TaxTMI 
TaxTMI 
2016 (3) TMI 1402
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.... not liable to tax. 2. The CIT(Appeal s) erred and cited illegally and without jurisdiction in disallowing the Appellant the benefit of the exemption provisions of section 10 of the Income tax Act 1961 ("the Act"). 2.1 The CIT(Appeals) erred and acted without jurisdiction in enhancing the Appellant's income by Rs,243 ,75,78,730/-. 3.1 The CIT(Appeals) erred in alternatively holding that a disallowance under section 14A of the Act was called in the Appellant's case. 3.2 The CIT(Appeals) failed to appreciate that the disallowance provisions of section 14A of the Act were not applicable to the Appellant in law. 3.3 The CIT(Appeals) in any event ,erred in holding that, a disallowance was called for, in the facts of the Appellant's case, under section 14A of the Act. 3.4 The CIT(Appeals) in any event, erred in holding that the disallowance under section 14A of the Act was to be computed as per the formula in Rule 8D of the Income tax Act Rules 1 962("the Rules")as contained in the notification dated 24th March 2008. 4. The CIT(Appeals) erred in upholding the disallowance of Rs. 12,44.56.613 by the AU of the Appellant's claim for a deduction on accoun....
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....s engaged in the business of general insurance, therefore, its income is to be computed u/s 44 of the Income-tax Act. In the computation of income, the assessee has claimed profit on sale of investment as exempt from tax in view of the CBDT Circular no. 528 dated 16.12.1988 to the tune of Rs. 406,81,17,320/-. 5. Before the assessing officer, the assessee heavily relied upon the said board circular and stated that such a profit should not be taxed and in the alternative, it was submitted that such a profit was in the nature of long term capital gain on the sale of long term capital asset and therefore, it is not in the nature of income. The assessing officer held that assessee is governed by section 44 read with Rule 5 of the First schedule of the Income-tax Act and in this regard his relevant observations are as under:- "1.7 If, one analyses the provision, it starts with the wordings "profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by annual account copies of which are required under the Insurance Act, 1938 to be furnished .....". In the statement of income submitted alongwith the Return of Inc....
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....ed on the same ground that assessee company is governed by section 44, which is a non obstante clause and therefore, the income chargeable under the head capital gains shall be computed in accordance with the rules contained in First schedule and therefore, capital gains is not applicable to section 44. 6. The learned CIT(A) confirmed the order of the AO mainly on the ground that in the earlier year Ld. CIT(A) has decided this issue against the assessee in the A.Ys. 200203 and 2003-04 and held that First schedule read with section 44 does not provide for such exemption as claimed by the assessee. 7. Before us, learned counsel, Shri Farrokh Irani submitted that though in the A.Ys. 2002-03 and 2003-04, this issue has been decided against the assessee by the Tribunal vide order dated 19.11.2008, however, the said order of the Tribunal cannot be held to be applicable in the wake of catena of decisions rendered by the Tribunal in various cases of insurance companies, wherein it has been held that, there is no specific provision for making the adjustment on account of profits on sale of investment after removal of Clause 5(b) w.e.f. 01.04.1989 and till Clause 5(b) was inserted w.e.....
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....f the profits and gains: Provided that the Assessing Officer is satisfied about the reasonableness of the amount written off or reserved in the accounts, as the case may be, to meet depreciation of or loss on the realization of investment." Such a provision was omitted by Finance Act, 1988, w.e.f. 01.04.1989. The notes and clauses to the Finance Act and the CBDT circular clarified that, it was omitted to provide exemption of the profits earned by the General Insurance Corporation on the sale of investment. The relevant note of clauses read as under:- "Under the existing provisions of section 44 of the income-tax Act, the profits and gains of any insurance business is computed in accordance with the rule contained in First Schedule to the Act. In rule 5 of this schedule, profits and gains of any business of insurance, other than life insurance, are taken to be balance of profits disclosed in the annual accounts furnished to the Controller to insurance subject to certain adjustments. One of the adjustments provided therein respect of any amount either written off or reserved in the accounts to meet depreciation or loss on the realization of investment which is allowed as deduct....
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....e Tribunal in earlier years. Therefore by respectfully following the same and consistent with the view taken by the Tribunal in earlier year, we allow the present ground of appeal raised by the assessee. Ground No. 2 7. As regards ground No. 2, learned AR submitted that the issue is covered in favour of the assessee by the Tribunal order in assessee's own case for A.Y. 2004-05 (ITA No. 3400/Mum/2011 dated 20.2.2015) as per para 3 to 3.1 at page No. 2&3, which read as under : 3. We shall first take up the appeal filed by the assessee. The first issue relates to the denial of exemption of incomes claimed u/s 10 of the Act. Though the AO had allowed the claim of exemption, the Ld CIT(A) rejected the same and thus enhanced the income of the assessee, on the ground that he had disallowed the identical claim made in the assessment year 2007-08 also, on the reasoning that the assessees engaged in insurance business are not entitled to any exemption u/s 10 of the Act. 3.1 We heard the parties on this issue. We notice that this issue is decided in favour of the assessee by the jurisdictional Hon'ble Bombay High Court in the case of General Insurance Corporation of India Vs. DCIT....
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....favour of the assessee in this year also. Therefore ground raised by the assessee is allowed. Ground No. 4 12. Learned AR submitted that this is covered in favour of the assessee by the Tribunal order in assessee's own case for in earlier years i.e. A.Y. 2004-05 to 2006-07 (ITA Nos. 3562/Mum/2007 & 3180/Mum/2009 dated 27.2.2015). Relevant para of the order passed by the Tribunal read as under :- 12. In ground no. 5 the assessee has challenged the disallowance of amortization of premium of Rs. 9,26,36,131/-. The assessee has claimed an amount of Rs. 9,26,36,131/- as revenue expenses, which represented premium paid on purchase of investment of securities amortized over the residual period of securities. The assessee claimed that such an amortization is as per IRDA regulations and the amount cannot be treated as part of the cost of the investment as the assessee cannot get more than the face value at the time of maturity of such investments. The assessing officer though admitted the fact that assessee does not get more than the face value at the time of maturity, however, he observed that such a premium paid on purchase of securities treated as investment would be allowable a....
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....the purpose of computation of taxable income." 14. Before us, the learned counsel, Shri Farrokh Irani submitted that this issue is squarely covered by the decision of ITAT Mumbai Bench in the case of Tata AIG General Insurance Company Ltd., in ITA No. 2597/Mum/2009 order dated 22.10.2010, wherein the Tribunal after discussing this issue in detail, has held that such an expenditure claimed on account of amortization of premium paid on the purchase of investment is to be allowed as there is no specific provision that it has to be disallow such an expenditure under provision of sections 30 to 43(b). 15. On the other hand, Ld. DR strongly relied upon the order of the AO as well as Ld. CIT(A). 16. We have heard the rival submissions and also perused the relevant finding given in the impugned orders. The assessee in the course of carrying of its insurance business, is required to invest its fund in specific debts securities of government or PSU bonds or other securities in accordance with the Insurance Act, 1938 and IRDA regulations. The assessee has purchased securities at a price which was slightly higher than the face value of the security because of accumulated interest on s....
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....such an expenditure under the provisions of sections 30 to 43B. The words "expenditure or allowance...... Which is not admissible under the provisions of sections 30 to 438" appearing in the sub-rule has been explained by the Supreme Court to mean that there should be a specific prohibition against the expenditure or allowance in which case alone the Assessing Officer can add back the same to the balance of profits. It is common ground that there Is no such specific prohibition against, the allowance of the expenditure in the above sections-of the Act. It may be noted that though rule 5(a) of the First Schedule considered by the Supreme Court in the above judgment was slightly different, but the words " any expenditure or allowance which is not admissible under the provisions of section 30 to 43A" were present and the same words being present in the amended sub-rule, they have to be given the same meaning as was given by the Supreme Court. Therefore, even if the debit for amortization is considered as an expenditure or allowance, there being so specific prohibition against the expenditure or allowance in section 30 to 43B, the departmental authorities were not justified in adding b....
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.... that these were the shares sold by the appellant, but the buyer has failed to take the delivery of these shares or get it transferred in their names. Thus, the same are lying with the appellant as unclaimed property. In such a situation, the property/value of the shares is available with the appellant and possessed by it by virtue of business operation. However, the same is not existing in its books of account for the relevant year." The assessee has sold the shares and buyers have failed to take the delivery, then in such a case how the provision of 69B gets attracted because here it is not a case that the investment exceeds the amount recorded in the books of account. On these facts alone, the addition cannot be sustained. Accordingly, the same is deleted. In the result, the ground no. 4 is treated as allowed. 15. After perusal of the aforementioned detailed order in assessee's own case, we find that the present ground is squarely covered by the findings recorded by the Tribunal in earlier years. Therefore by respectfully following the same and consistent with the view taken by the Tribunal in earlier year, we decide this ground in this also in favour of the assessee. G....
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....nd consistent with the view taken by the Tribunal in earlier year, we decide this ground against the assessee in this year also. Ground raised by the assessee is dismissed. Ground No. 7 19. This ground has been raised by the assessee on the ground that the learned CIT(A) has not directed the Assessing Officer to grant credit for taxes paid under section 90 and under section 91 of the Income Tax Act amounting in all of Rs. 13,93,36,424/-. Whereas learned CIT(A) while dealing with the said ground has held that in appeal, the assessee is not challenging any of the issue specified in section 246A of the I.T. Act and since the issue is purely of credit for taxes paid and is thus not an appealable order directly therefore learned CIT(A) held that ground of appeal does not survive and consequently rejected the same. Aggrieved by the said order the assessee has filed the present appeal before us. 20. Before we come to any conclusion, we mention provisions of section 246A, which reads as under :- Appealable order (I) Subject o the provisions of sub-section (2), any assessee aggrieved by any of the following orders of an Assessing Officer (other than the Deputy Commissioner) m....