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2016 (2) TMI 157 - ITAT MUMBAI

2016 (2) TMI 157 - ITAT MUMBAI - TMI - Addition being recoveries from abroad - CIT(A) deleted the addition - Held that:- In this case, the amount of ₹ 5.04 crores was received by the assessee from the foreign Central Banks and was classified in the Balance sheet as a "liability" which was as in accordance with the accepted accounting practice followed by the assessee right from the earlier years. The assessee has held the amount as a "trust" that is in fiduciary capacity on behalf of the e .....

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ng the exporters has paid back the substantial amount which were collected on their behalf and whatever amount could not be identified, the same has been offered as an income in that year. Thus, the whole of the amount has now been accounted for and income has also been offered by the assessee in the assessment year 2009-10. On these facts, we do not find any reasons to deviate from the finding and the direction given by the CIT(A). - Decided against revenue

Disallowance of deduction .....

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y which is required to be paid every year, therefore, the same is allowable as a 'deduction' while computing the income of the assessee in this year, even if the said payment has been made in the subsequent year, because the said expenditure has definitely accrued to the assessee in the year under consideration. Thus, the finding given by the CIT(A) on this score is upheld.- Decided against revenue

Expenditure incurred on Antivirus software and switches treated as capital expenditure .....

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during nature to the assessee, as these required periodical updation and constant improvement from time to time. In the decisions cited by Ld. Counsel it has been consistently held that such an expenditure on softwares is nothing but revenue in nature.- Decided against revenue

Disallowance u/s 40A(9) being amount paid to Employees Recreation Club - CIT(A) deleted the addition - Held that:- This issue had come up for consideration before the Tribunal in AY 2006-07, wherein the Tribunal .....

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ded in favour of assessee by way of remand

Disallowance u/s 14A r.w. Rule 8D(2)(iii) - overriding effect - Held that:- The assessee company is engaged in the business of General Insurance and under the specific provisions given in the Income-tax Act, its income has to be computed strongly in accordance with section 44 r.w. First Schedule. It is a non obstante clause having overriding effect over the other provisions contained in the Act. For making a disallowance of any expenditure or .....

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s binding on the AO and there is no power to tinker with such an account.Thus, when the income of the assessee as well as the expenditure are governed by specific provision which have an overriding effect, then it is not open for the AO to invoke the other provisions of the Act for carrying out the disallowance or adjustment in the income. Thus, we hold that, no disallowance u/s 14A can be made in the case of the assessee - Decided in favour of assessee - ITA No. 1971/Mum/2011, CO No. 210/Mum/20 .....

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n the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of ₹ 5,04,24,000/- to the total income being recoveries from abroad during the relevant previous year without appreciating that assessee had already claimed expenditure relating to such receipt in earlier years'. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of ₹ 12,00,000/- claimed as deduction on account of estimated expe .....

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the disallowance of ₹ 10,00,000/- u/s 40A(9) of the I.T. Act being amount paid to Employees Recreation Club". 2. The assessee is a public sector undertaking fully owned by Government of India. It is mainly engaged in the business of Insurance of Export Credit Risk of exporters in India and extending difference types of insurance / guarantee covers to the banks and financial institution in India for facilitating the credit facilities to the exporters. Being in the business of insurance .....

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im on the assessee company. The assessee then settles the claim upto 90% of the gross invoice value and steps into the shoes of the exporter and makes efforts to realize the export proceeds. In the case of countries such as Uganda, Nigeria, Zambia and other African countries, the amounts remitted by the importers towards export dues of the Indian Exporters is blocked by the Central Bank of such countries in view of inadequate foreign exchange, then the assessee company negotiates with these Cent .....

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cation of the exporters and ascertainment of their respective shares. The assessee company reflects such amount in the Balance sheet under the head "current liabilities" as "unapportioned claim recovery". During the previous year, the assessee has received sum of ₹ 504.24 lakhs representing amounts received from foreign countries as recovery against the claims paid. The said amount was not included in the income on the ground that amount received could not be apportione .....

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income side of the profit & loss account. In this case, the receipt of the payment by the assessee is not disputed and the corresponding expenditure has already been debited to the profit & loss account. Thus, receipt of the sum by the assessee belongs to it and hence it is liable for taxation in the year of receipt, as it is a revenue receipt. Accordingly, he held that the entire receipt of ₹ 504.24 lakhs is taxable in this year. He also rejected the assessee's contention that .....

