TMI Blog2018 (3) TMI 1891X X X X Extracts X X X X X X X X Extracts X X X X ..... , because it is non obstante provision wherein the income is to be computed as per P L account prepared under the Insurance Act 1938. Section 14A contemplates exception for deduction allowable under the act, whereas section 44 creates special application of provision of computation of profit as per the Insurance Act. Thus, no disallowance u/s 14A can be made. Premium paid on purchase of government securities was allowable as revenue expenditure on amortization - HELD THAT:- As relying on assessee own case [ 2015 (2) TMI 1323 - ITAT MUMBAI ] we hold that such an amortization claimed by the assessee as revenue expenditure is allowable. Accordingly, assessee s ground no.5 is treated as allowed. Disallowance u/s 40(a)(ia) - HELD THAT:- CIT(A) allowed the appeal of the assessee by observing that identical issue was decided in the earlier years and same was followed in the current year also. The case is also covered by the decision of Tribunal in the case of General Insurance Corporation of India [ 2009 (2) TMI 234 - ITAT BOMBAY-G ] in which it has been held that the provision qua deduction of TDS at source are not applicable on reinsurance commission and accordingly th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arguments of the Ld. A.R. on this issue. 6. Having heard the rival submissions of both the parties and perusing the material on record and also the decisions of the co-ordinate benches of the Tribunal, we find that the issue is squarely covered in favour of the assessee by the earlier decision of the co-ordinate benches of the Tribunal. The brief facts of the case are that the AO during the course of assessment proceedings noticed that the assessee has credited to the P L account of ₹ 27,98,000/- as deemed income and accordingly AO asked the assessee to explain as to why the same should not be added under section 69B of the Act in the light of similar addition made in the earlier assessment years. In response, the assessee prayed vide letter dated 22.03.13 wherein the assessee submitted that whenever shares are sold by them, the same are immediately reduced from their holding statement and necessary accounting entries are passed. However, the buyer of the shares takes the physical delivery of the shares from our customers and after taking delivery of the shares, the buyer has to take steps to get the shares transferred in his name. It happens sometimes that the buyer f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt u/s. 10(38) of the Income Tax Act, 1961.? 3. Whether on the facts and in the circumstances of the case and in law, ld. CIT(A) was justified in deleting the disallowance of expenses u/s. 14A without appreciating that the assessee was claiming benefits of exemption u/s. 10 despite the non-obstante provision of section 44 and hence, deleting the disallowance u/s. 14A amount to double relief to the assessee. 4.1 Whether on the facts and in the circumstances of the case and in law, ld. CIT(A) was justified in holding that the premium paid by the assessee on purchase of govt. Securities was allowable as revenue expenditure on amortization, without appreciating that under the I. T. A ct. 1961 amortization of such premium is not provided for. 4.2 Whether on the facts and in the circumstances of the case and in law, ld. CIT(A) was justified in holding that the premium paid by assessee on purchase of Govt. Securities was allowable as revenue expenditure without appreciating that such premium was capital in nature and hence, not allowable u/s. 37of IT. Act. 1961. 5. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CJT(A). The computation of taxable profit of an insurance company is governed by specific provision as given in section 44, read First schedule to the Income-Tax Act. Under the said scheme, only such adjustment can be made to the profits as disclosed in the annual accounts drawn under the Insurance Act, 1938, which are specifically provided under Rule 5. Prior to 01.04.1989, Clause b to Rule 5 read 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. Such a provision was omitted by Finance Act, 1988, w.e.f. 01.04.1989. The notes and clauses to the Finance Act and the CBDT circular clarified that, it was omitted to provide exemption of the profits earned by the General In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground no. 2 as raised by the assessee is allowed. 14. Accordingly, in order to maintain consistency with the decision of the Tribunal, we hold that the profit on sale of investments cannot be taxed as the amendment by the Finance Act is effective from A.Y. 2011-12 onwards and not prior to that. The grounds no 1 and 2 raised by the revenue are dismissed. Ground No.3 15. The issue raised in ground No.3 is against the deletion of disallowance under section 14A read with rule 8D without appreciating the fact that the assessee was given the benefit of exemption under section 10 of the Act. 16. The Ld. A.R., at the outset, submitted that the issue involved in the present ground is covered in favour of the assessee by the decision of the Tribunal in the earlier years. and therefore prayed before the Bench that by following the same, this ground may be decided in favour of the assessee. 17. The Ld. D.R. appeared to be fairly agreed to the contention of the Ld. A.R. 18. We have perused the decisions of the Tribunal in ITA No.3562/M/2007 and ITA No.3180/M/2009 for A.Y. 2006-07 2007-08 wherein the Tribunal has decided the issue in favour of the assessee. The relevant ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of carrying of its insurance business, is required to invest its fund in specific debts securities of government or PSU bonds or other securities in accordance with the Insurance Act, 1938 and IRDA regulations. The assessee has purchased securities at a price which was slightly higher than the face value of the security because of accumulated interest on such securities According to the terms of issue of the securities, the assessee was to get only the face value at the time of redemption or maturity. IRDA regulation prescribes, the accounting principle for preparation of financial statement, whereby the assessee is required to prepare the financial statements in the manner provided in the said regulation. The said regulation read with relevant rules given in the schedules therein, provides that debts securities including, Government securities shall be considered as held to maturity and shall be measured at historical cost subject to amortization. This IRDA regulation are binding on the insurance companies. The Tribunal in the case of Tata AIG General Insurance Company Ltd. has dealt this precise issue in detail after analyzing the relevant provision and the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me words being present in the amended sub-rule, they have to be given the same meaning as was given by the Supreme Court. Therefore, even if the debit for amortization is considered as an expenditure or allowance, there being so specific prohibition against the expenditure or allowance in section 30 to 438, the departmental authorities were not justified in adding back the amount of the balance of the profits. The judgment of the Supreme Court in the case of General Insurance Corporation of India (supra) takes care of all the arguments advanced on behalf of the Revenue. We, therefore, delete the addition of ₹ 1,91,33,945/- and allow the first ground. Since, no contrary decision have been brought to our notice, therefore, respectfully following the same, we hold that such an amortization claimed by the assessee as revenue expenditure is allowable. Accordingly, assessee s ground no.5 is treated as allowed. 24. Following the decision of the Tribunal, we hold that the premium paid by the assessee on purchase of government securities is liable to be amortized and amortization claimed by the assessee is revenue expenditure and is allowable. The ground raised by the Revenue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has raised additional ground that the provisions of section 115JB has no application to the assessee. 19. Before us, learned counsel submitted that this issue is squarely covered by various decisions of the Co-ordinate Benches in the case of General Insurance Corporation and other decisions. Ld. DR also admitted that this issue is covered by various decisions of the Tribunal as filed by the assessee. 20. After considering the decisions in the case of General Insurance Corporation and other decisions filed by the learned counsel, we find that the issue of non-applicability of MAT u/s 115JB to the General Insurance Company has been upheld. Even otherwise also the provision of MAT will only come into play, only when assessee prepares its P L account in accordance with part (II) and part (III) of Schedule (VI) of the Companies Act. Since the assessee s P L account is prepared in accordance with Insurance Act 1938, as specifically provided in Section 44 read with First schedule, therefore, the provision of section 115JB will not apply in case of assessee. This has been held in the case of General Insurance Corporation in ITA No.3554/Mum/2011 order dated 05.02.2012 and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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