TaxTMI 
TaxTMI 
2023 (1) TMI 1202
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....u/s. 143(1) of the Income Tax Act, 1961. The case was selected for scrutiny by issue of a notice u/s. 143(2) dated 07.08.2012. The regular assessment u/s 143(3) of the Act was completed vide order dated 13.01.2014, assessing the loss at Rs. 1,12,37,16,049/- under normal provisions of the Income Tax Act, 1961 and also computed book loss at Rs.2,18,28,09,334/- u/s. 115JB of the Act after making the following additions/disallowances: (a) Profit on sale of investments R s. 10,27,94,88,259/- (b) Interest not recognized as Income R s. 80,52,21,000/- (c) Disallowance of Depreciation R s. 1,04,90,324/- (d) Disallowance u/s 14A R s. 49,84,91,810/- (e) Guest House Expenses R s. 47,43,236/- (f) Provision for Standard Assets R s. 2,94,82,474/- 3. The Id. Assessing Officer has made an addition of a sum of Rs. 10,27,94,88,259/- on account of gains from transfer of long term capital asset being equity shares on which STT has been levied which was claimed as exempt u/s 10(38) of the Act by the appellant. The ld AO held that the appellant does not have any income which can be classified as "Long Term Capital Gains"(LTCG) rather the same forms part of its business activities and as such....
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....ed in not appreciating that by virtue of CBDT Circular No. 528 dated 16th December 1988 income earned by the appellant from Profit or Sale/Redemption of Investments is not liable to tax. 2. Without prejudice, on facts and in law the CIT(A) / AO erred in not appreciating that Profit on Sale / Redemption of Investments will be chargeable to tax as income under the head "Capital Gains". 2.1 Without prejudice, that on facts and in law the CIT(A) erred in upholding the action of AO in denying benefit of exemption u/s 10(38) of the Income Tax Act. 2.2 Without prejudice, on facts and in law the CIT(A) erred in upholding the action of AO in denying benefit of concessional rate of tax as per section 111A and / or section 112 of the Income Tax Act. 3. That on facts and in law the CIT(A) erred in upholding a disallowance of Rs 1,04,90,324/- out of the total depreciation allowance claimed by the appellant under section 32 of the Act. 3.1 That on facts and in law the AO / CIT(A) erred in making upholding the above disallowance without considering the fact that unlike earlier years assessments / appeals all necessary details relevant to depreciation allowance claim for AY 2011-12 ....
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....ue of section 44 of the Insurance Act and the insurance business corporation are entitled to claim deduction it was otherwise admissible in the case when the assessee computation of income is governed by the other provisions of the Act. It was submitted that Bombay High Court in CIT Vs. New India Assurance Company Ltd 71 ITR 761 allowed benefit of exemption to assessee engaged in the business of general insurance and also allowed the benefit of exemption claimed by LIC. Reliance was placed on the Mumbai ITAT decision in the case of New India Assurance Company Ltd for Assessment Year 2002-03 and 2003-04 in ITA No. 6498 and 6499/Mumbai/2005 to contend that the Tribunal has sustained the claim of general insurance business in exemption under provision u/s 10(38) of the Act. It was submitted that the assessee being into business of Insurance has to abide by the IRDA guidelines and instructions with regard to its investment activity. It was contended that its holdings are in the nature of investment and not stock in trade. It was submitted that CBDT Circular No. 528 dated 16.12.1988 had considered the holdings in shares by the insurance company as investments. It was submitted that sect....
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....t II of the First Schedule but excludes any items against the head "Other Accounts (to be specified)". Section 27D of the IA also specifies the manner and conditions of investment. Section 28 of the IA pertains to statement and return of investment of assets. 27. A conspectus of the above provisions of the IA makes it clear that there is no option with a company carrying on general insurance business, like the Assessee, to treat any part of its investment as "stock-in-trade" as is sought to be contended by the Revenue before the Court. These investments are, at best, "floating assets". The argument that these constitute "stock-in-trade" is ingenious but does not find resonance in the provisions of the IA. 28. It is also pertinent to note that the reason the AO proceeded to reject the plea of the Assessee that the profit from the sale of investments should not be brought to tax is not because it was stock-in-trade but because, according to him, the entire income of the Assessee is assessable as business income in accordance with Rule 5 of the First Schedule to the Act. Indeed, if one carefully peruses the assessment order dated 3 rd December 2007, nowhere does it treat investm....
