Vijayshree Alloys Pune Private Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 1048/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9121 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 18-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Keywords: Reopening of assessment; Depreciation; Business expenditure; Principle of natural justice; Commercial expediency; Reassessment proceedings
• Section: 143(3); 37(1); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 1 048 /P U N/201 6 / ASSESSMENT YEAR : 20 08 - 09 VIJAYSHREE ALLOYS PUNE PRIVATE LTD., MZSK & ASSOCIATES, CHARTERED ACCOUNTANTS, LEVEL 3, BUSINESS BAY, PLOT NO. 84, WELLESLEY ROAD, NEAR RTO, PUNE 411001 PAN : AAACV6109J ....... / APPELLANT / V/S. DY. COMMISSIONER OF INCOME TAX, (HQ) 4, PUNE / RESPONDENT ASSESSEE BY : S HRI NEELESH KHANDELWAL REVENUE BY : SHRI MUKESH JHA / DATE OF HEARING : 0 7 - 03 - 2018 / DATE OF PRONOUNCEMENT : 16 - 0 3 - 201 8 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 5, PUNE DATED 15 - 03 - 2016 FOR THE ASSESSMENT YEAR 2008 - 09. 2 ITA NO .1048/PUN/2016, A.Y. 2008 - 09 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE : THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF ALUMINIUM INGOTS AND GENERATION OF POWER THROUGH WINDMILL. REASSESSMENT PROCEEDINGS WERE INITIATED AGAINST THE ASSESSEE AFTER ISSUANCE OF NOTICE U/S. 148 O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) ON 18 - 02 - 2013. IN ASSESSMENT ORDER DATED 20 - 02 - 2014 PASSED U/S. 143(3) R.W.S. 147 OF THE ACT , THE ASSESSING OFFICER DISALLOWED DEPRECIATION ON WINDMILL RS.15,18,379/ - AND INSURANCE PREMIUM OF RS.35,00,000/ - PAID BY ASSESSEE ON THE LIFE INSURANCE OF DIRECTORS. AGGRIEVE D BY THE ASSESSMENT ORDER, THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) ASSAILING REOPENING OF ASSESSMENT AND THE ADDITIONS/DISALLOWANCES MADE BY ASSESSING OFFICER. THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTED THE OBJECTI ONS OF ASSESSEE ON REOPENING OF ASSESSMENT AND CONFIRMED THE ADDITION QUA PAYMENT OF INSURANCE PREMIUM ON THE LIFE INSURANCE POLICY OF DIRECTORS. NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE TRIBUNAL. THE ASSESSEE IN APPEAL HAS IMPUGNING REOPENING OF ASS ESSMENT APART FROM ASSAILING ADDITIONS ON MERITS. 3. SHRI NEELESH KHANDELWAL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE WITH REGARD TO DEPRECIATION ON WINDMIL L HAS REMITTED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO RE - EXAMINE THE CLAIM OF ASSESSEE. 