2014 (9) TMI 50 - HC - Income Tax

High Court allows Tax Appeals, quashes judgments, remands to Tribunal for fresh decision. No costs awarded.

The High Court allowed both Tax Appeals, quashed the impugned judgments, and remanded the matters to the Tribunal for a fresh decision on the issues ... Keyman insurance premium deleted – Tribunal was of the view that the amount has earlier been also allowed as deduction – Held that:- The Tribunal has not decided the issue on merits and has dismissed the appeal solely on the ground of and considering the fact that with respect to AY 2005-06 the amount of premium on the Keyman Insuance Policy was held to be admissible deduction as business expenditure - when for AY 2005-06, the 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 Tribunal ought to have decided the 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 – it was held to be bad on the ground of jurisdiction and not on merits – thus, the matter is liable to be set aside and matter remitted back to the Tribunal to decide the appeal – Decided in favour of Revenue. Issues Involved:1. Appeal against deletion of Keyman Insurance Premium addition for A.Y. 2006-07.2. Appeal against deletion of Keyman Insurance Premium addition for A.Y. 2007-08.Analysis of Judgment:Issue 1:The first issue pertains to the appeal against the deletion of the addition of Keyman Insurance Premium for the assessment year 2006-07. The Revenue challenged the decision of the Income Tax Appellate Tribunal (ITAT) in allowing the deduction of the premium claimed towards Keyman Insurance. The Tribunal based its decision on the fact that a similar claim was allowed in the preceding assessment year 2005-06. The Assessing Officer (AO) had disallowed the premium amount, but the CIT(A) and ITAT ruled in favor of the assessee. The Tribunal emphasized that the premium paid was wholly and exclusively for business purposes. It was noted that the issue for the AY 2005-06 was not decided on merits but was set aside due to jurisdictional reasons. The Tribunal was criticized for not deciding the issue on its merits for the AY 2005-06. Consequently, the High Court remanded the matter to the Tribunal to decide the appeal and issue involved in accordance with the law and on merits.Issue 2:The second issue involves an appeal against the deletion of the addition of Keyman Insurance Premium for the assessment year 2007-08. The Revenue contested the ITAT's decision to allow the deduction of the premium without considering the criteria for calculating the limits for sum assured prescribed by the insurance company. The Revenue argued that the value of a Keyman would be arbitrary and discretionary without adhering to the IRDA-regulated criteria. However, the ITAT ruled in favor of the assessee, highlighting that the premium on the Keyman Insurance Policy was exclusively for business purposes. The High Court found that the Tribunal had not decided the issue on its merits even for the AY 2005-06, which was sought to be reopened but was set aside on jurisdictional grounds. Therefore, the High Court set aside the impugned judgment and remanded the matters to the Tribunal for a decision based on law and merits.In conclusion, the High Court allowed both Tax Appeals, quashed the impugned judgments, and remanded the matters to the Tribunal for a fresh decision on the issues involved in accordance with the law and on merits. No costs were awarded in both appeals.