Income Tax Appellate Tribunal - Chandigarh
Deepak Fastners Ltd.,, Ludhiana vs Assessee on 15 February, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND MS. RANO JAIN, ACCOUNTANT MEMBER
ITA No.522/Chd/2010
(Assessment Year : 2005-06)
M/s Deepak Fastners Ltd., Vs. The C.I.T.-I,
E-536, Focal Point, Ludhiana. Ludhiana.
PAN: AAACD6282G
And
ITA No.513/Chd/2011
(Assessment Year : 2005-06)
The A.C.I.T., Vs. M/s Deepak Fastners Ltd.,
Circle-1, Ludhiana. E-536, Focal Point, Ludhiana.
PAN: AAACD6282G
(Appellant) (Respondent)
Assessee by : Shri K.J.Shalley
Department by : Shri S.K.Mittal
& Manoj Misshra, DR
Date of hearing : 29.12.2015
Date of Pronouncement : 15.02.2016
O R D E R
PER RANO JAIN, A.M. :
The appeal filed by the assessee in ITA No.522/Chd/2010 is directed against the order of learned Commissioner of Income Tax-I, Ludhiana dated 2.3.2010 2 for assessment year 2005-06.
2. The appeal filed by the Revenue in ITA No.513/Chd/2011 is directed against the order of learned Commissioner of Income Tax (Appeals)-II, Ludhiana dated 15.3.2011 for assessment year 2005-06. The appeal before the CIT (Appeals) was against the order of the Assessing Officer made in consequence of revision done by the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 (in short 'the Act').
3. We will first take up the appeal of the assessee. ITA No.522/Chd/2010 :
4. Briefly, the facts of the case are that the assessee filed its return of income for the relevant assessment year as on 31.10.2005 declaring an income of Rs.1,92,47,164/-. The assessment under section 143(3) of the Act was completed on 28.12.2007 on a total income of Rs.1,96,67,710/-. Later on, a notice under section 263 of the Act was issued to the assessee by the Commissioner of Income Tax-I, Ludhiana dated 9.12.2009, operative part of the same reads as under :
"1.1 Perusal to audit report show that expenditure of Rs.100 lacs has been claimed on account, of insurance premium on the lives of partners Sh. Deepak Kalra and Sh. Sanjeev Kalra at Rs.50 lacs each. Copies of insurance policies available on record nowhere indicate the type of 3 policy. In these circumstances, expenses were not allowable in view of circular No, 762 dated 13.02.1998.
1.2 Reference to audit report show that your accounts are being maintained on mercantile basis. Policies on the life of Sh. Deepak Kalra and Sh. Sanjeev Kalra have been purchased on 31,03,2005, Therefore, on accrual basis expenditure of Rs..27.398/- was only allowable. The balance expenditure of Rs.99,72,602/- not being relevant to the current year was not allowable. "
5. In response to the same, the assessee replied that the premium paid on Keyman Insurance Policy is allowable deduction and is covered under Circular No.762 dated 18.2.1998 issued by the CBDT. Further, the said premium is allowable as revenue expenditure as well as business expenditure as per the same Circular. Another argument of the assessee was that the receipt on account of maturity of Keyman Insurance Policy together with bonus is taxable in the hands of the company, therefore, the premium is an allowable expense in the hands of the company. Rejecting all these contentions, the learned Commissioner of Income Tax held that though the allowability of premium expenses in the hands of the assessee is not doubted. Since the assessee is following mercantile system of accounting, policies on the life of Shri Deepak Kalra and Shri Sanjeev Kalra have been purchased as on 31.3.2005. Therefore, on accrual basis expenditure of Rs.27,398/- is allowable and remaining Rs.99,72,602/- not being relevant to this year is not 4 allowable. In this view, he directed the Assessing Officer to recomputed the income of the assessee and tax payable thereon and issue demand notice.
6. Aggrieved by this, the assessee has come in appeal before us raising the following grounds of appeal :
"1. That the Ld. Commissioner of Income Tax-I is not justified in law and facts of the case for initiating proceedings u/s. 263 of the Income Tax Act, 1961 and set asiding the order of the Additional Commissioner of Income Tax passed u/s. 143(3).
2. That the Ld. Commissioner of Income Tax-I has misconstrued and misapplied the provisions of section 263 of the Income Tax Act, 1961.
3. That the Ld. Commissioner of Income Tax-I has misconstrued Circular No. 762 dated 18-02-1998 issued by CBDT by calculating Keyman Insurance Premium paid on Mercantile basis and not fully allowing the one time Keyman Insurance premium paid on the life of keyman in the year of payment.
4. That the order passed by the Ld. Commissioner of Income Tax-I is non speaking and self contradictory. Even the calculations of allowability of Keyman insurance premium paid on mercantile basis are incorrect as per calculations made in the order.
5. That the order of the Ld. Commissioner of Income Tax-I is contrary to law and facts of the case. That the Appellant craves leave to add, amend or alter any grounds of Appeal before the Appeal is heard and disposed off."
7. The learned counsel for the assessee submitted before us that the issue of Keyman Insurance was dealt by 5 the Assessing Officer during the proceedings under section 143(3) of the Act. The Assessing Officer having applied his mind and taking a view, the learned Commissioner of Income Tax cannot now impose his view over the view taken by the Assessing Officer under section 263 of the Act. For this, our attention was invited to Paper Book page 8, which is a questionnaire dated 20.6.2007 issued by the Assessing Officer in original proceedings. At point No.19(vi), the Assessing Officer had asked the assessee to given details of Keyman Insurance and further to specify the percentage increase as compared to the last year and reasons for the same. A copy of reply filed by the assessee is placed at Paper Book page 10, whereby at Point NO.9, it is stated that the receipts of Keyman Insurance are enclosed and the same are purchases of the main Director of the company. In another letter placed at Paper Book page 12, the assessee had stated before the Assessing Officer that details alongwith receipts for Keyman Insurance were already filed and it was again clarified that the beneficiary of the policy is the company itself and not the Director of the company. All these documents were shown to us to emphasis the fact that the issue of Keyman Insurance was there before the Assessing Officer, he has made elaborate enquiries and proper replies with evidences were given to him. Only then the Assessing Officer decided not to make any disallowance. Now in such a scenario, the Commissioner of Income Tax cannot invoke the provisions 6 of section 263 of the Act. On the merits of the case, reliance was placed on the order of the I.T.A.T., Chandigarh Bench in the case of M/s Laj Exports Vs. ACIT in ITA No.668/Chd/2010, whereby it has been held that the insurance premium falls due in the year under appeal and the assessee paying the same in the year under appeal, the same has to be allowed in the year under appeal only. In this way, a prayer was made to quash the order of the learned Commissioner of Income Tax.
8. The learned D.R. relied on the order of the learned Commissioner of Income Tax.
9. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record.
10. As regards Commissioner of Income Tax's jurisdiction under section 263 of the Act, it is a trite law by now that for revision under section 263 of the Act, the assessment order has to be erroneous as well as prejudicial to the interest of the Revenue. Both the conditions are to be satisfied simultaneously. For an order to be erroneous, there may be two situations, one where no enquiry at all has been conducted by the Assessing Officer and the other whereby as per the Commissioner of Income Tax's yardsticks inadequate enquiries were conducted by the Assessing Officer. In the 7 first situation, where no enquiry is conducted by the Assessing Officer on a significant issue, the order may be considered erroneous and if it leads to loss of revenue to the Department, the Commissioner of Income Tax may get jurisdiction to revise the same under section 263 of the Act. In the other situation, where no proper enquiry is conducted by the Assessing Officer and the Assessing Officer has taken a view permissible under the law, the Commissioner of Income Tax cannot sit over the judgment of the Assessing Officer as to the extent of enquiries to be conducted and order cannot be said to be erroneous. However inadequate an enquiry may be, the Commissioner of Income Tax cannot impose his view over the view taken by the Assessing Officer. However, in case on some enquiry, the Assessing Officer takes a view which is contrary to any law for the time being inforce, then the order can be said to be erroneous.
11. Now, we will analyze the facts of the present case to the law as described hereinabove. This is certainly not a case of no enquiry at all. The Assessing Officer, though, has not written in very clear terms, in his order, the reason for his getting satisfied as to the Keyman Insurance premium being business expenditure, from the record, it is quite clear that he was agreeable to the assessee's stand. Therefore, at most, it can be a case of inadequate enquiry, which we have already explained, cannot be a reason to hold the order to be erroneous. 8
12. We are dealing with a case where the revisionary powers of the Commissioner of Income Tax are being exercised. The proposition laid down by the Hon'ble High Court as to the eligibility conditions being satisfied by the assessee, has to be decided by the Assessing Officer. It was the Assessing Officer who, on whatever enquiry he made, was satisfied that the assessee is eligible to allow insurance premium. Now, under the garb of assuming jurisdiction under section 263 of the Act, the Commissioner of Income Tax cannot impose his own judgment over that of the Assessing Officer. Even the allowability of premium paid by the assessee in full in the year of payment, even the cases where accounts are kept on the basis of mercantile system, is in favour of the assessee in view of order of the I.T.A.T. in the case of Laj Exports (supra). In this way, there is no prejudice to the interest of the Revenue also. In this view, we do not find any error so far as prejudicial to the interest of revenue, in the order of the Assessing Officer. Therefore, we set aside the order passed by the Commissioner of Income Tax under section 263 of the Act and allow the appeal of the assessee.
13. The appeal of the assessee is allowed. ITA No.513/Chd/2011 :
14. The order in this appeal was passed against the order of the Assessing Officer made under section 143(3) of the Act in consequence to order of the learned 9 Commissioner of Income Tax under section 263 of the Act. Since we have already held the order under section 263 of the Act made by the learned Commissioner of Income Tax as invalid, while deciding appeal in ITA No.522/Chd/2010, the present appeal becomes infructuous.
15. The appeal of the Revenue is dismissed.
16. In the result, the appeal of the assessee is allowed and the appeal of the Revenue is dismissed.
Order pronounced in the open court on this 15th day of February, 2016.
Sd/- Sd/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 15 t h February, 2016 *Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh