2019 (8) TMI 370 - AT - Income Tax

Revenue's Appeals Dismissed, Assessee's Cross Objections Partially Allowed on Section 14A

The Tribunal dismissed the Revenue's appeals and partially allowed the assessee's cross objections for assessment years 2013-14 and 2014-15, concerning ... Applicability of section 14A to insurance companies assessed under section 44 - Non-applicability of section 14A where section 44 creates a special computation for insurance business - Applicability of revised Rule 8D to earlier assessment years - Allowability of education cess as deductible expenditureApplicability of section 14A to insurance companies assessed under section 44 - Non-applicability of section 14A where section 44 creates a special computation for insurance business - Deletion of disallowance made under section 14A in assessments of the insurance company for the said years - HELD THAT: - The Tribunal examined the contention that where income of an insurance company is computed under the special provision for insurance business, section 14A does not apply. The CIT(A) relied on coordinate Bench decisions of the Tribunal in the assessee's own earlier years and the decision of the Delhi High Court in Dy. CIT v. Oriental General Insurance Co. Ltd., which held that section 44 creates a special provision for insurance companies and the Assessing Officer cannot travel beyond section 44 and the First Schedule to invoke section 14A. Applying the settled view of the coordinate Benches, the Tribunal found the CIT(A)'s conclusion to be fair and reasonable and refused to interfere. [Paras 6, 7]Addition under section 14A deleted; Revenue's appeals dismissed on this issue.Applicability of revised Rule 8D to earlier assessment years - Applicability of section 14A to dividend and interest income - Cross-objections challenging computation under section 14A / revised Rule 8D held academic following dismissal of Revenue's appeals - HELD THAT: - The assessee's cross-objections raised alternative grounds that, if section 14A were held applicable, disallowance should be computed by the assessee's net income method and that revised Rule 8D (notified in 2016) was not applicable to AY 2013-14. Because the Tribunal upheld the non-applicability of section 14A to the assessee (see decision above), these alternative grounds became academic. The Tribunal therefore did not decide the merits of the Rule 8D contention and treated those grounds as academic. [Paras 10, 11]Cross-objections in respect of alternative computation and Rule 8D dismissed as academic.Allowability of education cess as deductible expenditure - Allowability of deduction for education cess paid by the assessee - HELD THAT: - The assessee sought deduction of education cess paid on income tax as an allowable expenditure. The Tribunal referred to the decision of the High Court of Judicature for Rajasthan at Jaipur in Chambal Fertilisers & Chemicals Ltd. v. JCIT, which answered the substantial question in favour of the assessee and held that 'cess' is not a disallowable item. Applying that settled ratio, the Tribunal held that education cess paid is allowable while computing taxable income. [Paras 12, 13]Deduction in respect of education cess allowed; cross-objections partly allowed on this point.Applicability of section 14A to insurance companies assessed under section 44 - Application of the Tribunal's decision for AY 2013-14 to AY 2014-15 - HELD THAT: - The facts, issues and arguments for AY 2014-15 were identical to those for AY 2013-14. The Tribunal held that the reasoning and conclusions reached in respect of AY 2013-14 apply equally to AY 2014-15, and therefore disposed of the appeals and cross-objections for AY 2014-15 in the same manner. [Paras 15, 16]Revenue's appeal for AY 2014-15 dismissed; assessee's cross-objection for AY 2014-15 partly allowed.Final Conclusion: Both Revenue appeals for AY 2013-14 and AY 2014-15 are dismissed; both cross-objections by the assessee are partly allowed - the disallowance under section 14A is deleted for both years and deduction of education cess is allowed, while alternative grounds relating to computation and applicability of revised Rule 8D are treated as academic. Issues involved:Cross appeals regarding the applicability of section 14A of the Income Tax Act, 1961 for assessment years 2013-14 and 2014-15.Analysis:1. ITA No.1111/PUN/2017 (By Revenue - A.Y. 2013-14):- The Revenue challenged the CIT(Appeal) order regarding the disallowance under section 14A of the Income Tax Act. The issue revolved around the applicability of section 14A in the case of Insurance companies under Section 44 of the Act. The CIT(Appeal) granted relief to the assessee based on previous Tribunal decisions and the Delhi High Court ruling. The Tribunal found the issue settled and upheld the CIT(Appeal) order, dismissing the Revenue's appeal.2. CO No.23/PUN/2019 (By Assessee - A.Y. 2013-14):- The assessee raised cross objections challenging the disallowance under section 14A and the computation under Rule 8D of the Income Tax Rules for AY 2013-14. The issue of applicability of revised Rule 8D was also contested. The Tribunal dismissed the grounds as academic due to the relief granted earlier. Regarding the deduction for Education Cess, the Tribunal referred to a Rajasthan High Court decision, allowing the cross objection partially.3. ITA No.1112/PUN/2017 & CO No.24/PUN/2019 (By Revenue & Assessee - A.Y. 2014-15):- The Revenue and the assessee raised similar grounds as in the previous appeal for AY 2013-14. The Tribunal applied the decision from the earlier appeal, dismissing the Revenue's appeal and partially allowing the cross objection by the assessee.In conclusion, the Tribunal dismissed both appeals by the Revenue and partly allowed the cross objections by the assessee for both assessment years. The judgment was pronounced on July 25, 2019, by the ITAT Pune.