3 ITA NO .1048/PUN/2016, A.Y. 2008 - 09 3.1 REGARDING DISALLOWANCE ON PAYMENT OF INSURANCE PREMIUM RS.35,00,000/ - ON THE LIFE INSURANCE OF DIRECTORS , THE LD. AR SUBMITTED THAT THE EXPENDITURE HAS BEEN INCURRED ON ACCOUNT OF PREMIUM PAID UNDER KEYMAN INSURANCE POLICY SCHEME. EVEN OTHERWISE THE PAYMENT OF LIFE INSURANCE PREMIUM IN RESPECT OF TWO DIRECTORS IS ALLOWABLE U/S. 37(1) OF THE ACT , AS THE ASS ESSEE IS ALREADY SUBJECTED TO FRINGE BENEFIT TAX (FBT) ON THE SAID AMOUNT. THE LD. AR IN SUPPORT OF HIS SUBMISSIONS PLACED RELIANCE ON CBDT CIRCULAR 762 DATED 18 - 02 - 1998 AND THE FOLLOWING DECISIONS : I . COMMISSIONER OF INCOME TAX VS. AGARWAL ENTERPRISES, 55 TAXMANN.COM 54 (BOMBAY); II . COTTON BLOSSOM INDIA (P.) LTD. VS. JOINT COMMISSIONER OF INCOME TAX, 68 TAXMANN.COM 38 (CHENNAI - TRIB.). 4. SHRI MUKESH JHA REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) AND PRAYED FOR DISMISSING THE APPEAL OF ASSESSEE. 5. W E HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW . IN GROUND NO. 1 OF THE APPEAL, THE ASSESSEE HAS ASSAILED REOPENING OF ASSESSMENT. SINCE, NO SUBMISSIONS WERE MADE BY LD. AR ON GROUND NO. 1 , THE SAME IS DISMISSED. 6. IN GROUND NO. 2 THE ASSESSEE HAS ASSAILED THE ACTION OF COMMISSIONER OF INCOME TAX (APPEALS) IN RESTORING THE MATTER BACK TO ASSESSING OFFICER TO CONSIDER ASSESSEES CLAIM OF DEPRECIATION ON WINDMILL. THE RELEVANT EXTRACT OF THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE ARE REPRODUCED HERE - IN - BELOW : 4 ITA NO .1048/PUN/2016, A.Y. 2008 - 09 I FIND THAT THE PRINCIPLE OF NATURAL JUSTICE HAS BEEN VIOLATED AS FAR AS THE DISALLOW ANCE OF DEPRECIATION IS CONCERNED. I, THEREFORE, DIRECT THE AO TO EXAMINE THE APPELLANT'S CLAIM OF DEPRECIATION AFTER OBTAINING THE NECESSARY DETAILS/PARTICULARS/EXAMINATION FROM THE APPELLANT IN THIS REGARD AND ALLOW SUCH DEPRECIATION IN CASE IT IS FOUND TO BE IN ORDER AS PER LAW. ON THE OTHER HAND, IF SUCH CLAIM IS NOT FOUND IN ACCORDANCE WITH THE PROVISIONS OF LAW, THE SAME SHOULD BE DISALLOWED. GROUND NO. 1 RAISED BY THE APPELLANT IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN REMITTING THE ISSUE BACK TO ASSESSING OFFICER FOR VERIFICATION. THE DIRECTIONS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ARE NOT DETRIMENTAL TO THE INTEREST OF ASSESSEE IN ANY MANNER. H OWEVER, WE MAY ADD THAT THE ASSESSING OFFICER SHALL EXAMINE THE ASSESSEES CLAIM OF DEPRECIATION AFTER AFFORDING OPPORTUNITY OF HEARING TO THE ASSESSEE , IN ACCORDANCE WITH LAW. THE ASSESSING OFFICER IS DIRECTED TO EXPEDITIOUSLY DISPOSE OF THE ISSUE REMITTED TO HIM. THE GROUND NO. 2 RAISED IN APPEAL BY ASSESSEE IS DISPOSED OF WITH THE ABOVE DIRECTIONS. 7. IN GROUND NO. 3 OF APPEAL , THE ASSESSEE HAS ASSAILED THE ADDITIONS / DISALLOWANCES OF RS.35,00,000/ - INCURRED ON ACCOUNT OF PREMIUM P AID ON KEYMAN INSURANCE POLICY. THE ASSESSEE HAS PAID PREMIUM IN RESPECT OF LIFE INSURANCE OF TWO DIRECTORS NAMELY SHRI KALPESH OSWAL AND SHRI DHIRAJ OSWAL. BEFORE PROCEEDING FURTHER IT WOULD BE RELEVANT TO FIRST REFER TO CBDT CIRCULAR NO. 762 DATED 18 - 02 - 1998. THE SAME IS REPRODUCED HERE - IN - UNDER : TAXATION OF A SUM RECEIVED UNDER