TaxTMI 
TaxTMI 
2023 (7) TMI 898
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....sector undertaking of Government of India and is in the business of Non Life Insurance. The assessee offers insurance covers for large projects like power plants, petrochemical, steel and chemical plants. It also offers various insurance products like Motor Policies, Health-Mediclaim/Overseas Mediclaim/ Personal Accident: Motor Vehicle, Agriculture/ Sericulture/ Poultry, Aviation, Marine and other miscellaneous policies. During the assessment proceedings as in earlier year the following issues cropped up for determination and the same were examined by the Ld. AO. • Profit on sale of investment. • Interest income not provided as income. • Disallowance of depreciation u/s 32. • Disallowance u./s. 14A. • Guest House Expenses. • Provision for standard assets 3. Ld. AO made additions while following the earlier years and Ld. CIT(A) had given relief to the assessee in regard to the deletion of addition u/s 14A and deletion of 50 % disallowance on account of expenses incurred on guest house. Accordingly, Revenue is in appeal raising following grounds : "1. On the facts and circumstances of the case a....
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....decision has thereafter been followed by Tribunal in the case for assessee for years upto AY 2010-11. Last appellate order for AY 2010-11 in ITA no. 4535/Del/2016 dated 04.06.2021 was accordingly refered. It was submitted that for AYs 2011-12 onwards an alternative claim for exemption u/s 10(38) of the Act has been made and Tribunal has allowed this claim in case of assessee for AY 2011-12 in ITA No. 200/Del/2016 vide order dated 22-11-2022, though the AO is directed to verify about status of STT payment. 6.1 It can be observed that in regard to ground no. 1 and 2 of assesse's apeal this bench while dealing with the case of assessee for A.Y. 2011-12 in ITA no. 200/Del/2016 vide order dated 22.11.2022 had made following relevant observations while holding that assessee is entitled to claim benefit of exemption u/s 10(38) and Ld. AO was however directed to verify about status of STT payments :- "8. In regard to Ground No. 1, 1.1, 2, 2.1, 2.2 it was submitted that the primary question involved is whether assessee is entitled for making a claim u/s 10(38) of the Act. In this context it can be observed that the ld AO has classified the gains from transfer of long term capita....
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....e Rule 5 was deleted by Finance Act, 1988 w.e.f. 01.04.1989 and substituted by Finance Act, 2010 w.e.f. 01.04.2011. The ld counsel submitted that in fact when this Rule 5 stood omitted, the Circular No. 528 dated 16.08.1988 was considered to give relief to the insurance company. 10. The ld DR relied on the order of the ld tax authorities below and submitted that the case of assessee has to be distinguished from the life insurance company business in which the judgment has been relied by the ld AR. 11. In regard to issue arising out of these grounds, it can be observed that the revenue does not dispute the fact that the income of the assessee is to be computed in accordance with provisions of section 44 read with Rules 5 of the First Schedule. The controversy raised by the ld AO is that the sale of investment does not qualify to be income from general insurance business therefore, section 40 of the Act is not applicable and the general section 28 of the Act will come into action. The ld AO has considered the investments of the assessee as stock in trade. However, in assessee's own case for AY 2005-06, reported in 407 ITR 658 (Del) Hon'ble High Court has held such a....
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....he argument of the Revenue in this regard requires to be rejected as not being consistent with either the factual position or the legal position." 12. At the same time in para 38 to 48, Hon'ble High Court has gone into question of applicability of Circular No. 528 of CBDT, after Rule 5b stood deleted by Finance Act, 1988 and has held as below:- "38. Thus, the major change, therefore, sought to be brought about by the 2009 amendment was to align it with the IRDA Regulations regarding preparation of accounts of general insurance companies. The changed norms, in terms of said Regulations, required a non-life insurance company to include in its Profit and Loss ('P&L') Account or Revenue Account "profit or loss on realisation/sale of investment". This was said to be consistent with the international standards. 39. With the Assessee carrying on a general insurance business, it was bound by the provisions of the IA as well as the IRDA Regulations referred to hereinbefore. Even the CBDT, in its Circular No. 5/2010 dated 3rd June 2010, acknowledged that, after the introduction of the IRDA Regulations in 2002, non-life insurance companies are required to cr....
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.... "it does not lie in the mouth of the Revenue to repudiate a circular issued by the Board on the basis that it is inconsistent with the statutory provisions. Consistency and discipline are, according to this Court, of far greater importance than the winning or losing of Court proceedings." It is, 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 (Del), 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 v. K.K. Sen (supra) and CIT v. Milk Food Ltd. [2006] 280 ITR 331 (Del). 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 taxab....
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....sessee was doing two different business, one of general insurance business and second 'other business'. 15. Then, in the present assessment year the ld AO has himself allowed exemption u/s 10(15)(iv)(h) of the Act in regard to investment of tax free in public sector bonds. But still the Ld. AO, without citing reasons as to how u/s 10(15)(iv)(h) of the Act is applicable and Section 10(38) of the Act is not applicable, made the distinction and made the addition avoiding Section 10 of the Act. 16. In this context here it can be observed that 'Profits and gains of business' is one of the classified heads of the income as per Section 14 of the Act. To arrive at the income by way of 'Profits and gains of business' for the purpose of Section 14 of the Act, the scope of total income provided under Section 5 of the Act has to be read with Section 10 of the Act, which as part of Chapter III of the Act, falls under the heading "incomes which do not form part of Total Income". So, in any case the income by way of ''Profits and gains of business' which here in case of assessee means ''Profits and gains of insurance business", has to be arrived after giving benefit of exclusion....
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....egarded. Second stage comes after computation of income u/s 44, computation as per provision of S. 92 by making addition on a/c of transfer pricing adjustment. 98. This decision in our view will not apply w.r.t. the applicability of S. 14A as the applicability or inapplicability of S 14A has to be considered at the stage of making computation of income u/s 44. We also do not agree with submission of learned DR since the only activity in shareholders a/c is of investment, it cannot be said that no expenditure was incurred for earning dividend. In this regard, we may state question before us is not whether any expenditure has been incurred or not for earning of dividend but the question relates to the applicability of S. 14A, which issue has already been decided by co-ordinate Bench against Revenue in view of discussion under para 46 of the order of this Tribunal Mumbai Bench in case of ICICI Prudential (Supra), in which they have followed the decision of Delhi Bench in case of Oriental Insurance Co Ltd v ACIT 130 TTJ (Delhi) 338. No contrary decision for applicability of S. 10(34) & S. 14A was brought to our knowledge. We accordingly allow the additional ground and dismiss ....
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....e contention of the CIT (A) was that the assessee was not eligible for deduction under section 10, once the incomes are brought to tax under section 44 r.w. Rule 5 of First Schedule to the Income Tax Act, 1961. 8. There is no need to consider the arguments of the CIT (A) and how he has arrived at that conclusion in this order as this issue was decided by the Hon'ble Bombay High Court in favour of the assessee in writ petition No.2560 of 2011 in the assessee's own case dated 1.12.2011. Consequent to the findings of the CIT(A) in AY 2007-08 (impugned AY) the Assessing Officer seems to have issued notice under section 148 for reopening the assessment for the AY 2006-07 on the reason that the assessee was not eligible for claiming income as exempt under sub-sections 15, 23G, 34 and 38 of Section 10 and assessee challenged the issue by way of writ petition. The Hon'ble Bombay High Court not only disapproved the reopening of the assessment but gave the findings on merit also which are as under:- "11. Section 44 of the Income Tax Act, 1961 stipulates as follows: "44. Notwithstanding anything to the contrary contained in the provisions of this Act rel....
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....usiness had made a claim to exemption under section 10(15) and section 19(1). In a reference before the Court, the questions referred included whether in computing the profits and gains of the business of insurance under section 44 read with the First Schedule certain items which were ordinarily not includible in the total income were rightly included in the taxable surplus. The Division Bench of this Court held as follows: "The question which essentially falls to be determined in this reference is whether, in view of the provisions in section 44 or rule 2 of the first Schedule, the Life Insurance Corporation will not be entitled to claim the deductions which are otherwise admissible in the case of an assessee, computation of whose income is governed by the other provisions of the Act. The argument of Mr. Kolah for the Life Insurance Corporation is that unless there are express provisions which disable the Corporation from claiming the deductions referred to above, the Corporation cannot be deprived of the benefit of the provisions referred to in the questions Nos. 1 to 6. Section 44, which deals with computation of profits and gains of business of insurance, begins with a....
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....r alia with the provisions of section 19(7) of the Income Tax Act, 1922. The questions referred to this Court included whether the assessee was entitled to claim an exemption from tax under section 15B and 15C (4) and in respect of interest on a government loan under a notification issued under section 60. Section 10(7) of the Income Tax Act, 1922 provided that notwithstanding anything to the contrary contained in section 8,9,10,12 or 18, the profits and gains of any business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in the Schedule to the Act. The Division Bench held that upon the language of sub-section (7) of section 10 read along with rule 6 it was impossible to hold that the provisions relating to exemptions stood excluded from operation. In that context the Division Bench held as follows: "It is only after the profits and gains of a business are computed that any question of granting exemptions arises and if the latter stage were intended to be excluded by the law we should have thought that a clearer provision than is made in sub-section (7) of section 10 and in rule 6 would have been made". In the sub....
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.... accounts of an insurance business and undo the entries made therein". The question whether an assessee who carries on general insurance business would be entitled to avail of an exemption under section 10 did not arise. The issue as to whether the assessee which carries on the business of general insurance would be entitled to the benefit of an exemption under clauses (15), (23G) and (33) of section 10 is directly governed by the decision rendered by the Division Bench in Life Insurance Corporation v. Commissioner of Incometax (Supra) following the earlier decision in Commissioner of Income-tax v. New India Assurance Co. Ltd (supra). The Assessing Officer could not have ignored the binding precedent contained in the two Division Bench decisions of this Court. Moreover, the Assessing Officer in allowing the benefit of the exemption in the order of assessment under section 143(3) specifically relied upon the view taken by the CBDT in its communication dated 21 February 2006 to the Chairman of IRDA. The communication clarifies that the exemption available to any other assessee under any clauses of section 10 is also available to a person carrying on non-life insurance busine....
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.... Consequently, ground 1, 1.1, 2, 2.1, 2.2 are decided in favour of the assessee by holding that assessee/appellant is entitled to benefit of Section 10(38) of the Act. However, the matter needs to be restored to the files of the Ld. AO to enquire that claim of assessee u/s 10(38), fulfills the desired conditions about payment of Securities Transaction Tax (STT)." Accordingly, the issue is decided in favour of the assessee and Ld. AO is directed to verify about the status of STT payment and accordingly allow the exemption u/s 10(38) of the Act." 6.2 As regard Ground no. 3 of challenging the upholding of disallowance of depreciation, Ld. AR refered to the decision of Tribunal in assessee's own case for AY 2010-11 in ITA No. 4535/Del/2016 order dated 30-06-2021 and AY 2011-12, submitted that Tribunal has remanded the matter back to the AO and assessee claims for similar relief and similar directions have been issued in earlier years. 6.3 Again in assessee's own case for A.Y. 2011-12 this Bench has remanded the matter back to the AO with following relevant findings: "20. In regard to ground No. 3 and 3.1, the admitted state of affairs is that in assessee's own case fo....
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....t so the ground is decided in favour of assessee and issue restored to file of Ld. AO to decide afresh as directed for A.Y. 2010-11 to 2011-12. Ground no. 4 6.4 As with regard to the Ground no 4 upholding disallowance being provisions made for standard assets, Ld. AR referred to decision of Tribunal is assessee's own case for AY 2010-11 in ITA No. 4535/Del/2016 order dated 30- 06-2021 and for AY 2011-12 where the Tribunal has deleted the disallowance and allowed the ground of appeal. 6.5. In regard to this ground, this Bench in assessee's own case for A.Y. 2011- 12 has deleted the disallowance with following relevant findings :- "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, t....
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....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 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 prov....