TaxTMI 
TaxTMI 
2023 (1) TMI 1202
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.... 115JB of the Act. The return was processed 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"(L....
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.... on Sale/Redemption of Investments. 1.1 That on facts and in law the CIT(A)/AO erred 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 ....
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.... High Court in case of Life Insurance Corporation of India Vs. CIT (1978) 115 ITR 45 (Bombay) to contend that the Hon'ble High Court has held that there is no bar by virtue 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 tra....
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....t company concerned, whichever is less." 26. Section 27B(16)(b) of the IA clarifies that "assets" means all assets required to be shown in the balance-sheet as per Form A, in Part 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 ....
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....ses from the business carried on by it and the assessee has not, by reason of section 80P(2)(a)(i), to pay income-tax thereon. The placement of such funds being imperative for the purposes of carrying on the banking business, 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....
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....hin the statutory frame work of the Insurance Act and the IRDA guidelines. Also that the assessee being in general insurance business cannot operate into any other business. So, the investments made by the assessee in insurance business regulated by the Insurance 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. Investmen....
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....se of ICICI Prudential Insurance Company Ltd v ACIT 140 ITD 41 in which under para 47 while dealing with similar issue following decision of General Insurance Corp of India v CIT 204 Taxman.com 587 by Bombay HC gave clear cut finding that assessee is entitled to exemption u/s 10(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 o....
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....mes are part of income of life insurance business and it is included as income by the actuary, therefore, they cannot be exempted. This issue is covered in favour of assessee and against the Revenue by the orders of the General Insurance Company of India(supra) wherein the issue of deduction 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 co....
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....e containing Rules 1 to 4 deals with profits of life insurance business while Part B consisting of Rule 5 deals with computation of profits and gains of other insurance business. Rule 5 provides as follows: "5. The profits and gains of any business of insurance other than life insurance shall be taken to be the balance 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 co....
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....t its provisions operate notwithstanding the provisions of section 191 and of section 28 to 43A. Thus, the only effect of section 44 is that the operation of the provisions referred to therein is excluded in the case of an assessee who carried on insurance business and in whose case the provisions of rule 2 of the First Schedule are attracted. If the deductions 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 Ins....
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....hat the decision was rendered in the context of an assessee who carried on life insurance business and was, therefore, not available to an assessee which carries on general insurance business. 12. In General Insurance Corporation of India v. Commissioner of Income-Tax, the Supreme Court considered in an appeal arising out of a judgment of the High Court the issue as to whether 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. Secti....
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....43(3) he could not have taken a different view while purporting to reopen the assessment. Having applied his mind specifically to the issue an having taken a view on the basis of the communication noted earlier, the act of reopening the assessment would have to be regarded as a mere change of opinion which has also not been based on any tangible material. Consequently, we hold that the reopening of 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....
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.... under consideration also, the relevant details for addition made to fixed assets in Financial Year 2009-10 have been placed on record by the assessee. The AO has, however, failed to take the same into consideration. We are, therefore, inclined to set aside this issue to the records of the AO for a de novo verification of the relevant facts. In the result, Grounds 3 and 3.1 are partly allowed for statistical purposes." 21. The ld AO here 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 i....
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....sset and is made against anticipated losses, while the reserve is an appropriation of profit and remains as proprietors interest in the balance sheet. The Apex Court further held that a provision made for bad and doubtful debts against an anticipated loss, is not an expenditure and since rule 5of first schedule of Income Tax Act provides for adding back of only an expenditure or allowance, the provision for bad and doubtful debts cannot be added back. The appellant also relied on the decision 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 ....