TMI Blog2017 (9) TMI 1981X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance made by the Assessing Officer and the DRP but confirmed the disallowance made by the assessee under section 14A of the Act at ₹ 49,42,631/-. Following the same parity of reasoning, we direct the Assessing Officer to delete the addition worked out under section 14A of the Act except to the extent of ₹ 2,43,836/-, which has been suo motu disallowed by the assessee in the computation of income. Disallowance u/s 14A of the Act in respect of profits and gains on sale/redemption of investments claimed as non taxable - HELD THAT:- In view of our order holding that the provisions of section 14A are not applicable, then the same even applied for income claimed as exempt under section 10 of the Act. Hence, the grounds of appeal No.1 to 3 raised by the Revenue are dismissed. Disallowance made u/s 40(a)(i) in respect of re-insurance premium paid to Allianz SE, Germany - HELD THAT:- We find that the Tribunal in assessment year 2008-09 [ 2020 (1) TMI 1566 - ITAT PUNE] has elaborately discussed the issue and had decided the same. The Tribunal reversed the findings of DRP and held that the assessee was entitled to claim the deduction on account of reinsurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order for the sake of convenience. 3. The learned Authorized Representative for the assessee pointed out that the facts and issues in both the appeals are identical. However, in order to adjudicate the issue, we refer to the facts and issues raised in assessment year 2009-10. 4. The assessee in ITA No. 1071/PUN/2015, relating to assessment year 2009-10 has raised following grounds of appeal:- Ground No. 1 1.1 Erred in upholding the action of the Assessing Officer ( AO ) in treating profits on sale/ redemption of investments of ₹ 22,30,24,779/- as taxable. 1.2 Erred in not following the binding decision of the Hon ble Pune Tribunal in appellant s own case for AY 2002-03 to AY 2006-07. Ground No. 2 2.1 Erred in upholding the action of the AO in invoking disallowance under section 14A of the Act read with rule 8D of the Income-tax Rules, 1962 ( Rules ) of ₹ 26,90,338/- in respect of exempt dividend/ interest income. 2.2 Erred in not following the binding decision of the Hon ble Pune Tribunal in Appellant s own case for AY 2002-03 to AY 2006-07. Ground No.3 [Without prejudice to Ground No. 2] 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... First Schedule of the Income-tax Act? 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (Appeal) was justified in not considering that section 44 of the Income Tax Act, 1961 nowhere restricts the applicability of section 14A of the Income tax Act, 1961? 4. For these and such other grounds as may be urged at the time of hearing, the order of the learned CIT (A) may be vacated and that of Assessing Officer be restored. 5. The appellant craves to add, alter or amend any or all the grounds of appeal during the course of appellate proceedings before ITAT, Pune Bench, Pune. 6. The assessee in CO. No.31/ PUN/2017 has raised following grounds of objections:- 1. Cross objection No. 1 : Challenging the disallowance under section 14A in respect of profits on sale/redemption of investments: 1.1 The action of the learned CIT(A) in concluding that the provisions of section 14A is not applicable in respect of profits on sale/redemption of investments is justifiable under the law and in accordance with the Hon ble Tribunal s ruling for earlier years in the Respondent s own case. 2. Cross objection No. 2: Wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and gains of business of insurance had to be computed in accordance with Rules prescribed in First Schedule of the Act; Rule 5 of first Schedule provided the mode of computation of taxable profits and gains for general insurance business. As per Rule 5 of first Schedule of the Act, the profits and gains of insurance business, other than life insurance, shall be taken to be the balance of profits disclosed by annual accounts under the Insurance Act, 1938. The plea of assessee in this regard was that profit shown in the annual accounts / financial statements prepared as per the Insurance Act, 1938 should be taken for computation of total income for income tax purpose subject to clause (a) and clause (c) of Rule 5 of the Act. The Assessing Officer noted that the Insurance Regulatory Development Authority prescribed that non-life insurance company had to include profit or loss on realization / sale of investments in the Profit and Loss Account or Revenue account. Thus, as per the Assessing Officer it was mandatory for the assessee to include profits on sale / redemption of investments in computation of total income unless the Rule 5 of the Act excludes it. The Assessing Officer noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings of CIT(A). 13. The learned Authorized Representative for the assessee pointed out that the issue is squarely covered in favour of the assessee by the orders of Tribunal starting from assessment year 2003-04. He further pointed out that similar issue also arose in assessment year 2008-09 and the Tribunal following earlier year order, has decided the issue in favour of the assessee. The learned Authorized Representative for the assessee further pointed out that reliance placed upon by the CIT(A) on the ratio laid down by the Hon ble Bombay High Court in Oriental Fire General Insurance Co. Ltd. Vs. CIT (supra) is misplaced since the said decision relates to assessment year 1967-68 when Rule 5(b) existed in the Statute. It was further pointed out that the said Rule 5(b) was further deleted and the Tribunal had accepted the claim of assessee relying on Legislative intent w.e.f. omitting Rule 5(b). It was further pointed out by him that the issue is squarely covered by the ratio laid down by the Hon ble High Court of Calcutta in Pr. CIT Vs. National Insurance Co. Ltd. (2017) 393 ITR 52 (Calcutta), which relates to assessment year 2005-06, wherein it has been held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an the life insurance business, had to be computed. The assessee further pointed out that in view of the amendment in Rule 5 of First Schedule, by which the said Rule was omitted, the profit earned in respect of the investments is not taxable in the hands of assessee. The assessee thus, did not include/reduce the profit on sale / redemption of investment of about ₹ 50 crores and net loss on amortization of ₹ 3.10 crores in the computation of income filed for the year under consideration. The said Rule 5(b) of First Schedule has been re-inserted by the Finance (No.2) Act, 2009 w.e.f. 01.04.2011, which was further substituted by the Finance Act, 2010 w.e.f. 01.04.2011. Prior to its substitution, clause (b) was omitted by the Finance Act, 1988 w.e.f. 01.04.1989. The year under appeal before us is assessment year 2008-09 i.e. the year in which the said provisions of Rule 5 of First Schedule were not on Statute. Similar claim was made by the assessee that the profit / loss arising on sale / redemption of securities, investment was not taxable and even the loss on account of amortization of securities was to be reduced from the taxable income of the year, arose before the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.42/PN/2013, order dated 23.10.2013 and in assessment year 2006-07 in ITA No.119/PN/2011, order dated 06.05.2013. In view of the issue being decided in favour of the assessee in various assessment years and following the same parity of reasoning, we allow the ground of appeal No.1 raised by the assessee. 16. The issue arising in the present ground of appeal similar to the issue in earlier years and the Assessing Officer had also disallowed the claim of assessee, following the deletion made in earlier years. However, following the same parity of reasoning, we hold that while computing income from business in the hands of assessee under section 44 of the Act and First Schedule of the Act, profit / loss on sale / redemption of securities or investments including the amortization of securities is to be reduced from taxable income of assessee. The grounds of appeal No.1.1 and 1.2 raised by the assessee are thus, allowed. 17. The issue raised vide grounds of appeal No.2.1 and 2.2 is against the order of Assessing Officer in making disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (in short the Rules ). 18. The Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance made by the Assessing Officer and the DRP but confirmed the disallowance made by the assessee under section 14A of the Act at ₹ 49,42,631/-. We are making reference to paras 23 and 24 of the order of Tribunal at pages 16 to 22 but the same are not reproduced for the sake of brevity. Following the same parity of reasoning, we direct the Assessing Officer to delete the addition worked out under section 14A of the Act except to the extent of ₹ 2,43,836/-, which has been suo motu disallowed by the assessee in the computation of income. The ground of appeal No.2 raised by the assessee is thus, allowed. 23. The issue raised vide ground of appeal No.3 is without prejudice to computation of disallowance under section 14A of the Act read with Rule 8D of the Rules is dismissed as ground of appeal No.2 is allowed in the hands of assessee. 24. The Revenue is in appeal against the order of CIT(A) in restricting the disallowance under section 14A of the Act in respect of profits and gains on sale/redemption of investments claimed as non taxable. In view of our order holding that the provisions of section 14A of the Act are not applicable, then the same eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / Reinsurer in order to reduce its own liability in the event of loss. The Assessing Officer noted that in the assessment proceedings for assessment year 2008-09, the amount paid to Allianz SE, Singapore Branch, as reinsurance premium was disallowed under section 40(a)(i) of the Act regarding assessee to be dependent agent permanent establishment of Singapore branch. Accordingly, the assessee for the year under consideration was show caused as to why disallowance under section 40(a)(i) of the Act should not be made on reinsurance premium paid to Allianz SE, Singapore branch of ₹ 69,86,05,662/- for not withholding tax on such payments under section 195 of the Act. After considering the submissions of assessee but in view of issue being similar to assessment year 2008-09, the Assessing Officer disallowed the claim in the hands of assessee. The CIT(A) upheld the same, against which the assessee is in appeal. 30. We find that the Tribunal in assessment year 2008-09 has elaborately discussed the issue in para 26 onwards and had decided the same vide paras 32 to 43 at pages 25 to 35 of the order dated 03.02.2016. The Tribunal vide para 43 reversed the findings of DRP and held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss expediency on incurring the risk inspection expenses. The nature of expenditure was fully explained before the Assessing Officer. The Assessing Officer noted that the assessee had furnished details of risk inspection charges i.e. names, addresses, PAN, etc. and produced evidences in the form of risk inspection reports, invoices, website screenshots, risk inspection charges, etc. to justify the genuineness of risk inspection expenses of ₹ 7,54,23,407/- but could produced purchase orders of ₹ 2,51,25,372/-. The Assessing Officer following the order of DRP for assessment year 2008-09, wherein it was observed that purchase order constitute the basic document for insurance policy finalization and was essential to substantiate the genuineness of said expenditure and since the assessee could produce the purchase orders of only ₹ 2.51 crores, the risk inspection charges of ₹ 5,02,98,035/- were disallowed and added to the income of assessee. 34. The CIT(A) upheld the order of Assessing Officer. 35. The assessee is in appeal against the order of CIT(A). 36. The learned Authorized Representative for the assessee in this regard pointed out that simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as it took business decision to adopt business of providing general insurance. However, because of the evidence collected during assessment proceedings of two companies in the name of which accommodation entries were being issued to beneficiaries to inflate their expenses including the assessee s, 25% of net expenditure was disallowed in the hands of assessee. The relevant findings vide para 49 are as under:- 49. We have heard the rival contentions and perused the record. In the facts relating to the issue, during the course of search on one Shri Sandeep Sitani, CA carried out on 22.06.2008 and survey under section 133A of the Act carried out on his official premises, various documents including bills, etc. were found from his premises. When he was considered the said documents, he explained the modus operandi of the transactions, under which he admitted that he was controlling the transactions of more than 25 companies for the purpose of issuing bogus bills on commission. From the details given in the statement and the accounts of the assessee and bank account with Corporation Bank, Bhayander Branch, Mumbai, of the said companies reflected various payments received fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eports are claimed to have been procured from independent parties, who are not relatable to the assessee and were necessary part of carrying on the business of insurance. The Assessing Officer had received information in respect of payments totalling ₹ 1.08 crores. However, no other information was received by the Assessing Officer and on the basis of the said information of ₹ 1.08 crores, balance claim was disallowed in the hands of assessee on the premise that the assessee has not produced the purchase orders. After considering the explanation of the assessee, we are of the view that there is merit in the plea of the assessee to the extent that each of the risk inspection reports received by the assessee may not have resulted in the business being allotted to the assessee or after considering the profile of the companies against whom the assessee has received risk inspection reports, the assessee itself takes a view that it was not worthwhile to offer insurance services to such companies whose risk inspection reports were received by it. Admittedly, the onus was higher upon the assessee to establish its claim in view of the information received by the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the additional evidence filed by the assessee and if the same is found to be in order, the said expenditure would be allowed in the hands of the assessee. Then out of balance remaining, the Assessing Officer shall disallow 25% of the expenditure. The ground of appeal No.4 raised by the assessee is thus, partly allowed. 39. The issue arising in the present appeal before us is identical to the issue before the Tribunal in assessment year 2008-09. Mere absence of purchase orders would not disentitles the assessee from the claim of risk inspection charges. However, we find merit in the plea of assessee that in the absence of any adverse evidences collected during the year, no disallowance is to be made in the hands of assessee in the instant assessment year. The assessee has further filed purchase orders by way of additional evidence before us. However, in the entirety of the ratio laid down in assessee s own case in assessment year 2008-09, absence of purchase orders would not disentitles the assessee to claim the said expenditure. Accordingly, we allow the claim of assessee in entirety. The ground of appeal No.5 raised by the assessee is thus, allowed. 40. The facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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