TMI Blog2016 (8) TMI 1571X X X X Extracts X X X X X X X X Extracts X X X X ..... en referred by the CIT(A) in the impugned order. - Decided in favour of assessee. Exemption u/s 10(15) and 10(34/35) - CIT(A) allowed the plea of assessee by referring to the clarification issued by CBDT dated 21.02.2006 whereby it is clarified that exemption available to any other assessee under any of the clauses of Sec. 10 of the Act shall also be made available to a person carrying on non-life insurance business - HELD THAT:- As decision of Tribunal in the case of assessee for Assessment Year 2007-08 [ 2015 (2) TMI 1372 - ITAT MUMBAI] wherein similar issue has been decided in favour of the assessee following precedents in the case of ICICI Prudential Insurance Co. Ltd. [ 2012 (11) TMI 13 - ITAT MUMBAI] and New India Assurance Co. Ltd. [ 1967 (10) TMI 16 - BOMBAY HIGH COURT] Disallowance of expenses incurred on performance linked incentive for employees, operating expenses like advertisement, legal and professional fees, courier charges, repairs and maintenance, etc. - According to the Assessing Officer, assessee was following mercantile system of accounting and since the impugned claim was merely a provision for expenses, the same was not allowable - AO also notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance envisaged u/s 14A of the Act is not applicable in the case of an assessee carrying on insurance business - HELD THAT:- It is also brought on record that the decision of Tribunal of Assessment Year 2004-05 [ 2013 (10) TMI 1130 - ITAT MUMBAI] has been further followed by the Tribunal in the case of assessee for Assessment Years 2005-06 and 2006-07 vide order dated .Subsequently, in Assessment Year 2007-08 also [ 2015 (2) TMI 1372 - ITAT MUMBAI] similar view has been affirmed by the Tribunal. Following the aforesaid precedents, we approve stand of the assessee that provisions of Sec. 14A of the Act are not applicable to an assessment made in terms of Sec. 44 of the Act read with First Schedule of the Act in relation to income of non-life insurance business. Thus, on this aspect, assessee succeeds. - ITA No. 3698/MUM/2013, ITA No. 3712/MUM/2013 - - - Dated:- 31-8-2016 - Shri G.S. Pannu, Accountant Member And Shri Joginder Singh, Judicial Member Assessee by : Ms. Aarti Vissanji Revenue by : Shri A.K. Kardam ORDER Per G. S. Pannu, AM These are cross-appeals filed by the assessee and the Revenue against the order of CIT(A)-21, Mumbai dated 05.03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. i) Deleting the disallowance of AO made on account of interest ₹ 14,11,04,910/ - claimed by assessee company as exempt u/s. 10(15) and dividend ₹ 5,87,77,006/- exempt u/s. 10(34/35) of the Act ignoring the fact that the assessee company is engaged in the insurance business and that Computation of its Income from insurance business is to be governed as per special section 44 of the Income Tax Act r.w.Rule 5 contained in the First Schedule. ii) in not appreciating that the provisions of sec. 10(15), 10(34) and 10(38) were not applicable in the case of assessee company. 3. i) misrepresenting that the AO disallowed of ₹ 39,71,60,000/- towards non-deduction of TDS at source by the assessee, and instead ignoring the fact that the AO disallowed the said amount exclusively on account of non-justification of the claim of Provisions to the extent of ₹ 8,85,52,000/- and on the balance amount disallowance is made u/s.40(a)(ia) of the Act for non-deduction of TDS. ii) ignoring the remarks of the Auditors in the Tax Audit Report at Clause 27(b)(iii) that the assessee company did not deduct the TDS since the Provisions for expenses made during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4 of 1938) or the rules made thereunder or the provisions of the Insurance Regulatory and Development Authority Act, 1999 (4 of 1999) or the regulations made thereunder, 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 sections 30 to 43B in computing the profits and gains of a business shall be added back; b. (i) any gain or loss on realisation of investments shall be added or deducted, as the case may be, if such gain or loss is not credited or debited to the profit and loss account; (ii) any provision for diminution in the value of investment debited to the profit and loss account, shall be added back; c. such amount carried over to a reserve for unexpired risks as may be prescribed in this behalf shall be allowed as a deduction. 5.1 The bare reading of the amended provisions of Rule 5 of First Schedule makes it clear that the profits and gains shall be taken to be the profit bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. There is also no dispute that the assessee has credited the Profit and Loss Account with such profit the question is whether such profit can be excluded and exemption can be claimed. Rule 5(b), as it stood before being omitted from 01.04.1989, was as follows: - any amount either written off or reserved in the accounts to meet depredation of or loss on the realization of investments shall be allowed as a deduction, and any sums taken credit for in the accounts on account of appreciation of or gains on the realization of investments shall be treated as part of the profits and gains; Provided that the Assessing Officer is satisfied about the reasonableness of the amount written off or reserved in the accounts, as the case may be, to meet depredation of or loss on the realization of investment. The argument on behalf of the assessee primarily is that when the rules for preparation of the final accounts provide that the profit on sale of investments, should be shown in the credit side of the Profit and Loss Account, then there was no question of rule 5(b) being applicable and that was the reason why the said rule was omitted with effect from 01.04.1989 and the ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liance General Insurance Co. Ltd., in :ITA No. 781/Mum/2007 (and other appeals).Copies of these orders have also been filed before us. In these orders it has been held that the profit on sale of investment in the case of an assessee carrying on general insurance business cannot be brought to tax after the omission of rule 5(b) and as per the Circular cited above. Since the controversy before us is identical, respectfully following the orders of the Pune and Mumbai Benches of the Tribunal cited above, we direct the Assessing Officer to exclude the profit of Z47,45,699/- on the sale of investments from the assessment-V 20. The learned CIT DR, however, argued that the effect of the omission of rule 5(b) is just the opposite of what the assessee has contended. According to him, after 01.04.1989 the exemption was taken away. He submitted further that the profit on sale of the investment has already been included in the Profit and Loss Account and there is no authority to take it out even under rule 5(b) as it existed before 01.04.1989. According to him, there was no scope for applying the rules of interpretation when the statutory provisions are clear. Since the matter is concluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Insurance Co. Ltd. (supra) and New India Assurance Co. Ltd. (supra). The relevant discussion in the order of Tribunal dated 12.02.2015 reads as under :- 3. The issues raised vide Ground No. 2 have been considered by the Tribunal in the case of ICICI Prudential Insurance Company Ltd. in ITA No. 6854, 6855, 6856 6859/Mum/2010. The Tribunal has considered the issue at page 59 of its order and at page 60 the Tribunal has considered the decision of Life Insurance Corporation of India vs. CIT (Bom) and at page 62 the Tribunal has considered the decision in the case of New India Assurance Company Ltd. and finally at para 49 of this order the Tribunal concluded that the assessee is entitled to get exemption under section 10 of Act, 1961. A similar issue was considered by the Hon'ble Jurisdictional High Court in Writ Petition No. 2560 of 2011 dated 1/12/2011, wherein Hon'ble High Court has quashed and set aside the notice issued for reopening of the assessment when the Revenue sought to reopen the completed assessment for disallowing the claim of deduction allowed under section 10 of the Act. In the original assessment order. Respectfully following the aforesaid judicial deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for expenses in respect of miscellaneous expenses rent, rates taxes on the ground that TDS has not been deducted on the said payments without appreciating the fact that TDS on the same has been deducted by the Appellant paid to the government. 9. Since the aforesaid two cross-grounds relate to the same issue, they are being taken up together. 10. On this aspect, ld. DR submitted that the CIT(A) has only recorded a finding with regard to one aspect of the controversy, namely disallowance u/s 40(a)(ia) of the Act and not addressed the other point raised by the Assessing Officer to the effect that said claim was merely a provision as the expenses could not be said to have been accrued. 11. On this aspect, learned representative for the assessee pointed out that the details of such expenses were very much before the lower authorities and were examined by the CIT(A). In this connection, our attention has been drawn to a copy of the written submissions dated 17.12.2012 addressed to the CIT(A), a copy of which has been placed in the Paper Book at pages 35 to 41. On that basis, it is sought to be made out that the justification for creating such provision for expenses w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r years also. In fact, CIT(A) has reproduced the submissions put forth by the assessee in this regard wherein reliance has also been placed on the judgment of Hon'ble Bombay High Court in the case of American Express International Banking (supra). We find that there is no negation of the aforesaid plea set-up by assessee, and even before us the Ld. DR has not made any controversion on merits. Be that as it may, we may now examine as to whether the provisions of Sec. 40(a)(ia) of the Act have been properly invoked by Assessing Officer in the context of expenditure of ₹ 23,92,90,000/- out of total disallowance of ₹ 39,71,60,000/-. In this context, we find that before the CIT(A), assessee pointed out that expenses amounting to ₹ 23,92,90,000/- representing items of communication expenses, employees remuneration welfare benefits, interest and bank charges, printing stationery and travel conveyance expenses are not liable for deduction of tax at source except employee s remuneration welfare benefits, which have been duly subjected to deduction of tax at source. Additionally, it was pointed out that on the balance of expenditure of ₹ 15,78,70,000/-, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of Section 44 of the Act. 2(b) The CIT(A) erred in concluding that once the provisions of Section 10 and Chapter VI-A are applicable, other related provisions including section 14A will automatically be applicable. 16. The issue raised by assessee is with regard to applicability of Sec.14A of the Act. As per assessee, the disallowance envisaged u/s 14A of the Act is not applicable in the case of an assessee carrying on insurance business. On this aspect, it was pointed out that similar issue had come up in the case of assessee for Assessment Year 2004-05 and vide order dated 18.9.2013 (supra), the Tribunal decided the issue in favour of assessee following the decision in the case of ICICI Prudential Insurance Co. Ltd. (supra). The relevant discussion in the order of Tribunal dated 18.9.2013 (supra) is as under :- 5. Ground No. 2 regarding disallowance u/s 14A. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. The Ld. AR of the assessee has submitted that Rule 14A is not applicable in the case of Insurance Company. She has relied upon the decision of this Tribunal in case of ICICI Prudential Insurance Co. Ltd. Vs ACIT 140 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this controversy in respect of insurance company set at rest by a decision of Tribunal, Delhi Bench verdict in the case of Oriental Insurance Co. Ltd. (ITA Nos. 5462 5463/Del/2003) asst. yrs. 2000-01 and 2001-02 order dt. 27th Feb.2009 [reported as Oriental Insurance Co. Ltd. v. Asstt. CIT[2010] 130 TTJ (Delhi)388 : [2010] 38 DTR (Delhi) 225-Ed.].Therefore considering the vehement reliance of learned Authorized Representative it is worth to mention at the outset itself that the issue now stood resolved by this latest decision of Delhi, Tribunal in the case of Oriental Insurance Co. Ltd. (supra), the relevant portion reproduced below: 17. We have heard rival submissions of the parties and have gone through the material available on record. Identical issue arose in assessee s own case for asst. yr. 1985-86. The Tribunal accepted the plea of the assessee and in fact the issue went up to the Hon ble Delhi High Court in asst. yrs. 1986-87 to 1988-89, which is reported as CIT v. Oriental Insurance Co. Ltd. [2003] 179 CTR (Delhi) 85 : [2002] 125 Taxman 1094 (Delhi), decided the issue in favour of the assessee by holding that s. 44 of the Act is a special provision dealing with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance of profits disclosed by the annual accounts as furnished in the Controller of Insurance. The actual computation of profits and gains of insurance business will have to be computed in accordance with r. 5 of the First Schedule. In the light of these special provisions coupled with non obstante clause the AO is not permitted to travel beyond these provisions, 24. Sec. 14A contemplates an exception for deductions as allowable under the Act are those contained under ss. 28 to 43B of the Act, Sec. 44 creates special application of these provisions in the cases of insurance companies. We therefore, agree with the assessee and delete the Act as according to us, it is not permissible to the AO to travel beyond s. 44 and First Schedule of the IT Act. 18. It may not be out of place to mention that the respected Co-ordinate Bench has duly taken the note of an earlier decision of that very Bench decided in the case of that very assessee vide order dt. 29th Sept. 2004 bearing ITA Nos.7815/Del/1989, 3607 to 3609/Del/1990; 5035/Del/1998 and 3910/Del/2000namedas Dy. CIT v. Oriental General Insurance Co. Ltd. [2005)92 TTJ (Delhi) 300. As seen from the Paras reproduced above on due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance under s. 14A of the Act. (b) Profits and gains of business as referred to in (a) above have only to be computed in accordance with r. 5 of the First Schedule. 22. Sec. 44 creates a specific exception to the applicability of ss. 28 to 43B. Therefore, the purpose, object and purview of s. 14A has no applicability to the profits and gains of an insurance business. 23. The learned Departmental Representative strongly justified the action of the AO and that of the CIT(A) in the light of the clear provisions of s. 14A of the Act. Since the view has already been expressed by respected Co-ordinate Bench therefore, we have no reason to take any other view except to follow the same. With the result we hereby accept the argument of learned Authorized Representative to the extent that in the present situation the provisions of s. 14A need not to apply while granting exemption to an income earned on sale of investment primarily because of the reason of the withdrawal or deletion of sub-r. 5(b) to First Schedule of s. 44 of IT Act. Once we have taken this view therefore the enhancement as proposed by learned CIT(A) is reversed and the directions in this regard are set aside. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
