2012 (11) TMI 798 - AT - Income Tax

ITAT upholds CIT(A)'s decisions for assessee, allowing keyman insurance expense & overturning sales commission disallowance.

The Asst. Commissioner of Income-tax, Circle-6, Surat Versus M/s Shree Saraswati Medical Agency

The Asst. Commissioner of Income-tax, Circle-6, Surat Versus M/s Shree Saraswati Medical Agency - TMI Issues:1. Deletion of addition of insurance premium under Keyman Insurance Scheme.2. Deletion of disallowance of sales commission.3. Deletion of disallowance of salary payment.Deletion of addition of insurance premium under Keyman Insurance Scheme:The issue revolved around the AO's disallowance of an insurance premium claimed as revenue expenditure by the assessee under the Keyman Insurance Scheme. The AO contended that the benefit was capital in nature, relying on legal precedents and circulars. However, the CIT(A) directed deletion of the addition, citing amendments in the relevant sections and the IRDA Act, allowing the premium as an expense under Section 37(1) of the IT Act. The ITAT upheld the CIT(A)'s decision, referencing a previous case where a similar addition was deleted, thus ruling in favor of the assessee.Deletion of disallowance of sales commission:The AO disallowed a sales commission paid by the assessee, questioning the lack of proof of services rendered. The CIT(A) overturned this disallowance, noting that the commission was paid to increase sales, following common practices in the wholesale medicine market. The CIT(A) found the explanation provided by the assessee valid, supported by the fact that the commission was distributed equally among recipients and that the payment was genuine. The ITAT upheld the CIT(A)'s decision, emphasizing the genuineness of the commission payment.Deletion of disallowance of salary payment:The AO disallowed a portion of the salary payment made in cash due to lack of verifiable records post a flood incident. The CIT(A) disagreed with this disallowance, stating that the payment in cash to low-wage employees was common practice and not subject to mandatory cheque payment. The CIT(A) found the AO's reasoning unconvincing and directed deletion of the disallowance. The ITAT upheld the CIT(A)'s decision, noting that the AO's rationale was not sustainable, as there was no statutory requirement for low-wage salary payments to be made by cheque.In conclusion, the ITAT dismissed the Revenue's appeal in all three grounds, upholding the CIT(A)'s decisions in favor of the assessee regarding the deletion of the insurance premium addition, sales commission disallowance, and salary payment disallowance.