TaxTMI 
TaxTMI 
2021 (7) TMI 92
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....e at Rs. 2,24,18,46,485/- under normal provisions 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 gro....
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....d ab-initio." 2.4 Grounds 6, 7 and 8 above have been renumbered by us as there was a numbering error in the memo of appeal filed by the assessee. 3.0 During the course of hearing 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....
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....s, therefore, too late in the day for the Revenue to disown its own Circular No. 528 and contend that it does not apply to the facts of the present case. 43. In CIT v. Ashok Mittal [2013] 357 ITR 245/31 taxmann.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....
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....as no application to the facts of the case. Furthermore, it is not even the case of the Revenue that the said Circular is ultra vires of the Act. 49. The question framed in ITA No.372 of 2015 is accordingly answered in the negative in favour of the assessee 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 t....
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....ment of Facts wherein it is stated as under: " The Learned Assessing Officer has disallowed a sum of Rs. 1,47,75,105/- being 29% of the depreciation amounting to Rs. 5,09,48,638/- claimed by the appellant in the return of income. The learned assessing officer erred in taking the 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 ....
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....der: "During the year under reference, the assessee has made a provision for standard assets of Rs. 56,59,609/-. When asked to explain as to why the same should not be allowed, the assessee made the following submission: "As per IRDA's CIRCULAR NO.32/F&A/Circulars/169/Jan/2006-07 dt.24.01.2007, Standard Asset is defined as under: 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 appellat....
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....herefore, the provision for Standard Asset is not even a provision for anticipated losses, referred to in the decision of the Apex Court reported in 291 ITR 370, as the provision in that case, was for bad and doubtful claims, I.e., an anticipated loss. In view of the same, even without considering the amendment to rule 5 and 5(a) w.e.f., 01.04.2011, the facts in the case of the appellant are distinguishable 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 ....
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.... gains of a business shall be added back; (b) (i) any gain or loss on realisation of investments shall be added or deducted, as the case may be, if such gain or loss is not credited or debited to the profit and loss account; (ii) any provision for diminution in the value of investment debited to the profit and loss account, shall be added back; (c) such amount carried over to a reserve for unexpired risks as may be prescribed 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, i....
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....r) outstanding at the balance sheet date. Insurers shall classify their loans/advances into four categories, viz., (i) standard assets, (ii) sub-standard assets, (iii) doubtful assets and (iv) loss assets. Classification of assets into these categories shall be done taking into account ability of the borrower to repay and the extent of value and realizability of security 3.1.1 Standard assets Standard asset is one which does not disclose any problem and which does not carry more than normal risk attached 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, cla....
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....h is gone irretrievably. Expenditure, which is deductible for income-tax purposes, is one which is towards a liability actually existing at the time, but the putting aside of money which may become expenditure on the happening of an event is not expenditure." (p. 66) 12. In Pandyan Insurance Co. Ltd. v. CIT [1965] 55 ITR 716 also this Court has held that 'expenditure' meant 'disbursement' and, hence, did not include depreciation." 11.8 As noted above, "Provision made for Standard Asset" is a reserve made for Contingent 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". T....
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....m in Rule 5(a) mandating an adjustment to disclosed profits by making an addition on account of provision made for Standard Assets. The Ld. CIT (DR) has relied upon decision of the coordinate bench of this Tribunal in case of Chaitanya Godavari Grameena Bank (supra). However, in that case the assesee was a bank and had claimed deduction on account of Provision for Standard Assets u/s 36(1)(viia). This was not a case of an Insurance Company to which provisions of Rule 5 was applicable. As already held above, under Rule 5 the Statute makes profit disclosed in Profit and Loss account sacrosanct subject only to adjustments prescribed in Rules 5(a) to 5(c). The case law relied is, therefore, distinguishable. The Ld. CIT (A), in AY 2011-12, has also not properly addressed the issue. Relevant statutory provisions have been inadvertently misread and hence not properly understood. We therefore delete the disallowance and for reasons given by us above Ground No 4 is allowed. 12.0 In Ground No. 5 of the appeal, the assessee is aggrieved by the fact that the Ld. CIT (A) has erred in not adjudicating on ground numbers 7 and 8 raised by the assessee in the appeal memo filed before him. From r....