2025 (8) TMI 1431 - AT - Income Tax

Official ITBA email suffices despite no DSC; lack of DSC curable under s.292B; s.37(1) insurance premium deduction remitted

Mahendra Patel Builders P Ltd Versus The DCIT, Cent. Cir. 2, Vadodara

Mahendra Patel Builders P Ltd Versus The DCIT, Cent. Cir. 2, Vadodara - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether an assessment order passed under section 153A/143(3) without affixation of Digital Signature Certificate (DSC) or manual signature by the Assessing Officer is legally valid or void ab initio. 2. Whether additions under section 36(1)(va) on account of delayed deposit of employees' contributions to provident fund (beyond statutory due date) are sustainable - and whether this ground is pressed before the Tribunal. 3. Whether premiums paid by the company for life insurance policies issued in the names of directors and relatives qualify as allowable business expenditure under section 37(1) as Keyman Insurance, or are disallowable as personal expenditure; and whether any subsequent assignment or endorsement of policies affects allowability. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of assessment order without DSC/manual signature Legal framework: Section 282A and Rule 127A govern authentication of electronic records and communications; section 292B provides for curing of certain defects. CBDT instructions (e.g., Instruction No. 6/2017) relate to e-communication and DSC use. Precedent treatment: The appellate authority applied Rule 127A(1) concept that an electronic record bearing name and office of the income-tax authority and sent from the designated system/address is deemed authenticated; absence of DSC has been treated as curable irregularity under section 292B in the impugned reasoning. Interpretation and reasoning: The Tribunal accepted the appellate finding that the order was issued via the ITBA system from the official departmental email, bore the name and designation of the AO and was uploaded to the assessee's e-filing account. Rule 127A(1) was read to permit authentication by identification of origin and office rather than making DSC the sole mode. The absence of DSC was characterized as an irregularity curable under section 292B rather than a jurisdiction-vitiating defect. Ratio vs. Obiter: Ratio - authentication under section 282A/Rule 127A can be satisfied by official origin and identification from designated system/address; absence of DSC does not render order void ab initio but is a curable defect under section 292B. Obiter - reliance on CBDT instruction and practice observations about mandatory DSC in other contexts may be persuasive but were not treated as overriding statutory interpretation. Conclusion: The assessment orders dated 30.09.2021 without affixed DSC or manual signature are valid; grounds challenging validity for want of DSC are dismissed in all appeals. Issue 2 - Disallowance under section 36(1)(va) for delayed EPF deposit Legal framework: Section 36(1)(va) (read with definition in section 2(24)(x)) disallows deduction for employee contributions to provident fund not deposited by employer in prescribed time; statutory due dates under the EPF Act are material. Precedent treatment: The Tribunal noted binding authority of the jurisdictional High Court (referred to in the assessment reasoning) that delay beyond statutory due date disentitles deduction; the revenue relied on that precedent and the CIT(A) sustained the AO. Interpretation and reasoning: The assessee's authorised representative informed the Tribunal that, in view of binding decisions of higher courts, the grievance regarding disallowance under section 36(1)(va) was not being pressed before the Tribunal. Having not pressed the ground, the Tribunal treated it as dismissed. Ratio vs. Obiter: Ratio - where assessee does not press a ground in view of binding precedent, Tribunal will dismiss the ground as not pressed. Obiter - none relevant. Conclusion: Ground challenging disallowance under section 36(1)(va) is not pressed and is dismissed in all appeals. Issue 3 - Disallowance under section 37(1): Allowability of insurance premiums as Keyman Insurance Legal framework: Section 37(1) permits deduction of business expenditures incurred wholly and exclusively for business purposes. CBDT Circular No. 762 (18.02.1998) and amendments effected by Finance (No.2) Act, 1996 (clauses relating to Keyman Insurance and section 10(10D) explanation) recognise premium on Keyman Insurance as allowable; tax jurisprudence applies substance-over-form, employer as proposer/beneficiary, and commercial expediency tests. Assignment/endorsement affecting beneficiary rights can alter tax treatment (surrender/maturity may be taxable in employee's hands as per statute). Precedent treatment: The CIT(A) and AO relied on form/terminology (proposal form marked 'saving'/'E/E' and absence of explicit 'Keyman' designation) and the fact policies were endowment in nature and in names of directors, concluding disallowance. The assessee relied on CBDT Circular and jurisprudence (including a High Court decision treating similar premiums as allowable) to argue allowance. The Tribunal criticized reliance on form over substance and cited the settled principle that the nomenclature in proposal forms is not decisive. Interpretation and reasoning: The Tribunal held that the decisive inquiries are (a) whether the company is the proposer/policyholder and beneficiary, (b) whether insured persons are key to business, and (c) whether the premium was paid to mitigate business risk. The Tribunal found that policy documents showed the company as proposer/policyholder and that insured persons were active directors - factors favouring allowability. The type of policy (endowment v. term) was held irrelevant per se. However, the Tribunal identified a critical unresolved factual issue: whether any assignment of the policy occurred during its term transferring beneficial rights to the insured/director. Assignment would change the policy's character to personal and disentitle deduction unless the benefit was taxed as perquisite in the director's hands (in which case deduction may still be allowable subject to correct treatment). Because no conclusive evidence concerning assignment was before the Tribunal, the Tribunal remanded the matter to the AO for verification of assignment status and for a speaking order after giving the assessee opportunity to produce policy status reports, assignment endorsements (if any), and insurer confirmations. Ratio vs. Obiter: Ratio - (1) allowability under section 37(1) of premiums for Keyman Insurance depends on substance: employer as proposer/beneficiary and commercial expediency, not merely nomenclature in proposal forms; (2) endowment character of policy does not ipso facto bar Keyman treatment; (3) assignment of policy during its term alters tax character and must be verified; remand for factual verification is appropriate. Obiter - commentary on corporate veil in closely held companies and rejection of hyper-formalistic reliance on proposal form terminology. Conclusion: The Tribunal found merit in the assessee's claim on principle and directed remand to the Assessing Officer to determine (with evidence) whether the policies remained unassigned and continued to vest benefits with the company, or were assigned (and, if assigned, whether resulting benefits were appropriately taxed as perquisites). The disallowance under section 37(1) was set aside for remand and will be adjudicated after verification; the ground is allowed for statistical purposes and restored to the file of the AO for fresh consideration. Overall Conclusion The Tribunal dismissed the challenge to validity of assessment orders for want of DSC; treated EPF delay ground as not pressed and dismissed it; allowed the Keyman-insurance point in part by remanding to the Assessing Officer for specific factual verification regarding assignment/beneficial ownership of the policies and directed fresh speaking decisions on that limited issue. Appeals are partly allowed for statistical purposes.