Insurance premium paid for partner of the firm held as allowable expenditure

Insurance premium paid for partner of firm held allowable expenditure as it was incurred as a condition for availing business loan – ITAT

In a recent judgment, ITAT Mumbai has held that insurance premium paid on life insurance of partner of the firm was allowable expenditure as it was incurred for availing business loan

ABCAUS Case Law Citation:
4744 (2025) (09) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in upholding disallowance of Rs. 2 Lakhs being insurance premium paid by appellant assessee on insurance policy of one of the partner.

The assessee was a partnership firm engaged in the business of providing call centre facilities and leasing out premises.

During the assessment proceedings, The Assessing Officer (AO) observed that assessee had claimed business expenditure of an amount of INR 2 lakh was paid by the assessee as insurance premium in respect of an insurance policy of one of the partners. Accordingly, the assessee was asked as to explain why the said expenditure is allowable.

In response, the assessee submitted that financial companies have a practice of ensuring the borrower’s life as part of the loan sanction condition. Accordingly, in respect of the loan taken by the assessee, the assessee also paid the insurance premium of one of its partners.

The AO, vide order passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held that, as per the provisions of the Act, the insurance premium paid for ensuring the life of the partner is not an allowable expenditure.

Accordingly, the AO disallowed the expenditure of INR 2 lakh incurred by the assessee towards insurance premium. The CIT(A) upheld the addition made by the AO on this issue.

Before the Tribunal the assessee submitted that the Insurance Policy was taken to comply one of the condition of obtaining loan for business and therefore it was an allowable expenditure.

The Tribunal observed that as per the offer letter of loan against property received by the assessee from Financial Institution, the lender company provided an insurance for which, the assessee paid insurance premium of INR 2 lakh.

The Tribunal noted that it was not disputed that the loan was utilised by the assessee for its business purpose. Thus, any expenditure incurred by the assessee for availing such a loan is an allowable business expenditure.

The Tribunal held that since, the loan was granted to the assessee on the condition of obtaining an insurance policy, the insurance premium paid by the assessee was an allowable expenditure.

Accordingly, the addition made on this issue was directed to be deleted. As a result, ground of appeal raised was allowed.

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