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TMI Blog2016 (2) TMI 1054X X X X Extracts X X X X X X X X Extracts X X X X ..... No.606/Kol/2012 (A.Y.2005-06) : 3. The only ground raised by the revenue in this appeal reads as follows :- "1. That on the facts and circumstances of the case, Ld. CIT(A) erred in law deleting the addition of Rs. 245,09,18,028/- being the profit on sale of investments made by the assessee. The order of the CIT(A) should be cancelled and the order of the Assessing Officer should be restored. 4. As can be seen from the grounds, the revenue has objected to the decision of the CIT(Appeals) in deleting the addition of Profit on Sale of Investments (Rs.245,09, 18,028). 5. The Assessee is a company engaged in business of insurance other than life insurance. In view of the fact that the assessee is in the Business of Insurance other than Life Insurance, it's income had to be in accordance with section 44 of the Income Tax Act, 1961 (Act) read with Rule 5 of the First Schedule to the Act. The AO therefore has limited power as regards making additions or disallowances. In the above-referred Rule 5 of the First Schedule, for and up to the Assessment Year 1998- 99 there had been a specific requirement of treating the gains on the realisation of the investments as part of Business Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent years." 6. Before it's omission with effect from 1.4.1989. clause (b) of Rule 5 stood as under:- "(b) any amount either written off or reserved in the accounts to meet depreciation 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 depreciation of or loss on the realization of investment." 7. On the basis of the amendment as clarified by the CBDT, the Assessee in its Return had claimed exemption of the Net Profit on Sale of Investments of Rs. 245,09,18,028. 8. The AO however held that if the provisions of clause (b) of rule 5 of Part B of Schedule I to the Act puts taxation of income of an insurance company within the parameters of clause (a) & (c ) of Rule-5 of Part B Schedule-I to the Act. For the sake of ready reference, the relevant Rule-5 (a) & (c ) are reproduced hereinbelow: "The First Schedule B.-Other i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r none of these three Assessment Years the Income-tax Department went on to Appeal before the ITAT. It was also submitted by him that excepting this Assessment Year 2005-06 and the subsequent year, viz., 2006-07, in all the Assessment Years the AO had accepted the respondent's claim that Profit on Sale of Investments could not be included in the respondent's total income. Copies of the relevant Orders of the Hon'ble ITAT and the CIT(Appeals) have been furnished in the Paper Book filed in respect of the Appeal for the Assessment Year 2006-07 (ITA No.6751KJ12). 13. We have considered the rival submissions. In view of the fact that the assessee is in the Business of Insurance other than Life Insurance, it's income had to be in accordance with section 44 of the Income Tax Act, 1961 (Act) read with Rule 5 of the First Schedule to the Act. The AO therefore has limited power as regards making additions or disallowances. The amount of profit, as disclosed by the P&L a/c drawn as per the Insurance Act, shall be taken as an initial point. Such amount of profit shall be increased by the amounts which are not admissible under the provisions of ss. 30 to 43B in computing the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No.1 raised by the revenue reads as follows :- "1. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in holding that a sum of Rs. 534.08 crores being the profit on sale of investments is not taxable. Reasons given by the CIT(A) are not tenable on the facts of the case and in law." 17. This ground is identical to the ground raised by the revenue in ITA No.606/Kol/2012 for the reasons given while deciding under similar ground of the revenue for A;.Y.2005-06. We dismiss ground no.1 raised by the revenue. 18. Ground No.2 raised by the revenue reads as follows :- "2. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in holding that the A.O. was not justified in making disallowance of Rs. 30,28,25,750/- u/s 14A of the Act read with Rule 8D of the Income tax Rules. On proper appreciation of the facts of the case and correct construction of law, CIT(A) should have upheld the disallowance made by the A.O." 19. The Assessee in its Return claimed Exemption of two sums of Rs. 1,66,04.042 and Rs. 107,65,70,000 being Interest on Tax Free Bonds and Dividend from Domestic Companies respectively and the Assessee's claim was accepted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Dy. CIT [2010J 328 ITR 87(Bom) has meanwhile held that Rule 8D could not be considered as retrospective and the said Rule could be applied only with effect from the Assessment Year 2008- 09. Further, the Bombay High Court also observed in the above-referred case that the Assessing Officer would first be required to check the concerned assessee's offer of disallowance and only after recording his dissatisfaction, if any, the Assessing Officer could commute the amount to be disallowed in accordance with sub-section (2) of section 14A. The Assessee submitted that the above-referred sub-section (2) of section 14A was inserted by the Finance Act, 2006, with effect from the Assessment Year 2007-08. It was pointed out that the Assessee's case being for the Assessment Year 2006-07, there cannot be any applicability of the above-referred sub-section (2) of section 14A in the Assessee's case for the Assessment Year 2006-07. Hence, the Assessee submitted that the computation of alleged disallowable sum of Rs. 30, 28,25, 750 made by the Assessing Officer after applying Rule 8D, should be held to bad. 21. Without prejudice to the above, the Assessee submitted that while computing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied Rule 80. 20. The appellant is a general insurance company and does not take money on interest as in the case of Banks; NBFCs and other corporate assessees. The appellant has invested its surplus funds into the investments which have grown in value over the period of time. The appellant has submitted the calculation of disallowance offered by it amounting to Rs. 1 ,00,69,998/- which is given as below:- "The details of Expenses incurred during the F. Y. 2005-06 (A. Y. 2006-07) related to Investment activities: Sr. No. Head of Expenses Amount Rs.. 1. Legal Expenses 3.532 2. Share Transfer Expenses 1,43,878 3. Safe Custody Charges 1,23,16,950 4. Bank charges 38,250 5. Service charges 24,24,080 6. OCTL Charges (software) 1,94,694 7. Depreciation 7,157 8. Sundry Debtors written off 65,625 9. Miscellaneous Expenses 7,834 Total 1,52,18,000 "The details of Investments on which Exempted Income received : Head of Investments Cost As on 31.3.2006 Cost As on 31.3.2005 Rs. Rs. 1. Unit Trust of India-64 Bond 35,03,435 35,62,803 2. Preference shares 14,76,387,474 14,88,77,070 3. Equity shares 640,87, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect from the Assessment Year 2008-09. Further, the Bombay High Court also observed in the above-referred case that the Assessing Officer would first be required to check the concerned assessee's offer of disallowance and only after recording his dissatisfaction, if any, the Assessing Officer could commute the amount to be disallowed in accordance with sub-section (2) of section 14A. The abovereferred sub-section (2) of section 14A was inserted by the Finance Act, 2006, with effect from the Assessment Year 2007-08. The Assessee's case being for the Assessment Year 2006-07, there cannot be any applicability of the above-referred subsection (2) of section 14A or Rule 8D in the Assessee's case for the Assessment Year 2006-07. In the given circumstances, the quantum of disallowance had to be decided in the light of the decisions rendered by the ITAT Kolkata Benches in the cases referred to by the CIT(A) in the impugned order. In those decisions, the ITAT, Kolkata Benches have consistently taken a view that 1% of the exempted income/dividend shall be considered as expenses/expenditure relating to the earning of exempted income u/s 14A in the assessment years where the rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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