DCIT 3(2)(1), MUMBAI V. THE NEW INDIA ASSURANCE COMPANY LIMITED, MUMBAI

ITA 4634/MUM/2023

AI Insights

The case involves the New India Assurance Co. Ltd., which appealed against the penalty levied by the Assessing Officer (AO) under section 271(1)(c) following adjustments and disallowances confirmed by the Income Tax Appellate Tribunal (ITAT). The CIT(A) had deleted the penalty, a decision which the revenue challenged. The Tribunal examined whether the assessee had concealed income or furnished inaccurate particulars, ultimately deciding that the issues were debatable and the assessee's interpretations, though incorrect, were made in good faith and were capable of alternate interpretations.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 785716 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 18-12-2023
• Other Referred Cases: Tata AIG General Insurance Company Ltd. vs DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHOR DHULE
• Assessee Lawyers: FARROKH V. IRANI; BHAVIN SHAH
• Keywords: Question of law; Depreciation; Bonafide belief
• Section: 143(3); 263; 271(1)(c); 32; 234B; 43B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JM & MS PADMAVATHY S, AM I.T.A. No. 4634/Mum/2023 (Assessment Year: 2004-05) DCIT-3(2)(1), Room No. 608, 6th Floor, Aayakar Bhavan, M.K. Road, Mumbai-400020. Vs. The New India Assurance Co. Ltd. Central accounts, Taxation Department, New India Assurance Bldg., 87, Mahatma Gandhi Road, Fort, Maharashtra-400001. PAN: AAACN4165C Appellant) : Respondent) Revenue / Appellant by : Shri Kishor Dhule, CIT-DR Assessee / Respondent by : Shri Farrokh V. Irani, Adv. & Shri Bhavin Shah, AR Date of Hearing : 09.10.2025 Date of Pronouncement : 27.10.2025 O R D E R Per Padmavathy S, AM: This appeal by the revenue is against the order of the Commissioner of Income Tax (Appeals)/ National Faceless Appeal Centre (NFAC), Delhi [In short 'CIT(A)'] passed under section 250 of the Income Tax Act, 1961 (the Act) dated 21.10.2023 for Assessment Years (AY) 2004-05. The revenue raised the following grounds of appeal: Printed from counselvise.com 2 ITA No. 4634/Mum/2023 The New India Assurance Co. Ltd. “1. Whether on the facts and circumstances of the case in law the Ld. CIT(A) is correct in deleting the penalty u/s 271(1)(c) without appreciating the fact is that the Ld. ITAT has confirmed the Quantum additions made in both the grounds, citing reasons that the assessee is governed by Section 44 r.w. Rule 5 of the First Schedule and it does not allow the adjustment made by the assessee on both the grounds? 2. The Appellant craves leave to alter, amend,, and/or substitute the aforesaid grounds of appeal at the time of hearing 2. The assessee is a Public Sector Undertaking operating under the control of the Ministry of Finance (MOF), Government of lndia (GOl) and is engaged in the business of General lnsurance in and outside lndia. The assessee's return for AY 2004-05 was processed under section 143(3) of the Act assessing the income of the assessee at Rs.404,51,04,801 as against the returned income of Rs.42,56,49,964. Subsequently the CIT passed the revision order under section 263 directing the AO to consider the entire computation of the assessee afresh and frame the assessment de novo after considering the provisions of section 44 read with rule 5 of the 1st schedule of the Act. The AO passed the order under section 143(3) r.w.s. 263 of the Act on 29.12.2008 assessing the total income Rs. 5,22,17,85,380/-. Aggrieved the assessee filed further appeal before the CIT(A) who gave partial relief. On further appeal the Tribunal while passing order against the cross appeals filed by both the assessee and the revenue the tribunal confirmed the additions made with respect to (i) Pension and gratuity disallowed amounting to Rs. 47,57,56,200/- and (ii) adjustments made in respect of income and expenditure not relating to relevant financial year, amounting to Rs. 33,28,79,957/-. Subsequently the AO initiated penalty proceedings under section 271(1)(c). The assessee submitted before the AO that the assessee neither concealed the income nor filed inaccurate particulars. The assessee further submitted that the disallowances confirmed by the Tribunal are capable of alternate interpretation which is substantiated by the fact that the Hon'ble Bombay High Court has admitted the appeal filed against the order of the Printed from counselvise.com 3 ITA No. 4634/Mum/2023 The New India Assurance Co. Ltd. Tribunal. The assessee also submitted that where more than one view is possible penalty cannot be levied. The AO did not accept the submissions of the assessee and proceeded to levy penalty by holding that – 7. The submissions of the assessee have been considered, the orders of the Hon'ble ITAT No. 3846/Mum/2008 dated. 