2015 (8) TMI 76 - AT - Income Tax

Tribunal rules in favor of taxpayer on investment profit taxability & deduction disallowance

The DCIT 1 (1), Mumbai Versus M/s HDFC Ergo General Insurance Co. Ltd.

The Tribunal dismissed the Revenue's appeal regarding the taxability of profit on the sale of investment for the assessment year 2007-08, holding that ... Taxability of profit on sale of investment - Held that:- After the deletion of rule 5(b) of the first schedule, profit on sale of in vestment in case of general insurance companies cannot be taxed under section 44 of the I.T Act. The case of the assessee is identical and therefore respectfully following the decision of Tribunal in assessee's own case ( 2010 (9) TMI 1051 - ITAT MUMBAI), we hold that profit on sale of investment in case of the assessee cannot be brought to tax in assessment year 2004-05. - Decided in favour of assessee. Deduction disallowed on account of amortization of debts securities - CIT(A) deleted the addition - Held that:- Decided in favour of assessee as relying on TATA AIG General Insurance vs. ACIT [2010 (10) TMI 764 - ITAT, Mumbai ] wherein held Expenditure, which is deductible for income tax purposes, is one which is towards a liability actually existing at the time, but the putting aside of money which may become expenditure on the happening of an event is not expenditure - In General Insurance Corporation of India vs. CIT (1999 -TMI - 5762 - SUPREME Court), the Supreme Court held that even if an item of debit is considered as an expenditure, it should further be such an expenditure contemplated in sections 30 to 43A and, therefore, unless there was a specific prohibition for such an allowance, the departmental authorities would not be justified in adding back the amount under rule 5(a) - Decided in favor of the assessee Deduction for pre-operative expenses - CIT(A) has dismissed this ground for the reason that assessee did not make this claim in the return and also did not file revised return - Held that:- If assessee is making a claim it will be within the power of Appellate Authorities to entertain such claim without making such claim in the return of income or without filing revised return. The case law of CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd , [2012 (7) TMI 158 - BOMBAY HIGH COURT ] as relied upon by the assessee is applicable to the facts of the case, therefore, in the interest of justice we restore this matter back to the file of AO to examine the claim of the assessee and decide the same as per law after giving the assessee a reasonable opportunity of hearing. - Decided in favor of the assessee for statistical purposes. Disallowance of unabsorbed depreciation and brought forward business loss to be carried forward for set off against the income in the subsequent years - Held that:- The due benefit of set off of brought forward depreciation and business loss has to be granted to the assessee and recording of such unabsorbed depreciation and business loss which is entitled to be carried forward is also necessary for getting such benefit in the subsequent year. Therefore, we restore this issue to the file of AO with a direction to determine such brought forward and carried forward unabsorbed depreciation and business loss as per law after giving the assessee a reasonable opportunity of hearing. - Decided in favor of the assessee for statistical purposes. Issues Involved:1. Taxability of profit on sale of investment.2. Deduction disallowed on account of amortization of debt securities.3. Admission of additional grounds of appeal for claiming deduction for pre-operative expenses.4. Direction for carrying forward unabsorbed depreciation and business loss.Taxability of profit on sale of investment:The Revenue appealed against the CIT(A)'s decision regarding the taxability of profit on the sale of investment for the assessment year 2007-08. The Tribunal referred to a previous order in a similar case where it was held that profit on the sale of investment cannot be taxed for general insurance companies post the amendment of rule 5(b) from assessment year 1989-90. The Tribunal emphasized that after the deletion of rule 5(b), profit on the sale of investment for general insurance companies cannot be taxed under section 44 of the Income Tax Act. Consequently, the Tribunal dismissed the Revenue's appeal on this ground.Deduction disallowed on account of amortization of debt securities:The issue of deduction disallowed on account of amortization of debt securities was raised by the Revenue. The Tribunal noted that the claim of amortization cannot be considered as an expenditure under rule 5(a) of the First Schedule. Referring to relevant case law, the Tribunal concluded that there was no specific prohibition against allowing such an expenditure under the provisions of sections 30 to 43B. Therefore, the Tribunal upheld the CIT(A)'s decision to accept the claim of the assessee regarding the deduction disallowed on account of amortization of debt securities.Admission of additional grounds of appeal for claiming deduction for pre-operative expenses:The assessee sought admission of additional grounds of appeal for claiming a deduction for pre-operative expenses. The Tribunal observed that the issue was raised as an additional ground before the CIT(A) and was forwarded to the AO. Despite the AO's rejection based on a pending appeal in the High Court, the Tribunal held that the Appellate Authorities have the power to entertain such claims even if not made in the return of income or through a revised return. The matter was restored back to the AO for examination and decision as per law, allowing the grounds for statistical purposes.Direction for carrying forward unabsorbed depreciation and business loss:Regarding the direction for carrying forward unabsorbed depreciation and business loss, the Tribunal noted that the CIT(A) had rejected the ground raised by the assessee. However, the Tribunal emphasized the necessity of granting the due benefit of set off for brought forward depreciation and business loss. Consequently, the issue was restored to the AO with a direction to determine the unabsorbed depreciation and business loss for carrying forward as per law. This ground was allowed for statistical purposes.In conclusion, the Tribunal dismissed the Revenue's appeal while allowing the assessee's appeal for statistical purposes on the issues discussed above, providing detailed legal analysis and referencing relevant case law and provisions of the Income Tax Act.