Asstt. CIT v. Agrawal Enterprises

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The Tax Publishers2013 TaxPub(DT) 1335 (Pune-Trib) : (2013) 053 (II) ITCL 0208 : (2013) 154 TTJ 0012 INCOME TAX ACT, 1961 --Business expenditureAllowability Keyman insurance premium paid on life of partners--Assessee-firm claimed Keyman insurance premium paid on the life of two partners under section 37(1) since it was incurred by the firm to protect the business from loss which might arise due to death of partner. It was submitted that the beneficiary of the insurance policy was the firm itself, and not the individual partners, and therefore, it was not an expenditure related to the partners. Assessing officer observed that the firm as a legal entity had no existence, apart from its partners and, therefore, disallowed 20 per cent of the premium on the basis that the insurance premium expenditure was personal expenses of the partners. The Commissioner (Appeals) deleted the disallowance referring to CBDT Circular No. 762, dt. 18-2-1998 and the Explanation given below section 10(10D). Revenue filed appeal against the order of Commissioner (Appeals). *Held :* Commissioner (Appeals) haddeleted the disallowance made by assessing officer on ad hoc basis at 20 per cent of the premium paid towards Keyman Insurance Policy of partners taking support of CBDT Circular No. 762, dt. 18-2-1998 explaining the allowability of the premium payment of Keyman Insurance Policy of the partners along with the taxation of sums received under the Keyman Insurance Policy. Therefore, keyman insurance premium paid on the life of partners was admissible deduction in the hands of the firm. Income Tax Act, 1961, Section 37(1) INCOME TAX ACT, 1961 --Valuation of closing stock--Accounting method Weighted average cost method--The closing stock of shares and bonds was valued at cost which was calculated by weighted average cost of purchases. Based on that method, the opening stock would increase by Rs. 91,83,954 and closing stock would be increased by Rs. 42,48,052. assessing officer made addition of Rs. 42,48,052 on account of undervaluation of closing stock rejecting the weighted average method for cost which was consistently being adopted by assessee since its inception. On appeal, Commissioner (Appeals) deleted the addition, against which revenue preferred an appeal. *Held:* The perception of the assessing officer that the value taken on the basis of weighted average cost method was notional, was incorrect because the average cost was worked out by considering the total cost actually paid for purchasing the shares and divided by number of shares. Assessee had been following that method for last 16 years. Placing reliance on the principle of cost or market price whichever is less, for determining the closing stock as per cost, assessee had been employing the weighted average cost method. Further, it was in consonance with AS-2 for valuation of inventories. In respect of stocks and shares held in Demat form, the physical identity of the scrips was lost, and there was no individual identification, therefore, actual cost method could not be applied, and hence, the order of Commissioner (Appeals) was upheld. Income Tax Act, 1961, Section 145A IN THE ITAT, Pune B Bench I. C. Sudhir, J.M. & D. Karunakara Rao, A.M. Asstt. CIT v. Agrawal Enterprises ITA No. 1201/Pn/2009 A.Y. 2005-06 8 November, 2011 Income-tax Act, 1961, s. 37(1); In favour of: Assessee Circular No. 762, dt. 18th Feb., 1998 Appellant by : S. Praveena SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 1335 (Pune-Trib) : (2013) 053 (II) ITCL 0208 : (2013) 154 TTJ 0012

INCOME TAX ACT, 1961

--Business expenditureAllowability Keyman insurance premium paid on life of partners--Assessee-firm claimed Keyman insurance premium paid on the life of two partners under section 37(1) since it was incurred by the firm to protect the business from loss which might arise due to death of partner. It was submitted that the beneficiary of the insurance policy was the firm itself, and not the individual partners, and therefore, it was not an expenditure related to the partners. Assessing officer observed that the firm as a legal entity had no existence, apart from its partners and, therefore, disallowed 20 per cent of the premium on the basis that the insurance premium expenditure was personal expenses of the partners. The Commissioner (Appeals) deleted the disallowance referring to CBDT Circular No. 762, dt. 18-2-1998 and the Explanation given below section 10(10D). Revenue filed appeal against the order of Commissioner (Appeals). Held : Commissioner (Appeals) haddeleted the disallowance made by assessing officer on ad hoc basis at 20 per cent of the premium paid towards Keyman Insurance Policy of partners taking support of CBDT Circular No. 762, dt. 18-2-1998 explaining the allowability of the premium payment of Keyman Insurance Policy of the partners along with the taxation of sums received under the Keyman Insurance Policy. Therefore, keyman insurance premium paid on the life of partners was admissible deduction in the hands of the firm.

Income Tax Act, 1961, Section 37(1)

INCOME TAX ACT, 1961

--Valuation of closing stock--Accounting method Weighted average cost method--The closing stock of shares and bonds was valued at cost which was calculated by weighted average cost of purchases. Based on that method, the opening stock would increase by Rs. 91,83,954 and closing stock would be increased by Rs. 42,48,052. assessing officer made addition of Rs. 42,48,052 on account of undervaluation of closing stock rejecting the weighted average method for cost which was consistently being adopted by assessee since its inception. On appeal, Commissioner (Appeals) deleted the addition, against which revenue preferred an appeal. Held: The perception of the assessing officer that the value taken on the basis of weighted average cost method was notional, was incorrect because the average cost was worked out by considering the total cost actually paid for purchasing the shares and divided by number of shares. Assessee had been following that method for last 16 years. Placing reliance on the principle of cost or market price whichever is less, for determining the closing stock as per cost, assessee had been employing the weighted average cost method. Further, it was in consonance with AS-2 for valuation of inventories. In respect of stocks and shares held in Demat form, the physical identity of the scrips was lost, and there was no individual identification, therefore, actual cost method could not be applied, and hence, the order of Commissioner (Appeals) was upheld.

Income Tax Act, 1961, Section 145A

IN THE ITAT, Pune B Bench

I. C. Sudhir, J.M. & D. Karunakara Rao, A.M.

Asstt. CIT v. Agrawal Enterprises

ITA No. 1201/Pn/2009

A.Y. 2005-06

8 November, 2011

Income-tax Act, 1961, s. 37(1); In favour of: Assessee

Circular No. 762, dt. 18th Feb., 1998

Appellant by : S. Praveena