29.07.2011 and ITA No. 3400/Mum/2011, ITO NO. 4059/Mum/2011 dated. 20.02.2015 have been perused. The basic tenet contemplated by the Hon'ble ITAT was that Insurance companies [other than life insurance] have to be governed vide section 44 r.w. rule 5 of the First schedule of the Income Tax Act. If issues are beyond the purview of section 44 r.w. Rule 5., of the First schedule then the same cannot be allowed. This basic tenet propounded by the Hon'ble ITAT to be followed by Insurance companies as contemplated in section 44 r.w. Rule 5 of First schedule does not require much skills to be understood. Hence, the contention of the assessee that to adhere to section 44 r.w. Rule 5 of the first schedule is a complicated task involving various interpretations cannot be accepted. The assessee has failed to adhere to the basic tenet of section 44 r.w.Rule 5 of First schedule of IT Act. and interpreted it as per its convenience, and has filed inaccurate particulars of income leading to escapement of correct income. 3. Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) deleted the penalty stating that none of the orders passed in assessee's case on the impugned issues allege any misinterpretation, illegal claim or suppression of receipts on the part of the assessee. The revenue is in appeal against the order of the CIT(A) deleting the penalty. 4. The Ld. DR submitted that the tribunal has confirmed the disallowance made by the AO stating that the claim of the assessee in the return of income is not in accordance with section 44 read with rule 5. The Ld. DR further submitted that the assessee therefore cannot claim bona fide intention since the assessee being an insurance company is bound by the above provisions of the act. The Ld. DR also submitted that the assessee cannot claim ignorance of the provisions under the act and therefore cannot claim unintentional error in the computation of income. The Printed from counselvise.com 4 ITA No. 4634/Mum/2023 The New India Assurance Co. Ltd. Ld. DR argued that since the assessee has filed the return not in accordance with section 44 read with rule 5 the assessee has filed inaccurate particulars and accordingly the penalty has been rightly levied by the AO. 5. The Ld. AR on the other hand argued that the coordinate bench while considering the identical issue in assessee's quantum appeal in the case of Tata AIG General Insurance Company Ltd., vs DCIT (ITA No.1718/Mum/2020 dated 25.04.2022) and has held the same in favour of the assessee. The ld AR argued that though the penalty is levied on the ground that in assessee's case the Tribunal has decided the issue against the assessee, the decision in the case of Tata AIG (supra) goes to prove that the issues in the quantum appeal are capable of alternate interpretation. The Ld. AR further argued that the Hon'ble Bombay High Court has admitted the question of law which means that the issues are debatable and therefore no penalty could be levied. The Ld. AR also argued that the CIT(A) has considered the fact that the assessee has made full disclosure of the details pertaining to the claim made and accordingly has deleted the penalty. The Ld. AR in this regard drew our attention to the computation of income ( page 1 of paper book) to submit that the assessee has made disallowance towards provision for gratuity and claimed the amount actually paid. The Ld. AR submitted that the tribunal did not allow the claim of the assessee on payment basis stating that it is not in accordance with section 44 read with rule 5 which is double disallowance and this specific anomaly has been considered and allowed by the coordinate bench in the case of Tata AIG(Supra). The Ld. AR also submitted that bonafide claim by the assessee on payment basis which is denied to be allowed cannot be a ground for a levy of penalty. The ld AR also made a detailed written submission with regard to the disallowances upheld by the Tribunal based on which the penalty is levied. Printed from counselvise.com 5 ITA No. 4634/Mum/2023 The New India Assurance Co. Ltd. 6. We heard the parties and perused the material on record. The AO made certain disallowances in the order passed under section 143(3) r.w.s.263 and when the issue travelled up to the Tribunal, certain disallowances / additions are confirmed by the Tribunal. The disallowances / additions confirmed