Sharu Steels (P) Ltd., Ludhiana vs Assessee

M/s Sharu Steels (P) Ltd., Vs. The AC IT, Circle VII, Ludhiana Ludhiana

PAN No.AAICS1296D

(Appellant) (Respondent)

Appellant By : Shri Sudhir Sehgal Respondent By : Smt J yoti Kumari

Date of hearing : 01/06/2015 Date of Pronouncement : 05/06/2015

ORDER

PER T.R.SOOD, A.M.

The appeal by the assessee is directed against the order dated 01.08.2013

of C IT(A)-II, Ludhiana

2. In this appeal the assessee has raised the following grounds:-

1. That the Worthy CIT(A) has erred in confirming the action of the Assessing Officer in reopening the cAse u/s 148 of the Act.

2. (a) that without prejudice to ground No.1 above, the Worthy CIT(A) has erred in confirming the addition of Rs. 20,00,000/- (Twenty lacs) being the Keyman Insurance Premium paid on the lifE of two directors namely Shri Gaurav Jain Rs. 10,00,000/- and Shri N.K.Jain Rs. 10,00,000/- out of keyman Insurance premium Rs.

41,27,000/- paid on the life of three directors.

2 ()b) That the Worthy CIT(A) has wrongly interpreted the Circular No. 726 dated 18.2.1998 of the CBDT regarding admissibility of premium paid on the employees under the Keyman Insurance Policy.

3. Ground No.1 was not pressed before us and, therefore, the same is

dismissed as not pressed.

4. Ground Nos. 2 (a) & (b) : After hearing both the parties we find that during

assessment proceedings it was noticed that assessee has paid a sum of Rs.

41,27,001/- on account of 'keyman insurance policy' in the name of following

persons who were directors of the company.

S.No. Name of the persons Amt (in Rs.) 1. Shri N.K. Jain 10,00,000/- 2 Shri Gaurav Jain 10,00,000/- 3 Shri K.K. Garg 10,00,000/- 4 Shri K.K. Garg 11,27,001/- Total Rs. 41,27,001/-

5. The Assessing Officer noted that since the word 'Keyman' was used in

Circular No. 762 dated 18.2.1998 and, therefore, the same is to be construed as

making reference to a single person, therefore, assessee was asked to justify the

payment on account of 'Keyman insurance premium' in respect of many directors.

In response vide letter dated 5.2.2012 it was stated as under:-

"Sir, during the above said year the Company has paid Keyman Insurance Policy Premium for the three Directors and all such Directors were Keyman of their own fields. The company is having Turnover in Crores and to handle the big Volume of 'the Company the three Directors have been assigned for different fields which, arc as under:-

3 i) Sh.K.K Garg, Director Technical and Worlds, Diploma Elect. Engg.

ii) Sh. N. K. Jain, Director Finance. iii) Shri Gaurav Jain, Director Mar keting & Sales

So, keeping in view the above assigned jobs to each Director all the Directors were the Keyman in their fields and that is the reason the Company has paid Keyman Insurance Premium for the all the above three Directors.

3. Now, coming to the Circular No. 762 dated 18.02. 1998 "A Keyman Insurance Policy, of the Life Insurance. Corporation of India, etc., provides for an Insurance Policy taken by a business organization or a professional organization on the life of an employee, in order to protect the business against the financial loss, which may occur from the employee's premature death. The "Keyman" is an employee or a Director, whose services are perceived to have a significant effect on the profitability, of the business. The premium is paid by the employer." Sir, in the above said Circular the CBDT has categorically has mentioned in the Circular that Premium paid "an the life of an employee" and has not mentioned that on the life of only one employee. So, as per Circular also the company is entitled to claim the Keyman Insurance Policy Premium paid for all the Directors as all are the Keyman of their own fields. So, no disallowance is called for keeping in view the Circular No. 762 dated 18.02.1998.

4.. However, without prejudice to the rights of the assessee it is submitted that Keyman Insurance Premium paid towards the Directors Sh. K.K. Gary totalling Rs.21,27,001/- may please by allowed. The reason for choosing Sh. K.K. Garg, Director is that as he has been assigned the field of technical & works which involves more risks to the life as the chances of accident is more in more risks in comparison to the other Directors and that is the reasons the Company has paid Rs.21,27,001 /-towards Keyman Insurance Premium Policy in comparison to the Directors for whom the Company have paid Rs. 10 Lacs for each Director for the Keyman Insurance Policy Premium. So that is the reason for choosing Sh. K.K. 4

Garg, Directors whose Keyman Insurance Premium paid totalling Rs.21,27,001/~ may please be allowed."

6. The Assessing Officer did not find any force in these submissions and

added a sum of Rs. 31,27,001 after allowing the payment in respect of Shri N.K.

Jain.

7. Before Ld. CIT(A) the submissions made before the Assessing Officer were

reiterated. He did not find force in these submissions and confirmed the

addition.

8. Before us, the Ld. Counsel for the assessee submitted that such insurance

premium was allowed in the case of Laj Exports vs ACIT in ITA No.

668/Chd/2010. In that case also, many partners were involved. Later on, this

decision has been confirmed by the Hon'ble Punjab & Haryana High Court .

9. On the other hand Ld. DR supported the impugned order.

10. We have considered the rival submissions. We find that in case of C IT Vs.

Laj Exports, the Hon'ble Punjab & Haryana High Court in ITA No. 251 of 2012

has dismissed the Revenue's appeal by observing that such payments are

allowable in view of the circular issued by the Central Board of Director Taxes.

Reading of the second para of this order would show that it refers to the partners

of the firm. The highlighted portion clearl y showed that word 'partners' has been

used by the Court which refers to the multiple persons. In any case, in our

opinion, there may be many 'keymen' in a business organization and such

decision has to be taken by the business entit y. Therefore, following the decision

of Hon'ble High Court in the case of CIT v Laj Exports (supra), we decide this

issue in favour of the assessee and we set aside the order of Ld. C IT(A) and 5

direct the Assessing Officer to allow payment of 'keyman insurance' in respect of

all the directors.

11. In the result, appeal is partl y allowed.

Order pronounced in the open Court on 05/06/2015.

Sd/- Sd/-

(BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 5 t h June, 2015 Rkk Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR