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Income Tax Appellate Tribunal, “A”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN, JM
O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT-3, Mumbai, for the assessment year 2006-07, in the matter of order passed u/s.263 of the I.T.Act, on the following grounds :- “
1. On the facts and under the circumstances of the case and in law, the Learned CIT erred In issuing the notice u/s 263 and passing the order and setting aside the assessment made u/s.143(3). The order u/s 263 is bad in law.
2. On the facts and under the circumstances of the case and in law, the learned err erred in holding that the assessment order u/s 143(3) is prejudicial to the interest of revenue and erroneous without appreciating that the AO had verified all the facts relating to allowability of Key Man Insurance Policy and had come to the proper conclusion of allowability, hence the order is not erroneous. WITHOUT PREJUDICE TO THE ABOVE
3. On the facts and under the circumstances d the case and in law, the Learned CIT erred in holding that the Key Man Insurance Premium is not assessment order u/s 143(3) is 2 prejudicial to the interest of revenue and erroneous without appreciating that the K) had verified all the facts relating to allowability of Key Man Insurance! Policy and had come to the proper conclusion of allowability, hence the order is not erroneous.
4. On the facts and under the circumstances of the case and in law, the learned CIT erred in holding that the Insurance Premium is not allowed as deduction in computing capital gain without appreciating that Policy Is subscribed in earlier year and earlier payments are allowed as deduction. The receipt on maturity is taxable. Hence it will amount to double taxation.
5. On the facts and under the circumstances of the case and In law, the Learned err erred in holding that the Insurance Premium is not allowed as deduction in computing capital gain without appreciating that same can be allowed as business deduction and the business loss of current year is allowed to be set off against short term capital gain.”
2. Rival contentions have been heard and record perused. Facts in brief are that the assessee has earned income mainly from long term and short term capital gain and dividend income. The assessment was completed u/s.143(3) on 31-10-2008, wherein income returned at Rs.18.10 crores was assessed at Rs.18.22 crores after disallowing short term capital gain of Rs.11.57 lacs. Thereafter CIT initiated proceedings u/s.263 and observed that a perusal of the statement of income filed with the return of income shows that from out of short term capital gains, assessee has claimed a deduction of Rs.2,00,00,056/- by way of Keyman Insurance Policy premium taken by the assessee. As per the provisions of section 48 of the Act, while computing capital gains only two deductions are permissible. These are (i), Expenditure incurred wholly and exclusively in connection with the transfer and (ii), for the cost of the acquisition of the asset and cost of any improvement thereto. Since the Keyman insurance policy does not constitute either the cost of acquisition 3 or cost of. improvement as defined u/s.55 of the Income-tax Act, the amount of Rs.2,00,00,056/- was not an allowable deduction from the income disclosed by way of short term capital gain. The A.O had wrongly allowed the same in the assessment order passed u/s 143(3) of the I.T.Act. After considering assessee’s contention the CIT held as under:- The assessee's claim that payment of Insurance premium has helped in improving profit of the assessee company from Rs. 2 crore for year ending 2005 to Rs.18 crores for year ending 2006 is also not correct as the assessee has claimed such (first) premium as deduction for the year ending 2004 but the income is only Rs. 2 crores for the year ending 2005. Hence even the assessee's claim has not been substantiated and not proved to be true and hence rejected. Even assuming that the claim is correct still there is no scope or provision under the Act to allow such deduction of Keyman co-insurance premium paid while computing income under Capital Gains. The assessee’s claim only an attempt to reduce its taxable income and evade tax which the A.O. has failed to note and make verification and disallow the claim.
3. Accordingly, the assessment made by AO was set aside with a direction to the A.O. to make a fresh assessment after a detailed verification of nature of income shown by the assessee in the return and the statements filed, Head of income under which it is to be assessed and disallow the claim for Keyman Insurance premium paid while computing the income if any, under the head "Capital Gains" (Long Term/Short Term). The Assessing Officer was directed to give sufficient opportunity to the assessee of being heard and furnish submissions and evidence if any before completing the assessment afresh as per law.
Against the above order of CIT u/s.263, the assessee is in further appeal before us.
It was argued by ld. AR that while framing scrutiny assessment the AO has made full enquiry with regard to assessee’s claim of deduction of Keyman insurance Policy, therefore, the order of AO cannot be said to be erroneous as well as prejudicial to the interest of revenue. Reliance was placed on the decision reported at 295 ITR 282, 26 TTJ 629, 54 SOT 493.
On the other hand, ld. DR contended that the AO has not applied his mind nor raised any query with regard to wrong claim of Keyman Insurance Policy against capital gain, therefore, the order of the AO was erroneous and prejudicial to the interest of revenue. Reliance was placed on the decision of Hon’ble Gauhati High Court in the case of Jawahar Bhattacharjee 341 ITR 434 in support of the proposition that where the AO has not conducted enquiry nor applied his mind to the relevant material would bring the order within the meaning of erroneous as well as prejudicial to the interest of revenue. 7. We have considered rival contentions, carefully gone through the orders of the authorities below and also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by ld. AR and ld. DR during the course of hearing before us. From the record we found that during the year under consideration assessee was having income from short term and long term capital gain and dividend income. The return was taken under scrutiny, however, without making any enquiry with regard to claim of deduction of Rs.2 crore out of capital gain so earned by the assessee, the AO has allowed the same. There is no whisper in the order nor it was brought to our notice 5 that the AO has applied his mind or made any inquiry with regard to claim of deduction of Rs.2 crores under the head income from capital gains. The payment to Keyman Insurance Policy did not constitute cost of acquisition or cost of improvement as defined u/s.55 so as to entitle the assessee to claim the same while arriving at capital gains u/s.48 of the I.T.Act. The AO has also not deliberated on the income offered by the assessee under the head capital gains with regard to frequency and volume of transaction in shares and has accepted assessee’s claim of capital gains. It has been held by Delhi High Court in the case of Gee Vee Enterprises, 99 ITR 375 and Madras High Court in the case of K.A.Ramaswamy Chettiar, 220 ITR 657 that where the AO failed to make any enquiry as regards the allowability of claim, the same renders order of AO erroneous as well as prejudicial to the interest of revenue, therefore amenable to revisional jurisdiction u/s.263. Even the order passed by the AO without proper enquiry or wrong application of law and facts renders the order of the AO prejudicial to the interest of revenue. In the instant case before us the order passed by the AO is clearly erroneous as AO has not applied his mind as to whether the income offered by the assessee from the sale of shares/securities, is assessable as income from business or income from capital gain and as AO has wrongly allowed the claim of deduction of Keyman Insurance premium paid of Rs.2,00,00,056/- under the head Short Term Capital Gain without any verification or enquiry and lack of application of mind AO has allowed deduction of Rs.2,00,00,056/- which is not allowable under the head 6 ITA No.3564/11 Capital Gains. Thus, the assessment so made was not only erroneous but also prejudicial to the interest of revenue.
In the result, appeal of the assessee is dismissed. Order pronounced in the open court on this 31/03/2016.
Sd/- Sd/- (SANDEEP GOSAIN) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 31/03/2016 प्र.कु.मभ/pkm, नन.स/ PS आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3. आमकय आमुक्त / CIT 4. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. गार्ा पाईर / Guard file. 6. सत्मावऩत प्रनत //True Copy// आदेशाि सार/ BY ORDER,