dropped proceedings under Section 263 on the same issue, accepting the policies as Keyman Insurance Policies. This inconsistency was pointed out to argue against the CIT's current decision.5. Applicability of Insurance Regulatory and Development Authority (IRDA) circulars:The CIT referred to IRDA circulars which stated that Keyman Insurance Policies should only be term insurance policies. The CIT used these circulars to argue that the policies in question did not qualify for deduction. However, the tribunal noted that the Income Tax Act is an independent code and the allowability of expenditure should be based on its provisions, not on IRDA guidelines.6. Adequacy of enquiry by the Assessing Officer (AO):The tribunal observed that the AO had made specific enquiries about the Keyman Insurance Policies during the original assessment. The AO had received detailed replies and relevant evidence from the assessee. Thus, it was concluded that the AO had applied his mind and the enquiry was adequate.Conclusion:The tribunal held that the CIT's order under Section 263 was not in accordance with the law and quashed it. The tribunal emphasized that the AO had conducted a proper enquiry and that the Keyman Insurance Policies were valid for deduction under the Income Tax Act. The appeal of the assessee was allowed, and the tribunal concluded that the premium paid for the Keyman Insurance Policies was an allowable business expenditure.