THE KEYMAN INSURANCE POLICY 14.1 A KEYMAN INSURANCE POLICY, OF THE LIFE INSURANCE CORPORATION OF INDIA, ETC. PROVIDES FOR AN INSURANCE POLICY TAKEN BY A BUSINESS ORGANISATI ON OR A PROFESSIONAL ORGANISATION ON THE LIFE OF AN EMPLOYEE, IN ORDER TO PROTECT THE BUSINESS AGAINST THE FINANCIAL LOSS, WHICH MAY OCCUR FROM THE EMPLOYEES PREMATURE DEATH. THE 'KEYMAN' IS AN EMPLOYEE OR A DIRECTOR, WHOSE SERVICES 5 ITA NO .1048/PUN/2016, A.Y. 2008 - 09 ARE PERCEIVED TO HAVE A SIGNIFICANT EFFECT ON THE PROFITABILITY OF THE BUSINESS. THE PREMIUM IS PAID BY THE EMPLOYER. A BARE PERUSAL OF CIRCULAR SHOWS THAT PAYMENT OF PREMIUM ON THE LIFE INSURANCE OF THE DIRECTORS IS COVERED BY CIRCULAR . THE PAYMENT OF PREMIUM ON THE LIFE INSURANCE OF DIRECTORS IS ALLOWABLE EXPENDITURE U/S. 37(1) OF THE ACT. OUR VIEW IS SUPPORTED BY THE DECISION OF CO - ORDINATE BENCH OF TRIBUNAL IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME TAX VS. AGRAWAL ENTERPRISES REPORTED AS 35 TAXMANN.COM 617 (PUNE - TRIB.). THE TRIBUNAL WHILE ALLOWING THE ASSESSEES CLAIM OF PAYMENT OF INSURANCE PREMIUM OBSERVED AS UNDER : 5. HAVING GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW, WE FIND THAT THE LD CIT(A) HAS DELETED THE DISALLOWANCE MADE BY THE A.O ON ADHOC BASIS AT 20% OF THE PREMIUM PAID TOWARDS KEYMAN INSURANCE POLICY OF PARTNERS TAKING SUPPORT OF CBDT CIRCULAR NO. 762 DT. 18.2.98 EXPLAINING THE ALLOWABILITY OF TH E PREMIUM PAYMENT OF KEYMAN INSURANCE POLICY OF THE PARTNERS ALONG WITH THE TAXATION OF SUMS RECEIVED UNDER THE KEYMAN INSURANCE POLICY. IT HAS BEEN MADE CLEAR IN THAT CIRCULAR THAT THE PREMIUM PAID ON THE KEYMAN INSURANCE POLICY IS ALLOWABLE AS BUSINESS E XPENDITURE M/S. AGRAWAL ENTERPRISES A.Y. 2005 - 06 PAGE OF 7 WHEREAS THE SUM RECEIVED LATER BY THE ORGANIZATION TAKING SUCH POLICY AS A RESULT THEREOF, IS TO BE TAXED AS BUSINESS PROFIT. THE LD CIT(A) HAS ALSO REFERRED THE EXPLANATION GIVEN BELOW SECTION 10( 10D) GIVING THE DEFINITION OF KEYMAN INSURANCE POLICY AS UNDER : 'EXPLANATION : FOR THE PURPOSES OF THIS CLAUSE, 'KEYMAN INSURANCE POLICY' MEANS A LIFE INSURANCE POLICY TAKEN BY A PERSON ON THE LIFE OF ANOTHER PERSON WHO IS OR WAS THE EMPLOYEE OF THE FIRS T - MENTIONED PERSON OR IS OR WAS CONNECTED IN ANY MANNER WHATSOEVER WITH THE BUSINESS OF THE FIRST - MENTIONED PERSON;' THE LD CIT(A) HAS ALSO MADE REFERENCE OF THE PROVISION OF SECTION 28(VI) AND SECTION 17 (3) OF THE I.T. ACT. AS PER SECTION 28(VI) , ANY RECEIPT UNDER KEYMAN INSURANCE POLICY LIKE MATURITY PROCEEDS, RECEIPTS ON ACCOUNT OF AN UNFORTUNATE CONTINGENCY , BONUS ETC., ACCRUING TO THE ASSESSEE FIRM I S TAXABLE IN ITS HAND UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSION'. AS 6 ITA NO .1048/PUN/2016, A.Y. 2008 - 09 PER SECTION 17(3) OF THE ACT, ANY RECEIPT UNDER KEYMAN INSURANCE POLICY INCLUDING BONUS BY AN ASSESSEE FROM AN EMPLOYE R OR FORMER EMPLOYER WAS TO BE TREATED AS PROFIT IN VIEW OF SALARY IN HIS HANDS. THE LD CIT(A) HAS ALSO REFERRED DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SASSOON J. DAVID & CO.