TaxTMI 
TaxTMI 
2025 (3) TMI 2052
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.... 1. The Learned CIT(A) has erred in confirming the reassessment which is without jurisdiction and time barred since the same was initiated after four years from the end of the relevant Assessment Year and there has been no failure on the part of the Appellant to disclose fully and truly any material record information during the course of original assessment. 2. The Learned CIT(A) has erred in confirming the reassessment, which was framed on the basis of change of opinion on the same set of facts as were available at the time of the scrutiny assessment, thereby acting against the well settled law that change of opinion cannot be a basis of reassessment: i) The Learned AO erred in reopening the assessment though the information pertaining to IBNR/ IBNER was available in the financials submitted in the course of original assessment ii) The Learned AO erred in reopening the assessment for disallowing the unexpired risk reserve in respect of Third Party Motor Pool while the necessary information on the same was provided during Scrutiny proceedings, post consideration of which it was disallowed for MAT purposes and allowed for normal tax purposes in th....
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....9;ble ITAT has directed the AO to disallow the provisions made on account of IBNR/IBNER and allow them on actual payment basis. 3. The learned CIT(A) has erred in deleting the disallowance made u/s 40(a)(ia) in respect of payment towards claim settlement under cashless scheme to Third Party Administrators (TPAs) without appreciating that the assessee was mandatorily required to make TDS on the payments made to the TPAs which was not made and therefore disallowable u/s 40(a)(ia). 4. The learned CIT(A) has erred in holding that the provisions of Section 115JB are not applicable to insurance companies without appreciating that the provision of section 115JB do not allow any specific exemption for computation and taxation of book profits to insurance companies. 5. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (A) may be set aside and that of the Assessing Officer be restored. 6. The appellant craves leave to add or amend any ground of appeal before it is finally disposed off. 5. By raising ground No.1 (issue no.1), the assessee has challenged the jurisdiction of the AO to have reopened....
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....ns. It is merely based on the assumption that "the claims might have been incurred prior to the end of the current accounting period, but have not been reported or claimed or not enough reported". As per clause 5(a) of First Schedule - "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 sections 30 to 438 in computing the profits and gains of a business shall be added back". Therefore, such reserve based on assumptions without specifying the requirement of crystallization of the liability cannot be allowed as a deduction against the profits of the year and therefore the amount of Rs. 8,78,92,000 is to be disallowed. 2. It is seen from the Memo of Income statement, the assessee has added back the Reserve for Unexpired Risk as per book (IRDA) amounting to Rs. 72,27,11,697, which includes Rs. 19,57,26,000 in respect of Indian Motor Third Party Insurance Pool {IMTPIP}. Since, the amount is not covered under Rule 6E of the I. ....
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....nder Section 147 of the Act. He submitted that in the present case, the original assessment was passed after scrutiny u/s143(3), and the proceedings u/s.147 were initiated after the expiry of four years from the end of the relevant assessment year. The Ld.AR therefore argued that for valid initiation of proceedings u/s.147 it was necessary for the AO to show that while recording the reasons u/s 148, he was prima facie satisfied that the escapement of the income chargeable to tax for the relevant assessment year was as a result of the failure on the part of the assessee to disclose truly and fully, all material facts necessary for assessment. He submitted that from the recorded reasons itself, such satisfaction should have been discernible; and in this case, it is absent and to buttress such a point, drew our attention to the reasons recorded (supra) [copy of which is found placed at Page Nos. 78 & 79 of the Paper Book]. The Ld.AR pointed out that the reasons recorded by AO to reopen the assessment, starts with expression "On verification of various provisions of liability debited in the profit and loss account, it is observed that ............." which shows that there was no fresh/....
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.... contention, he drew our attention to Page No.12 of the Paper Book. Further, he drew our attention to Schedule-16 [Page No.29 of the Paper Book] "not to financial statement at Sl.No.6'' where the assessee has provided notes on IBNR/IBNER. Thus, according to him, the action of the AO to re-open the assessment for this issue tantamounts to review of the assessment which he is not empowered to. For such a proposition, he cited the decision of the Hon'ble Madras High Court (Division Bench) in the case of M/s. TANMAC India in TCA No. 1426 of 2017 dated 19.12.2016, wherein even the AO's action to re-open the assessment, in which case, an intimation u/s.143(1) of the Act was passed, had been struck down, since the re-opening was based on the same material which was disclosed by the assessee in its RoI, and no new material/tangible material was in the possession of the AO to justify re-opening the assessment when the intimation u/s.143(1) was passed for that assessment year. According to the Ld.AR, when compared with the case of TANMAC India, the present assessee's case stand on a better footing and therefore, the action of the AO to re-open the assessment without any tangible material is ....
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.... reason to believe escapement of income [is the jurisdictional fact & law] he shall record his reasons for doing so and assess or reassess the income which has escaped assessment; and for exercising revisional jurisdiction u/s. 263 the CIT has to find the assessment order of the AO to be erroneous as well as prejudicial to the revenue. Unless the condition precedent is satisfied, the AO or the CIT can't exercise their reopening jurisdiction or revisional jurisdiction respectively. The legislative history is that in respect to the reopening u/s. 147 of the Act, the Parliament by Direct Tax Laws (Amendment) Act 1987 w.e.f. 01.04.1989 had substituted "for reason to believe escapement of income" to 'for reasons to be recorded by him in writing, is of the opinion'' which gave unbridled subjective satisfaction to the AO was later substituted back to 'reason to believe escapement of income'', by the Direct Tax Laws (Amendment) Act, 1989. The Hon'ble Apex Court as well as the Hon'ble jurisdictional High Court as well as other Hon'ble High Courts have already held in plethora of cases the test of a prudent person instructed in law in understanding jurisdictional fact & law (mixed question o....
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....f income was due to fault of the assessee, in not fully and truly disclosing all the material facts necessary at the time of original assessment. If the conditions stipulated by statute are not satisfied at the first place, then it cannot be said that AO has validly assumed jurisdiction u/s.147 of the Act. Therefore, the question for consideration is whether on the basis of the reasons recorded by the AO, he could have validly reopened the assessment. For that it has to be seen as to whether the AO on the basis of whatever material before him, [which he had indicated in his "reasons recorded"] had reasons warrant holding a belief that income chargeable to tax has escaped assessment. At this stage, it is also important to bear in mind that the reasons recorded by AO to reopen has to be evaluated on a stand-alone basis and no addition/extrapolation can be made or assumed, while adjudicating the legal issue of AO's usurpation of jurisdiction u/s. 147 of the Act. The Hon'ble Bombay High Court, in the case of Hindustan Lever Ltd. vs. R.B. Wadkar [(2004) 268 ITR 332], has, inter alia, observed that ".......... It is needless to mention that the reasons are required to be read as they wer....
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....y auditor certificate against additional report, statement of income & expenditure which facts are discernible from the notice of the AO during original assessment proceedings dated 01.06.2010 and reply of assessee dated 11.06.2010 which are found placed (at page 1 & 2 respectively of Paper Book); and a perusal of the balance sheet as on 31.03.2008, clearly shows that as on that date (refer page 8 of PB) assessee has shown, provision of Rs. 1,68,80,21,000/-; and at page 10 of PB schedule 2 claims incurred [net] has been clearly shown; at page 12, schedule 2 claims incurred [net] including the estimate of IBNR and IBNER at the end of the year, which is shown as Rs. 1,74,900,000/- and estimate of IBNR and IBNER at the beginning of the year Rs. 87,008,000/- (i.e. Rs. 17.4 crores minus Rs. 8.7 crores) is Rs. 8,78,92,000/-, (refer para one of the reasons recorded) which is the exact figure given in the impugned reasoning for reopening and perusal of Schedule 16 " Notes to financial statements" (refer page 29 PB) at serial number six (6), the assessee had provided a detailed note on IBNR & IBNER ; Coming to the next issue raised in Para No.2 of the reasons recorded i.e. in respect of IMT....
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....ssessee's failure to disclose truly & fully all material facts for its assessment. On the contrary, the opening sentences of the reasons recorded reveals that he has obtained these information from perusal of the profit & loss account filed by the assessee/memo of income statement. Therefore, according to us, when the assessee had undergone scrutiny assessment u/s.143(3) for AY 2008- 09 by order dated 28.12.2011, re-opening after four (4) years can be done only if the AO is successful in showing that assessee failed to disclose the relevant material during first round of assessment itself. Thus, we find that the twin conditions embedded in section 147 were not fulfilled in this case. In such a scenario, the initiation of reassessment would have been permissible only if the AO was having in his possession fresh & tangible material which came in his possession, [subsequent to passing of the order u/s 143(3)] and its (tangible material) relation with formation of belief in respect of escapement of income should have been spelt out in the reasons recorded to justify reopening. According to us, the AO had miserably failed to demonstrate the foregoing in the recorded reasons which vitiat....
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.... AY 2009-10 on 29.09.2009 declaring a total income of Rs. 5,82,72,087/- and Long Term Capital Gain (LTCG) of Rs. 11,58,141/- thus declaring total income of Rs. 5,94,30,228/-. The original assessment was completed u/s.143(3) of the Act on 28.03.2013. 26. Thereafter, the case of the assessee was reopened u/s.147 of the Act by issue of the impugned notice u/s.148 of the Act dated 28.03.2014, wherein the income was reassessed at Rs. 24,58,77,167/- u/s.143(3) r.w.s. 147 of the Act dated 30.12.2014. Aggrieved, assessee preferred an appeal before the Ld.CIT(A), who was pleased to partly allow the appeal of the assessee. Still not satisfied, the assessee is before us. 27. First of all, we will deal with the legal issue raised by the assessee against the reopening of assessment. It is a trite law that the AO before reopening an assessment has to record his reason to believe escapement of income. The reason to believe postulates foundation based on information and belief based on reason. Even if foundation based on information is there, still, there must be reason warrant holding a belief that income chargeable to tax has escaped assessment. At this juncture, we would like to note that....
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....authority. Further, this amount is to be transferred to General Reserve at the end of the Succeeding year. Hence, this amount is different from the Reserve for Unexpired Risks as prescribed under Rule 6E and the same is not eligible for deduction under Rule 6E of the IT Rules" The assessee provided with an opportunity to showcause the taxability of the same. In respect of depreciation claimed as per IT Rules, please furnish the detailed information in support of the rate of depreciation claim. It is observed that the depreciation on new motor vehicles put to use after 1.1.2009 was claimed @ 50%. Please clarify whether the said vehicles were involved in the business of running on hire. If not, please showcause why the depreciation claim should not be restricted to 15%. 28. According to the Ld.AR, the aforesaid two (2) issues flagged by the AO has already been enquired into by the AO during the original assessment and to support such a contention he invited our attention to page No.1 of the Paper Book, wherein issue of "risk reserve" drew our attention to page 1 of PB, wherein the assessee had vide letter dated 12.10.2009, to the ACIT, Large Taxpayer Unit, had brought to ....
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....o by the AO during the original assessment, therefore the AO again looking into the same issue tantamount to review of the order and therefore, he prayed to quash the impugned notice u/s.148 for re-opening of assessment. 30. Per contra, the Ld.DR supported the action of the AO and the Ld.CIT(A) doesn't want us to interfere with the action of the AO to reopen the assessment. 31. Having heard both the parties on the legal issue against re-opening of assessment which has already undergone scrutiny assessment dated 28.03.2013 u/s.143(3) of the Act, we note that both the issues on which the AO has re-opened the assessment [(i)Contingency Reserve for Unexpired Risk; and (ii) higher depreciation claim on new motor vehicles] has been disclosed by the assessee in the original round of assessment which was completed u/s.143(3) of the Act on 28.03.2013 for AY 2009- 10. The Ld.AR of the assessee has brought to our notice that both the issues had been disclosed at the time of original assessment which fact is discernable from perusal of Page No.1 of the Paper Book i.e. letter written by the assessee dated 12.10.2009 clarifying that Income Tax Return (ITR) doesn't have suitable heads to sh....
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....ning of assessment for AY 2009-10. Since the legal issue is answered in favour of the assessee, other issues are academic and therefore not adjudicated. In the result, appeal filed by the assessee is allowed. ITA Nos.1281, 1488 & 1489/Chny/2024 for AY 2011-12: 32. At the outset, it is noted that the Revenue has filed two appeals for AY 2011-12 [ITA Nos.1488 & 1489/Chny/2024]. The Ld.DR clarified that by mistake, the Revenue has filed in duplicate. Therefore, ITA No.1489/Chny/2024 is taken as infructuous and dismissed. 33. Now, first we will take up the assessee's appeal in ITA No.1281/Chny/2024 and then the Department appeal in ITA No.1488/Chny/2024. 34. At the outset, the Ld.AR submitted that even though they have raised legal issue against the re-opening of assessment, it may be left open; since both the disputed issues (on merits) arising from the appeals for AY 2011-12 are no longer res integra. Therefore, we take up the issues on merits which are arising from these appeals. 35. The sole issue arising from assessee's appeal, relates to depreciation on software license. 36. Brief facts are that the assessee company had claimed depreciation on computer software ....
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....ce the license to use software is an intangible asset and that therefore the action of Ld. CIT(A) is erroneous in allowing depreciation @ 60%. For the purposes of this appeal the figures for the AY-2010-11 are taken. The Ld. AO had noted the fixed asset schedule of the assessee showed that for the "block computers" depreciation has been claimed at 60% and that the same included an amount of Rs. 3,25,90,355/- being on account of computer software. The Ld. AO subscribed to the view that a computer software is an intangible asset for which permissible depreciation was @ 25%. The Ld. AO observed that in the present case the assessee company was not the owner of the software but had merely acquired license to use and therefore admissible for 25% depreciation. Before the Ld.AO the assessee had argued that within the meanings of AS 26 or accounting standard 26 - intangible asset, it was eligible for depreciation @ 60%. The Ld CIT(A) held that that within meanings of new appendix to Rule 5 of Income Tax Rules, computors including computer software are eligible for depreciation @ 60%. Consequently he allowed depreciation @ 60%. While doing so he relied upon the decision of Hon'ble coordinat....
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....rs and computer software and license '' as on 01.04.2010 and the same being part of the Block cannot be segregated and entitled for depreciation at 60% and not the rate applicable to the intangible assets. The ld. Commissioner of Income Tax (Appeals) considered the grounds, arguments, facts of the case, findings of the ld. Assessing Officer, and written submissions with the judicial decisions of Amway India Enterprises vs. DCIT 111 ITR 112 and Navneet Publications India Ltd in ITA No. 1137/Mum/2010, and found that similar issue in assessee case was decided favorably and observed at para 7.2.1 of the order:- ''7.2.1. Further, the appellant's Authorised Representative submitted that the same issue was decided in favor of the appellant by the Commissioner of Income Tax (Appeals) for the earlier A.Y. 2010-2011 vide order in IAT No.1889/201314 dated 31.12.2014. For the sake of convenience, the relevant portion of the above order of the Commissioner of Income Tax (Appeals) is reproduced hereunder:- ''The AO restricted the depreciation claim on the appellant to 25% as against 60% in doing so he relied on the decision of SONY Indi vs. Addl. CIT 56 DTR 156. On the issue of....
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....tiate that in assessee's own case the Coordinate of this Tribunal has allowed the depreciation on software licence @60% and supported his submissions with the decision of Hyderabad Tribunal in the case of Srinivasa Resorts vs. ACIT (2014) 41 taxmann.com 350 (Hyd. Trib) were it was observed that the computer software alongwith computer has to be treated as capital asset and Higher rate of depreciation @60% has been allowed based on the life and usage of computer software. We found that similar issue was decided by the Coordinate Bench in favour of the assessee in assessee's own case in ITA No. 1368/Mds/2015, for the year 2010-2011, dated 20.1.20166, where the Tribunal observed in para No 8 as under:- "8. Ground No.2 - Restriction of excess depreciation claimed on software:- During the course of assessment proceedings it was observed by the learned Assessing Officer that the assessee had claimed depreciation on purchase of software of Rs. 1,28,45,163/- @ 60%. However, following the decisions in the case of Sony India Vs. Additional. CIT (ITAT., Delhi) reported in 56 DTR 156), the Ld. Assessing Officer allowed depreciation @ 25%. On appeal, the learned CIT relying on the deci....
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....t" under the head 'plant' as mentioned in Appendix-I to Income Tax Rules, 1962. Therefore, we don't countenance the impugned action of Ld CIT(A). Moreover, this Tribunal has also decided the issue in favour of the assessee in the case of M/s.Royal Sundaram General Insurance Company Limited (supra). Since no change in facts or law could be pointed out by the Revenue, respectfully following the decision of the Tribunal in the case of M/s.Royal Sundaram General Insurance Company Limited (supra), we direct the AO to grant 60% depreciation on software license claimed by the assessee. The legal issue raised by the assessee is left open, since we have decided the grounds of appeal raised by it on merits. 43. In the result, appeal of the assessee is allowed. 44. Coming to the department appeal, the sole issue raised in its appeal, is against the action of Ld CIT(A) deleting the disallowance of payments made to Third Party Administrators (TPAs). 44.1 The assessee had availed the services of TPAs for processing and finalizing the claims of insurers in respect of various insurance policies. According to the assessee, the TPAs processes, verify and finalize the claim settlements of th....