TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 1431
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....way of this consolidated and common order for the sake of convenience and judicial consistency. 2. Facts of the Case 2.1 The assessee is a private limited company engaged in the business of real estate and construction. A search and seizure action under section 132 of the Act was carried out on 06.05.2019 in the case of the Mahendra Patel group, including the assessee. In consequence of such search, notices under section 153A were issued by the Assessing Officer on 20.11.2020 for A.Ys. 2014-15 to 2019-20. In compliance, the assessee filed returns of income under section 153A on 18.01.2021, in each year declaring income in accordance with the earlier filed returns under section 139(1). For A.Y. 2020-21, no notice under section 153A was issued; the assessment was completed under section 143(3), based on return filed on 31.10.2020 declaring total income of Rs. 46,16,990/-. The Assessing Officer completed assessments for all six years under scrutiny on 30.09.2021. 2.2 Pursuant to the search, statements of Shri Vishnu P. Patel, an employee of the assessee group, were recorded on oath on 06.05.2019. In his statement, he admitted that the entries in the seized diaries were made at the ....
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....n the company. The AO therefore held that the insurance premium was not allowable under section 37(1) of the Act and disallowed the same as personal expenditure. 2.4 Further, the AO also noted from the tax audit report and Form 3CD that in A.Ys. 2015-16 to 2017-18, there were delays in the deposit of employees' contributions to the provident fund beyond the due date prescribed under the respective welfare statutes. Relying on the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corporation (GSRTC) [(2014) 366 ITR 170 (Guj)], the AO disallowed the employees' contribution under section 36(1)(va) r.w.s. 2(24)(x) in each relevant year, to the extent it was deposited after the due date under the EPF Act. 2.4 The summary of all the assessments is tabulate as below: Particulars A.Y.2015- 16 A.Y. 2016- 17 A.Y.2017- 18 A.Y. 2018- 19 A.Y.2019- 20 A.Y.2020-21 ROI filed u/s 139 (Date) 01.10.2015 16.10.2016 18.10.2017 28.09.2018 27.09.2019 31.10.2020 ROI filed u/s 153A (Date) 18.01.2021 18.01.2021 18.01.2021 18.01.2021 18.01.2021 Not applicable Declared Income (Rs.) 1,83,67,460 2,39,02,040 61,23,340 33,19,090 Nil (Los....
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....quent confirmation by the director, collectively established that the assessee had received unaccounted cash (commonly referred to as "on- money") from certain flat purchasers in respect of specific units in the projects. 2.8 As regards the disallowance under section 36(1)(va), the Ld. CIT(A) upheld the AO's action by placing reliance on binding judgment of the Hon'ble jurisdictional High Court in the case of GSRTC (supra), holding that any delay beyond the statutory due date under the relevant labour laws disentitles deduction. 3. Aggrieved by the orders of the CIT(A) the assessee is in appeal before us raising following common grounds of appeal: 1. On the facts and in the circumstances of the case and in law, the ld.CIT(A) has grossly erred in holding that manually signing or affixing DSC for passing the assessment order is not mandatory and the Ld. CIT(A)has also grossly erred in holding that an order will be considered authenticated if the name and office of the designated income-tax authority is printed, stamped or otherwise written. 2. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has grossly erred in holding that lack of affixing DSC or s....
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....o the provident fund, beyond the due date under relevant welfare legislation, is sustainable in law. 3. Disallowance under section 37(1) - Whether the disallowance of insurance premium paid towards life policies in the names of directors and family members is justified, or whether the same qualifies as allowable business expenditure in the nature of keyman insurance. 4. Challenge to validity of assessment order for want of digital signature: 4.1 During the course of hearing, the learned Authorised Representative reiterated the submissions made before the learned CIT(A) that the assessment order passed under section 153A of the Act was not digitally signed by the Assessing Officer and hence was not valid in the eyes of law. It was argued that such omission renders the order void ab initio, being in violation of section 282A of the Act read with Rule 127A of the Income-tax Rules, 1962. The learned AR placed reliance on CBDT Instruction No. 6/2017 and certain judicial precedents to submit that affixing of Digital Signature Certificate (DSC) is mandatory for validity of an electronically communicated order. 4.2 We have carefully considered the submissions of the learned AR and als....
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.... revenue expenditure deductible under section 37(1) of the Act. Following are the assessment year-wise details of such expenditure: Policy No. Insured Person AY 2015-16 AY 2016-17 AY 2017-18 AY 2018-19 AY 2019-20 AY 2020-1 400718466 Harendra Mahendrabhai Patel - - - 2,50,000 2,50,000 2,50,000 209071695 Harendra Mahendrabhai Patel 5,15,450 5,07,725 4,60,251 5,09,375 4,63,496 4,63,496 400718474 Hemanthbhai Mahendrabhai Patel - - - 2,50,000 2,50,000 2,50,000 250362837 Hemanthbhai Mahendrabhai Patel 5,15,450 5,07,725 4,60,251 5,09,375 4,63,496 4,63,496 Total 10,30,900 10,15,450 9,20,502 15,18,750 12,91,690 12,49,397 6.2 In response to queries raised during the assessment, the assessee submitted that the insurance policies were taken as a measure of business risk mitigation, and the expenditure was in the nature of keyman insurance for the directors who were actively involved in the company's operations. However, the AO rejected the assessee's claim observing that insurance policies were endowment-type policies taken in the individual names of directors. The AO also noted that the assessee company is having 100% shareholding of the....
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.... that the company was the sole beneficiary under the policies or that the same were exclusively used for business purposes. On the contrary, the policies appeared to be of personal nature taken in the names of the directors and lacked the essential features of a Keyman Insurance Policy. 6.5 Thus, the CIT(A) held that the assessee had failed to prove the business expediency of the said expenditure, and therefore, the premium paid on such policies could not be allowed as business expenditure under section 37(1) of the Act. Accordingly, the disallowance made by the Assessing Officer was confirmed by the CIT(A). 7. We have carefully considered the rival contentions and perused the assessment order, the appellate order passed by the Ld. CIT(A), and the material placed on record. 7.1 The Assessing Officer disallowed the insurance premium expenditure claimed under the head "Miscellaneous Expenses" by the assessee, on the ground that the insurance policies were endowment policies in the names of directors and their family members. The AO concluded that such expenditure was not incurred wholly and exclusively for the purpose of business and therefore did not qualify for deduction under s....
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....interest in the company. 7.5 In the present case, it is not disputed that the insured persons were active directors engaged in the core management and affairs of the assessee-company. The assessee has consistently contended that the insurance policies were taken to safeguard the company against potential financial loss arising from the untimely demise of such key managerial personnel. Significantly, the policy documents placed on record clearly show that the assessee-company itself is the proposer and policyholder, and the policies were issued on the lives of the directors purely in their capacity as key persons. In such circumstances, the mere fact that the life insured is a director does not render the expenditure personal in nature. 7.6 The company, as employer and policyholder, is entitled in law to insure the lives of its key functionaries for business protection, and there exists no statutory bar in treating the premium paid on such policies, structured with the company as the sole beneficiary as a deductible business expenditure under section 37(1) of the Act. It is a settled position in company law and tax jurisprudence that there is employer-employee relationship between....
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....paid on the Keyman Insurance Policy is allowed as business expenditure. Finance (No. 2), Act, 1996 14.5 The amendments take effect from the 1st day of October, 1996. [Sections 3, 4, 8, 10 & 21] 7.7 This establishes that a director qualifies as a keyman, even without a strict employer-employee relationship, provided his services materially impact the profitability of the business, the policy must be taken by the employer (company) and on the life of the key person, and the premium must be paid by the employer with the objective to mitigate business risk, not to provide personal benefit. 7.8 It is not disputed that the policies in question are endowment-type life insurance policies issued by Max Life Insurance Ltd. and not term insurance policies. However, the type of the policy per se is not a bar to it being treated as a Keyman Insurance Policy for the purposes of section 37(1) of the Income-tax Act. The CBDT Circular No. 762 dated 18.02.1998 does not stipulate that only term insurance policies qualify as Keyman Insurance Policies. What is material is the purpose and structure of the policy. As clarified in paragraph 14.1 of the Circular: "A Keyman insurance policy... provi....
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....e genuineness of the payment or the identity of the insurance provider. The sole basis for rejection is the nomenclature in proposal forms and absence of explicit mention of the word "Keyman". In our view, these are technical and hyper-formalistic grounds and cannot override the commercial realities and established principles of law. Further, the onus on the assessee to prove business purpose has been adequately discharged through submission of policy copies, payment proofs, and explanation of the business rationale. The Revenue has not brought any material to demonstrate that the expenditure was not incurred for the purposes of business. 7.12 We have also noted the judgement relied upon by the assessee before CIT(A), where the Hon'ble Gujarat High Court in the case of CIT v. Gem Art [22 taxmann.com 243], [TS-5182-HC-2012(Gujarat)-O], held that premium paid on Keyman Insurance Policies taken even in the names of partners is an allowable deduction under section 37(1). 7.13 While we find merit in the assessee's contention that the insurance policies in question were procured in the capacity of employer to mitigate the business risk associated with the untimely demise of key manager....
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....s have been assigned by the assessee company to the respective directors during the term of the policy, then such assignment effectively transfers the beneficial interest and entitlements under the policy to the directors personally. In such circumstances, the policy ceases to serve its intended commercial purpose of protecting the business interest of the employer-company, and the expenditure loses its nexus with business exigency. Consequently, the deduction of the premium paid on such policies under section 37(1) of the Act would not be admissible, as the payment would partake the nature of a personal benefit conferred upon the director. 7.19 However, an exception to the above consequence may arise where the assignment of the policy to the director is accompanied by due treatment of the benefit arising therefrom as a taxable perquisite in the hands of the director under the head "profits in lieu of salary". This position finds statutory recognition in para 14.4 of the Finance (No. 2) Act, 1996, which lays down that where a Keyman Insurance Policy is endorsed or assigned in favour of the employee (i.e., the keyman), the surrender value or the maturity amount so received is taxab....