2011 (7) TMI 391 - AT - Income Tax

Tribunal approves CIT order on pension & gratuity, rejects views on investments, leave encashment.

New India Assurance Co. Ltd. Versus Additional Commissioner of Income-tax, Range 1(3) Mumbai

New India Assurance Co. Ltd. Versus Additional Commissioner of Income-tax, Range 1(3) Mumbai - TMI Issues Involved:1. Investments written off2. Pension and Gratuity3. Leave Encashment4. Interest and incomes relating to earlier year5. General compliance with IRDA Regulations6. Computation under section 115JBDetailed Analysis:I. Investments written off:The assessee initially debited Rs. 16.43 crore to its Profit and Loss Account for investments written off and credited Rs. 17.29 crore for the reversal of the provision for diminution of investments. The CIT noted that the net reduction of Rs. 86.17 lakh was not allowable under Rule 5(a). The Tribunal found that with the omission of clause (b) of Rule 5, neither the loss on account of diminution in the value of investment nor the income from investments should be considered for tax purposes. The assessee correctly reversed these amounts, leading to no net deduction or increment. The CIT's view on this issue was not justified.II. Pension and Gratuity:The assessee debited Rs. 365.08 crore for pension and Rs. 101.33 crore for gratuity in its Profit and Loss Account but claimed higher deductions of Rs. 404 crore and Rs. 110 crore, respectively, as actually paid. The CIT held that the excess amounts paid but not debited to the Profit and Loss Account could not be allowed as deductions under Rule 5(a), which only permits additions for disallowances under sections 30 to 43B. The Tribunal agreed with the CIT, allowing deductions only for the amounts debited to the Profit and Loss Account.III. Leave Encashment:The assessee debited Rs. 55.74 crore for leave encashment but paid Rs. 32.36 crore during the year, including Rs. 4.45 crore from the preceding year. The unpaid amount of Rs. 27.83 crore was disallowed under section 43B. The CIT incorrectly directed the disallowance of the entire Rs. 55.74 crore. The Tribunal held that the assessee correctly disallowed only the unpaid portion, and the CIT's view was not approved.IV. Interest and incomes relating to earlier year:The assessee included certain incomes and expenditures from earlier years in the current year's Profit and Loss Account and made corresponding adjustments in the computation of income. The CIT held that these adjustments were not permissible under sections 30 to 43B. The Tribunal agreed, stating that once these items were included in the Profit and Loss Account, they must remain unless specifically adjusted under Rule 5(c). The CIT's view was justified.V. General compliance with IRDA Regulations:The CIT noted auditor qualifications regarding non-compliance with IRDA Regulations but did not demonstrate how this affected the taxable income. The Tribunal found no merit in this general observation, as the qualifications did not impact the working results of the company.VI. Computation under section 115JB:The CIT commented on the computation under section 115JB, but the Assessing Officer had already disregarded it as inapplicable due to higher tax under normal provisions. The Tribunal did not accept the CIT's view on this issue.Conclusion:The Tribunal partly approved the CIT's order, agreeing with the revisions on pension, gratuity, and earlier year incomes but rejecting the CIT's views on investments written off, leave encashment, general IRDA compliance, and section 115JB computation. The CIT's sweeping directive to re-examine the entire assessment was also not upheld. The appeal was partly allowed.