TaxTMI 
TaxTMI 
2018 (8) TMI 1706
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....uent to change in the method of estimation of recoveries of claims paid. 3. Whether on the facts and circumstances of the case and in law the Ld.CIT(A) erred in deleting the addition of Rs. 6,57,00,000/- being liability on account of revision in the pay-scales of the employees having got accrued in the hands of the assessee. 4. Whether on the facts and circumstances and in law the Ld CIT(A) erred in deleting the ISO certification expenses of Rs. 16,29,923/- by not treating it as Capital expenditure. 5. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 6. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 3. The issue raised in ground No.1 is against the deletion of addition of Rs. 27,24,26,000/- by the Ld. CIT(A) as made by the AO to the total income of the assessee on account of recoveries from abroad for which the assessee has already claimed expenditure in the earlier years. 4. The facts in brief are that the assessee is engaged in the business of insuring export credit risk of exporters and banks in India. The assessee issues insurance poli....
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....cision cited by the Ld. A.R., we observe that the co-ordinate bench of the Tribunal had decided the issue in favour of the assessee in ITA No.1971/M/2011 A.Y. 2007-08 (supra) by holding as under: "5. After considering the rival submissions and on perusal of the relevant finding given in the impugned order, it is an undisputed fact that the assessee being a General Insurance Company, its income is liable to be computed strictly u/s 44 r.w. read with First Schedule, which provides for a special provision governing computation of taxable income earned from business of insurance and has an overriding effect over other provisions contained in the Income-tax Act. Section 44 mandates that the assessing authority has to compute the taxable income from the business of insurance strictly in accordance with the provisions of First Schedule. Rule 5 of the First Schedule mandates that the profits and gains of any business of insurance shall be taken to be the profits disclosed in the annual accounts. Such profits are only subject to any expenditure that are disallowable under sections 32 to 43B. Thus, the AO is bound to accept the profits as shown in the audited accounts and such profit can o....
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....im. The said change in the accounting treatment had the effect of not recognizing the estimated recoveries in respect of claims paid and outstanding beyond 3 years as on 31.03.2006 to the extent of Rs. 20 crores. According to the AO, the assessee has reduced its profit by writing back the provision of recovery of Rs. 20 crores and same is required to be added back and in fact added the same to the income of the assessee by the AO. 12. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee after considering the contentions and submissions of the assessee by observing and holding as under: "6.3 I have considered the facts of the case, the reasoning given by the AO and submissions made by the Appellant. The Appellant is a public sector company and is engaged in the business of export credit insurance. Its entire capital is held by the President of India. The Appellant i s al so registered as an export insurance company with the Insurance Regulatory and Development Authority (IRDA) under the Insurance Regulatory and Development Authority Act of 1999. Being registered with the IRDA, it has to draw up its accounts in accordance with the IRDA (Preparation of Fi....
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.... as permitting an adjustment to an expenditure or allowance which is not admissible under Sec.30 to 43B of the Act. 6.8 The provision for estimation in the recovery of claims paid is not an expenditure which is inadmissible under the provisions of Sec. 30 to 43B of the IT. Act, 1961. Rather is an item of income side reduced by the appellant, on estimate basis. Hence, the addition made in the reassessment order cannot survive. Besides, the Apex Court has also held that the balance of profits disclosed in the Profit and Loss account prepared in accordance with the provisions of IRDA is to be accepted. The AO is, therefore, bound by the figure of the pro it before tax and appropriations as appearing in the Profit and Loss account filed by the Appellant before the IRDA. Consequently, the addition of Rs. 20,00,00,000/- made by the AO in the reassessment order on account of change in the estimation of the provision for recovery of claims cannot be sustained and is hence deleted." 13. The Ld. D.R. while relying on the grounds of appeal and order of AO submitted before the Bench that the change in the method of accounting by not recognizing the estimated recoveries in respect of claim....
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....nce Regulatory and Development Authority (IRDA) Act of 1999 and therefore it has to draw up its accounts in accordance with IRDA (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002. Since the assessee is a government company whose accounts are subjected to audit by the auditors appointed by Comptroller and Auditor General of India, besides, the audit by the staff of Comptroller and Auditor General of India. Therefore, whatever profit is disclosed in the P & L Account has to be accepted by the AO unless the expenditure is inadmissible under the provisions of section 30 to 43B of the Act. The case of the assessee is also find support from the decision of the Apex Court namely CIT vs. Calcutta Hospital and Nursing Home Benefits Association Ltd. (supra) wherein it has been held that AO is bound to accept the profit as disclosed in the annual accounts that are filed before the Regulatory body subject to adjustments as prescribed in Clauses (a), (b) and (c) of Rule 5 to the First Schedule. The Hon'ble Supreme Court in the case of General Insurance Corporation of India vs. CIT (supra) has also held that adjustment is permissible qua an e....
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....nt year 2007-08 and not in the current year and accordingly the same was added to the income of the assessee. 18. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee after considering the detailed submissions and contentions of the assessee by observing and holding as under: "7.3 I have considered the facts of the case, the reasoning given by the AO and the submissions made by the Appellant. The Appellant being a company is required to draw up its accounts under the accrual basis of accounting by following the Accounting Standards prescribed under Sec.209(3) of the Companies Act, 1956, r/w Section 211(3C) of the said Act. The Accounting Standard (AS4) that deals with Events Occurring after the Balance Sheet Date in Para 13 require adjustments to be made to liabilities for events that occur after the Balance Sheet Date which provide additional evidence to assist the estimation of amounts relating to conditions existing on the Balance Sheet Date. It is also a fact that the Appellant had forwarded the proposal for revision of the payscales of its employees to the Nodal Ministry in the month of December 2005 (i.e. in the current Financial Year), which was....
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....f the Hon'ble Bombay High Court in CIT vs. United Motors (India) Ltd. (supra), the liability on account of the revision in pay- scales of employees having got accrued in the hands of the Appellant, the addition of Rs. 6,57,00,000/- is hereby deleted. 7.7 Ground of appeal No. 8 is allowed." 19. The Ld. D.R. while relying on the order of AO and the grounds raised, submitted that though the proposal was moved in December 2005 but actually the same was sanctioned by the Government of India in August 2006 meaning thereby that the liability has crystallized in the F.Y. 2006-07 and not in the current year as has been claimed by the assessee. The Ld. D.R. submitted that the wrong appreciation of facts and erroneous interpretation and application of AS-4 had resulted into understatement of profit of the assessee and thus justified the addition made by the AO. 20. The Ld. A.R., on the other hand, prayed before the Bench that a sum of Rs. 6,57,00,000/- was arrears of salary and wages on the basis of proposal moved to the Government of India in December 2005 which was finally approved in August 2006. Therefore, following the AS-4, the liability was recognised in respect of an event a....
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....e is no reason to deviate from the finding of the Ld. CIT(A) which appears to be correct as per the ratio laid down in the above two decisions. We are, therefore, inclined to uphold the order of the Ld. CIT(A) on this issue by dismissing the ground raised by the Revenue. 22. The issue raised in ground No.4 is against the deletion of addition of Rs. 16,29,923/- by Ld. CIT(A) as made by the AO on account of ISO certification expenses by not treating it as capital expenditure in nature. 23. The facts in brief are that assessee incurred expenditure of Rs. 16,29,923/- to obtain ISO certification to the effect that international documentation and processing are in line with the technical standards prevailing in the industry. According to the AO by incurring the expenditure on ISO certification, the assessee has been deriving the benefit of enduring nature and therefore has to be allowed over a period of time and accordingly the same were disallowed and added to the income of the assessee. However, depreciation was allowed @ 25% on the said expenditure. 24. The Ld. CIT(A) allowed the appeal of the assessee after considering the various contentions and arguments in the appellate proceed....