2018 (1) TMI 802 - AT - Income Tax

Appeal partly allowed: Profit from investments favored, exemption denied, depreciation disallowed for verification

The appeal was partly allowed in the case. The addition on account of profit from the sale/redemption of investments was ruled in favor of the assessee, ... Addition on account of profit on sale/redemption of investments - Held that:- As in assessee's own case [2017 (9) TMI 172 - DELHI HIGH COURT] in this case too assessee had taken identical plea regarding profit on sale of investment being exempt as the same is not covered by section 44 of the Income Tax Act. Further it is observed from the assessment order that assessee has been consistently crediting the profit on sale of investment to general reserve and the change in its treatment was made only due to the change being mandated by IRDA Regulation in 2002. It is observed that Hon’ble High Court in assessee’s own case for assessment year 2005-06 has observed this change of accounting pattern for non life insurance companies were required to credit income from sale of investments directly to P&L account which was made applicable only from assessment year 2011-12. Hon’ble High Court has also observed that prior to 01/04/11 there was no such provision which would require revenue to disallow the claim of assessee in respect of sale of investment. - Decided in favour of assessee Denial of exemption under section 10 (38) - Held that:- In the assessment order it is observed that assessee had raised an alternative plea in respect of profit on sale of investments being exempt under section 10 (38) of the Act. In our considered opinion this ground now becomes in fructuous in view of Ground No. 1 which has been decided in favour of assessee. Disallowance of depreciation - Held that:- As we compare the factual position prevalent during assessment year 2000-01 and 2001-02 based on which the Tribunal confirmed the disallowance of depreciation, we observe that it was so decided because assessee failed to furnish relevant information before the Assessing Officer along with Audit Report. Facts of the present assessment year are different as Ld.AR sufficiently demonstrated that the details were very much available before Ld.AO and Assessing Officer has not taken any steps to verify the same.We therefore are inclined to set aside this issue to Ld. AO for proper verification of the details filed by assessee Issues:1. Addition on account of profit on sale/redemption of investments.2. Denial of exemption under section 10(38) of the Income Tax Act.3. Disallowance of depreciation claimed by the assessee.4. Levying interest under sections 234B and 234D of the Act.5. Validity of the assessment order passed by the Assessing Officer.6. Validity of the order passed by CIT(A) upholding the assessment order.Analysis:Issue 1: Addition on account of profit on sale/redemption of investmentsThe appeal was filed against the addition of Rs. 600,01,47,000 on profit from the sale/redemption of investments. The Hon'ble High Court had previously ruled in favor of the assessee for a similar issue in a previous assessment year. The Court held that the income from the sale/redemption of investments was not taxable, as the assessee had consistently credited the profit to the general reserve. The change in accounting treatment was due to IRDA regulations and did not warrant disallowance by the revenue. The Tribunal, following the High Court's ruling, allowed the ground raised by the assessee.Issue 2: Denial of exemption under section 10(38)The denial of exemption under section 10(38) became inconsequential after the favorable decision on the first issue. Therefore, this ground raised by the assessee was dismissed.Issue 3: Disallowance of depreciation claimedThe Assessing Officer had disallowed depreciation claimed by the assessee based on past decisions where relevant details were not provided. However, in the present case, the assessee had submitted all necessary information during the assessment proceedings. The Tribunal found that the AO did not verify the details provided and directed a proper verification, allowing the ground raised by the assessee for statistical purposes.Issue 4: Levying interest under sections 234B and 234DThe Tribunal did not provide specific details on this issue in the summary provided.Issue 5: Validity of the assessment orderThe ground challenging the validity of the assessment order passed by the Assessing Officer was not discussed in detail in the summary provided.Issue 6: Validity of the order passed by CIT(A)The ground challenging the order passed by CIT(A) was not discussed in detail in the summary provided.In conclusion, the appeal filed by the assessee was partly allowed, with favorable decisions on the addition of profit on sale/redemption of investments and the disallowance of depreciation claimed. The denial of exemption under section 10(38) was dismissed as it became inconsequential. The Tribunal directed proper verification of details for the depreciation claimed by the assessee. The specific details regarding the levying of interest and the validity of the assessment and CIT(A) orders were not elaborated upon in the summary.