TMI Blog2014 (11) TMI 841X X X X Extracts X X X X X X X X Extracts X X X X ..... owed as deduction – thus, the order of the CIT(A) is upheld – Decided against assessee. Diminution in value of investments – Held that:- As decided in assessee’s own case for the earlier assessment year, CIT(A) rightly held that the claim of the assessee for an unascertained liability was rightly disallowed by the AO - the provision made by the assesee for notional losses on revaluation of investment is in fact a reserve irrespective of the nomenclature given by the, assesee - the substance of the Claim is to be considered and not the nomenclature. The assessee has not sold the investments in question during the relevant accounting period and notwithstanding the guidelines given by the IRDA to reflect the true position of assets and liabilities in the relevant balance sheet of the assessee, the notional losses claimed only on the basis of prevailing market price could not be allowed against the actual business profits of the relevant accounting period - the claim of loss pot actually incurred on the investments which have neither been sold nor transferred otherwise is only a provision for unascertained liability and cannot be allowed to be reduced from the income of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouses is covered u/s 30(a)(ii) - in respect of the guest houses owned by the assessee, repair expenses will have to be allowed as deduction under section 30(a)(ii) - once the expenditure is allowable under section 30(a)(ii ), if the expenditure of incurred on repair and maintenance of guest house taken on lease should also be allowed – the order of the CIT(A) is upheld – Decided against revenue. - ITA No. 4786/Del/2012, ITA No. 4493/Del/2012 - - - Dated:- 21-11-2014 - Smt. Diva singh, JM And Shri J. Sudhakar Reddy,JJ. For the Petitioner : Sh. Tarandeep Singh, C.A. For the Respondent : Sh. Gunjan Prashad, CIT, D.R. ORDER Per J. Sudhakar Reddy, JM These are cross-appeals and are directed against the order of Ld.CIT(Appeals)-LTU, New Delhi dt. 02.07.2012 pertaining to the Assessment Year 2005-06. 1.1. The grounds of appeal of the Revenue read as follows. 1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting disallowance of ₹ 3,39,60,000/- made by the AO on account of investment written off. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 234B and 234D of the Act. 7. That on the facts and in law, the order of assessment u/s 143(3) passed by the AO is bad in law and void ab initio. 8. That on facts and in law the order passed by CIT(A) to the extent it upholds the assessment order in part is bad in law and void ab initio. 2. We have heard Shri Tarandeep Singh, the ld.Counsel for the assessee and Shri Gunjan Prasad, the Ld.DR on behalf of the Revenue. 2.1. Admittedly the issues that arose in both these appeals are no more res integra, as they have been adjudicated by the Delhi B Bench of the Tribunal in the assessee s own case for the AY 2000-2001 and 2001-2002 in the case reported in 40-SOT(19) (Delhi( (URO) (2010) and the decision of the Tribunal for the AYs 1982-83 to 1986-87 and 1995-96, 1997-98 in the case reported in 92 TTJ 300 (Delhi) in DCIT vs. Oriental General Insurance Co. (Delhi C Bench of the Tribunal) and the order of the Delhi E Bench of the Tribunal in ITA no. 2282/Del/2007 in M/s Oriental Insurance Co.Ltd. vs. ACIT for the AY 2003-04 order dt. 16.10.2009 reported in 50 SOT 80 (Del) and the decision of the Tribunal reported in (2012) 18 taxmann.com 147 (Delhi) in the assessee s own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the assessee company to make investments. These investments are in the nature of stock in trade as the value thereof is adjusted in the books at the end of each year with a view to find out appreciation or depreciation therein. Such depreciation has been claimed as deduction in the books of account of this year, which has also been allowed. Therefore, we are of the view that in the light of these submissions, we are bound to follow the decision of the Tribunal in the case of the assessee. 4.3. Consistent with the view taken therein, we dismiss this ground of the assessee. 5. Ground no.2 is on the disallowance made on account of provision made for orphan claims. This issue is adjudicated by the Delhi B Bench of the Tribunal in the assessee s own case, in its order for the AY 2000-2001 wherein at paras 35 to 38 it is held as follows. 35. The only surviving dispute for AY 2001-02 relates to the disallowance of ₹ 4,12,00,000/- on account of estimated liability for orphan claims. 36. The assessee made provision in respect of unidentified motor third party claim (orphan claim). The assessee explained that as per clause 5.1 of accounting policy of the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the income of the assessee was to be taken as per its book profit subject to the adjustments provided in Clause (a) of the Rule 5 of Schedule I of the LT. Act. According to him since the diminution in the value of investments is not covered in clause (a) of Rule 5 of Sch.I, the amount cannot be added back in computing the profits and gains of the business of the assesee. The Id. counsel-in support of his submissions relied on the following decisions. i. General Insurance Corporation vs CIT (1999) 240 ITR 139(S.C.) ii. CIT vs Oriental Fire and General Ins.(2007) 291 ITR 370(S.C.) iii. CIT vs HCL Comnet Systems Services Ltd. (2008) 174 Taxman 118 (S.C) 24. The Id.counsel of the assesee, fairly conceded that Rule 5(a) of Sch.1 was amended by the Finance (No.2) Act, 1998, w.e.f. 1.4.1989. He however, maintained that the general principles laid down by the Hon'ble Supreme Court in its case for A.Y. 1974-75, 75-76 and 78-79 (supra) were still applicable and the provision made by the assessee could not be added back in computing the profits and gains of its business because the diminution in value of investments debited to the profit and loss ale was neither an expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure given by the, assesee. We are also of the considered opinion that the substance of the Claim is to be considered and not the nomenclature. The provision in question made by the assesee in substance is a reserve for meeting future losses, if any, on account of diminution in the value of its investments and is covered within the scope of amended provisions of Rule 5(a) of the First Schedule of the LT. Act. With due respect the decisions cited by the Id. counsel are of no help to the assesee in view of the retrospective amendment of Rule 5(a) of the First Schedule of the LT. Act. It is also observed that the Id. CIT(A) has also held that the provision in question being an unascertained liability was required to be added back while computing the deemed income of the assessee company u/s. 115 JB of the IT Act. In our considered opinion, the assessee has not sold the investments in question during the relevant accounting period and not withstanding the guidelines given by the IRDA to reflect the true position of assets and liabilities in the relevant balance sheet of the assessee, the notional losses claimed only on the basis of prevailing market price could not be allowed against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A principles on financial statements and auditor s report of insurance companies Regulation 2002 and not as per the provisions of Part 2 and Part 3 of Schedule XI to the Companies Act, 1956. 