DCIT 1(3), MUMBAI V. THE NEW INDIA ASSURANCE CO. LTD, MUMBAI

ITA 1046/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83949 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-10-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 06-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARMINDER KAURCIT
• Keywords: Difference of opinion; Change of opinion
• Section: 43B; 143(3); 147; 148; 28

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.1046/MUM/2013 (A.Y. 2006-07) DCIT 1(3) ROOM NO.540, 5 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. / VS. THE NEW INDIA ASSURANCE CO. LTD. 87, M.G. ROAD, NEW INDIA ASSURANCE BUILDING, FORT MUMBAI-400 001. ( ! / // / APPELLANT) ( '# ! / RESPONDENT) P.A. NO.AAACN 4165 C ! $ % $ % $ % $ % /APPELLANT BY : MS. PARMINDER KAUR-CIT- DR '# ! $ % $ % $ % $ % /RESPONDENT BY : SHRI FARROKH V. IRANI $ &'( / / / / DATE OF HEARING : 27.10.2014 )*+ $ &'( / DATE OF PRONOUNCEMENT : 27.10.2014 ,- ,- ,- ,- / / / / O R D E R PER JOGINDER SINGH (JM) : THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 12- 11-2012 OF THE LD. FIRST APPELLATE AUTHORITY. AS PE R THE REVENUE THE LD. CIT(A) ERRED IN HOLDING THAT PROFIT ON SALE OF INVE STMENTS ARE NOT LIABLE TO BE TAXED IN THE HANDS OF THE ASSESSEE WITHOUT APPRE CIATING THAT CLAUSE ITA NO. 1046/MUM/2013 NEW INDIA ASSURANCE COMPANY LTD. 2 (B) TO RULE 5 OF THE FIRST SCHEDULE HAS BEEN OMITTE D BY THE FINANCE ACT W.E.F. 1/4/1989. 2. AT THE TIME OF HEARING THE LD. CIT-DR, MS. PARMI NDER KAUR DEFENDED THE CONCLUSION DRAWN IN THE ASSESSMENT ORD ER AND ADVANCED HER ARGUMENT IDENTICAL TO THE GROUNDS RAISED IN THE GROUNDS OF APPEAL. ON THE OTHER HAND, SHRI FARROKH V. IRANI, LD. COUNSE L FOR THE ASSESSEE, SUPPORTED THE CONCLUSION DRAWN IN THE IMPUGNED ORDE R BY FURTHER SUBMITTING THAT THE ISSUE IN HAND IS COVERED BY THE DECISION FROM HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GENERAL INSURANCE CORPN. OF INDIA VS. DCIT (2012) 342 ITR 27 (BOM.). 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. THE FACTS IN BRIEF AR E THAT THE ASSESSEE IS IN THE BUSINESS OF GENERAL INSURANCE, FILED ITS RETURN DECLARING LOSS OF RS.407,27,37,834/- ON 29/11/2006. THE LD. AO DETERM INED THE INCOME AT RS.800,62,59,120/- WHILE COMPLETING THE ASSESSME NT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) ON 3 1.12.2007. SUBSEQUENTLY, THE AO RE-OPENED THE ASSESSMENT U/S. 147 BY ISSUING NOTICE U/S. 148 OF THE ACT AFTER RECORDING THE REAS ONS ON THE ISSUE OF CLAIM OF EXEMPTION OF DIVIDEND INCOME AND INTEREST ON TAX FREE BONDS. THE LD. AO MADE THE ADDITION ON ACCOUNT OF LONG TER M CAPITAL GAIN, DIVIDEND INCOME AND INTEREST ON TAX FREE BONDS. THE ASSESSMENT WAS ITA NO. 1046/MUM/2013 NEW INDIA ASSURANCE COMPANY LTD. 3 CARRIED IN APPEAL BEFORE THE LD. CIT(A) WHEREIN THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. NOW THE REVENUE IS AGGRIEVE D AND IS IN APPEAL BEFORE THIS TRIBUNAL. 3.1 A CO-JOINT READING OF SECTON-44 TO THE FIRST SC HEDULE, IT IS CLEAR THAT THE PROFIT AND GAINS OF THE PRESENT ASSESSEE A RE TO BE COMPUTED IN ACCORDANCE WITH RULE-5 AS APPLICABLE TO THE RELEVAN T YEAR. RULE-5 HAS ALREADY BEEN REPRODUCED IN PARA-6 (PAGE-44) OF THE IMPUGNED ORDER. A PLAIN READING OF THIS RULE SIGNIFIES THAT THE PROFI T AS DISCLOSED IN THE ANNUAL ACCOUNTS, PREPARED IN ACCORDANCE WITH RELEVA NT SCHEDULE OF INSURANCE ACT, IS TO BE TAKEN AS TOTAL INCOME, SUBJ ECT TO THE ADJUSTMENT, SPECIFICALLY PROVIDED IN CLAUSES (A) AND (C). CLAUS E (B) WAS OMITTED BY THE FINANCE ACT 1988, W.E.F. 1.4.1989. THE ONLY EFFECT OF SECTION 44 IS THAT THE OPERATION OF PROVISIONS REFERRED TO THEREIN ARE EXCLUDED IN THE CASE OF AN ASSESSEE WHO CARRIES ON INSURANCE BUSINESS AND I N WHOSE CASE THE PROVISIONS OF RULE-2 OF THE FIRST SCHEDULE ARE ATTR ACTED. THE HON'BLE JURISDICTIONAL HIGH COURT HAS ELABORATELY DISCUSSED THE ISSUE OF REASSESSMENT AND EFFECT OF AMENDMENT OF SECTION 147 OF THE ACT AND THE WIDER POWER OF THE AO W.E.F. 1/5/1989 AFTER CONSIDE RING CIRCULARS AND HELD THAT RE-ASSESSMENT PROCEEDINGS ARE NOT VALID M ERELY ON THE BASIS OF CHANGE OF OPINION. PART A OF THE FIRST SCHEDULE CON TAINING RULES 1 TO 4 DEALS WITH PROFIT OF LIFE INSURANCE BUSINESS WHILE PART-B CONSISTING OF ITA NO. 1046/MUM/2013 NEW INDIA ASSURANCE COMPANY LTD. 4 RULE-5 DEALS WITH COMPUTATION OF PROFITS AND GAINS OF OTHER INSURANCE BUSINESS. RULE-5 PROVIDES AS FOLLOWS:- 5. THE PROFITS AND GAINS OF ANY BUSINESS OF INSURA NCE OTHER THAN LIFE INSURANCE SHALL BE TAKEN TO BE THE BALANC E OF THE PROFITS DISCLOSED BY THE ANNUAL ACCOUNTS, COPIES OF WHICH ARE REQUIRED UNDER THE INSURANCE ACT, 1938 (4 OF 1938), TO BE FURNISHED TO THE CONTROLLER OF INSURANCE, SUBJECT T O THE FOLLOWING ADJUSTMENTS:- A) SUBJECT TO THE OTHER PROVISIONS OF THIS RULE, ANY E XPENDITURE OR ALLOWANCE INCLUDING ANY AMOUNT DEBITED TO THE PROFI T AND LOSS ACCOUNT EITHER BY WAY OF A PROVISION FOR ANY T AX, DIVIDEND, RESERVE OR ANY OTHER PROVISION AS MAY BE PRESCRIBED WHICH IS NOT ADMISSIBLE UNDER THE PROVIS IONS OF SECTIONS 30 TO 43B IN COMPUTING THE PROFITS AND GAI NS OF A BUSINESS SHALL BE ADDED BACK;.. B) SUCH AMOUNT CARRIED OVER TO A RESERVE FOR UNEXPIRED RISKS AS MAY BE PRESCRIBED IN THIS BEHALF SHALL BE ALLOWED A S A DEDUCTION. 3.2 WE NOTE THAT THE LD. CIT(A) HAS ALREADY DISCUSS ED VARIOUS DECISIONS FROM THE TRIBUNAL, HIGH COURT AND ANOTHER DECISION DATED 22/10/2010 IN THE CASE OF TATA AIG GENERAL INSURANCE CO. VS. ACIT (ITA NO.2597 /MUM/2009) WHEREIN EARLIER DECISION OF THE TRIBUNAL WERE CONS IDERED. A BARE PERUSAL OF SECTION 44, WHICH DEALS WITH THE IN SURANCE BUSINESS, IT CLARIFIES THAT IT IS A SPECIAL PROVISION REQUIRING COMPUTATION OF INCOME OF INSURANCE COMPANIES AS PER THE RULES CONTAINED IN T HE FIRST SCHEDULE. SECTION 44 OPENS WITH A NON-OBSTANTE CLAUSE PROVIDI NG THAT IN THE CASE OF COMPANIES CARRYING ON INSURANCE BUSINESS THERE W ILL BE NO ASSESSMENT OF INCOME UNDER THE HEADS INTEREST ON S ECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND ASSESSMENT H AS TO BE MADE ITA NO. 1046/MUM/2013 NEW INDIA ASSURANCE COMPANY LTD. 5 UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PRO FESSION MEANING THEREBY THE PROFIT AND GAINS ARE TO BE COMPLETED IN ACCORDANCE WITH THE RULES CONTAINED IN THE FIRST SCHEDULE. SECTION 44 I S A SPECIAL PROVISION ENSHRINED IN THE ACT FOR ASCERTAINING THE PROFIT AN D GAINS OF AN ASSESSEE CARRYING ON THE BUSINESS OF INSURANCE. THUS IT CAN BE SAID THAT SPECIAL PROVISION OVERRIDES THE GENERAL PROVISION. IN VIEW OF THIS LEGAL POSITION THE AMOUNT OF PROFIT, AS DISCLOSED BY THE P&L ACCOU NT ARE TO BE DRAWN AS PER THE INSURANCE ACT. OUR VIEW FURTHER FINDS SU PPORT FROM THE DECISION FROM HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GENERAL INSURANCE CORPN. OF INDIA VS. DCIT (2012) 342 ITR 27 (BOM.). THE HON'BLE APEX COURT IN GIC VS. CIT (240 ITR 139) OBSERVED AS UNDER :- THE FIGURES IN THE ACCOUNTS OF THE ASSESSEE DRAWN UP IN ACCORDANCE WITH THE PROVISIONS OF THE FIRST SCHEDUL E TO THE INCOME TAX ACT AND SATISFYING THE REQUIREMENTS OF T HE INSURANCE ACT ARE BINDING ON THE AO UNDER THE INCOM E TAX ACT AND HE HAS NO GENERAL POWER TO CORRECT THE ERRO RS IN THE ACCOUNTS OF AN INSURANCE BUSINESS AND UNDO THE ENTR IES MADE THEREIN. THE HON'BLE APEX COURT IN BRITANNIA INDUSTRIES LTD. (278 ITR 546) REITERATED THE SAME PRINCIPLE HOLDING THAT EXPENDIT URE TOWARDS RENT, REPAIRS, MAINTENANCE OF GUEST HOUSE, USED IN CONNEC TION WITH THE BUSINESS, IS TO BE DISALLOWED U/S. 37(4) OF THE ACT BECAUSE THIS IS A SPECIFIC PROVISION OVERRIDING THE GENERAL PROVISION . THIS RULE HAS BEEN EXPRESSLY INCORPORATED IN SECTION 44 OF THE ACT BY SPECIFICALLY PROVIDING ITA NO. 1046/MUM/2013 NEW INDIA ASSURANCE COMPANY LTD. 6 INTERALIA THAT NOTHING CONTAINED IN THE PROVISIONS OF SECTION 28 TO 43B SHALL APPLY TO THE PROFITS AND GAINS OF BUSINESS OF INSURANCE WHICH SHALL BE COMPUTED IN ACCORDANCE WITH RULES CONTAINED IN T HE FIRST SCHEDULE. WE FIND NO INFIRMITY, ON THE ISSUE, IN THE CONCLUSI ON DRAWN BY THE LD. CIT(A). THUS, WE FIND NO MERIT IN THE APPEAL OF THE REVENUE . IT IS DISMISSED. 4. FINALLY APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION O F THE HEARING ON 27 TH DAY OF OCTOBER, 2014 . SD/- SD/- ( N.K. BILLAIYA ) (JOGINDER SINGH) ( ,. ( ,. ( ,. ( ,. / ACCOUNTANT MEMBER ,. ,. ,. ,. / JUDICIAL MEMBER MUMBAI; /, DATED : 27 TH OCT. 2014. ../ JV, SR.PS . ,- $ '&1 21+& ,- $ '&1 21+& ,- $ '&1 21+& ,- $ '&1 21+&/ COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT. 3. 3 ( ) / THE CIT, MUMBAI. 4. 3 / CIT(A)-13, MUMBAI 5. 167 '& , , / DR, ITAT, MUMBAI 6. 78 9 / GUARD FILE. ,- ,- ,- ,- / BY ORDER, #1& '& //TRUE COPY// : :: :/ // /; < ; < ; < ; < (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI