TaxTMI 
TaxTMI 
2016 (8) TMI 1571
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.... u/s 10(38), 10(15) and 10(34) of the Act on account of profit on sale of investments - Rs. 54,18,03,880/-; interest - Rs. 14,11,04,910/-; and, dividend - Rs. 5,87,77,006/- respectively. Additionally, the Assessing Officer also disallowed Rs. 39,71,60,000/- debited in the Profit & Loss Account on account of Provision for expenses on the ground that such expenses could not be said to have accrued as it was a mere provision. The sum and substance of the stand of Assessing Officer was that the income of assessee from the business of Insurance was required to be determined in terms of Sec. 44 of the Act read with First Schedule of the Act and accordingly, the exemptions under Sec. 10(38) or Sec. 10(15) or Sec. 10(34) of the Act were not applicable. The aforesaid action of the Assessing Officer was carried in appeal before the CIT(A) on various issues. On some issues, CIT(A) has allowed relief against which Revenue is in appeal before us, whereas on issues where the action of Assessing Officer has been upheld, assessee is in appeal before us. 3. In this background, we may now take up the appeal of Revenue, wherein the Grounds of appeal read as under :- "On the facts and in the circum....
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....not deductible thereon; instead ignoring the fact that the AO had disallowed this part of claim amounting to Rs. 8,85,52,000/- exclusively on account of non-justification of the claim of Provision of these specific expenses." 4. The issue raised by the Revenue in Ground of appeal no. 1 arises from the action of CIT(A) in holding that assessee was eligible for claim of exemption u/s 10(38) of the Act with respect to gain/loss on sale of investments aggregating to Rs. 54,18,03,880/-. On this aspect, it was a common point between the parties that such issue had come up before the Tribunal in earlier assessment years also and the claim of the assessee has been upheld. In this context, it is noticed that CIT(A) has followed the decision of the Tribunal for Assessment Year 2003-04 vide order dated 10.10.2012 in ITA No. 2398/Mum/2009. The relevant discussion in the order of Tribunal dated 10.10.2012 (supra) reads as under :- "5. We have considered the rival submissions as well as the relevant material on record. There is a special provision for computation of income chargeable under the head "profits and gain" inter-alia in the business of Insurance under section 44 of the I T Act and ....
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....ct, then as per the Rule 5 of First Schedule of the I T Act, no adjustment is required to be made on account of the amount of profits on sale of investment already included in the P&L Account. Thus, we find force and substance in the contention of the ld DR that once the assessee has included the gain on sale of investments in the P&L account prepared as per the provisions of the Insurance Act, 1938, then the said amount cannot be reduced while computing the income as per provisions of sec. 44 r.w First Schedule of the I T Act. 5.2 However, in the series of decisions of the Tribunal a view has been taken that the amendment vide Finance Act 1988 w.e.f 1.4.89, the sub rule (b) of Rule 5 of First Schedule was omitted with the purpose to grand exemption to the insurance companies with regard to the profit on sale of investments. The Tribunal has taken note of the fact that in the corollary, it has been provided in the circular no.528 dated 16.12.1988 that the loss incurred by the general insurance companies on realization of investment shall not be allowed as deduction in computing the profit chargeable to tax. 5.3 In the latest decision dated 22.10.2010, this Tribunal in the case ....
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....ule 5 of the First Schedule was with a specific purpose. This Schedule not only prescribes the method of computation of income of Insurance Business in part (A) but also prescribe the method of computation of other Insurance Business in Part (B). Rule 5 is within Part (B) and earlier it has prescribed the method of taxation of profit on sale of investments which was later on scraped. Even by applying a reverse logic we must arrive at the same conclusion that had the impugned income‟ was earlier taxable under one specific clause but even on its deletion no clause was Introduced or replaced to prescribe the method of taxation of such income;. Therefore the Revenue Department has no right to tax such an income in the absence of any enabling provision. Naturally, such a deletion cannot be treated a superfluous action but this change had to give a definite judicial meaning. We have to ascribe a logical conclusion to the said deletion of sub rule (b) from Rule 5 and the natural meaning is that after the deletion the income described therein is out of the purview of computation of Insurance Business from the First schedule therefore consequently cannot be taxed u/s 44 of I T Act. Af....
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....bunal has upheld its earlier decisions vide order dated 05.06.2014 in ITA Nos. 1714 & 1715/Mum/2011. It has also been pointed out that in Assessment Year 2007-08 also, the Tribunal vide its order dated 12.02.2015 in ITA Nos. 7844 & 7619/Mum/2011 has decided the issue in favour of the assessee. Apart therefrom, the learned representative for the assessee pointed out that the view of the Tribunal is also in consonance with the clarification issued by CBDT vide Circular dated 21.02.2006, which has indeed been referred by the CIT(A) in the impugned order. 6. For all the above reasons, and in the absence of any contrary decision brought to our notice, the action of CIT(A) is hereby affirmed. Thus, Revenue fails in Ground of appeal no. 1. 7. Insofar as Ground of appeal no. 2 is concerned, same relates to the decision of CIT(A) in holding that assessee is eligible for claiming exemption u/s 10(15) and 10(34/35) of the Act of Rs. 14,11,04,910/- and Rs. 5,87,77,006/- respectively. On this aspect, it is seen that the CIT(A) allowed the plea of assessee by referring to the clarification issued by CBDT dated 21.02.2006 whereby it is clarified that exemption available to any other assessee un....
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....ofessional fees, courier charges, repairs and maintenance, etc. According to the Assessing Officer, assessee was following mercantile system of accounting and since the impugned claim was merely a provision for expenses, the same was not allowable. Secondly, the Assessing Officer also noticed that out of the aforesaid total expenditure, tax has not been deducted at source with respect to expenditure of Rs. 23,92,90,000/- and, therefore, the said amount was also hit by Sec. 40(a)(ia) of the Act. Before the CIT(A), assessee has made varied submissions, which have been reproduced by CIT(A) in para 6.2 of his order. On this aspect, CIT(A) has allowed partial relief. The CIT(A) has allowed relief to the extent where, according to him, either the TDS was deducted or in cases where there was no requirement to deduct tax at source. The CIT(A) confirmed the disallowance with respect to a sum of Rs. 6,27,01,000/- representing Miscellaneous expenses and Rent, Rates & Taxes where, according to him, tax was required to be deducted but has not been deducted by the assessee. For the balance of expenditure of Rs. 33,45,59,000/-, CIT(A) has deleted the disallowance. Revenue is in appeal by way of G....
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.... sought to be canvassed that there was no justification to say that the said provision for expenses was not an allowable expenditure. Insofar as the issue raised by the assessee in its appeal is concerned, the learned representative referred to para 6.2 of the order of CIT(A) and pointed out that the items of Miscellaneous expenses and Rent, Rates & Taxes amounting to Rs. 6,27,01,000/- have been disallowed. In this context, it was pointed out that there was no justification for any disallowance as wherever required, the requisite tax has been deducted and deposited to the State exchequer. The learned representative pointed out by referring to page 32 of Paper Book, wherein is placed copy of clause 27 of Form 3CD of the Auditors report, to say that even for the provision for expenses created at the year-end, requisite tax has been deducted. It was, therefore, contended that even partial disallowance made by the CIT(A) was unsustainable. 12. We have carefully considered the rival submissions. In this context, it is noticed that the Assessing Officer in para 31 of the order has simply gone by the nomenclature, i.e., Provision for expenses, and disallowed the same considering that the....
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....Assessing Officer, it may be so directed. 13. Considering the aforesaid plea as also the findings of CIT(A), we find no reason to interfere with the decision of CIT(A) so far as it involves the deletion of the addition to the extent of Rs. 33,45,59,000/-. Insofar as the sustenance of disallowance of Rs. 6,27,01,000/- is concerned, we deem it fit and proper to direct the Assessing Officer to verify the plea of assessee that the corresponding tax deductible on such expenses have been deducted and paid by 31.5.2008, as contended by the assessee. For the limited purpose of verifying the aforesaid aspect, the matter is being remanded back to the file of Assessing Officer. The Assessing Officer shall examine the details put forth by assessee in this regard and thereafter re-determine the disallowance u/s 40(a)(ia) of the Act, if any, in the context of claim of expenses of Rs. 6,27,01,000/- as per law. 14. Resultantly, Ground of appeal no. 3 of Revenue is dismissed and Ground of appeal no. 3 of assessee is allowed, as above. 15. Now, we may take up the appeal of assessee, wherein the only Ground remaining is by way of Ground of appeal no. 2, which reads as under :- "2. Re : Disallowa....
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....e is also considered by the Coordinate Bench in assessee's own case for 2006-07 vide Para 7 to 9: 7. Grounds of appeal no.4 regarding the expenditure under section 14A. 8. We have heard the rival contentions and perused the relevant record. We note that this issue has been considered and decided by the Pune Bench of this Tribunal in the case of Bajaj Allianz General Insurance Company limited v. Addl. CIT ITA No.1447/PN/2007 for the assessment year 2003-04 order dated 31.08.2009. This Tribunal in the case of JCIT v. M/s Reliance General Insurance Co. in ITA No.3085/Mum/2008 for the assessment year 2005-06 vide order dated 26.2.2010 has considered this issue and decided in favour of the assessee. This order was followed by this Tribunal while deciding the issue in ITA No.781/Mum/2007 vide order dated 30.4.2010. Thus, this issue has been consistently decided in favour of the assessee and against the revenue by this Tribunal. The Pune Bench of this Tribunal in the case of Bajaj Allianz General Insurance Company limited v. Addl. CIT(supra) has decided this issue in paragraphs 17 to 20 as under: "17. Finally the question to be answered is about the applicability of s. 14A in respec....
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....cordance with the provisions of the First Schedule to the Act. In the light of these, their Lordships of Delhi High Court have held that no question of law, much less a substantial question of law survives for their consideration. In other words, order of the Tribunal has been affirmed. Following the same reasoning, addition made by the AO is deleted. 22. We have considered the rival contentions and gone through the records. The provisions of s. 44 read as under: "44. Insurance business.-Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head 'Interest on securities'. 'Income from house property', 'Capital gains' or 'Income from other sources', or in s. 199 or in ss. 28 to 43B, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a cooperative society, shall be computed in accordance with the rules contained in the First Schedule". 23. The above provision makes it very clear that s.44 applies notwithstanding anything to the contrary contained within the provisions of the IT Act relating to computation of income char....
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....oking after tax-free investment. 19. The learned counsel for the assessee vehemently argued that the income of the assessee is to be computed under s. 44 r w r. 5 of Sch. I of the IT Act, Sec. 44 is a non obstante clause and applies notwithstanding anything to the contrary contained within the provisions of the IT Act relating to computation of income chargeable under different heads, other than the income to be computed under the head Profit and gains of business or profession'. For computation of profits and gains of business or profession the mandate to the AO is to compute the said income in accordance with the provisions of ss. 28 to 43B of the Act. In the case of the computation of profits and gains of any business of insurance, the same shall be done in accordance with the rules prescribed in First Schedule of the Act, meaning thereby ss. 28 to 43B shall not apply. No other provision pertaining to computation of income will become relevant. According to the learned counsel, two presumptions that follow on a combined reading of ss. 14, 14A, 44 and r. 5 of the First Schedule are: (a) That no head-wise bifurcation is called for. The income, inter alia, of the business of in....