2025 (1) TMI 640 - AT - Income Tax

AO cannot reassess under Section 148 after examining TDS issues in original assessment under Section 143(2)

M/s. Royal Sundaram General Insurance Company Limited Versus Dy. Commissioner of Income Tax, Large Tax Payer Unit, Chennai. And (Vice-Versa)

ITAT Chennai held that reassessment proceedings under Section 148 were invalid as the AO had already examined TDS issues during original assessment under ... Reopening of assessment - Reasons to believe - “change of opinion” V/S “review of the assessment order” - non-deduction of TDS - HELD THAT:- During the original assessment proceedings u/s 143(2), the issues qua which reassessment proceedings were initiated for non-deduction of TDS, were examined and considered by the Ld. AO. Thus it is crystal clear that full application of mind was made to the facts of the case surrounding determination of taxable income of the assessee. In view of the elaborate enquiries and discussions made in the assessment order in respect of impugned transactions the AO is precluded from changing his opinion subsequently and reopening the case u/s 148. The reasons recorded by the AO and as approved by his supervisory authorities, reproduced herein above do not in any way demonstrate that there was any failure on part of the assessee to have not fully and truly disclosed true facts of the case. The action of the AO in initiating proceedings u/s 148 is thus hit by the concept of “change of opinion” or a case of “review of the assessment order” and the same cannot be approved. As from the reasons recorded in the case extracted herein above, there is not even a whisper that the assessee is in any way guilty of suppressing any disclosure of any material. It is a certain position of law that reasons recorded in a case must be viewed on a stand alone basis and that nothing can be added or subtracted therefrom. Besides there is no mention as to source of information except a vague assertion of “details of information received ”. We have noted that all the documents comprising Balance sheet and P&L account of assessee discussed by the AO in the impugned reasons were very much before him during original assessment proceedings. Thus, no case of any valid escapement of income falling within the tenets of section 147 rws 148 is made out against the assessee. As the reasons u/s 147/148 themselves are not supported by valid legal authority, consequent reassessment order arising therefrom would be a case of nullity and an order being void ab initio. We are of the view that the proceedings u/s 148 are bad in law and deserves to be quashed. We therefore quash the proceedings u/s 148 as being bad in law and allow the grounds of appeal No.1 raised by the assessee. TDS u/s 195 - disallowance of insurance premium paid to Non-Resident Insurers - case of the revenue that the amounts remitted by the assessee to Non-resident entities is exigible to TDS deduction u/s 40(a)(i) of the act - HELD THAT:- In respectful compliance to the decision of United India Insurance Limited. [2024 (7) TMI 1556 - ITAT CHENNAI] the order of lower authorities is set aside and the Ld.AO is directed to delete the additions made towards disallowance of reinsurance premium conceded to NRRs u/s. 40(a)(i). Disallowance of excess depreciation claimed on projectors and UPS - As relying on Cholamandalam General Insurance Company Limited [2022 (9) TMI 1178 - ITAT CHENNAI] we set aside the order of the lower authorities and direct the Ld. AO to allow depreciation @ 60% on UPS. As regards claim of depreciation on projectors, we do not find any infirmity with the findings of the CIT(A) that a projector is neither nor an output device or a computer and can be used independently also as an electronic gadget. Consequently, the decision of the Ld. CIT(A) on the issue of the projector is confirmed. Disallowance of payment made to motor vehicle dealers - revenue contended that no services were rendered and hence disallowed the expenses incurred by the assessee company - HELD THAT:- We have noted that identical controversy had come up for consideration in the case of Cholamandalam general Insurance Company Limited [2022 (9) TMI 1178 - ITAT CHENNAI] claim of the assessee before the CIT(Appeals) was that the services were actually rendered by the motor car dealers by providing space, computer stationeries, etc. in their showroom for enabling software integration with the assessee company. Assessee claimed before the AO that tax was deducted at source and paid to the Government account. From the material available on record it appears that the assessee company in order to propagate its insurance business, had arrangement with motor car dealers in their showroom for providing space, computer stationeries, etc. Assessee appears to have made the payment. The assessee has filed copies of invoice, confirmation letters from service providers and details of premium collected by the motor vehicle dealers from the customers. There is no doubt about the genuineness of service rendered by the car dealers. Also United India Insurance Company Limited. [2024 (7) TMI 1556 - ITAT CHENNAI] addition was made as sequel to information received from the service tax department whose own enquires had not reached finality. The Hon’ble High Court laid down that the Revenue would be free to exercise its authority under the Act in the event of Service tax department holding against the assessee. We confirm the order of the CIT(A) on the issue of infra payments made by the assessee to motor car dealers and reject the grounds raised by the Revenue. Addition of UPR to book profit u/s 115JB - assessee company had reduced insurance premium amount from the profit of the business being related to premium for the purposes of “reserve for unexpired risks” - AO held the view that the above amount is in effect but the reserve made from insurance premium collected and hence eligible for adding back for computation of book profit u/s 115JB - HELD THAT:- The order of the lower authorities is set aside and the AO is directed to delete the additions made towards UPR to book profits u/s 115JB of the act. The ground of appeal raised by the assessee on the issue of non-inclusion of UPR to book profits u/s 115JB of the act is therefore allowed. Addition of insurance premium received in respect of long term policy -assessee argued that it is offering the income on receipt basis in subsequent years and that the addition tantamount to double taxation - HELD THAT:- We have considered the order of CIT(A) and are of the view that no interference is required in the same at this stage. Accordingly, in respectful compliance to the decisionof Hon’ble Apex Court in the case of British Paints India Limited [1990 (12) TMI 2 - SUPREME COURT] we hold the view that the Ld.AO is fully empowered to determine the correct taxable income by making correct interpretation of books results. Accordingly the order of the Ld. First Appellate Authority in making the impugned addition is sustained and the grounds of appeal raised by the assessee pertaining to addition of insurance premium received in respect of long term policy is dismissed. Allowance of depreciation on computer software - whether computer software taken on lease by an assessee would be eligible for 60% depreciation or not? - HELD THAT:- As been noted that the Hon’ble Coordinate Bench of this tribunal in the case of TNQ Books and Journal Pvt Ltd [2016 (6) TMI 1493 - ITAT CHENNAI] has comprehensively dealt the subject so as to conclude admissibility of depreciation @ 60% in similar situations. As the facts of the case are identical, we do not find any need to interfere with the findings of the Ld. First Appellate Authority. Accordingly, the decision of Ld. CIT(A) is sustained and grounds of appeal raised by the appellate revenue is dismissed. Disallowance of provisions for claims incurred but not reported (IBNR) and incurred but not enough reported (IBNER) - HELD THAT:- The impugned liability principally arising in view of guidelines formulated by IRDA and calculated by a IRDA approved actuarial valuer fulfills the ratio laid down by Hon’ble Apex Court mandating the that as long as a liability is properly ascertainable on the basis of empirical data or a known methodology, the same cannot possibly be held to be a contingent liability. Hon’ble Supreme Court in Vegetable Products [1973 (1) TMI 1 - SUPREME COURT] held that it is the right of an enterprise to make provisions for a liability which could be measured by a 'substantial degree of estimation' and consequently that its allowance as an valid expenditure would be permissible. We have noted that facts of the case as existing in the present appeal are identical to those as in the cases adjudicated by the Hon’ble Coordinate Benches of Kolkata, Delhi and Mumbai Tribunals. No distinguishment of facts could be pointed out by the appellant revenue. Accordingly, we hold that IBNR and IBNER are ascertained liability and therefore allowable as a deduction. Accordingly we hold that the order of the Ld. First Appellate Authority does not requires any interference at this stage. The order of the Ld.CIT(A) is confirmed and the grounds of appeal raised