pertain to (i) Premium income taxed in F.Y. 2002-03 under clause 13 of form 3CD but accounted in F.Y. 2003-04, (ii) Balance amount of provisions not allowed in earlier years and paid during the P.Y., and (iii) Interest under section 234B & C disallowed in earlier year now credited to P&L account due to waiver. From the findings of Tribunal while confirming the disallowances / additions we notice that the basis for the Tribunal to arrive at the conclusion is that the assessee cannot claim any other deduction or make adjustments beyond what is accounted in the P&L account except those specified under Rule 5. In other words the adjustments made by the assessee assessee towards actual payment of provision towards gratuity/pension fund, adjustment towards premium income to the extent already taxed and adjustment towards interest waived credited based on disallowance made in earlier year are not allowed by the Tribunal on the ground that these adjustments are not as per Rule 5 and are outside the P&L account. We further notice that coordinate bench in the case of Tata AIG (supra) while considering the issue of similar adjustments made towards depreciation under section 32 has held that the such literal interpretation of section 44 read with Rule 5 would result in unjust result of double taxation and that the provisions need to be given a purposive interpretation to avoid any absurd and unjust result which would not be the legislative intent. The Tribunal further held that if the adjustment contemplated under Rule 5(a) is literally interpreted then it would result in only making disallowance under section 30 to 43B towards amount reflected in the P&L prepared under section 44 and not for any deduction otherwise allowable under the said sections. The Tribunal also held that such treatment would deprive Printed from counselvise.com 6 ITA No. 4634/Mum/2023 The New India Assurance Co. Ltd. specifically the insurance companies that would lead to unintentional consequences of discrimination as compared to other assessee which the legislature would not have intended. From these analysis it is clear that the coordinate bench while deciding similar issue has deviated from the view taken in assessee's case by a harmonious interpretation of the provisions of section 44 read with Rule 5 so that there is no unjust treatment under the Act of the assessee engaged in Insurance business. 7. Now coming to the issue of levy of penalty for the reason that the Tribunal in assessee's own case has upheld the orders of the lower authorities. Penalty under section 27(1)(c) is levied where the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. The assessee in the present case has claimed certain amounts as deduction on payment basis and has made certain adjustments to the income on the ground that the income has already suffered tax in the earlier assessment year. As already stated the Tribunal did not allow the claim / adjustments made by the assessee by strictly interpreting the provisions of section 44 read with Rule 5 and while doing there is no allegation that the assessee has misrepresented or suppressed any information. We have while analyzing the decision in the case of Tata AIG (supra) noticed that the Tribunal took a different view from the view taken in assessee's case for the reason that the said view would result in double taxation. Accordingly, the claim made by the assessee under the bonafide belief that it is lawfully entailed to a claim on payment basis and the adjustment of income is permissible since it has already suffered tax cannot in our view be held as carried out with malafide intentions. Further it is not in dispute that the impugned claim /adjustments made by the assessee are debatable where two views are possible. During the course of hearing it has been brought to our attention that the Hon'ble Bombay High Court has accepted the Printed from counselvise.com 7 ITA No. 4634/Mum/2023 The New India Assurance Co. Ltd. question of law with regard to the impugned issue in assessee's quantum appeal which supports the argument that the issue is debatable. Considering the facts and circumstances as explained herein above and the legal position with respect to levy of penalty under section 271(1)(c), we are of the considered view that there is no infirmity in the order of the CIT(A) in deleting the penalty. 8. In result the appeal of the revenue is dismissed. Order pronounced in the open court on 27-10-2025. Sd/- Sd/- (AMIT SHUKLA) (PADMAVATHY S) Judicial Member Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "