TaxTMI 
TaxTMI 
2021 (7) TMI 92
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions of the Income Tax Act, 1961 and book profit of Rs. 1,71,06,49,743/- u/s 115JB of the Act. The AO completed the assessment under section 143(3) by making the following additions: i. Profit on sale of investment - Rs. 5,35,25,23,496/- ii. Interest not provided as Income - Rs. 92,00,59,000/- iii. Disallowance of Depreciation - Rs. 1,47,75,105/- iv. Guest House Expenses disallowed - Rs. 46,07,965/- v. Disallowance under section 14A - Rs. 38,43,09,793/- vi. Provision for Standard Asset Disallowed - Rs. 56,59,609/- 2.1 Being aggrieved by the assessment order passed, the assessee preferred appeal before Ld. CIT (A). The Ld. CIT (A), vide the impugned order, gave partial relief to the assessee by confirming certain additions made by the AO. 2.2 Aggrieved by the order of the Ld. CIT (A), the assessee is in appeal before us now. To the extent disallowances/ additions were deleted by the Ld CIT (A), revenue preferred an appeal before this Tribunal (ITAT) which stands dismissed vide order dated 22nd October 2019 in ITA No. 4818/Del/2016. 2.3 The assessee has raised the following grounds of appeal: "1. That on the facts and in law the CIT (A) erred in upholding an addition....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing before us, the Ld AR fairly stated that ground nos 7 and 8 are general in nature. As regards ground no. 6 again it was fairly admitted that the levy of interest u/s 234B and 234D of the Act will be consequential. Since no specific relied is claimed grounds 6, 7 and 8, the same are dismissed. 4.0 Ground No.1 raised by the assessee is in respect of addition on account of profit on sale/redemption of investments at Rs. 561,92,07,000/-. Briefly stated, the relevant facts that in the return of income, the assessee had claimed profit derived from sale/ redemption of investments to the tune of Rs. 535.25 crores as exempt by relying upon CBDT Circular No. 528 dated 16th December 1988. Thereafter, during the course of assessment, revised computation of income was filed by the assessee making a further claim of exemption of Rs. 26.66 crores. Therefore, the subject matter of dispute before the Ld CIT (A) was whether the entire amount of Rs. 561.92 crores (i.e. Rs. 535.25 crores + Rs. 26.66 crores) was exempt from tax while computing the total income of the assessee. 4.1 Before us, the Ld. AR, at the outset submitted that the issue as to whether profit derived by the assessee from sale/ ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....com 240/213 Taxman 197 (Mag.) (Delhi), the Court reiterated the well settled position that, where the CBDT circular has not been withdrawn and is beneficial to the Assessee, it would be binding on the AO and other Revenue authorities. The Court was merely reiterating what has been held in a large number of cases including Navnitlal C. Zaveri (supra) and CIT v. Milk Food Ltd. [2006] 280 ITR 331/152 Taxman 50 (Delhi). 44. The ITAT itself has taken a consistent stand that the taxability of income in the case of insurance companies is not on commercial profits but on such profits as are computed in accordance with the provisions of the IA, subject to the permissible adjustments under the Act. In other words, the taxability of profits in the hands of the insurance companies is confined to profits in terms of annual accounts of such insurance companies drawn up in accordance with the IA. 45. Indeed, the legislative policy appears to be clear. Where it is intended to bring the profit on sale of investments to tax, the legislature has chosen to re-introduce the earlier provision by virtue of the amendment effective from AY 2011-12. The intention behind omitting Rule 5(b) was clearly e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee and against the revenue, by holding that the itat erred in holding that the income earned on sale/redemption of investment was chargeable to tax." 5.2 On the basis of the above, we do not find any reason to deviate from the view taken by the Hon'ble High Court as the assessee has taken identical pleas regarding profit on sale of investment being exempt as the same is not covered by section 44 of the Income Tax Act. The Hon'ble High Court has also observed that legislative intention is clear. Where the Legislature intended to bring the profit on sale of investments to tax, it has chosen to reintroduce the earlier provision by virtue of the amendment effective from Assessment Year (AY) 2011-12. Since there is no difference in the facts for the year under consideration vis-a-vis assessment year 2005-06 and considering that the present case before us pertains to AY 2010-11, respectfully following the ratio laid down by the Hon'ble High Court we allow this ground raised by assessee. Accordingly the Ground Nos. 1 and 1.1 are allowed. 6.0 Ground Nos. 2, 2.1 are in respect of denial of exemption under section 10(38) of the Act, whereas Ground No. 2.2 seeks benefit of concessional ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e stand taken in the earlier years and following the same formulae used in the previous years. The learned Assessing Officer has erred in comparing facts of the captioned assessment year with that of earlier assessment years and has made the disallowance without appreciating the details filed 17.12.2012. It is also submitted that the learned Assessing Officer has followed the appellant orders for the earlier years wherein estimated 29% of the depreciation allowance was disallowed on the ground that details of addition to assets was not furnished. However, during the year requisite details were filed and the particulars of same are disclosed in Annexure of the Tax Audit report for the captioned year. Thus, the dissonance in the captioned year is without any basis and material on record. The addition if any is to be based on facts of each year as every assessment year is distinct and separate for purpose of assessment." 7.3 The Ld. AR submitted that both the lower authorities had decided the issue by blindly following the precedents decided in the past and ignoring the factual details submitted during assessment. It was, therefore, prayed by the Ld. AR that in interest of justice ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....: Standard asset is one which does not disclose any problem and which does not carry more than normal risk attached to the business. Such as asset is not an NPA. As per the same circular, the insurer should make a general provision on Standard Assets of a minimum of 0.40 per cent of the value of the asset. The change in provision from last year is taken to P&L A/c. 10.2 The reply of the assessee has been perused and carefully considered. As per the assessee's own submission standard asset does not disclose any problem and does not carry more than normal risk and is not an NPA. The provision for standard assets of Rs. 56,59,609/- is therefore disallowed. Penalty u/s 271(1)(c) is initiated for furnishing of inaccurate particulars of income and concealment of the particulars of income." 10.1 The Ld. first appellate authority has upheld the disallowance by relying on the appellate order passed by him in the case of the assessee for AY 2011-12. The Ld AR has filed a copy of the appellate order dated 16th November 2015 passed by the Ld CIT (A) in its case in appeal No. 40/13-14. The Ld. CIT (A) has upheld the disallowance by observing as under: "The AO has followed the order for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inguishable from the two decisions of the Apex Court, relied upon by the appellant. Moreover, since the Act has been amended w.e.f., 01.04.11, the provision for Standard Asset is to be added back even otherwise, in view of amended provision. Consequently, ground no. 7 of the appeal is dismissed." 10.2 Before us it was submitted by the Ld AR that the lower authorities have erred in making/sustaining the disallowance. In this regard it was submitted by the Ld. AR that the total income of the assessee is to be computed as per provisions of section 44 read Rule 5 of Schedule 1. It was submitted that as per the scheme of taxing provisions, the audited annual accounts of the assessee are to be treated as sacrosanct and only the adjustments provided for in Rule 5 of the First Schedule are permissible. It was submitted that under Rule 5 there is no enabling provision which directs for disallowance of provision made for Standard Assets. 10.3 The Ld. CIT (DR), on the other hand, vehemently supported the disallowance made by the lower authorities. It was submitted that the Ld. CIT (A), in AY 2011-12, has justifiably sustained the disallowance. The Ld. CIT.(DR) also relied upon the decisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in this behalf shall be allowed as a deduction." 11.2 Owing to the non obstante clause in section 44 all other provisions relating to the computation of total income stand excluded and the process of computation of the total income of the assessee requires firstly, picking up the figure of profit disclosed by the Profit and Loss Account and then making adjustments as per clauses (a) and (c) of Rule 5. Section 44 read with Rule 5 of the First Schedule makes the figure of profit disclosed by the Profit and Loss account drawn as per the Insurance Act as absolute and binding. Only the adjustments specified in clauses (a) and (c) can be given effect to while computing the total income. The above legal position is now well settled, in case of assessee itself by the Hon'ble Apex Court in its judgment reported in 291 ITR 370(SC) as under: "13. Insurance companies in view of the provisions of the said Act, however, are dealt with also under the 1961 Act differently. Section 44 thereof, as noticed hereinbefore, begins with a non obstante clause. The jurisdiction of the Income-tax Officer in passing the orders of assessment is limited. Keeping in view the fact that the business carried....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ached to the business. Such an asset is not an NPA. The insurer should make a general provision on Standard Assets of a minimum of 0.40 per cent of the value of the asset." 11.4 The assessee has not denied the fact that Standard Assets do not disclose any problem and are not NPA. However, the prudential norms adopt a conservative view and mandate recognition of general provision in the books of accounts. "Provision made for Standard Asset" is therefore a reserve created for Contingent Loss and is not "expenditure". 11.5 The moot issue now to be deliberated upon is whether Rule 5 prescribes for an adjustment by adding back the provision made for standard assets? 11.6 Clearly, clauses (b) and (c) of Rule 5 are not relevant. Rule 5(b) is applicable w.e.f. from AY 2011-12. Even otherwise, Rule 5(b) prescribes for an adjustment on account of profit or loss vis a vis investments. Rule 5(c) again is not relevant as it deals with reserve for unexpired risk. Rule 5(a) being relevant mandates an adjustment as under: "(a) subject to the other provisions of this rule, any expenditure or allowance including any amount debited to the profit and loss account either by way of a provision for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntingent Loss and is not "expenditure". It can also not be an "allowance" as "allowances" are statutorily prescribed in the Act, for example Depreciation Allowance u/s 32 and Investment Allowance u/s 32A. 11.9 Now let's deliberate upon the second part of Rule 5(a) which prescribes for an adjustment on account of "provision for any tax, dividend, reserve or any other provision as may be prescribed which is not admissible under the provisions of sections 30 to 43B". Although in the instant case the amount debited to profit and loss account is termed as "Provision for Doubtful Assets", however in substance it is a "Reserve" and not a "Provision". The difference between the two is now well settled. In case of State Bank of Patiala v. CIT reported in 219 ITR 706(SC) it was held by the Hon'ble Apex Court that: "A fair reading of the above decisions would go to show that if the transfer of amount is made ad hoc, when there is no known or anticipated liability, such fund will only be treated as reserve. In this case, substantial amounts were set apart as reserves. No amount of bad debts was actually written off or adjusted against the amount claimed as reserves. No claim for any deducti....