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.... the income derived therefrom would be income from the assessee's business." 41. In the AY in question, the AO did not accept the case of the Assessee that the income earned on the sale/redemption is not chargeable to tax because, in the past, the profit on sale of investment was sometimes shown in the balance sheet and sometimes in the P&L account. According to the AO, the entire income of the Assessee was assessable as 'business income'. According to the AO, Circular No. 528 dated 16th December 1988 of the CBDT did not create a dent insofar as it stated that both profit and loss on sale of investments will not be taken into account in calculation of insurance profits. Binding nature of the Circular 42. The above approach of the AO in relation to Circular No. 528 and its binding nature as far as the Revenue is concerned, appears to be flawed. In Principal Commissioner of Income Tax v. National Insurance Company Ltd. [2017] 393 ITR 52 (Cal), it was held that Circular No. 528 of 1988 did not permit the AO to add back the profits arising from the sale of investments made by the Assessee in that case which was also carrying on a general insurance business. The Cal....
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....surance Act, cannot be treated as stock in trade for the purpose of the Act. 14. Infact, if we look at Section 44 of the Act, the same provides; "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 section 199 or in sections 28 to 6 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." The words " business of insurance" here includes all the activities, which enable the insurance company to run the said business of insurance to not just earn profits and for gains but to indemnify the policy holders. Investment of funds in most secured modes has been ensured by IRDA guidelines and the Insurance Act, so that in an attempt of Insurance business company, trying to earn out of risk bearing investments, the insured persons is not left at loss. So, these investments cannot be ....
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....(34) for the dividend income. We also noted while disposing of ground relating to applicability of S. 14A for disallowance of expenditure in respect of income not forming part of Total Income. This Tribunal Mumbai Bench in the aforesaid case under para 45-46 took the view that since S. 44 creates a specific exception to the applicability of S. 28-43B, therefore purpose object & purview of S. 14A has no apllicability to profits and gains of an insurance business. This decision of coordinate Bench is binding on us. The learned DR in this regard although referred to decision of Delhi Tribunal in the case of assessee reported in 86 Taxman.com 239 for Assessment Year 2002-03 dt 17/10/2017, we noted Tribunal took the view when the question of application of provision of S. 92 came before it, it took the view that S. 92 applied to an assessee carrying on insurance business. In case of computation of determination of ALP of International transaction, we are concerned with S. 92 in the case of an assesse carrying on life insurance business, there has to be two staged computation of income. First income has to be computed as per S. 44 read with First Schedule & while computing income all the....
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....under section 10 have been considered and allowed following the Hon'ble Bombay High Court judgment in General Insurance Corpn. of India v. CIT [2012] 204 Taxman 587/17 taxmann.com 247. The order in the case of General Insurance Corpn. of India (supra) vide Para 7 to 8 is as under: 7. "Issue No.5: Availability of Section 10 Exemption (Modified Ground of Appeal No.2 - Original Ground of Appeal No. 2.1 & 2.2) -. The issue arises in a peculiar manner in this assessment year. While dealing with the issue of profit on sale of investments, the Assessing Officer proposed to differ from assessee stand and bring to tax the profit on sale of investment. The assessee alternately submitted that the deduction under section 10(38) in respect of long term capital gain was available. When this issue came up before the CIT (A), the CIT (A) not only rejected the claim under section 10(38) but also considered and elaborately discussed how and why the assessee was not eligible for deductions already allowed by the Assessing Officer in respect of 'interest on tax free bonds' amounting to Rs. 3,45,19,352/- under section 10(15) and dividend income amounting to Rs. 270,66,46,489/- under sect....
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.... of the profits disclosed by the annual accounts, copies of which are required under the Insurance Act, 1938 (4 of 1938), to be furnished to the Controller of Insurance subject to the following adjustments: (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 any tax, dividend, reserve or any other provision as may be prescribed) which is not admissible under the provisions of section 30 to (43B) in computing the profits and gains of a business shall be added back; (b) ( ; (c) Such amount carried over to a reserve for unexpired risks as may be prescribed in this behalf shall be allowed as a deduction". The Assessing Officer has in the reasons for reopening the assessment proceeded on the premise that in computing the profits and gains of business for an assessee who carries on general insurance business no other section of the Act would apply and that the computation could be carried out only in accordance with section 44 read with Rule 5 of the First Schedule, In Life Insurance Corporation of India, Bombay v. Commissioner of Income Tax Bombay City- Il....
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....ions which are claimed by the assessee do not fall within the provisions which are referred to in section 44, it will have to be held that the applicability of those provisions in the case of an assessee whose assessment is governed by section 44 read with rule 2 in the First Schedule is not excluded". This judgment is sought to be distinguished by the Assessing Officer while disposing of the objections on the ground that the decision was rendered in the context of an assessee which carried on life insurance business to whom Rules 1 to 4 of the First Schedule applied whereas in the case of the assessee in this case which carries on general insurance business Rule 5 could apply. According to the Assessing Officer, Rule 5 would not permit any adjustment to the balance of profit as per annual accounts prepared under the Insurance Act, and hence the judgment would not be applicable. The Assessing Officer has clearly not noticed that the decision in Life Insurance Corporation (supra) though rendered in the context of an assessee which carries on life insurance business, followed an earlier decision of a Division Bench of this Court in Commissioner of Income-Tax v. New India Assurance....
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....ether a sum of Rs. 3 crores, being a provision for redemption of preference shares, was not liable to be added back in the total income of the assessee for AY 1977-78?. The Supreme Court held that a plain reading of rule 5(a) of the First Schedule made it clear that in order to attract the applicability of the provision the amount should firstly be an expenditure or allowance and secondly it should be one not admissible under the provisions of section 30 to 43A. The Supreme Court held that the sum ofRs. 3 crores in that case which was set apart as a provision for redemption of preference shares could not have been treated as an expenditure and hence could not have been added back under rule 5(a). In that context the Supreme Court held as follows: "There is another approach to the same issue. Section 44 of the Income-tax At read with the rules contained in the First Schedule to the Act lays down an artificial mode of computing the profits and gains of insurance business. For the purpose of income-tax, the figures in the accounts of the assessee drawn up in accordance with the provisions of the First Schedule to the Income-tax Act and satisfying the requirements of the Insurance A....
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.... the assessment is contrary to law. The Petition would have, therefore, to be allowed". Respectfully following the above, we hold that the assessee is entitled for exemption under section 10. The enhancement made by the CIT (A) is therefore, cancelled. Ground is accordingly allowed". 49. In view of the above and respectfully following the same, we hold that assessee is entitled to exemption under section 10. Therefore, we do not see any reason to differ from the order of the CIT (A) where he has allowed assessee's claim of exemption under section 10(23AAB) of surplus of Participating Pension Business and also dividend under section 10(34). Accordingly Revenue ground on this issue is rejected." 19. Thus, in any way we look, the assessee is entitled exemption u/s 10(38) like any other assessee for computation of Income and ld tax authorities below have fallen in error in not extending the benefit. In fact the ld CIT(A) has decided the issue against the assessee following his finding in Assessment Year 2007-08 wherein, the Tribunal‟s order dated 22.07.2011 for Assessment Year 2004-05 was followed. However, as a matter of fact in assessee‟s own case for Assessme....
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....re has also erred in comparing facts with the earlier assessment years while making a disallowance ignoring that requisite details were filed as Annexure of the Tax Audit Report which have also been made available with the paper booked titled as "Index of Papers‟. As the facts are similar to AY 2010-11, the issue is decided in favour of the assessee for statistical purposes and issue is restored to file of Ld. AO for afresh determination, as supra. 22. In regard to issue No. 4 the admitted state of affairs again is that in assessee‟s own case for Assessment Year 2010-11 in ITA No. 4535/Del/2016 vide order dated 30.06.2021 issue has been discussed at para No. 10 as follows:- "10.0 In Ground No. 4 of the appeal, the assessee is aggrieved by the action of the AO in making a disallowance of Rs 56,59,609/- on account of Provision made for Standard Assets. In this regard, in the order of assessment, it has been held by the AO as under: "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....
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....sion of the Apex Court in the case of General Insurance Corporation of India reported in 240 ITR 139. However, the said decision is also in respect of AY77-78 and it deals with the provision for redemption for preference shares, which was held to be not an expenditure covered by section 30 to section 43B. 5.2 In view of amendment to Rule 5 including rule 5(a) w.e.f., 01-04-2011, the decisions of the Apex Court relied upon by the appellant, no longer apply and the word "expenditure or allowed‟ referred to in section 5(a) now includes provision, which is not admissible under the provisions of section 30 to section 438. without prejudice to the same, as per IRDA Circular dated 24-01-07 reported on page 15 of the assessment order, the standard asset is one which does not disclose any problem and which does not carry more than normal risk attached to the business and such assets is not on NPA. Therefore, 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 c....