TMI Blog2023 (7) TMI 898X X X X Extracts X X X X X X X X Extracts X X X X ..... in Financial Year 2009-10 have been placed on record by the assessee. The AO has, however, failed to take the same into consideration. We are, therefore, inclined to set aside this issue to the records of the AO for a de novo verification Accordingly this ground raised by assessee stands allowed for statistical purposes. Disallowance being provisions made for standard assets - HELD THAT:- This Bench in assessee s own case for A.Y. 2011-12 [ 2023 (1) TMI 1202 - ITAT DELHI] has deleted the disallowance we find that there is no enabling mechanism in Rule 5(a) mandating an adjustment to disclosed profits by making an addition on account of provision made for Standard Assets - As under Rule 5 the Statute makes profit disclosed in Profit and Loss account sacrosanct, subject only do adjustments prescribed in Rules 5(a) to 5(c). The case law relied is, therefore, 'distinguishable. The Ld. CIT (A), in AY 2011-12, has also not properly addressed the issue. Relevant statutory provisions have been inadvertently misread and hence not properly understood. We therefore delete the disallowance - Decided in favour of assessee. Benefits u/s 44 qua Section 14A - HELD THAT:- It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on sale of investment. Interest income not provided as income. Disallowance of depreciation u/s 32. Disallowance u./s. 14A. Guest House Expenses. Provision for standard assets 3. Ld. AO made additions while following the earlier years and Ld. CIT(A) had given relief to the assessee in regard to the deletion of addition u/s 14A and deletion of 50 % disallowance on account of expenses incurred on guest house. Accordingly, Revenue is in appeal raising following grounds : 1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 49,51,26,420/- made u/s 14A of the I.T.Act by the AO. 2. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting 50% disallowance of Rs. 57,69,416/- on account of expenses incurred on Guest House made by the AO. 3. The appellant craves leave to, add to, alter, amend or vary from the above grounds of appeal at or before the time of hearing. 4. Assessee is in appeal raising following grounds 1. That on facts and in law the commissioner of income tax (appeals) {hereinafter referred to as CIT(A) } has erred in upholding an addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016 vide order dated 22.11.2022 had made following relevant observations while holding that assessee is entitled to claim benefit of exemption u/s 10(38) and Ld. AO was however directed to verify about status of STT payments :- 8. In regard to Ground No. 1, 1.1, 2, 2.1, 2.2 it was submitted that the primary question involved is whether assessee is entitled for making a claim u/s 10(38) of the Act. In this context it can be observed that the ld AO has classified the gains from transfer of long term capital asset being as part of the business activities of the assessee and accordingly denied exemption u/s 10(38) of the Act. 9. Ld. AR relied on the judgment of the Hon ble Bombay High Court in the case of General Insurance Corporation of India for Assessment Year 2006-07 (342 ITR 27) to contend that Hon ble High Court has held that exemption available to any other assessee under any clauses of section 10 is also available to General insurance business company subject to fulfillment of the conditions attached to the relevant provisions and it was submitted that assessee fulfilled both the conditions. Ld counsel relied on the judgment of the Hon ble Bombay High Court in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with provisions of section 44 read with Rules 5 of the First Schedule. The controversy raised by the ld AO is that the sale of investment does not qualify to be income from general insurance business therefore, section 40 of the Act is not applicable and the general section 28 of the Act will come into action. The ld AO has considered the investments of the assessee as stock in trade. However, in assessee s own case for AY 2005-06, reported in 407 ITR 658 (Del) Hon ble High Court has held such assets to be , floating assets and observed in para 25 to 29 as below:- 25. Section 27B (1) of the IA mandates that no insurer carrying on general insurance business shall invest or keep invested any part of his assets otherwise than in any of the following approved investments. These 'approved investments are set out in clauses (a) to (j) there under. Section 27B (4) states that an insurer shall not invest or keep invested any part of his assets in the shares of any one banking company or investment company to the extent of more than (a) 10% of his assets, or (b) 2% of the subscribed share capital and debentures of the banking company or investment company concerned, whiche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit or loss on realisation/sale of investment . This was said to be consistent with the international standards. 39. With the Assessee carrying on a general insurance business, it was bound by the provisions of the IA as well as the IRDA Regulations referred to hereinbefore. Even the CBDT, in its Circular No. 5/2010 dated 3rd June 2010, acknowledged that, after the introduction of the IRDA Regulations in 2002, non-life insurance companies are required to credit income from the sale of investments directly to the P L Account. This requirement, which would make the income so earned amenable to tax, was made applicable only from AY 2011-12. Prior to 1st April 2011, there was no provision which required the Revenue to disallow the deduction of loss on sale of investments. 40. As explained by the Supreme Court in CIT v. Karnataka State Cooperative Apex Bank (supra) in the context of Section 80 P (2) (a) (i) of the Act, where an entity is obliged to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business, then any income derived from funds so placed arises from the business carried by it and the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been held in a large number of cases including Navnitlal C. Zaveri v. K.K. Sen (supra) and CIT v. Milk Food Ltd. [2006] 280 ITR 331 (Del). 44. The ITAT itself has taken a consistent stand that the taxability of income in the case of insurance companies is not on commercial profits but on such profits as are computed in accordance with the provisions of the IA, subject to the permissible adjustments under the Act. In other words, the taxability of profits in the hands of the insurance companies is confined to profits in terms of annual accounts of such insurance companies drawn up in accordance with the IA. 13. The present case of the assessee is for Assessment Year 2011-12 and the ld AR admitted that as such the substituted Rule 5b w.e.f. 01.04.2011 or the circular No. 528 are not directly applicable therefore, rescue is taken of section 10(38) of the Act. However, in principle the Rule 5b and CBDT Circular 528 as interpreted in favour of the assessee in assessee s own case in 407 ITR 658 (Del), can be reasonably interpreted to hold that as the assessee is required to make investments within the statutory frame work of the Insurance Act and the IRDA guidelines. Also that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the scope of total income provided under Section 5 of the Act has to be read with Section 10 of the Act, which as part of Chapter III of the Act, falls under the heading incomes which do not form part of Total Income . So, in any case the income by way of Profits and gains of business which here in case of assessee means Profits and gains of insurance business , has to be arrived after giving benefit of exclusion of the incomes falling under Section 10 of the Act. That would include disputed exemption of section 10(38) of the Act1. 17. Even otherwise, the issue about applicability of provisions of section 10 of the Act in case of general insurance company stands decided in favor of insurance business companies and relevant observation in Max New York Life Insurance Co. Ltd V. DCIT 191 TTJ 897(Del) are as follows:- 97. Now coming to the additional ground taken by the assessee which relates to the claim of deduction by the assessee u/ 10 (34) in respect of dividend income, we noted that this issue is duly covered by decision of Mumbai Bench of this Tribunal in case of ICICI Prudential Insurance Company Ltd v ACIT 140 ITD 41 in which under para 47 while dealing wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinate Bench against Revenue in view of discussion under para 46 of the order of this Tribunal Mumbai Bench in case of ICICI Prudential (Supra), in which they have followed the decision of Delhi Bench in case of Oriental Insurance Co Ltd v ACIT 130 TTJ (Delhi) 338. No contrary decision for applicability of S. 10(34) S. 14A was brought to our knowledge. We accordingly allow the additional ground and dismiss the plea of learned DR that directions be given in case exemption is granted u/s 10(34) to disallow be expenditure u/s 14A of the Income Tax Act. 18. In ICICI Prudential Insurance Co. Ltd vs ACIT reported in 140 ITD 41 (Mum) it is held as under: 48. All the above three grounds are on the issue whether exemption under Sec 10 can be allowed when incomes are computed under Sec.44 of the IT Act. In arriving at the deficit from the insurance business, assessee claimed certain exempt incomes under section 10(23AAB) with reference to Pension Business and dividend under section 10(34). AO did not allow the amounts on the reason that these incomes are part of income of life insurance business and it is included as income by the actuary, therefore, they cannot be exempted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 38 of Section 10 and assessee challenged the issue by way of writ petition. The Hon'ble Bombay High Court not only disapproved the reopening of the assessment but gave the findings on merit also which are as under:- 11. Section 44 of the Income Tax Act, 1961 stipulates as follows: 44. 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 (43B), the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a cooperative society, shall be computed in accordance with the rules contained in the First Schedule . Section 44 provides that the profits and gains of any business of insurance of a mutual insurance company shall be computed in accordance with the rules in the First Schedule. Part 'A' of the First Schedule containing Rules 1 to 4 deals with profits of life insurance business while Part B consisting of Rule 5 deals with computation of profits and gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Corporation is that unless there are express provisions which disable the Corporation from claiming the deductions referred to above, the Corporation cannot be deprived of the benefit of the provisions referred to in the questions Nos. 1 to 6. Section 44, which deals with computation of profits and gains of business of insurance, begins with a non-obstante clause, the effect of which is that the provisions of the 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 , do not apply in the case of computation of income from insurance business. The effect of the non-obstante clause so far as the earlier part of section 44 is concerned, therefore, is that the provisions of section 44 will prevail notwithstanding the fact that there are contrary provisions in the Act relating to computation of income chargeable under the four heads mentioned in section 44. The only other overriding effect of section 44 is that its provisions operate notwithstanding the provisions of section 191 and of section 28 to 43A. Thus, the only effect of section 44 is that the operation of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llows: It is only after the profits and gains of a business are computed that any question of granting exemptions arises and if the latter stage were intended to be excluded by the law we should have thought that a clearer provision than is made in sub-section (7) of section 10 and in rule 6 would have been made . In the subsequent judgment of the Division Bench in Life Insurance Corporation (supra), the Division Bench noted that there was a difference in the language of section 10(7) of the Act of 1922 when compared with section 44 of the Act of 1961 since section 44 does not refer to the computation of tax but merely to the computation of profits and gains in the business of insurance. The Division Bench held that this would however not make any difference to the principle laid down by the Court in the earlier decision in the case of New India Assurance Co. Ltd. Accordingly, the decision of Life Insurance Corporation (Supra) could not have been ignored by the Assessing Officer on the supposition that the decision was rendered in the context of an assessee who carried on life insurance business and was, therefore, not available to an assessee which carries on general i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment under section 143(3) specifically relied upon the view taken by the CBDT in its communication dated 21 February 2006 to the Chairman of IRDA. The communication clarifies that the exemption available to any other assessee under any clauses of section 10 is also available to a person carrying on non-life insurance business subject to the fulfillment of the conditions, if any, under a particular clause of section 10 under which exemption is sought. It needs to be emphasized that it is not the case of the Assessing Officer that the assessee had failed to fulfill the condition which attached to the provisions of the relevant clauses of section 10 in respect of which the exemption was allowed. This of course is apart from clause (38) of section 10 where the Assessing Officer had rejected the claim for exemption in the original order of assessment under section 143(3). The Assessing Officer above all was bound by the communication of the CBDT. Having followed that in the order under section 143(3) he could not have taken a different view while purporting to reopen the assessment. Having applied his mind specifically to the issue an having taken a view on the basis of the communicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar relief and similar directions have been issued in earlier years. 6.3 Again in assessee s own case for A.Y. 2011-12 this Bench has remanded the matter back to the AO with following relevant findings: 20. In regard to ground No. 3 and 3.1, the admitted state of affairs is that in assessee s own case for Assessment Year 2010-11 in ITA No. 4535/Del/2016 vide order dated 30.06.2021 the issue has been restored to the file of the ld AO with following findings in para 9 and 9.1:- 9.0 We have carefully perused the orders of the lower authorities and the material available on record. It is seen that similar issue arose before this Tribunal in the case of the assessee for AY 2007-08 in ITA No. 5796/Del/2015. Vide order dated 12th January 2018, the coordinate bench of this Tribunal held as under: 6.8 As we compare the factual position prevalent during assessment year 2000-01 and 2001-02 based on which the Tribunal confirmed the disallowance of depreciation, we observe that it was so decided because assessee failed to furnish relevant information before the Assessing Officer along with Audit Report. Facts of the present assessment year are different as Ld. AR sufficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4 of the appeal, the assessee is aggrieved by the action of the AO in making a disallowance of Rs 56,59,609/- on account of Provision made for Standard Assets. In this regard, in the order of assessment, it has been held by the AO as under: During the year under reference, the assessee has made a provision for standard assets of Rs.56,59,609/-. When asked to explain as to why the same should not be allowed, the assessee made the following submission: As per IRDA s CIRCULAR NO.32/F A/Circulars/169/Jan/ 2006-07 dt.24.01.2007, Standard Asset is defined as under: Standard asset is one which does not disclose any problem and which does not carry more than normal risk attached to the business. Such as asset is not an NPA. As per the same circular, the insurer should make a general provision on Standard Assets of a minimum of 0.40 per cent of the value of the asset. The change in provision from last year is taken to P L A/c. 10.2 The reply of the assessee has been perused and carefully considered. As per the assessee s own submission standard asset does not disclose any problem and does not carry more than normal risk and is not an NPA. The provision for st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 15 of the assessment order, the standard asset is one which does not disclose any problem and which does not carry more than normal risk attached to the business and such assets is not on NPA. Therefore, the provision for Standard Asset is not even a provision for anticipated losses, referred to in the decision of the Apex Court reported in 291 ITR 370, as the provision in that case, was for bad and doubtful claims, I.e., an anticipated loss. In view of the same, even without considering the amendment to rule 5 and 5(a) w.e.f., 01.04.2011, the facts in the case of the appellant are distinguishable from the two decisions of the Apex Court, relied upon by the appellant. Moreover, since the Act has been amended w.e.f., 01.04.11, the provision for Standard Asset is to be added back even otherwise, in view of amended provision. Consequently, ground no. 7 of the appeal is dismissed. 10.2 Before us it was submitted by the Ld AR that the lower authorities have erred in making/sustaining the disallowance. In this regard it was submitted by the Ld. AR that the total income of the assessee is to be computed as per provisions of section 44 read Rule 5 of Schedule 1. It was submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the business of the assessee insurance company. The assessing officer cannot make any adjustments in the profit of the assessee s business when they are calculated in accordance with the rules contained in first schedule. Reliance can be placed on the judgment of Delhi High Court in the case of assessee reported in (2002) 125 taxman 1094 (Delhi). In assessee s own case for A.Y. 2000-01, 2001-02 co-ordinate Bench in ITA No. 5462, 5463/Del/2003 have held that in the light of aforesaid provisions of Section 44 of the Act there is no requirement of head wise bifurcation while computing the income u/s 44 in the case of insurance company. Thus, provisions of Section 14A are not relevant to make a disallowance. The findings of Ld. CIT(A) require no interference. The ground is decided against the Revenue. Ground no. 2 8. The issue is squarely covered in assessee s own case for A.Y. 1999-2000, 2001-02, 2005-06, 2007-08, 2010-11 and 2011-12. No distinguishing fact is argued on behalf of the Ld. AO. The ground is decided against the Revenue. 9. In the light of aforesaid, the appeal of Revenue is dismissed and of assessee is allowed partly. Order pronounced in the open co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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