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in that year. Such a practice has been followed by the assessee corporation and all along it has been accepted by the Department. Thus, he deleted the addition subject to the verification by the AO regarding the amount paid to the exporters and the income offered by the assessee in assessment year 2009-10. 5. After considering the rival submissions and on perusal of the relevant finding given in the impugned order, it is an undisputed fact that the assessee being a General Insurance Company, it .....

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profits and gains of any business of insurance shall be taken to be the profits disclosed in the annual accounts. Such profits are only subject to any expenditure that are disallowable under sections 32 to 43B. Thus, the AO is bound to accept the profits as shown in the audited accounts and such profit can only be adjusted in respect of expenditure allowances that qualifies for disallowance under sections 32 to 43B. Here in this case, the amount of ₹ 5.04 crores was received by the assess .....

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dance with the provisions contained in section 44 read with first schedule, such an adjustment by the AO for taxing the income in this year is wholly untenable. Apart from that, the Ld. CIT(A) has categorically noted the fact that during the previous year relevant to the assessment year 2009-10, the assessee after identifying the exporters has paid back the substantial amount which were collected on their behalf and whatever amount could not be identified, the same has been offered as an income .....

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reimbursed to the 'General Body of Insurance Council'. 7. The assessee had made a provision for fees payable to General Body of Insurance Council (GBIC). In response to the show cause notice as to why the same should not be disallowed, the assessee submitted that it represents fees payable to GBIC and is not an estimated expense. The GBIC has been formed under the provisions of "Insurance Act", 1938 and all General Insurance Companies are the members of GBIC. This amount is to .....

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quent year. 8. Before us, the Ld. Counsel submitted that in accordance with the provisions of section 64A of Insurance Act, 1938 all the insurers carrying on the business of General Insurance in India have to constitute a body corporate by the name of "Insurance Association of India". Such an insurance association is to be administered by two councils as provided in section 64C. Section 64R provides that GBIC which is one of the council has the power to collect and levy the fees from i .....

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e Insurance Act itself and regulations thereof. Thus, such a payment definitely falls within the realm of revenue expenditure incurred by the assessee. Since this expenditure is an ascertained liability which is required to be paid every year, therefore, the same is allowable as a 'deduction' while computing the income of the assessee in this year, even if the said payment has been made in the subsequent year, because the said expenditure has definitely accrued to the assessee in the yea .....

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g decisions :- i. CIT v Asahi India Safety Glass Ltd. 347 ITR 329 (Del) ii. CIT v Amway India Enterprises 346 ITR 341 (Del) iii. CIT v Raychem RPG Ltd. 347 ITR 138 (Bom) 12. After considering the rival contentions, we agree with the finding given by the CIT(A), because here in this case, the expenditure has been incurred on antivirus software which is used in the operating system of the computer which in turn is for running of the business more efficiently. No capital asset of any enduring benef .....

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enue has challenged the deletion of disallowance of ₹ 10 lakhs made u/s 40A(9) being amount paid to the 'Employees Recreation Club'. 14. At the outset, the Ld. Counsel for the assessee submitted that this issue had come up for consideration before the Tribunal in AY 2006-07, wherein the Tribunal has directed the AO to examine the facts and if the expenditure is found to be in the nature of reimbursement then same should be allowed following the decision of Hon'ble High Court in .....

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, we will take-up assessee's Cross Objection, vide which following ground has been raised :- "1. The assessee being an insurance company, its income is to be computed under Sec. 44 of the Income Tax Act, 1961 r/w the First Schedule and Rule 5 of the First Schedule does not provide for any disallowance under sec. 14A of the Income Tax Act, 1961 and consequently the Ld. Commissioner of Income Tax (Appeals) erred in confirming the disallowance of ₹ 23,35,815/- made by the Assessing O .....

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the profit and loss account but claimed as exempt. The AO show caused the assessee as to why disallowance u/s 14A r.w. Rule 8D should not be made. In response the assessee submitted that, the assessee being an Insurance Company, its income has to be computed as per the provisions of 44 r.w. First Schedule and only the amounts which are not admissible under sections 30 to 43B will qualify for being added back to the income of the assessee. Thus, the provisions of section 14A will not apply to in .....

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, he held that 0.5% of the average investment for the purpose of disallowance cannot be said to be unreasonable. He also refer to the decision of CIT(A) in assessee's own case for the year 2004-05. 19. Before us, the Ld. Counsel submitted that, now in a series of decisions, the Tribunal in the case of General Insurance Companies have held that they are governed by 'specific provision' laid down in section 44, therefore, section 14A cannot be applied therein. On the other hand, Ld. DR .....

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