by the revenue are dismissed. Disallowance of 14A - HELD THAT:- The position of applicability of section 14A qua insurance company is thus now finally settled. It has been clearly postulated in the statute that as the taxability of insurance companies is governed by provisions of 44 of the act, section 14A would not apply therein. Disallowance of UPR - HELD THAT:- The order of the Ld. AO as well as Ld. First Appellate Authority on the subject controversy suffers from the deficiency of a non-speaking order in as much as facts and figures have not been clearly brought out on records. The amounts of money credited to profit and loss account would include amount of UPR disallowed by the assessee in earlier years. Within the meanings of proviso to Rule 6E, the amount disallowed in earlier years cannot be included in the current year, as the same would tantamount to double taxation. It is trite law that double taxation of income is not permitted under the income tax act. Be that as it may be we are of the view that ends of justice would met if the Ld. AO is given one more chance to readjudicate the matter. Accordingly, we set aside the order of the lower authorities and direct the Ld. AO to verify whether the amounts disallowed in earlier year have been credited to profit and loss account and if yes to reduce them from the amounts of the present year, in accordance with provisions of rule 6E. Addition of 14A under section 115JB - HELD THAT:- Assessee is covered in its favour by the decision of Special Bench of the Tribunal in the case of ACIT vs. Vireet Investments (P) Ltd. [2017 (6) TMI 1124 - ITAT DELHI] Eligible for claim of education cess and higher secondary education cess while computing the tax liability - HELD THAT:- Contemporaneous law clearly mandates that no deduction of any amount partaking the nature of any tax or rate or levy shall be allowed while computing income under the head profit and gains from business or profession. There is no doubt that the amounts comprising education cess and higher secondary education cess would thus be ineligible for any allowance since they are a part of the tax. There exists a catena of cases laying down that when provisions of statute are clear and unambiguous there cannot be any scope for their different interpretations. Consequently the assessee do not succeeds qua merits of additional ground of appeal raised by it and therefore the additional ground of appeal raised by assessee is dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions addressed in the judgment include:Whether the reassessment proceedings under Section 148 of the Income Tax Act were valid, particularly in light of the alleged change of opinion by the Assessing Officer (AO).Whether the disallowance of reinsurance premiums paid to non-resident insurers under Section 40(a)(i) was justified.Whether the disallowance of excess depreciation claimed on projectors and UPS was appropriate.Whether the disallowance of payments made to motor vehicle dealers was warranted.Whether the addition of Unexpired Premium Reserve (UPR) to book profit under Section 115JB was valid.Whether the addition of insurance premium received in respect of long-term policies was justified.Whether the disallowance of provisions for claims incurred but not reported (IBNR) and incurred but not enough reported (IBNER) was correct.Whether the disallowance under Section 14A was applicable to insurance companies governed by Section 44.Whether the depreciation on computer software should be allowed at 60% or 25%.Whether the amortization of premium on investments was allowable.Whether the disallowance of reinsurance premium paid to residents was justified.Whether the addition of IBNR under Section 115JB was appropriate.Whether the education cess and higher secondary education cess should be allowed as a deduction.2. ISSUE-WISE DETAILED ANALYSISReassessment Proceedings under Section 148:Legal Framework and Precedents: The judgment references Section 147 and the proviso to Section 148 of the Income Tax Act, emphasizing that reassessment cannot be based on a mere change of opinion.Court's Interpretation and Reasoning: The court held that the AO's action was based on a change of opinion and lacked new tangible material, thus making the reassessment invalid.Conclusions: The reassessment orders for AY 2008-09 and 2009-10 were quashed as being void ab initio.Disallowance of Reinsurance Premiums to Non-Residents:Legal Framework and Precedents: The court referred to decisions that TDS provisions under Section 40(a)(i) are not applicable to reinsurance premiums paid to overseas entities.Court's Interpretation and Reasoning: The court followed precedents that such premiums are not taxable in India under the Income Tax Act or DTAA.Conclusions: The disallowance was deleted, and the appeal was allowed in favor of the assessee.Depreciation on Projectors and UPS:Legal Framework and Precedents: The court considered previous tribunal decisions allowing 60% depreciation on UPS.Court's Interpretation and Reasoning: The court upheld the depreciation claim on UPS but not on projectors, which were considered independent electronic gadgets.Conclusions: The appeal was partly allowed, granting depreciation on UPS at 60%.Payments to Motor Vehicle Dealers:Legal Framework and Precedents: The court referenced prior tribunal decisions allowing such payments as business expenses.Court's Interpretation and Reasoning: The payments were considered genuine business expenses for promoting insurance policies.Conclusions: The disallowance was deleted, and the appeal was allowed in favor of the assessee.Addition of UPR to Book Profit under Section 115JB:Legal Framework and Precedents: The court referred to decisions that UPR is not an item to be added under Explanation 1 to Section 115JB(2).Court's Interpretation and Reasoning: UPR was considered a statutory requirement and not a reserve for book profit computation.Conclusions: The addition was deleted, and the appeal was allowed in favor of the assessee.Insurance Premium on Long-Term Policies:Legal Framework and Precedents: The court considered the principles laid down in British Paints India Limited.Court's Interpretation and Reasoning: The AO was justified in taxing the premium in the year of receipt.Conclusions: The addition was upheld, and the appeal was dismissed.Provisions for IBNR and IBNER:Legal Framework and Precedents: The court referred to decisions that such provisions are ascertained liabilities based on actuarial valuation.Court's Interpretation and Reasoning: The provisions were considered allowable as they were based on IRDA guidelines and actuarial certification.Conclusions: The disallowance was deleted, and the appeal was allowed in favor of the assessee.Disallowance under Section 14A:Legal Framework and Precedents: The court cited decisions excluding Section 14A for insurance companies governed by Section 44.Court's Interpretation and Reasoning: The non-obstante clause in Section 44 precludes the application of Section 14A.Conclusions: The disallowance was deleted, and the appeal was allowed in favor of the assessee.Depreciation on Computer Software:Legal Framework and Precedents: The court referenced decisions allowing 60% depreciation on software.Court's Interpretation and Reasoning: The software was considered part of the computer block, eligible for 60% depreciation.Conclusions: The appeal was allowed in favor of the assessee.Amortization of Premium on Investments:Legal Framework and Precedents: The court followed previous tribunal decisions allowing such amortization.Court's Interpretation and Reasoning: The amortization was considered allowable as per the insurance business norms.Conclusions: The appeal was allowed in favor of the assessee.Reinsurance Premium Paid to Residents:Legal Framework and Precedents: The court considered the payments as discounts, not commissions.Court's Interpretation and Reasoning: TDS provisions did not apply to discounts.Conclusions: The disallowance was deleted, and the appeal was allowed in favor of the assessee.Addition of IBNR under Section 115JB:Legal Framework and Precedents: The court considered IBNR as an ascertained liability, not to be added to book profits.Court's Interpretation and Reasoning: The provision was based on actuarial valuation and IRDA guidelines.Conclusions: The addition was deleted, and the appeal was allowed in favor of the assessee.Education Cess and Higher Secondary Education Cess:Legal Framework and Precedents: The court referred to Section 40(a)(ii), which precludes deduction of taxes.Court's Interpretation and Reasoning: The cess was considered part of the tax, not allowable as a deduction.Conclusions: The additional ground was dismissed.3. SIGNIFICANT HOLDINGSVerbatim Quote: 'The reassessment orders for AY 2008-09 and 2009-10 were quashed as being void ab initio.'Core Principles Established: Reassessment cannot be based on a change of opinion; UPR is not to be added to book profits under Section 115JB; Section 14A does not apply to insurance companies governed by Section 44.Final Determinations: Various appeals were allowed or dismissed based on the application of the above principles and precedents.