Pr. Commissioner Of Income Tax-I, Ludhiana v. M/S Ramesh Steels, Ludhiana

ITA No. 37 of 2016 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 37 of 2016 (O&M) Date of Decision: 5.5.2016 Pr. Commissioner of Income Tax-I, Ludhiana ....Appellant. Versus M/s Ramesh Steels, Ludhiana ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment?the judgment? 2.To be referred to the Reporters or not? 3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE SHEKHER DHAWAN. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) against theorder dated 3.9.2015 (Annexure A-IV) passed by the Income TaxAppellate Tribunal, Chandigarh Benches, Chandigarh (hereinafterreferred to as “the Tribunal”) in ITA No. 295/Chd/2012, for theassessment year 2005-06, claiming the following substantial question oflaw:- 1.Whether upon facts and circumstances of thecase, the Hon'ble ITAT was justified in law, inapplying its decision in assessee's own case of A.Y. 2008-09 to the present case underconsideration of A.Y. 2005-06 when the natureof additions in both assessment years aremarkedly different? 2. Whether upon facts and circumstances of thecase, the Hon'ble ITAT was justified in law, inallowing the entire claim of keyman insurancepremium expense for A.Y. 2005-06 by ignoringthe fact that the CIT (Administration) in his orderu/s 263 has held that the expenses related tothe period beyond 31.03.2005 and the samecannot be held allowable in the present yearsince the assessee maintains its books onaccrual basis? 2.A few facts necessary for adjudication of the instant appealas narrated therein may be noticed. The assessee is engaged in thebusiness of merchant traders and filed its return of income on31.10.2005 for the assessment year 2005-06 declaring the income at` 55,70,194/-. The said return was processed under Section 143(1) ofthe Act on 8.1.2006. Subsequently, the case was selected for scrutinyand notice under Section 143(2) of the Act was issued on 16.10.2006.Thereafter, notices under Sections 143(2) and 142(1) along withquestionnaire were issued on 16.7.2007. The Assessing Officer videorder dated 20.11.2007 (Annexure A-1) framed the assessment underSection 143(3) of the Act accepted the returned income of ` 55,70,194/-.The Commissioner of Income Tax-I, Ludhiana passed order dated 30.3.2010 under Section 263 of the Act directing the Assessing Officer todecide the case in view of the directions given thereunder, who videorder dated 12.10.2010 (Annexure A-II) passed under Section 143(3)read with Section 263 of the Act framed the assessment by makingaddition of ` 84,68,494/- on account of disallowance of premium paid onkeyman insurance taken on life of partners as the expenditure related tothe period beyond 31.3.2005, i.e. beyond the purview of assessmentyear 2005-06. Feeling aggrieved, the assessee filed an appeal againstthe order, Annexure A-II, before the Commissioner of Income Tax(Appeals) [for brevity “the CIT(A)”]. The CIT(A) vide order dated15.12.2011 (Annexure A-III) allowed the appeal and deleted the additionof ` 84,68,494/- made by the Assessing Officer. The revenue assailedthe order, Annexure A-III, in appeal before the Tribunal who vide orderdated 3.9.2015 (Annexure A-IV) upheld the order of the CIT(A) anddismissed the appeal. Hence, the present appeal by the revenue. 3.We have heard learned counsel for the revenue. 4.The following two issues arise for our consideration in this appeal:- (i)Whether the assessee is entitled to deductionon account of premium paid on KeymanInsurance Policies of its partners?on account of premium paid on KeymanInsurance Policies of its partners? 3.We have heard learned counsel for the revenue. 4.The following two issues arise for our consideration in this appeal:- (i)Whether the assessee is entitled to deductionon account of premium paid on KeymanInsurance Policies of its partners?on account of premium paid on KeymanInsurance Policies of its partners? (ii)Whether the premium paid by the assesseerelated to period beyond 31.3.2005 and thus,not allowable deduction for the assessmentyear 2005-06?related to period beyond 31.3.2005 and thus,not allowable deduction for the assessmentyear 2005-06? 5. Taking up issue No. (i), in view of the judgment of this Court in ITA No. 437 of 2015 (Pr. Commissioner of Income Tax-I, Ludhiana v. M/s Ramesh Steels, Ludhiana) decided on 2.2.2016 in the case ofthe assessee where it has been held that the Keyman insurance policytaken out in respect of partner of the firm would be admissibleexpenditure, issue No. (i) is decided against the revenue. 6.Regarding question No.2, learned counsel for the revenuesubmitted that the amount of ` 84,68,494/- debited by the assesseetowards insurance policy as expenditure related to the period beyond31.3.2005 and, therefore, this amount could not have been allowedduring the assessment year 2005-06. 7.The assessee during the assessment for the assessmentyear 2004-05 had claimed that an amount of ` 90 lacs was paid duringthat year, out of which ` 5,31,506/- related to the assessment year 2004-05 whereas the balance of ` 84,68,494/- was pertaining to assessmentyear 2005-06. Otherwise also, the case of the assessee was that it hadpaid ` 90 lacs on the Keyman insurance policies during the assessmentyear 2005-06 as well. At this stage, it would be apposite to refer to thereply dated 12.10.2010 submitted by the assessee to the notice issuedby the Assessing Officer and has been reproduced in the assessmentorder which reads thus:- “(b)That originally in the assessment year 2004-05,the assessee had claimed total premium paid of` 90 lacs as deduction whereas the assessmentwas framed by your goodself vide order dated16.11.2009 u/s 143(3) of the Act and yourgoodself had held that the deduction of Keyman insurance expenditure should only to beallowed on accrual basis and thus, out of thetotal figure of ` 90 lacs, ` 5,31,506/- was held tobe expenditure related to the assessment year2004-05 and remaining ` 84,68,494/- was heldto be expenditure pertaining to the assessmentyear 2005-06 which is the year underconsideration. (c) Even in assessment year 2005-06, theassessee has paid total premium of ` 90 lacson the said Keyman insurance policies and hasbeen claimed as deduction. (d) Thus, it is clarified that both under the cashsystem of accounting or accrual system ofaccounting the premium allowable as deductionin this year would remain ` 90 lacs. It is furtherclarified that even the CIT-I, Ludhiana hasaccepted this argument in para 3.2.4 of theaforesaid order and, therefore, in view of theabove, no adverse action on this issue is called for.” 8.Accordingly, a sum of ` 5,31,506/- was held to beexpenditure relating to the assessment year 2004-05 and the remainingamount of ` 84,68,494/- was held to be expenditure pertaining to theassessment year 2005-06. 8. 9.In view of the above, learned counsel for the revenue was ITA No. 37 of 2016 unable to show that the claim of deduction of premium on Keymaninsurance policy amounting to ` 84,68,494/- was erroneously grantedand the order of the Tribunal was unsustainable. Accordingly, nosubstantial question of law arises in this appeal. The appeal standsdismissed. (AJAY KUMAR MITTAL)JUDGE May 5, 2016gbs (SHEKHER DHAWAN) JUDGE