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TMI Blog2025 (4) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments of Rs. 183,11,32,413/- by the Appellant to Auto Dealers and ought to have held that the entire sum of Rs. 183,11,32,413/-was allowable to the Appellant." Revenue's Appeal 1. Whether on the facts and circumstances of the case and in law, the Ld.CIT (A) was justified in holding that the profit on sale of investments has to be taxed as Income from Capital Gain and not Income from Business. 2. Whether on the facts and circumstances of the case and in law, the Ld.CIT (A) erred in holding that income of Rs. 954,56,33,686/- is exempt u/s 10(38) of the I.T. Act, 1961. 3. Whether on the facts and circumstances of the case and in law, the Ld.CIT (A) has erred in not appreciating the fact that the amount of disallowance u/s 14A of the I.T. Act, 1961 has to be computed as per Rule 8D of I.T. Rules, 1962 when the computation of the assessee was not found to be correct and as held in the order of the Hon'ble High Court in the case of M/s. Godrej & Boyce Manufacturing Co. Ltd. 4. Whether on the facts and circumstances of the case and in law, the Ld.CIT (A) has erred in holding that the premium paid by the assessee on purchase of Government Securities, on Amortisation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee. On further appeal the CIT(A) confirmed the addition. 4. We heard the parties and perused the material on record. The ld AR during the course of hearing fairly conceded that the impugned issue is already considered by the coordinate bench in assessee's own case in ITA No. 3562/Mum/2007 for AY 2006-07 where it is decided against the assessee. We notice that the coordinate bench while considering the identical issue for AY 2016-17 has observed that - 28. After hearing both the parties, we find merit in the reasoning given by the AO as well as Ld. CIT(A) because taxed paid do not qualify as expenditure for the purpose of business and entire gross dividend should have accounted for in the P&L account. Thus Ground no. 5 is treated as dismissed. 5. There is no change to the facts pertaining to the issue for the year under consideration. Therefore respectfully following the above decision we see no reason to interfere with the decision of the CIT(A) in this regard. The ground raised by the assessee is dismissed. Ground No.2 - Disallowance of payment made to auto dealers 6. During the course of assessment proceedings, the AO has received information from A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cost incurred in this regard. The ld AR drew our attention to the copies of invoices raised towards the services rendered by the auto dealers (page 7 to 27 of PB). The ld. AR argued that the contention of the Revenue that the assessee has incurred the expenses against the IRDA regulations is not correct. The ld AR further argued that as per the IRDA guidelines dated 1st February 2011, the IRDA has specifically sanctioned outsourcing of non-core activities and that the services rendered by the auto dealers fall within the purview of non-core activities. The ld AR also argued that as per the IRDA regulations, the non-core activities are to be reported periodically and that the assessee has been submitting reports to IRDA (page 25 of PB) which contain the details of payments made to auto dealers towards the services rendered. It is submitted by the ld AR that the sole basis for making the disallowance is the allegations made against the assessee by the service tax authorities and the statement recorded by the service tax from the auto dealers. It is further submitted that similar allegations made by the service tax authorities against other general insurance companies such as ICICI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties by Insurance Companies issued by IRDA dated 1st February 2011, wherein it is stated that certain activities which support the core activities may be outsourced as per risk management principles outlined in the said guidelines. The relevant extract of the guidelines are as given below: "2. CORE ACTIVITIES 2.1 All activities relating to:- i. Underwriting, ii. Product design and all Actuarial functions and Enterprise wide Risk Management iii. Investment and related functions iv. Fund Accounting including NAV calculations v. Admitting or Repudiation of all Claims vi. Bank Reconciliation vii. Policyholder Grievances Redressal viii. Approving Advertisements ix. Market Conduct issues x. Appointment of Surveyors and Loss Assessors xi. Compliance with AML, KYC etc. xii. All integral components of the above activities shall be treated as Core Activities 2.2 Policy Servicing and related activities 2.3 Insurers shall not outsource any of the core activities listed in para 2.1. 3. NON CORE ACTIVITIES: i. Facility management i.e. Housekeeping, Security, Catering, etc. ii. PF Trust iii. Internal audit, Internal/branch/concurrent audit etc. (Note: Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stance International travel and medical assistance services Global repricing Refer 4.1 of the Circular Refer 4.2 of the Circular 2. Premium Collection Printing of receipt Dispatch Data entry of details Issuance of receipt Collection by RBI approved banks, institutions, business correspondents of banks Government, private partnerships like AP Online, e-mitra, e-seva, MP Online etc. Government offices like Post office Payment aggregators eg VISA, Mastercard, Bill desk, payments through RBI approved gateway RBI Cleared Payment Collectors, e.g ECS Licensed Insurance Intermediaries, which includes agent / micro insurance agent/ corporate agent/Broker who are authorized and who himself procured the policies related to the premium being collected. 3 Cheque pick up and Banking * Picking up from policyholder premises * Drop box * Picking up from acceptance points Cash management services of banks Picking up arrangement with couriers, Post office, Drop box 4. Data Storage Scanning Indexing Physical storage of documents 10. From the combined perusal of the above guidelines and the nature of services rendered by the auto dealers, it is clear that the services rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee is partly allowed. ITA 3150/MUM/2018 - Revenue's appeal Ground No.2 - Profit on Sale of Investment of Rs. 954,56,33,686/- exempt under section 10(38) 13. The assessee during the year has earned long term capital gain (LTCG) of Rs. 954,56,33,686 and the same is claimed as exempt under section 10(38) of the Act. The AO denied exemption under section 10(38) of the Act on the ground that the assessee's income is computed under section 44 of the Act read with First Schedule which is special regime applicable to the insurance companies for computation of total income and that entire income earned by insurance companies, including income taxable under House property, capital gains and income from other sources are taxed as business income. The AO further held that the exemption under section 10(38) of the Act is available only to income which chargeable under the head "capital gains", the assessee would not be eligible to claim exemption under section 10(38) of the Act. 14. The ld. AR at the outset submitted that the impugned issue stands decided in favour of the assessee by the decision of Bombay High Court in assessee's own case for AY 2006-07. The ld AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er assessee under clause 10(38) relating to long term capital would also be available to a person carrying on non-life Insurance business. Mr. Suresh Kumar very fairly states that the CBDT communication dated 21 February, 2006 addressed by the CBDT to the Chairman IRTA as well as the decision of this Court in GIC (supra) would be binding upon the Revenue. 10. In view of the above, the question as framed does not give rise to any substantial question of law." 16. We also notice that the coordinate bench while considering the similar issue in assessee's own case for AY 2007-08 has held that - "9. We have heard the rival submissions and also perused the relevant finding given by the AO as well as Ld. CIT(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 mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se may be, if such gain or loss is not credited or debited to the profit and loss account; (ii) any provision for diminution in the value of investment debited to the profit and loss account, shall be added back;" This has been clarified by Finance Act that the amendment will be effective from A.Y. 2011-12 onwards. Thus, it is amply clear from the legislative intent that, prior to 01.04.2011, adjustment of such a gain on realization of investment cannot be added. This aspect of the matter have been dealt extensively and upheld by the Co-ordinate Benches of the Tribunal which have been referred to the learned counsel. Accordingly we hold that profit on sale of investment cannot be taxed. Thus, ground no. 2 as raised by the assessee is allowed." 17. The facts for the year under consideration being identical, respectfully following the above decisions of the Hon'ble High Court and the coordinate bench, we see no infirmity in the decision of the CIT(A). Accordingly ground raised by the revenue is dismissed. Ground No.3 - Disallowance under section 14A 18. The assessee for the year under consideration has earned an exempt income of Rs. 1317.75 crores and the AO by invoking se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring to the order passed by the Tribunal for the A.Y. 2010-11 in ITA. No 5013/Mum/2015 dated 28.03.2018. Ld. Counsel for the assessee submits that identical issue came up before the and the Tribunal dismissed the appeal of the Revenue following the earlier year's orders of the Tribunal wherein it has been held that no disallowance u/s. 14A of Act can be made. 8. Ld DR fairly submitted that this issue has been decided in assessee's favour in earlier years. However, he supports the order of the Assessing Officer. 9. Heard both sides, perused the orders of the Authorities below and the decision of the Tribunal in assessee's own case. We observe that the Tribunal while disposing of the appeal of the Revenue for the A.Y. 2010-11 in ITA.No. 5013/Mum/2015 dated 28.03.2018, held as under:- "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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A), who in our considered view had rightly vacated the disallowance of Rs 13,05,70,512/- made by the A.O u/s 14A r.w Rule 8D, uphold his order to the said extent. The Ground of appeal No. 3 is dismissed." 20. For the year under consideration, the revenue did not bring any new material on record for us to controvert the above decision of the coordinate bench. Accordingly we see no reason to interfere with the decision of the CIT(A). The grounds the revenue is hereby dismissed. Ground No.4 & 5 - Amortization of Premium on Securities 21. The assessee in the 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. The assessee during the year under consideration has claimed the amount of Rs. 652,39,452 as amortization of the premium paid on purchase of investments of securities over and above cost of acquisition which is amortised over the residual period of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking the example given above further, the assessee was required to show the value of the security in its Balance Sheet at 1,003/- which was the historical cost and the difference between the face value of 1,000/- and the historical cost of Rs. 1,003/-, namely, 3/- was to be amortized. The amortization naturally was to be for a period from the date of purchase of the security and the date of maturity. For example, if the debt security was to mature in five years and the assessee had acquired it after two years from the date of issue, there will still be three years remaining for its maturity. In the example given above, the excess of '3/- paid by the assessee was to be amortized over the remaining period of three years. The basis behind this Rule, in our humble understanding, is to value the investment only at its face value which is what the assessee would get at the end of the period and any excess paid over the face value while acquiring the security though will have to be shown as part of the cost, but still would have to be amortized over the remaining period till the maturity of the security so that the excess paid is properly accounted for and also the true picture is sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of an event is not expenditure. If this meaning is to be given to the word "expenditure" occurring in rule 5(a)- the amortization claim cannot be considered as expenditure and, therefore, cannot be added back to the balance of the profits. In General Insurance Corporation (of India vs. CIT (1999) 240 ITR 139 (SC). the Supreme Court held that even if an item of debit is considered as an expenditure, it should further be such an expenditure contemplated in sections 30 to 43A and, therefore, unless there was a specific prohibition for such an allowance, the departmental authorities would not be justified in. adding back the amount under rule 5(a\., Therefore, even if the debit for amortization is considered as an expenditure, there is no specific prohibition against allowing such an expenditure under the provisions of sections 30 to 43B. The words "expenditure or allowance...... Which is not admissible under the provisions of sections 30 to 438" appearing in the sub-rule has been explained by the Supreme Court to mean that there should be a specific prohibition against the expenditure or allowance in which case alone the Assessing Officer can add back the same to the balance of p ..... 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