7.1. After hearing the rival contentions we admit these additional grounds for the reason that all the facts are on record and the ground is a legal ground by following the decision of Hon ble Supreme Court in the case of NTPC Ltd. Vs. CIT reported in 229 ITR 383. We further find that the issue in question is covered in favour of the assessee and against the Revenue by the decision of the Mumbai I Bench of the Tribunal in the case of ICICI Lambard General Insurance Co.Ltd. Range 10(1) Mumbai 54 SOT 3 538 Mumbai wherein it is held that the provisions of S.115 JB of the Act are not applicable in case of Insurance Companies, as they are not required to prepare the accounts as per Part 2 and 3 of Schedule VI to the Companies Act. Respectfully following the same we allow this ground of the assessee and delete the computation made u/s 115 JB of the Act. 7.2. In the result, the additional grounds are allowed. 8. Ground no.5 is not adjudicated as it is infructuous. 9. Ground no.6 is agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the matter was that such effect was not forthcoming from omission of clause (b). On consideration, we find ourselves in substantial agreement with this argument. The intention of the legislature was to exempt profit on sale of investments and to disallow deduction of loss on sale of investments, the fact remains that such intention has not been translated into statute. Omission of sub-rule (b) of rule 5 does not bring about this change in the statute. In these circumstances, we are left with the only question as to whether the write off/write down of investments made in the books of accounts of the assessee for the assessment year before us can be considered to be 'expenditure' or 'allowance'. If it represents either of the two, provisions of sections 30 to 43B of the Act would come into operation and the amount claimed by the assessee cannot be allowed as deduction for want of corresponding provisions in Income-tax Act, 1961. If, on the contrary, the amount claimed by the assessee by way of write off/write down of investments is neither an 'expenditure' nor an 'allowance', the Assessing Officer, is not clothed with any jurisdiction to interfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of investments. 8. In the light of the above precedent, the disallowance made by the Assessing Officer and sustained by the CIT(A) is deleted. 13.2. The First Appellate Authority has applied the decision of the Tribunal and granted relief. Consistent with the view taken in the case reported in 130 TTJ 388 (Delhi), we uphold the finding of the First Appellate Authority and dismiss this ground of the Revenue. 14. Ground no.2 is on the issue of deletion of an addition made on account of notional interest income. This issue is covered in the assessee s own case vide the decision of the Jurisdictional High Court reported in 125 Taxmann.com 1094 Delhi, wherein the order of the Tribunal on this issue reported in 130 TTJ 388 (Delhi) was upheld. Respectfully following the same we dismiss this ground of Revenue. 15. Ground no.3 is on the issue of deletion of disallowance made by the AO u/s 14A. This issue is also covered by the order of the Tribunal in the assessee s own case for the AY 2000-2001, 2001-2002 wherein at paras 18 to 24 the Tribunal has held as follows. 18. The next common dispute relates to the order of the CIT(A) in sustaining the action of Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the purpose, object and purview of section l4A has no applicability to the profits and gains of an insurance business. 21. The learned Departmental Representative strongly justified the action Of the Assessing Officer and that of the CIT(A) in the light of the clear provisions of section 44A of the Act. 22. We have considered the rival contentions and gone through the records. The provisions of section 44 read as under: 44. Insurance business.-Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head 'Interest on securities', 'Income from house property', 'Capital gains' or Income from other sources', or in section 199 or in sections 28 to 438, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule. 23. The above provision makes it very clear that section 44, applies notwithstanding anything to the contrary contained within the provisions of the Income-tax Act relating to computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1999-2000. 10. The learned counsel for the assessee pointed out that in assessment year 1999-2000, the Tribunal vide order dated 25-7-2008 in ITA No.4565/Delhi/2002 has accepted the assessee's contentions, A copy of the said order of the Tribunal is placed at pp, 78 to 82 of the paper book. 11. The learned Departmental Representative, on the other hand, strongly justified the order of the CIT(A), in the light of his discussion in the impugned order. 12. We have carefully considered the rival contentions and gone through the records. The Tribunal in assessment year 1999-2000 has held that expenditure incurred for maintenance of the company's own guest houses is covered under section 30(a)( ii) of the Act. Therein the Tribunal accepted the plea of the assessee that in respect of the guest houses owned by the assessee, repair expenses will have to be allowed as deduction under section 30(0)(ii ) of the Act. Once the expenditure is allowable under section 30(0)(ii ), if the expenditure of incurred on repair and maintenance of guest house taken on lease should also be allowed. In the light of the aforesaid order of the Tribunal, we decide the matter, for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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