2023 (9) TMI 1693 - AT - Income Tax

Disallowance of interest income - assessee has not recognized as interest as income for the year based on the order of the earlier Assessment Years - HELD THAT - Hon ble Delhi High Court 2002 (9) TMI 44 - DELHI HIGH COURT has dismissed the appeal of the revenue in the absence of any finding by the AO that the taxable income has not been computed in accordance with section 44 of the Act no fault can be found with the view taken by the Tribunal. Guest House repairing - Disallowance of expenditure made on account of guest house repairing has been consistently held in favour of the assessee for A.Y. 2000-01 A.Y. 2001-02 A.Y. 2003-04 A.Y. 2005-06 A.Y. 2007-08 A.Y. 2008-09 A.Y. 2010-11 and A.Y. 2011-12. Since the addition has been consistently being deleted in the absence of any change in the factual matrix and legal proposition we decline to interfere with the order of the ld. CIT(A). Disallowance u/s 14A - It is now well settled proposition that the income of the assessee is to be computed as per the provisions of Section 44 r.w. Rule 5 of the First Schedule. It has been held consistently that while computing the total income as per Rule 5 the provisions of Section 14A are not applicable. Reliance is placed on the judgments of Co-ordinate Bench of ITAT in assessee s own case for A.Y. 2000-01 A.Y. 2001-02 A.Y. 2003-04 A.Y. 2005-06 A.Y. 2007-08 A.Y. 2008-09 A.Y. 2010-11 and A.Y. 2011-12. Appeal of the Revenue is dismissed. Profit on Sale/Redemption Investments - As in case of the assessee for AY 2011-12 2023 (1) TMI 1202 - ITAT DELHI held that assessee is entitled to claim benefit of exemption u/s 10(38). Diligently following the order of the Coordinate Bench of the Tribunal in assessee s own case we direct the Assessing Officer to verify about status of STT payment before allowing the claim. Depreciation Allowance - The issue is being remanded back to the file of the Assessing Officer to examine the issue de novo with reference to the tax audit report filed. Provision for Standard Allowance - This issue stands adjudicated and the disallowance has been deleted in assessee s own case for the AY 2010-11 2021 (7) TMI 92 - ITAT DELHI . In the absence of any change in the facts and legal proposition the ground of appeal is allowed in the instant year. Computation u/s 115JB - No doubt as per the amendment of Section 115JB vide Finance Act 2012 the income of the assessee has to be computed u/s 115JB. However since the amendment was brought with effect from 1st day of April 2013 and will accordingly apply in relation to A.Y. 2012-13 onwards. Hence it is not applicable to the Assessment Year before us. Prepaid Taxes - Due credit for prepaid taxes be given.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal questions:

- Whether accrued interest on loans, debentures, and bonds, which was not recognized as income by the assessee, could be disallowed by the Assessing Officer (AO) in light of the provisions of Section 44 of the Income-tax Act and relevant judicial precedents.

- The allowability of expenditure incurred on guest house repairs, considering the consistent prior decisions in favor of the assessee.

- Applicability of disallowance under Section 14A of the Income-tax Act in the computation of income under Section 44 read with Rule 5 of the First Schedule.

- Entitlement of exemption under Section 10(38) on profit from sale/redemption of investments, subject to verification of Securities Transaction Tax (STT) payment.

- Allowance of depreciation, requiring remand for fresh examination in light of the tax audit report.

- Allowability of provision for standard allowance, in view of prior adjudication in the assessee's own case.

- Applicability of the amended provisions of Section 115JB (Minimum Alternate Tax) for the relevant assessment year.

- Treatment of prepaid taxes for due credit.

2. ISSUE-WISE DETAILED ANALYSIS

Accrued Interest on Loans, Debentures & Bonds:

The AO disallowed interest income which the assessee had not recognized as income for the relevant year, relying on earlier assessment orders. The CIT(A) deleted this disallowance, following the Tribunal's own earlier order. The Tribunal referred to the authoritative pronouncement of the Hon'ble Delhi High Court which dismissed the Revenue's appeal, affirming the primacy of Section 44 of the Income-tax Act in computing profits and gains from insurance business.

The Court emphasized that Section 44 is a special provision with a non obstante clause, mandating computation of income as per the First Schedule rules. The Court cited the Supreme Court's interpretation in General Insurance Corporation's case, which clarified that Rule 5(a) of the First Schedule applies only to amounts that are expenditures or allowances, and not to income items. Since the assessee computed income in accordance with Section 44 and the First Schedule, no fault was found in the Tribunal's view.

