ACIT, Ludhiana V. M/s Deepak Fastner Ltd., Ludhiana

ITA 513/CHANDI/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8459 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-12-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 10-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL; MANOJ MISSHRA
• Assessee Lawyers: K J SHALLEY
• Keywords: Business expenditure; Revenue expenditure
• Section: 143(3); 6; 263

Judgement Text

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 LE ARNED 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 LE ARNED 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 T HE ASSESSING OFFICER MADE IN CONSEQUENCE OF REVISION D ONE 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 ASSESSE E. ITA NO.522/CHD/2010 : 4. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE RELEVAN T ASSESSMENT YEAR AS ON 31.10.2005 DECLARING AN INCOM E OF RS.1,92,47,164/-. THE ASSESSMENT UNDER SECTION 143 (3) OF THE ACT WAS COMPLETED ON 28.12.2007 ON A TOTAL INCO ME OF RS.1,96,67,710/-. LATER ON, A NOTICE UNDER SECTION 263 OF THE ACT WAS ISSUED TO THE ASSESSEE BY THE COMMISSIO NER OF INCOME TAX-I, LUDHIANA DATED 9.12.2009, OPERATIVE P ART 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 PREM IUM ON THE LIVES OF PARTNERS SH. DEEPAK KALRA AND SH. SANJEEV KALRA AT RS.50 LACS EACH. COPIES OF INSURAN CE POLICIES AVAILABLE ON RECORD NOWHERE INDICATE THE T YPE OF 3 POLICY. IN THESE CIRCUMSTANCES, EXPENSES WERE NOT ALLOWABLE IN VIEW OF CIRCULAR NO, 762 DATED 13.02.1 998. 1.2 REFERENCE TO AUDIT REPORT SHOW THAT YOUR ACCOUN TS ARE BEING MAINTAINED ON MERCANTILE BASIS. POLICIES ON T HE LIFE OF SH. DEEPAK KALRA AND SH. SANJEEV KALRA HAVE BEEN PURCHASED ON 31,03,2005, THEREFORE, ON ACCRUAL BASI S EXPENDITURE OF RS..27.398/- WAS ONLY ALLOWABLE . THE BALANCE EXPENDITURE OF RS.99,72,602/- NOT BEING REL EVANT 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 N O.762 DATED 18.2.1998 ISSUED BY THE CBDT. FURTHER, THE S AID PREMIUM IS ALLOWABLE AS REVENUE EXPENDITURE AS WELL AS BUSINESS EXPENDITURE AS PER THE SAME CIRCULAR. ANO THER ARGUMENT OF THE ASSESSEE WAS THAT THE RECEIPT ON AC COUNT OF MATURITY OF KEYMAN INSURANCE POLICY TOGETHER WIT H BONUS IS TAXABLE IN THE HANDS OF THE COMPANY, THERE FORE, THE PREMIUM IS AN ALLOWABLE EXPENSE IN THE HANDS OF THE COMPANY. REJECTING ALL THESE CONTENTIONS, THE LEAR NED COMMISSIONER OF INCOME TAX HELD THAT THOUGH THE ALLOWABILITY OF PREMIUM EXPENSES IN THE HANDS OF TH E ASSESSEE IS NOT DOUBTED. SINCE THE ASSESSEE IS FOL LOWING MERCANTILE SYSTEM OF ACCOUNTING, POLICIES ON THE LI FE OF SHRI DEEPAK KALRA AND SHRI SANJEEV KALRA HAVE BEEN PURCHASED AS ON 31.3.2005. THEREFORE, ON ACCRUAL B ASIS EXPENDITURE OF RS.27,398/- IS ALLOWABLE AND REMAINI NG RS.99,72,602/- NOT BEING RELEVANT TO THIS YEAR IS N OT 4 ALLOWABLE. IN THIS VIEW, HE DIRECTED THE ASSESSING OFFICER TO RECOMPUTED THE INCOME OF THE ASSESSEE AND TAX PA YABLE THEREON AND ISSUE DEMAND NOTICE. 6. AGGRIEVED BY THIS, THE ASSESSEE HAS COME IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF A PPEAL : 1. THAT THE LD. COMMISSIONER OF INCOME TAX-I IS NOT JUSTIFIED IN LAW AND FACTS OF THE CASE FOR INITIATIN G PROCEEDINGS U/S. 263 OF THE INCOME TAX ACT, 1961 AN D SET ASIDING THE ORDER OF THE ADDITIONAL COMMISSIONER O F 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 18-02-19 98 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 PREMI UM PAID ON MERCANTILE BASIS ARE INCORRECT AS PER CALCU LATIONS 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. THA T THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND DIS POSED OFF. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ISSUE OF KEYMAN INSURANCE WAS DE ALT BY 5 THE ASSESSING OFFICER DURING THE PROCEEDINGS UNDER SECTION 143(3) OF THE ACT. THE ASSESSING OFFICER H AVING APPLIED HIS MIND AND TAKING A VIEW, THE LEARNED COMMISSIONER OF INCOME TAX CANNOT NOW IMPOSE HIS V IEW OVER THE VIEW TAKEN BY THE ASSESSING OFFICER UNDER SECTION 263 OF THE ACT. FOR THIS, OUR ATTENTION WAS INVIT ED TO PAPER BOOK PAGE 8, WHICH IS A QUESTIONNAIRE DATED 20.6.2007 ISSUED BY THE ASSESSING OFFICER IN ORIGIN AL PROCEEDINGS. AT POINT NO.19(VI), THE ASSESSING OFF ICER HAD ASKED THE ASSESSEE TO GIVEN DETAILS OF KEYMAN INSUR ANCE 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 PA PER BOOK PAGE 10, WHEREBY AT POINT NO.9, IT IS STATED THAT T HE RECEIPTS OF KEYMAN INSURANCE ARE ENCLOSED AND THE S AME ARE PURCHASES OF THE MAIN DIRECTOR OF THE COMPANY. IN ANOTHER LETTER PLACED AT PAPER BOOK PAGE 12, THE AS SESSEE HAD STATED BEFORE THE ASSESSING OFFICER THAT DETAIL S ALONGWITH RECEIPTS FOR KEYMAN INSURANCE WERE ALREA DY FILED AND IT WAS AGAIN CLARIFIED THAT THE BENEFICIA RY OF THE POLICY IS THE COMPANY ITSELF AND NOT THE DIRECTOR O F THE COMPANY. ALL THESE DOCUMENTS WERE SHOWN TO US TO EMPHASIS THE FACT THAT THE ISSUE OF KEYMAN INSURANC E WAS THERE BEFORE THE ASSESSING OFFICER, HE HAS MADE ELABORATE ENQUIRIES AND PROPER REPLIES WITH EVIDENC ES WERE GIVEN TO HIM. ONLY THEN THE ASSESSING OFFICER DECI DED NOT TO MAKE ANY DISALLOWANCE. NOW IN SUCH A SCENARIO, THE COMMISSIONER OF INCOME TAX CANNOT INVOKE THE PROVIS IONS 6 OF SECTION 263 OF THE ACT. ON THE MERITS OF THE CA SE, 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 HE LD THAT THE INSURANCE PREMIUM FALLS DUE IN THE YEAR UN DER APPEAL AND THE ASSESSEE PAYING THE SAME IN THE YEAR UNDER APPEAL, THE SAME HAS TO BE ALLOWED IN THE YEA R UNDER APPEAL ONLY. IN THIS WAY, A PRAYER WAS MADE TO QUASH THE ORDER OF THE LEARNED COMMISSIONER OF INCO ME 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 AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. 10. AS REGARDS COMMISSIONER OF INCOME TAXS JURISDICTION UNDER SECTION 263 OF THE ACT, IT IS A TRITE LAW BY NOW THAT FOR REVISION UNDER SECTION 263 OF THE A CT, THE ASSESSMENT ORDER HAS TO BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH T HE 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 TAXS YARDSTICKS INADEQUATE ENQUIRIES WERE CONDUCTED BY THE ASSESSING OFFICER. IN THE 7 FIRST SITUATION, WHERE NO ENQUIRY IS CONDUCTED BY T HE ASSESSING OFFICER ON A SIGNIFICANT ISSUE, THE ORDER MAY BE CONSIDERED ERRONEOUS AND IF IT LEADS TO LOSS OF REV ENUE TO THE DEPARTMENT, THE COMMISSIONER OF INCOME TAX MAY GET JURISDICTION TO REVISE THE SAME UNDER SECTION 263 O F THE ACT. IN THE OTHER SITUATION, WHERE NO PROPER ENQUI RY IS CONDUCTED BY THE ASSESSING OFFICER AND THE ASSESSIN G OFFICER HAS TAKEN A VIEW PERMISSIBLE UNDER THE LAW, THE COMMISSIONER OF INCOME TAX CANNOT SIT OVER THE JUDG MENT OF THE ASSESSING OFFICER AS TO THE EXTENT OF ENQUIR IES TO BE CONDUCTED AND ORDER CANNOT BE SAID TO BE ERRONEOUS. HOWEVER INADEQUATE AN ENQUIRY MAY BE, THE COMMISSIO NER 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 I S CONTRARY TO ANY LAW FOR THE TIME BEING INFORCE, THE N 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 AS SESSING OFFICER, THOUGH, HAS NOT WRITTEN IN VERY CLEAR TERM S, IN HIS ORDER, THE REASON FOR HIS GETTING SATISFIED AS TO T HE KEYMAN INSURANCE PREMIUM BEING BUSINESS EXPENDITURE , FROM THE RECORD, IT IS QUITE CLEAR THAT HE WAS AGRE EABLE TO THE ASSESSEES STAND. THEREFORE, AT MOST, IT CAN BE A CASE OF INADEQUATE ENQUIRY, WHICH WE HAVE ALREADY EXPLAI NED, CANNOT BE A REASON TO HOLD THE ORDER TO BE ERRONEOU S. 8 12. WE ARE DEALING WITH A CASE WHERE THE REVISIONA RY POWERS OF THE COMMISSIONER OF INCOME TAX ARE BEING EXERCISED. THE PROPOSITION LAID DOWN BY THE HON'BL E HIGH COURT AS TO THE ELIGIBILITY CONDITIONS BEING SATISF IED BY THE ASSESSEE, HAS TO BE DECIDED BY THE ASSESSING OFFICE R. IT WAS THE ASSESSING OFFICER WHO, ON WHATEVER ENQUIRY HE MADE, WAS SATISFIED THAT THE ASSESSEE IS ELIGIBLE T O 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 FUL L 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 CA SE OF LAJ EXPORTS (SUPRA). IN THIS WAY, THERE IS NO PREJUDIC E 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 INCOM E TAX UNDER SECTION 263 OF THE ACT AND ALLOW THE APPEAL O F THE ASSESSEE. 13. THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.513/CHD/2011 : 14. THE ORDER IN THIS APPEAL WAS PASSED AGAINST TH E ORDER OF THE ASSESSING OFFICER MADE UNDER SECTION 1 43(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 15 TH DAY OF FEBRUARY, 2016. SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 15 TH FEBRUARY, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH