2019 (11) TMI 1608 - AT - Income Tax

Revision u/s 263 - Expenditure on Keyman Insurance Policy was allowed without verification - HELD THAT - A perusal of the impugned order of the Ld. PCIT reveals that on being asked to explain about the deduction of expenditure claimed on keyman insurance, the assessee duly explained that the assessee obtained the insurance policy for its employees and that the same was business expenditure of the assessee. PCIT without considering the submissions of the assessee and even without giving any prima-facie finding that expenditure incurred by the assessee on the keyman insurance policy of its employees was not admissible expenditure has set aside the order of the Assessing Officer merely on the ground that the Assessing Officer had not discussed about the said allowance. The action of the Ld. PCIT without considering the explanation given by the assessee and without pointing out as to what other enquires were required to be made by the Assessing Officer in the facts and circumstances of the case, has set aside the order of the Assessing Officer and remanded the matter back to the file of the Assessing Officer for passing of the assessment order afresh. The above action of the Ld. PCIT cannot be held to be justified. PCIT has failed to pin-point as to how the assessment order was erroneous and prejudicial to the interest of Revenue without pointing out as to why the claim of the assessee of the aforesaid expenditure was not allowable and as to what further investigations were required to be carried out. Merely because the Assessing Officer has not discussed in detail is no ground to hold that the order of the Assessing Officer is erroneous and prejudicial to the interest of Revenue especially when the claim of expenditure by the assessee apparently is an allowable expenditure. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the PCIT's exercise of revision jurisdiction under section 263 of the Income Tax Act.
2. Whether the Assessing Officer's (AO) allowance of the Keyman Insurance Policy expenditure without detailed discussion was erroneous and prejudicial to the interest of the Revenue.

Issue-wise Detailed Analysis:

1. Validity of the PCIT's exercise of revision jurisdiction under section 263 of the Income Tax Act:

The PCIT exercised his revision jurisdiction under section 263 of the I.T. Act, setting aside the AO's order and remanding the matter for fresh assessment. The PCIT observed that the AO allowed the expenditure on the Keyman Insurance Policy without verification, which he deemed erroneous and prejudicial to the interest of the Revenue. The PCIT argued that the AO failed to examine the issue of the allowance of expenditure incurred on the Keyman Insurance Policy.

2. Whether the Assessing Officer's (AO) allowance of the Keyman Insurance Policy expenditure without detailed discussion was erroneous and prejudicial to the interest of the Revenue:

The assessee contended that the PCIT did not point out any specific error in the assessment order that made it prejudicial to the Revenue's interest. The assessee explained that the insurance policy was a business expenditure, as it was taken for the employees, and the premium paid was allowed as business expenditure in the employer's hands. The PCIT, however, did not consider the assessee's submissions and set aside the AO's order merely because it lacked detailed discussion on the allowance.

The Tribunal noted that section 263(1) of the Act empowers the Commissioner to revise an order if it is erroneous and prejudicial to the Revenue's interest. However, the Commissioner must give the assessee an opportunity to be heard and make necessary inquiries. The Tribunal emphasized that the words “as he deems necessary” do not give the Commissioner a choice to avoid making inquiries. Instead, it mandates the Commissioner to make or cause to make inquiries to determine if the AO's order was erroneous and prejudicial to the Revenue.

The Tribunal found that the PCIT failed to consider the assessee's detailed explanations and did not provide a prima facie finding that the expenditure on the Keyman Insurance Policy was inadmissible. The PCIT set aside the AO's order without pointing out specific errors or necessary further investigations, which the Tribunal deemed unjustified. The Tribunal highlighted that merely because the AO did not discuss the allowance in detail does not render the order erroneous and prejudicial to the Revenue, especially when the expenditure claimed by the assessee was apparently allowable.

The Tribunal also referred to the amendment made by the Finance Act, 2015, effective from 01.06.2015, which introduced a deeming fiction in section 263 regarding orders passed without making necessary inquiries. However, this deeming provision was not applicable for the assessment year under consideration.

In conclusion, the Tribunal quashed the PCIT's order, stating that the PCIT's action was not sustainable as he failed to pinpoint how the AO's order was erroneous and prejudicial to the Revenue's interest. The Tribunal allowed the assessee's appeal.

Order Pronounced:
The appeal of the assessee was allowed, and the impugned order of the PCIT was quashed. The order was pronounced in the Open Court on 13.11.2019.