(P.) LTD. VS. CIT (1979), 118 ITR 261 (SC) HOLDING THAT THE FACT THAT SO MEBODY OTHER THAN THE ASSESSEE IS ALSO BENEFITED SHOULD NOT COME IN THE WAY OF AN EXPENDITURE BEING ALLOWED BY WAY OF DEDUCTION UNDER SECTION 10(2)(XV) OF THE ACT IF IT SATISFIES OTHERWISE THE TESTS LAID DOWN BY LAW. RELIANCE HAS ALSO BEEN PLACED ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SALES MAGNESITE (PVT.) LTD. (1995), 214 ITR 1 (BOM.) ON THE ISSUE OF ALLOWABILITY OF EXPENDITURE U/S. 37, THAT IT IS NOT ESSENTIAL THAT I T SHOULD BE NECESSARY, LEGALLY OR OTHERWISE TO INCUR THE SAME OR THAT IT SHOULD DIRECTLY OR IMMEDIATELY BENEFIT THE BUSINESS OF THE ASSESSEE. EVEN EXPENDITURE INCURRED VOLUNTARILY ON THE GROUND OF COMMERCIAL EXPEDIENCY AND IN ORDER INDIRECTLY TO FACILITATE THE CARRYING ON OF THE BUSINESS WOULD BE DEDUCTIBLE UNDER THIS SECTION. THE FIRST APPELLATE ORDER ON THE ISSUE AS DISCUSSED IS REASONED ONE AND SUPPORTEDM/S. AGRAWAL ENTERPRISES A.Y. 2005 - 06 PAGE OF 7 WITH THE CBDIT CIRCULAR NO. 762 DATED 18.2.98 AS WELL AS THE ABOVE REFERRED DECISIONS, HENCE WE ARE NOT INCLINED TO INTERFERE THEREWITH. THE SAME IS UPHELD. GROUND NO. 1 IS ACCORDINGLY REJECTED. THE SAID DECISION OF TRIBUNAL HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. AGARWAL ENTERPRISES (SUPRA). 8. WE FURTHER FIND THAT THE CHENNAI BENCH OF TRIBUNAL IN THE CASE OF COTTON BLOSSOM INDIA (P.) LTD. VS. JOINT COMMISSIONER OF INCOME TAX (SUPRA) AFTER CONSIDERING CBDT CIRCULAR NO. 762 (SUPRA) HAS ALLOWED PAYMEN T OF PREMIUM ON LIFE INSURANCE OF DIRECTORS UNDER EMPLOYMENT EMPLOYEE SCHEME OF LIC AS BUSINESS EXPENDITURE U/S. 37(1) OF THE ACT. 9. THE LD. AR HAS STATED AT THE BAR THAT THE COMPANY HAS PAID FBT ON THE AMOUNT OF LIFE INSURANCE PREMIUM PAID FOR THE DIRECTORS. THIS FACT HAS NOT BEEN DISPUTED BY THE REVENUE. THUS, IN VIEW OF THE FACTS OF THE CASE, 7 ITA NO .1048/PUN/2016, A.Y. 2008 - 09 CBDT CIRCULAR AND VARIOUS DECISIONS DISCUSSED ABOVE, WE HOLD THAT PAYMENT OF RS.35,00,000/ - TOWARDS KEYMAN INSURANCE PREMIUM IS ALLOWABLE EXPENDITURE IN T HE HANDS OF ASSESSEE U/S. 37(1) OF THE ACT. ACCORDINGLY, GROUND NO. 3 RAISED IN APPEAL BY ASSESSEE IS ALLOWED. 10. GROUND NOS. 4 AND 5 OF APPEAL ARE GENERAL IN NATURE, HENCE, REQUIRE NO ADJUDICATION. 11. IN THE RESULT, THE APPEAL OF ASSESSEE IS PART LY ALLOWED IN THE TERMS AFORESAID. ORDER PRONOUNCED ON FRIDAY, THE 16 TH DAY OF MARCH, 201 8 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 16 TH MARCH, 2018 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 5, PUNE 4. THE PR. CIT - 4, PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE