No addition shall be made on Supervisory and Risk Management Expenses incurred in Insurance Brokerage Business for Prospective Clients: Delhi HC upholds ITAT Order [Read Order]

In a recent case, the Delhi High Court, while upholding the order of the Income Tax Appellate Tribunal, held that no addition should be made on the supervisory and risk management expenses incurred in the insurance brokerage business for prospective clients.

The writ petition was filed by the Principal Commissioner Of Income Tax (appellant/revenue), challenging the order of ITAT's deletion of the addition made by the Assessing Officer (AO) pertaining to supervisory and risk management expenses. The respondent/assessee, Trinity Insurance Brokers Pvt. Ltd, is in the insurance brokerage business concerning both life and non-life products offered by various insurance companies. They incurred expenses in the insurance brokerage business for prospective clients.

Puneet Rai, senior standing counsel appearing on behalf of the appellant/revenue, stated that the deletion of the addition regarding the amount spent by the respondent/assessee towards supervisory and risk management was contested. Rai, counsel for respondent/assessee, argued that the mentioned expenses were not incurred for its business purposes.

The court observed that the amounts expended by the respondent/assessee towards supervisory and risk management charges were not linked to its business. Furthermore, the court upheld Counsel Rai's submission that while the expenses were incurred for prospective clients, they did not result in the respondent/assessee earning a matching income. Therefore, the appellant/revenue treated the amount as a revenue receipt in the hands of its sister concerns, asserting that the same transaction cannot be treated differently in the hands of the payer, i.e., respondent/assessee.

After analyzing the facts and arguments of both parties, a division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia upheld the order of the Income Tax Appellate Tribunal, stating that no addition should be made on the supervisory and risk management expenses incurred in the insurance brokerage business for prospective clients.

To Read the full text of the Order CLICK HERE

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