The Revenue's contention was rejected, and the issue was held to have attained finality by the High Court ruling. Consequently, the Tribunal dismissed the Revenue's appeal on this ground.

Guest House Repairing Expenditure:

The Tribunal noted a consistent line of decisions by the Co-ordinate Bench of the ITAT in favor of the assessee for multiple assessment years, where the expenditure on guest house repairs was allowed. In the absence of any change in facts or legal principles, the Tribunal declined to interfere with the CIT(A)'s order deleting the disallowance.

Disallowance under Section 14A:

The Tribunal reiterated the settled legal position that computation of income under Section 44 read with Rule 5 of the First Schedule excludes the applicability of Section 14A. It relied on consistent decisions of the Co-ordinate Bench in the assessee's own case over several assessment years, holding that Section 14A disallowance does not apply when income computation follows Rule 5. Therefore, the Revenue's appeal on this issue was dismissed.

Profit on Sale/Redemption of Investments:

The Tribunal followed the precedent set by the Co-ordinate Bench in the assessee's own case for AY 2011-12, which held that the assessee is entitled to claim exemption under Section 10(38) on capital gains from sale/redemption of investments. However, the Tribunal directed the AO to verify the payment of Securities Transaction Tax (STT) before allowing the exemption, ensuring compliance with statutory conditions.

Depreciation Allowance:

In light of the above order on investments, the Tribunal remanded the issue of depreciation allowance to the AO for fresh consideration based on the tax audit report filed by the assessee. This indicates that the Tribunal found it necessary for the AO to re-examine facts and documents afresh.

Provision for Standard Allowance:

The Tribunal observed that this issue had been adjudicated in the assessee's favor in a prior year (AY 2010-11) by the Co-ordinate Bench. Given no change in facts or law, the Tribunal allowed the ground of appeal for the instant year, deleting the disallowance.

Computation under Section 115JB:

The Tribunal noted that although Section 115JB (Minimum Alternate Tax) was amended by the Finance Act, 2012, the amendment applied prospectively from 1st April 2013. Since the assessment year under consideration preceded this date, the amended provisions were not applicable. Thus, the Tribunal did not uphold the Revenue's contention regarding Section 115JB.

Prepaid Taxes:

The Tribunal directed that due credit for prepaid taxes be given to the assessee, ensuring proper tax accounting.

3. SIGNIFICANT HOLDINGS

On the issue of accrued interest income, the Tribunal upheld the principle that Section 44 of the Income-tax Act, being a special and overriding provision with a non obstante clause, governs the computation of profits and gains from insurance business. The Tribunal quoted the High Court's reasoning:

"Section 44 of the Income-tax Act is a special provision governing computation of taxable income earned from business of insurance. It opens with a non obstante clause and thus has an overriding effect over other provisions contained in the Act. It mandates the assessing authorities to compute the taxable income for business of insurance in accordance with the provisions of the First Schedule. A plain reading of rule 5(a) of the First Schedule makes it clear that in order to attract the applicability of the said provision the amount should firstly be an expenditure or allowance. Secondly, it should be one not admissible under the provisions of sections 30 to 43A. If the amount is not an expenditure or allowance, the question of testing its eligibility for adjustment by reference to rule 5(a) of the First-Schedule would not arise at all."

This principle was decisive in rejecting the Revenue's disallowance of accrued interest income not recognized by the assessee.

Further, the Tribunal reaffirmed the settled legal position that Section 14A disallowance is not applicable when income is computed under Section 44 read with Rule 5 of the First Schedule, thereby excluding Section 14A from such computation.

The Tribunal also confirmed the entitlement to exemption under Section 10(38) on capital gains from sale/redemption of investments, subject to verification of STT payment, reinforcing the statutory condition precedent for such exemption.

The Tribunal's rulings on guest house repairs and provision for standard allowance relied heavily on consistency and absence of any change in facts or law, underscoring the principle of judicial discipline and stability in taxation matters.

On the applicability of Section 115JB, the Tribunal clarified that amendments apply prospectively, and the relevant assessment year was not covered, thus excluding the levy of Minimum Alternate Tax under the amended provisions.

In conclusion, the Tribunal partly allowed the assessee's appeal for statistical purposes, dismissed the Revenue's appeals, and remanded certain issues for fresh examination, ensuring adherence to legal precedents, statutory provisions, and factual verification.