Commissioner Of Income Tax-Iii v. P G Foils Ltd....opponent(S

O/TAXAP/13/2012 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 13 of 2012 With TAX APPEAL NO. 506 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX-III....Appellant(s) Versus P G FOILS LTD....Opponent(s) ================================================================ Appearance: MR NITIN K MEHTA, ADVOCATE for the Appellant(s) No. 1MR S N SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE K.J.THAKER Date : 05/08/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1.As the common question of law and facts arise in both these appeal, and as such, however, with respect to different assessments orders, both these appeals are heard, decided and disposed of together by this common judgment and order. 2.Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench (hereinafter referred to as ‘the Tribunal’) dated 30.6.2011 in ITR No. 2184/Ahd/2009 for A.Y. 2006-07, the Revenue has preferred the present Tax Appeal No. 13/2012 to consider the following substantial question of law: [A] Whether the Appellate Tribunal is right in law and on facts, in deleting the addition of Rs. 4,15,20,000/- claimedtowardsKeymanInsurance Premium, by holding that similar claim was allowed in the A.Y. 2005-06 and the assessment for the A.Y. 2005-06 has reached finality as the Hon’ble High Court of Gujarat has quashed the O/TAXAP/13/2012 JUDGMENT reopened assessment, when the Hon’ble Supreme Court had granted liberty to the Revenue to apply for Review of the SLP filed for the A.Y. 2005-06 ? 3. That feeling aggrieved and dissatisfied with the impugned judgment and order passed by the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’) dated 27.9.2013 in ITA No. 2960/Ahd/2010, the Revenue has preferred the present Tax Appeal No. 506/2014 to consider the following substantial question of law: [A] Whether the Appellate Tribunal is right in law and on facts, in deleting the addition of Rs. 4,15,20,000/- claimed towards Keyman Insurance Premium following their earlier decision on the identical issue involved for AY 2006-07 following their earlier decision on the identical issue involved for AY 2006-07 and without considering the criteria for calculating the limits for sum assured prescribed by the insurance company which has been regulated by IRDA and without which the value of a Keyman would be arbitrary and discretionary ? 4.We have heard Mr. Nitin Mehta learned advocate appearing on behalf of the Revenue and Mr. S.N. Soparkar learned advocate for the respondent-assessee. As the present appeals are required to be remanded back to the learned Tribunal on the ground stated hereinafter, the facts in detail are not narrated. following their earlier decision on the identical issue involved for AY 2006-07 and without considering the criteria for calculating the limits for sum assured prescribed by the insurance company which has been regulated by IRDA and without which the value of a Keyman would be arbitrary and discretionary ? 4.We have heard Mr. Nitin Mehta learned advocate appearing on behalf of the Revenue and Mr. S.N. Soparkar learned advocate for the respondent-assessee. As the present appeals are required to be remanded back to the learned Tribunal on the ground stated hereinafter, the facts in detail are not narrated. 5.From the impugned judgment and order passed by the learned Tribunal, it appears that the learned Tribunal has dismissed the appeals preferred by the Revenue solely on the ground that with respect to A.Y. 2005-06, the Revenue accepted the premium of Rs. 4,50,00,000/- of Keyman Insurance Premium for Key-persons namely Shri Abhay Shah and Shri Pankaj Shah as allowable deduction, and therefore, with respect to subsequent assessment year i.e. A.Y. 2006-07 and 2007-08 also the aforesaid amount was allowable as business expenditure. It appears that during the course of assessment proceedings, the A.O. Noticed that the assessee has paid premium of Rs. 4,50,00,000/- being Keyman Insurance Premium for Key-persons namely Shri Abhay Shah and Shri Pankaj Shah and the AO was of the opinion that the aforesaid amount was not allowable as business expenditure. He accordingly worked out the premium by considering lower of the gross profit method/net profit method and 10 times remuneration and according to him, the allowable premium worked out of Rs. 34.80 lakhs as against Rs. 4,50,00,000/-. He accordingly disallowed the premium of Rs. 4,50,00,000/- and added to the income. 6.Being aggrieved by and dissatisfied with the order of the A.O. with respect to A.Y. 2006-07 and 2007-08, the assessee carried the matter before the CIT(A) and CIT(A) also decided the issue in favour of the assessee. On further appeal by the Revenue, the learned Tribunal has dismissed the appeal preferred by the Revenue that the premium paid in the current financial year was of second and third installments and the first installment of the premium was paid in A.Y. 2005-06 by the assessee and not disputed by the Revenue. Therefore, with respect to AY 2006-07 and 2007-08 also by impugned judgment and order, the learned Tribunal has held that the premium on the Keyman Insurance Policy of partner of the first is wholly and exclusively for the purposes of business and is allowable as business expenditure. However, it appears that the learned Tribunal has considered and/or decided the said issue on merits. 7.It is reported that as such even the aforesaid issue for AY 2005-06 was not decided on merits. It appears that the aforesaid issue, as such, even for AY 2005-06 was sought to be re-opened by way of re-assessment proceedings, however, said re-assessment proceedings came to be set aside solely on the ground of jurisdiction and not on merits. The aforesaid is not disputed by Mr. Soparkar learned counsel appearing for the assessee. As observed hereinabove, the learned Tribunal has not decided the aforesaid issue O/TAXAP/13/2012 JUDGMENT involved in the appeal on merits and has dismissed the appeal solely on the ground of and considering the fact that with respect to AY 2005-06 the aforesaid amount of premium on the Keyman Insuance Policy was held to be admissible deduction as business expenditure. O/TAXAP/13/2012 JUDGMENT involved in the appeal on merits and has dismissed the appeal solely on the ground of and considering the fact that with respect to AY 2005-06 the aforesaid amount of premium on the Keyman Insuance Policy was held to be admissible deduction as business expenditure. 8.Under the circumstances, when for AY 2005-06, the aforesaid issue was sought to be re-opened by way of re-assessment proceedings which was set aside solely on the ground of jurisdiction and was not decided on merits, the learned Tribunal ought to have decided the said issue on merits and has materially erred in considering the fact that for A.Y. 2005-06, the Revenue has accepted that the premium of Keyman Insurance Policy of the partners of the firm is wholly and exclusively for the purposes of business is allowable as business expenditure, however, factually, even for AY 2005-06 the said issue was sought to be re-opened by the Revenue by way of re-assessment proceedings, however, the same were held to be bad on the ground of jurisdiction and not on merits. The aforesaid fact is not disputed by Mr. Soparkar learned advocate for the respondent-assessee. 9.In view of above, as such the impugned judgment and orders deserve to be quashed and set aside and matter requires to be remanded to the learned Tribunal to decide the appeal and the issue involve in the appeal in accordance with law and on merits. 10. In view of above and for the reasons recorded, both these Tax Appeals are allowed. The impugned judgment and order passed by the learned Tribunal are hereby quashed and set aside and the matters are remanded to the learned Tribunal to decide the issues involved in the matter, in accordance with law and on merits. Both these appeals are allowed to the aforesaid extent. No order as to costs. (M.R.SHAH, J.) mandora (K.J.THAKER, J)