Bajaj Allianz General Insurance Co. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 1072/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7382 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 31-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Earning of tax free income; Additional evidence; Accommodation entries; Revised return
• Section: 43B; 143(3); 133A; 14A; 28; 2; 15

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE , , , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI , AM . / I TA NO S . 1071 & 1072 /PUN/2015 / ASSESSMENT YEARS : 2009 - 10 & 2010 - 11 BAJAJ ALLIANZ GENERAL INSURANCE CO. LTD. 1 ST FLOOR, G.E PLAZA, AIR PORT ROAD, YERAWADA, PUNE - 411 006 / APPELLANT PAN : AABCB5730G / V/S. THE DEPUTY COMMISSIONER OF INCOME - TAX CIRCLE - 1(1) , PUNE. / RESPONDENT . / ITA NO S . 1269 & 1270 /PUN/2015 / ASSESSMENT YEARS : 2009 - 10 & 2010 - 11 THE DEPUTY COMMISSIONER OF INCOME - TAX CIRCLE - 1(1), PUNE. / APPELLANT / V/S. BAJAJ ALLIANZ GENERAL INSURANCE CO. LTD. 1 ST FLOOR, G.E PLAZA, AIR PORT ROAD, YERAWADA, PUNE - 411 006 / RESPONDENT PAN : AABCB5730G . / CO . NO S . 31 & 32/PUN/2017 (ARISING OUT OF ITA NO S . 1269/PUN/2015 & 1270/PUN/2015) / ASSESSMENT YEAR S : 2009 - 10 & 2010 - 11 BAJAJ ALLIANZ GENERAL INSURANCE CO. LTD. 1 ST FLOOR, G.E PLAZA, AIR PORT ROAD, YERAWADA, PUNE - 411 006 / CROSS OBJECT OR PAN : AABCB5730G / V/S. THE DEPUTY COMMISSIONER OF INCOME - TAX CIRCLE - 1(1), PUNE. / RESPONDENT 2 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 ASSESSEE BY : SHRI NIKHIL MUTHA & SHRI RAJAT SONI REVENUE BY : SHRI SARDAR SINGH MEENA / DATE OF HEARING : 05.07.2017 / DATE OF PRONOUNCEMENT : 29 .0 9 .2017 / ORDER PER SUSHMA CHOWLA , JM THE TWO CROSS A PPEALS FILED BY THE ASSESSEE AND REVENUE ARE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 1, PUNE DATED 30.01.2015 & 31.12.2014 , RESPECTIVELY RELATING TO ASSESSMENT YEAR S 2009 - 10 & 2010 - 11 AGAINST OR DER PASSED UNDER SECTION 143(3) R.W.S 92CA(4) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT). THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS AGAINST THE APPEAL S FILED BY THE REVENUE . 2. THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AND ALSO CROSS OBJECTIONS FILED BY THE ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE FACTS AND ISSUES IN BOTH THE APPEALS ARE IDENTICAL. HOWEVER, IN ORDER TO ADJUDICATE THE ISSUE, WE REFER TO THE FACTS AND ISSUES RAISED IN ASSESSMENT YEAR 2009 - 10. 4. THE ASSESSEE IN ITA NO. 1071/PUN/2015, RELATING TO ASSESSMENT YEAR 2009 - 10 HAS RAISED FOLLOWING GROUNDS OF APPEAL: - GROUND NO. 1 1 . 1 ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER (AO) IN TREATING PROFITS ON SALE/ REDEMPTION OF INVESTMENTS OF RS.22,30,24,779/ - AS TAXABLE. 3 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 1 . 2 ERRED IN NOT FOLLOWING THE BINDING DECISION OF THE HONBLE PUNE TRIBUNAL IN APPELLANTS OWN CASE FOR AY 2002 - 03 TO AY 2006 - 07. GROUND NO. 2 2.1 ERRED IN UPHOLDING THE ACTION OF THE AO IN INVOKING DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME - TAX RULES, 1962 ( RULES) OF RS. 26,90,338/ - IN RESPECT OF EXEMPT DIVIDEND/ INTEREST INCOME. 2.2 ERRED IN NOT FOLLOWING THE BINDING DECISION OF THE HONBLE PUNE TRIBUNAL IN APPELLANTS OWN CASE FOR AY 2002 - 03 TO AY 2006 - 07. GROUND NO.3 [WITHOUT PREJUDICE TO GROUND NO. 2 ] 3.1 ERRED IN CONCLUDING THAT AO HAS RECORDED OBJECTIVE SATISFACTION FOR INVOKING SECTION 14A DISALLOWANCE AS PER RULE 8D BASED ON INCORRECT ASSUMPTION THAT THE APPELLANT HAD PLEADED OF HAVING INCURRED NO EXPENDITURE IN MAINTAINING THE PORTFOLIO OF INVESTMENTS WHICH IS CLEARLY CO NTRADICTORY TO THE FACTS ON RECORD. 3.2 ERRED IN UPHOLDING THE ACTION OF THE AO IN COMPUTING SECTION 14A DISALLOWANCE AS PER RULE 8D AND NOT APPRECIATING THAT THE SAID DISALLOWANCE OUGHT TO HAVE BEEN RESTRICTED AS COMPUTED BY THE APPELLANT BASED ON NET I NCOME METHOD WHICH TAKES INTO ACCOUNT ALL DIRECT AND INDIRECT EXPENSES RELATING TO INVESTMENT ACTIVITY FOLLOWING SCIENTIFIC AND RATIONALE METHOD HAVING REGARD TO THE BUSINESS OPERATIONS OF THE APPELLANT. GROUND NO. 4 4.1 ERRED IN UPHOLDING THE ACTION OF T HE AO IN INVOKING DISALLOWANCE OF RS.69, 86,05,662/ - UNDER SECTION 40(A) (I) OF THE ACT IN RESPECT OF REINSURANCE PREMIUM PAID TO ALLIANZ SE, GERMANY. GROUND NO. 5 5.1 ERRED IN UPHOLDING THE ACTION OF AO IN DISALLOWING RISK INSPECTION CHARGES OF RS. 5,02,98 ,035/ - FOR WANT OF PURCHASE ORDERS BY MERELY FOLLOWING THE DIRECTIONS OF THE HONBLE DRP FOR AY 2008 - 09 AND WITHOUT APPRECIATING THE FACT THAT PURCHASE ORDER DOES NOT HAVE ANY NEXUS WITH FINALIZATION OF INSURANCE POLICY AND FOR SETTLING INSURANCE CLAIMS. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT, SUBSTITUTE, AMEND OR DELETE ONE OR MORE OF THE ABOVE GROUNDS OF APPEAL ON OR BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HONORABLE INCOME TAX APPELLATE TRIBUNAL TO DISPOSE OFF THE APPEAL ACCORDING TO LAW. 5 . THE REVENUE IN ITA NO.1269/PUN/2015, RELATING TO ASSESSMENT YEAR 2009 - 10 HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT (APPEAL) IS JUSTIFIED IN DELETING THE DISALLOWANCE U/S. 14A OF THE INCOME TAX ACT, 1961 AMOUNTING TO RS. 9,85,48,033/ - . 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT (APPEAL) WAS JUSTIFIED IN HOLDING THAT SECTION 14A CONTEMPLATES AN EXCEPTION FOR DEDUCTIONS ALLOWABLE UNDER THE ACT AS CONTAINED U/S 28 TO 43B OF THE ACT AND THAT SECTION 44 CREATES SPECIAL APPLICATION OF THESE PROVISIONS IN THE 4 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 CASES OF INSURANCE COMPANIES WHICH PROHIBITS THE ASSESSING OFFICER TO TRAVEL B EYOND SECTION 44 AND FIRST SCHEDULE OF THE INCOME - TAX ACT? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEAL) WAS JUSTIFIED IN NOT CONSIDERING THAT SECTION 44 OF THE INCOME TAX ACT, 1961 NOWHERE RESTRICTS THE APPL ICABILITY OF SECTION 14A OF THE INCOME TAX ACT, 1961? 4. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CIT (A) MAY BE VACATED AND THAT OF ASSESSING OFFICER BE RESTORED. 5. THE APPELLANT CRAVES TO ADD, ALT ER OR AMEND ANY OR ALL THE GROUNDS OF APPEAL DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE ITAT , PUNE BENCH, PUNE. 6 . THE ASSESSEE IN CO. NO.31/ PUN/2017 HAS RAISED FOLLOWING GROUNDS OF OBJECTIONS : - 1. CROSS OBJECTION NO. 1 : CHALLENGING THE DISALLOWANCE UNDER SECTION 14A IN RESPECT OF PROFITS ON SALE/REDEMPTION OF INVESTMENTS : 1.1 THE ACTION OF THE LEARNED CIT(A) IN CONCLUDING THAT THE PROVISIONS OF SECTION 14A IS NOT APPLICABLE IN RESPECT OF PROFITS ON SALE/REDEMPTION OF IN VESTMENTS IS JUSTIFIABLE UNDER THE LAW AND IN ACCORDANCE WITH THE HONBLE TRIBUNALS RULING FOR EARLIER YEARS IN THE RESPONDENTS OWN CASE. 2 . CROSS OBJECTION NO. 2: WITHOUT PREJUDICE TO CROSS OBJECTION NO. 1 ABOVE, CHALLENGING THE COMPUTATION OF DISALLOWANCE UNDER SECTION 14A : 2.1 WITHOUT PREJUDICE TO ABOVE, IN CASE IF SECTION 14A IS HELD TO BE APPLICABLE, THE DISALLOWANCE IN RELATION TO NON - TAXABLE PROFITS ON SALE/REDEMPTION OF INVESTMENT SHOULD BE RESTRICTED TO RS.12,48,517 / - AS DETERMINED BY T HE ASSESSEE BASED ON NET INCOME METHOD. THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF CROSS OBJECTIONS ON OR BEFORE OR AT THE TIME OF HEARING OF APPEAL, SO AS TO ENABLE THE HONBLE INCOME TAX APPELLATE TR IBUNAL TO DISPOSE OFF THE APPEAL ACCORDING TO LAW . 7 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE ISSUE S RAISED IN CROSS APPEALS AND CROSS OBJECTIONS ARE COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2008 - 09. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF ASSESSING OFFICER AND THE CIT(A). 5 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 9. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE FOR THE YEAR UNDER C ONSIDERATION HAD FURNISHED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 121,27,60,346/ - . THE ASSESSEE WAS ENGAGED IN GENERAL INSURANCE BUSINESS. THE ASSESSEE WAS JOINT VENTURE ORGANIZATION BETWEEN BAJAJ FINSERV LIMITED AND ALLIANZ SE, GERMANY . AS O N 31.03.2009, BAJAJ FINSERV LTD. HOLDS 74% OF THE SHARE CAPITAL AND ALLIANZ SE HOLDS THE BALANCE 26%. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES AGGREGATING TO RS.290,79,19, 868/ - . THE ASSESSING OFFICER MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) UNDER SECTION 92CA(1) OF THE ACT, WHO IN TURN, ACCEPTED THE BENCHMARKING OF INTERNATIONAL TRANSACTIONS DONE BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. ACCORDINGLY, THE ARM'S LENGTH PRICE SHOWN BY THE ASSESSEE WAS NOT DISTURBED. 10. THE NEXT ISSUE ADJUDICATED BY THE ASSESSING OFFICER WAS THE TAXATION OF PROFIT ON SALE / REDEMPTION OF INVESTMENTS. THE ASSESSING OFFICER NOTED THAT THERE WAS SPECIFIC PROVISION UNDER THE INCOME TAX ACT FOR INSURANCE BUSINESS ENTITIES I.E. SECTION 44 OF THE ACT, WHICH PROVIDED PROVISIONS RELATING TO COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD, PROFIT & GAINS OF ANY BUSINESS OF INSURANCE. THE SAID PROFITS AND GAINS OF BUSINESS OF IN SURANCE HAD TO BE COMPUTED IN ACCORDANCE WITH RULES PRESCRIBED IN FIRST SCHEDULE OF THE ACT ; RULE 5 OF FIRST SCHEDULE PROVIDED THE MODE OF COMPUTATION OF TAXABLE PROFITS AND GAINS FOR GENERAL INSURANCE BUSINESS. AS PER RULE 5 OF FIRST SCHEDULE OF THE ACT, THE PROFITS AND GAINS OF INSURANCE BUSINESS, OTHER THAN LIFE INSURANCE , SHALL BE TAKEN TO BE THE BALANCE OF PROFITS DISCLOSED BY ANNUAL ACCOUNTS UNDER THE INSURANCE ACT, 1938. THE PLEA OF ASSESSEE IN THIS REGARD WAS THAT PROFIT SHOWN IN THE ANNUAL ACCOUN TS / FINANCIAL STATEMENTS PREPARED AS PER THE INSURANCE ACT, 1938 SHOULD BE TAKEN FOR COMPUTATION OF TOTAL INCOME FOR INCOME TAX PURPOSE 6 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 SUBJECT TO CLAUSE (A) AND CLAUSE (C) OF RULE 5 OF THE ACT. THE ASSESSING OFFICER NOTED THAT THE INSURANCE REGULATORY D EVELOPMENT AUTHORITY PRESCRIBED THAT NON - LIFE INSURANCE COMPANY HAD TO INCLUDE PROFIT OR LOSS ON REALIZATION / SALE OF INVESTMENTS IN THE PROFIT AND LOSS ACCOUNT OR REVENUE ACCOUNT. THUS, AS PER THE ASSESSING OFFICER IT WAS MANDATORY FOR THE ASSESSEE TO I NCLUDE PROFITS ON SALE / REDEMPTION OF INVESTMENTS IN COMPUTATION OF TOTAL INCOME UNLESS THE RULE 5 OF THE ACT EXCLUDES IT. THE ASSESSING OFFICER NOTED THAT THERE WAS NO PROVISION IN THE RULE TO EXCLUDE SUCH PROFIT OR LOSS ON REALIZATION / SALE OF INVESTM ENTS FROM TOTAL INCOME. FURTHER, THE SAID PROFIT OR LOSS WAS ALSO NOT EXEMPT UNDER ANY PROVISIONS OF THE ACT. THUS, IT WAS HELD THAT SAME WAS TAXABLE UNDER THE INCOME TAX ACT. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD SHOWN PROFIT ON SALE / RE DEMPTION OF INVESTMENTS OF RS.22,30,24,779/ - , INCLUDING AMORTIZATION OF SECURITIES OF RS.5,93,46,491/ - , IN ITS BOOKS OF ACCOUNT AS PER THE INSURANCE ACT, WHICH WAS HELD TO BE TAXABLE AS INCOME UNDER THE ACT. THE ASSESSEE HAD CLAIMED THE SAME TO BE EXEMPT INCOME, HENCE THE ASSESSING OFFICER SHOW CAUSED THE ASSESSEE AS TO WHY THE SAME SHOULD NOT BE TAXED IN THE HANDS OF ASSESSEE. IT WAS ALSO NOTED THAT IN THE EARLIER YEARS SIMILAR PROFIT OR LOSS ON REALIZATION OF SALE OF INVESTMENTS WAS TREATED AS TAXABLE I N THE HANDS OF ASSESSEE. THE ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE NOTED THAT IN EARLIER YEARS I.E. ASSESSMENT ORDERS FOR ASSESSMENT YEARS 2006 - 07, 2007 - 08 AND 2008 - 09 AND THE DISPUTE RESOLUTION PANEL (DRP) ORDER FOR THE SAME ASSESSMENT YEARS, THE ADDITION WAS CONFIRMED IN THE HANDS OF ASSESSEE. THE ASSESSING OFFICER ALSO NOTED THAT THE TRIBUNAL IN ASSESSEES CASE FOR ASSESSMENT YEAR 2003 - 04 FOLLOWED BY ASSESSMENT YEARS 2002 - 03 AND 2004 - 05 HAD ALLOWED THE APPEAL OF ASSESSEE A ND HAD HELD THAT PROFITS ON SALE / REDEMPTION OF INVESTMENTS WAS NOT TAXABLE. HOWEVER, SINCE THE DEPARTMENT HAD FILED THE APPEAL BEFORE THE HONBLE 7 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 BOMBAY HIGH COURT, THE ASSESSING OFFICER HELD THAT THE ASSESSMENT HAD NOT ATTAINED THE FINALITY. ACCORDING LY, THE CLAIM OF ASSESSEE WAS REJECTED AND THE NET PROFIT ON SALE / REDEMPTION OF INVESTMENTS OF RS.22,30,24,779/ - WAS HELD AS TAXABLE IN THE HANDS OF ASSESSEE. 11. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER. THE CIT(A) REL YING ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN ORIENTAL FIRE & GENERAL INSURANCE CO. LTD. VS. CIT (1983) 143 ITR 378 (BOM) , HELD THAT EXCLUSION OF SUCH PROFITS DISCLOSED IN THE ANNUAL ACCOUNTS PREPARED FOR THE YEAR UNDER THE INSURANCE / IRDA ACT WAS NOT PERMISSIBLE UNDER SECTION 44 OF THE ACT READ WITH RULE 5 OF FIRST SCHEDULE, WHILE COMPUTING THE TOTAL INCOME OF ASSESSEE, SINCE THERE WAS NO SPECIFIC PROVISION IN RULE 5 FOR EXCLUSION OF SUCH PROFITS. 12. THE ASSES SEE IS IN APPEAL AGAINST THE FINDINGS OF CIT(A). 13. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF TRIBUNAL STARTING FROM ASSESSMENT YEAR 2003 - 04. HE FURTH ER POINTED OUT THAT SIMILAR ISSUE ALSO AROSE IN ASSESSMENT YEAR 2008 - 09 AND THE TRIBUNAL FOLLOWING EARLIER YEAR ORDER, HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT RELIANC E PLACED UPON BY THE CIT(A) ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN ORIENTAL FIRE & GENERAL INSURANCE CO. LTD. VS. CIT (SUPRA) IS MISPLACED SINCE THE SAID DECISION RELATES TO ASSESSMENT YEAR 1967 - 68 WHEN RULE 5(B) EXISTED IN THE STATUTE. IT WAS FURTHER POINTED OUT THAT THE SAID RULE 5(B) WAS FURTHER DELETED AND THE TRIBUNAL HAD ACCEPTED THE CLAIM OF ASSESSEE RELYING ON LEGISLATIVE INTENT W.E.F. OMITTING RULE 5(B). IT WAS FURTHER POINTED OUT BY HIM THAT THE ISSUE IS 8 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 SQUARELY COVERED BY T HE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF CALCUTTA IN PR. CIT VS. NATIONAL INSURANCE CO. LTD. (2017) 393 ITR 52 (CALCUTTA), WHICH RELATES TO ASSESSMENT YEAR 2005 - 06, WHEREIN IT HAS BEEN HELD THAT IN VIEW OF DELETION OF RULE 5(B) AND HAVING REGARDING TO THE LEGISLATIVE INTENT SPECIFIED IN CBDT CIRCULAR NO.528/1998, PROFITS ON SALE OF INVESTMENTS SHOULD NOT BE TAXED. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 15. WE HAVE HEARD THE RI VAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING VIDE GROUNDS OF APPEAL NO.1 .1 AND 1.2 RAISED BY THE ASSESSEE IS AGAINST TREATMENT OF PROFITS ARISING ON SALE / REDEMPTION OF INVESTMENTS TOTALING RS.22.30 CRORES WHICH ALSO INCLUDES THE AMOUNT RECEIVED ON PROFITS ON ACCOUNT OF AMORTIZATION OF RS.5.93 CRORES. SIMILAR ISSUE AROSE BEFORE THE TR IBUNAL WITH LEAD ORDER IN ASSESSMENT YEAR 2003 - 04, WHEREIN THE TRIBUNAL IN ITA NO.1447/PN/2007, VIDE ORDER DATED 31.08.2009 ALLOWED THE CLAIM OF ASSESSEE. FURTHER, THE TRIBUNAL IN ITA NO.2560/PN/2012, RELATING TO ASSESSMENT YEAR 2008 - 09 VIDE ORDER DATED 0 3.02.2016 HAD HELD AS UNDER: - 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE RAISED VIDE GROUND OF APPEAL NO.1 BEFORE US IS IN RELATION TO THE TAXABILITY OF PROFITS ARISING ON SALE AND REDEMPTION OF INVESTMENTS CLAIMED AS EXEMPT BY THE ASSESSEE TOTALLING RS.50,00,81,160/ - AND AMORTIZATION OF SECURITIES CHARGES TOTALLING RS.3,10,26,441/ - . THE ASSESSEE BEFORE US IS A JOINT VENTURE BETWEEN BAJAJ AUTO LTD., AND ALLIANZ SE, GERMANY. THE ASSESSEE WAS GRANTED APPROVAL TO CARRY ON GENERAL INSURANCE BUSINESS AS PER IRDA AUTHORITY. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF GENERAL INSURANCE FOR THE YEAR UNDER CONSIDERATION. IN ADDITION TO ITS INCOME FROM INSURANCE, THE ASSESSEE HAD SHOWN PROFIT ON SALE / REDEMPTION OF SECURITIE S AT RS.50,00,81,160/ - AND ALSO AMORTIZATION OF SECURITIES OF RS.3,10,26,441/ - . THE SAID CLAIM OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER OBSERVING THAT THE FUNCTIONS OF THE ASSESSEE COMPANY WERE DISTINCT I.E. IT WAS ENGAGED IN THE ACTIVITY OF INSURANCE BUSINESS AND THE SECOND ACTIVITY WAS PUBLIC FINANCE INSTITUTION. THE ASSESSING OFFICER WAS ALSO OF THE VIEW THAT THE INCOME FROM NON - BANKING ACTIVITY OF FINANCIAL INSTITUTION HAD TO BE RECOGNIZED AS INCOME IN VIEW OF THE RBI GUIDELINES. THE CAS E OF THE ASSESSEE ON THE OTHER HAND, WAS THAT UNDER RULE 5 OF FIRST SCHEDULE, THE MANNER WAS PRESCRIBED, UNDER WHICH PROFITS AND GAINS OF INSURANCE BUSINESS, OTHER THAN THE LIFE INSURANCE BUSINESS, HAD TO BE COMPUTED. THE ASSESSEE FURTHER POINTED OUT THAT IN VIEW OF THE AMENDMENT IN RULE 5 OF 9 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 FIRST SCHEDULE, BY WHICH THE SAID RULE WAS OMITTED, THE PROFIT EARNED IN RESPECT OF THE INVESTMENTS IS NOT TAXABLE IN THE HANDS OF ASSESSEE. THE ASSESSEE THUS, DID NOT INCLUDE/REDUCE THE PROFIT ON SALE / REDEMPTION O F INVESTMENT OF ABOUT RS.50 CRORES AND NET LOSS ON AMORTIZATION OF RS.3.10 CRORES IN THE COMPUTATION OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION. THE SAID RULE 5(B) OF FIRST SCHEDULE HAS BEEN RE - INSERTED BY THE FINANCE (NO.2) ACT, 2009 W.E.F. 01.04.2 011, WHICH WAS FURTHER SUBSTITUTED BY THE FINANCE ACT, 2010 W.E.F. 01.04.2011. PRIOR TO ITS SUBSTITUTION, CLAUSE (B) WAS OMITTED BY THE FINANCE ACT, 1988 W.E.F. 01.04.1989. THE YEAR UNDER APPEAL BEFORE US IS ASSESSMENT YEAR 2008 - 09 I.E. THE YEAR IN WHICH THE SAID PROVISIONS OF RULE 5 OF FIRST SCHEDULE WERE NOT ON STATUTE. SIMILAR CLAIM WAS MADE BY THE ASSESSEE THAT THE PROFIT / LOSS ARISING ON SALE / REDEMPTION OF SECURITIES, INVESTMENT WAS NOT TAXABLE AND EVEN THE LOSS ON ACCOUNT OF AMORTIZATION OF SECU RITIES WAS TO BE REDUCED FROM THE TAXABLE INCOME OF THE YEAR, AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2003 - 04. THE TRIBUNAL IN ITA NO.1447/PN/2007 RELATING TO ASSESSMENT YEAR 2003 - 04 ALONG WITH CO NO.52/PN/2007, REPORTED IN 130 TTJ (PUNE) 398 HAD CONSIDERED THE AFORESAID ISSUE AND HAD HELD AS UNDER: - 8. A CONCLUSION CAN BE DRAWN ON THE BASIS OF THE ABOVE ELABORATE DISCUSSION THAT THE DELETION OF SUB RULE (B) FROM RULE 5 OF THE FIRST SCHEDULE WAS WITH A SPECIFIC PURPOSE. THIS SCHEDULE NOT ONLY PRESCRIBE THE METHOD OF COMPUTATION OF INCOME OF INSURANCE BUSINESS IN PART (A) BUT ALSO PRESCRIBE THE METHOD OF COMPUTATION OF OTHER INSURANCE BUSINESS IN PART (B). RULE 5 IS WITHIN PART (B) AND EARLIER IT HAS PRESCRIBED THE METHOD OF T AXATION OF PROFIT ON SALE OF INVESTMENTS WHICH WAS LATER ON SCRAPPED. EVEN BY APPLYING A REVERSE LOGIC WE MUST ARRIVE AT THE SAME CONCLUSION THAT HAD THE IMPUGNED INCOME WAS EARLIER TAXABLE UNDER ONE SPECIFIC CLAUSE BUT EVEN ON ITS DELETION NO CLAUSE WAS INTRODUCED OR REPLACED TO PRESCRIBE THE METHOD OF TAXATION OF SUCH INCOME; THEREFORE THE REVENUE DEPARTMENT HAS NO RIGHT TO TAX SUCH AN INCOME IN THE ABSENCE OF ANY ENABLING PROVISION. NATURALLY, SUCH A DELETION CANNOT BE TREATED A SUPERFLUOUS ACTION BUT THIS CHANGE HAD TO GIVE A DEFINITE JUDICIAL MEANING. WE HAVE TO ASCRIBE A LOGICAL CONCLUSION TO THE SAID DELETION OF SUB RULE (B) FROM RULE 5 AND THE NATURAL MEANING IS THAT AFTER THE DELETION THE INCOME DESCRIBED THEREIN IS OUT OF THE PURVIEW OF COMPUTAT ION OF INSURANCE BUSINESS FROM THE FIRST SCHEDULE THEREFORE CONSEQUENTLY CANNOT BE TAXED U/S 44 OF I.T. ACT. AFTER EXPRESSING THIS VIEW WE HEREBY DISMISS THE CROSS OBJECTION OF THE REVENUE. 18. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT WHILE COMPUTING THE INCOME FROM INSURANCE BUSINESS UNDER SECTION 44 AND FIRST SCHEDULE OF THE ACT, THERE IS NO MERIT IN HOLDING THE PROFIT / LOSS ON SALE / REDEMPTION OF SECURITIES / INVESTMENTS AMOUNTING TO ABOUT RS.50 CRORES AS TAXABLE AND THE LOSS ON AMORTIZA TION OF SECURITIES OF RS.3.10 CRORES IS TO BE REDUCED FROM THE TAXABLE INCOME OF THE ASSESSEE. THE ORDER OF TRIBUNAL IN ASSESSMENT YEAR 2003 - 04 HAS BEEN SUBSEQUENTLY FOLLOWED BY THE TRIBUNAL IN ASSESSMENT YEAR 2004 - 05 IN ITA NO.600/PN/2008, ORDER DATED 10 .12.2010, IN ASSESSMENT YEAR 2002 - 03 IN ITA NO.1579/PN/2008, ORDER DATED 31.01.2011, IN ASSESSMENT YEAR 2005 - 06 IN ITA NO.1508/PN/2012, ITA NO.1406/PN/2012 AND CO NO.42/PN/2013, ORDER DATED 23.10.2013 AND IN ASSESSMENT YEAR 2006 - 07 IN ITA NO.119/PN/2011, O RDER DATED 06.05.2013. IN VIEW OF THE ISSUE BEING DECIDED IN FAVOUR OF THE ASSESSEE IN VARIOUS ASSESSMENT YEARS AND FOLLOWING THE SAME PARITY OF REASONING, WE ALLOW THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE. 16. THE ISSUE ARISING IN THE PRESENT GROUND OF APPEAL SIMILAR TO THE ISSUE IN EARLIER YEARS AND THE ASSESSING OFFICER HAD ALSO DISALLOWED THE CLAIM OF 10 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 ASSESSEE, FOLLOWING THE DELETION MADE IN EARLIER YEARS. HOWEVER, FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT WHILE COMPUTING INCOME FROM BUSINESS IN THE HANDS OF ASSESSEE UNDER SECTION 44 OF THE ACT AND FIRST SCHEDULE OF THE ACT, PROFIT / LOSS ON SALE / REDEMPTION OF SECURITIES OR INVESTMENTS INCLUDING THE AMORTIZATION OF SECURITIES IS TO BE REDUCED FROM TAXABLE INCOME OF ASSESSEE. TH E GROUNDS OF APPEAL NO.1.1 AND 1.2 RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 17. THE ISSUE RAISED VIDE GROUNDS OF APPEAL NO.2.1 AND 2.2 IS AGAINST THE ORDER OF ASSESSING OFFICER IN MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES). 18. THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS ON VERIFICATION OF PROFIT AND LOSS ACCOUNT AND COMPUTATION OF INCOME NOTED THAT THE ASSESSEE HAD CLAIMED CERTAIN INCOME AS NON - TAXABLE I.E. PROFIT ON SALE / REDEMPTION OF INVESTMENTS CLAIMED AS NON - TAXABLE AMOUNTING TO RS.22.30 CRORES; INTEREST EARNED ON TAX FREE SECURITIES CLAIMED AS EXEMPT UNDER SECTION 10(15)(IV) OF THE ACT OF RS.78,82,192/ - AND DIVIDEND INCOME CLAIMED AS EXEMPT UNDER SECTION 10( 34) / (35) OF THE ACT AMOUNTING TO RS.3 , 56,74,725/ - . THE ASSESSEE HAD NOT DISALLOWED ANY EXPENDITURE UNDER SECTION 14A OF THE ACT RELATING TO PROFITS ON SALE / REDEMPTION OF INVESTMENTS CLAIMED AS NON - TAXABLE. HOWEVER, THE ASSESSEE HAD COMPUTED THE DISAL LOWANCE UNDER SECTION 14A OF THE ACT IN CONNECTION WITH EXEMPT INCOME I.E. RS.2,43,836/ - UNDER SECTION 10(15) OF THE ACT AND RS.12,48,517/ - UNDER SECTION 10(34)/(35) OF THE ACT, RESPECTIVELY . THE ASSESSEE ON CONSERVATIVE BASIS HAD DISALLOWED LATER AN AMOU NT OF RS.2,43,836/ - AGAINST THE INCOME CLAIMED AS EXEMPT UNDER SECTION 10 OF THE ACT. HOWEVER, THE ASSESSING OFFICER IN VIEW OF THE PROVISIONS OF RULE 8D OF THE RULES APPLICABLE FROM ASSESSMENT YEAR 2008 - 09 RE - WORKED THE DISALLOWANCE IN 11 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 THE HANDS OF ASSES SEE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES AT RS.10,14,82,207/ - AS PER ANNEXURES ENCLOSED WITH THE ASSESSMENT ORDER. THE ASSESSEE HAD ALREADY DISALLOWED SUM OF RS.2,43,836/ - AND THE BALANCE WAS ADDED IN THE HANDS OF ASSESSEE. 19. THE ASSESSEE IS IN APPEAL AGAINST THE SAME. 20. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SIMILAR ISSUE HAS BEEN ADJUDICATED BY THE TRIBUNAL IN ASSESSMENT YEAR 2008 - 09, WHEREIN NON APPLICABILITY OF SECTION 14A OF THE ACT HAS BEEN UPHELD EVEN FOR INCOME CLAIMED AS EXEMPT UNDER SECTION 10 OF THE ACT. 21. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, REFERRED TO THE ORDERS OF AUTHORITIES BELOW. 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. SIMILAR ISSUE OF COMPUTATION OF DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES AROSE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 AND THE TRIBUNAL AFTER CONSIDERING THE ISSUE HELD THE SAME TO BE IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2003 - 04 AND FOLLOWI NG THE SAME PARITY OF REASONING VIDE PARAS 23 AND 24 DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND THE DRP BUT CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSEE UNDER SECTION 14A OF THE A CT AT RS.49,42,631/ - . WE ARE MAKING REFERENCE TO PARAS 23 AND 24 OF THE ORDER OF TRIBUNAL AT PAGES 16 TO 22 BUT THE SAME ARE NOT REPRODUCED FOR THE SAKE OF BREVITY. FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADD ITION WORKED OUT UNDER SECTION 14A OF THE ACT EXCEPT TO THE EXTENT OF RS. 2,43,836/ - , WHICH HAS 12 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 BEEN SUO MOTU DISALLOWED BY THE ASSESSEE IN THE COMPUTATION OF INCOME. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 23. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.3 IS WITHOUT PREJUDICE TO COMPUTATION OF DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES IS DISMISSED AS GROUND OF APPEAL NO.2 IS ALLOWED IN THE HANDS OF ASSESSEE. 24. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A) IN RESTRICTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT IN RESPECT OF PROFITS AND GAINS ON SALE/REDEMPTION OF INVESTMENTS CLAIMED AS NON TAXABLE. IN VIEW OF OUR ORDER HOLDING THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLI CABLE, THEN THE SAME EVEN APPLIED FOR INCOME CLAIMED AS EXE MPT UNDER SECTION 10 OF THE ACT. H ENCE, THE GROUNDS OF APPEAL NO.1 TO 3 RAISED BY THE REVENUE ARE DISMISSED. 25. SIMILARLY, CROSS OBJECTION NO.1 RAISED BY THE ASSESSEE IN THIS REGARD IS DISMISSED. THE CROSS OBJECTION NO.2 RAISED BY THE ASSESSEE ON WITHOUT PREJUDICE BASIS AGAINST THE COMPUTATION OF DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES IS ALSO DISMISSED. 26. BEFORE PARTING, IT IS POINTED OUT THAT THE LE ARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED BEFORE US THAT ONCE IT IS HELD THAT PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE, THEN EVEN THE AMOUNT CONSERVATIVELY OFFERED BY THE ASSESSEE AS DISALLOWABLE UNDER SECTION 14A OF THE ACT SHOULD BE DIRECTED TO BE DELETED. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD PLACED RELIANCE ON THE RATIO LAID DOWN IN ACIT VS. BAJAJ FINANCE LTD. IN ITA NOS.288 TO 291/PN/2014, RELATING TO ASSESSMENT YEARS 13 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 2006 - 07, 2007 - 08, 200 7 - 08 & 2008 - 09, ORDER DATED 29.01.2015 , WHEREIN IT WAS HELD THAT THE ASSESSED INCOME CAN GO BELOW THE RETURNED INCOME. WE FIND NO MERIT IN THE SAID PLEA OF ASSESSEE, IN VIEW OF SIMILAR RATIO BEING LAID DOWN IN ASSESSMENT YEAR 2008 - 09. IT MAY ALSO BE POIN TED OUT THAT MISCELLANEOUS APPLICATION MOVED BY THE ASSESSEE IN ASSESSMENT YEAR 2008 - 09 ON THE SAID ISSUE HAS BEEN DISMISSED. ACCORDINGLY, FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THOUGH NO DISALLOWANCE IS TO BE MADE UNDER SECTION 14A OF THE A CT EXCEPT TO THE EXTENT OF RS.2,43,836/ - . 27. THE ISSUE IN GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS AGAINST DISALLOWANCE MADE UNDER SECTION 40(A)(I) OF THE ACT AT RS.69,86,05,662/ - IN RESPECT OF RE - INSURANCE PREMIUM PAID TO ALLIANZ SE, GERMANY. 28. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT SIMILAR ISSUE AROSE IN ASSESSMENT YEAR 2008 - 09 AND THE TRIBUNAL HAD ALLOWED THE CLAIM OF ASSESSEE. 29. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE WAS I N THE BUSINESS OF GENERAL INSURANCE AND WAS UNDERTAKING RISK ASSOCIATED WITH PAYMENT OF CLAIMS ARISING OUT OF GENERAL INSURANCE POLICIES ISSUED. THE ASSESSEE ENTERED INTO REINSURANCE ARRANGEMENT, WITH RISK MANAGEMENT / SOLVENCY PERSPECTIVE. REINSURANCE W AS AN ARRANGEMENT, WHEREBY AN INSURER HAVING ACCEPTED RISK, TRANSFERS PART OF THE RISK TO ANOTHER INSURER / REINSURER IN ORDER TO REDUCE ITS OWN LIABILITY IN THE EVENT OF LOSS. THE ASSESSING OFFICER NOTED THAT IN THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2008 - 09, THE AMOUNT PAID TO ALLIANZ SE, SINGAPORE BRANCH, AS REINSURANCE PREMIUM WAS DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT REGARDING ASSESSEE TO BE DEPENDENT AGENT PERMANENT 14 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 ESTABLISHMENT OF SINGAPORE BRANCH. ACCORDINGLY, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS SHOW CAUSED AS TO WHY DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT SHOULD NOT BE MADE ON REINSURANCE PREMIUM PAID TO ALLIANZ SE, SINGAPORE BRANCH OF RS.69,86,05,662/ - FOR NOT WITHHOLDING TAX ON SUCH PAYMENTS UNDER SECTION 195 OF THE ACT. AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE BUT IN VIEW OF ISSUE BEING SIMILAR TO ASSESSMENT YEAR 2008 - 09, THE ASSESSING OFFICER DISALLOWED THE CLAIM IN THE HANDS OF ASSESSEE. THE CIT(A) UPHELD THE SAME, AGAINST WHICH THE ASSESSEE IS IN AP PEAL. 30. WE FIND THAT THE TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 HAS ELABORATELY DISCUSSED THE ISSUE IN PARA 26 ONWARDS AND HAD DECIDED THE SAME VIDE PARAS 32 TO 43 AT PAGES 25 TO 35 OF THE ORDER DATED 03.02.2016. THE TRIBUNAL VIDE PARA 43 REVERSED THE FINDINGS OF DRP AND HELD THAT THE ASSESSEE WAS ENTITLED TO CLAIM THE DEDUCTION ON ACCOUNT OF REINSURANCE PREMIUM OF RS.62.7 CRORES PAID TO THE GERMANY COMPANY. WE FIND THAT THE ISSUE RAISED IN THE GROUND OF APPEAL NO.4 IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL AND FOLLOWING THE SAME PARITY OF REASONING AS IN PARAS 32 TO 43 OF THE SAID ORDER, WHICH ARE NOT BEING REPRODUCED FOR THE SAKE O F BREVITY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF ASSESSEE WITH REGARD TO REINSURANCE PREMIUM OF RS.69.86 CRORES PAID TO THE GERMANY COMPANY. THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 31. BEFORE PARTING, IT MAY B E MENTIONED THAT THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS POINTED OUT THAT NO APPEAL HAS FURTHER BEEN FILED BEFORE THE HONBLE HIGH COURT AGAINST THE ORDER OF TRIBUNAL RELATING TO ASSESSMENT YEAR 2008 - 09. THE LEARNED AUTHORIZED REPRESENT ATIVE FOR THE ASSESSEE ALSO POINTED OUT THAT INCOME TAX DEPARTMENT IN SUBSEQUENT YEARS 15 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 HAS NOT INVOKED THE SAID PROVISION I.E. ASSESSMENT YEARS 2013 - 14 AND 2014 - 15, COPIES OF ASSESSMENT ORDERS FOR THE RELEVANT ASSESSMENT YEARS ARE PLACED ON RECORD AT PAGES 175 TO 192 OF THE PAPER BOOK, WHEREIN THE ASSESSMENT ORDERS HAVE BEEN PASSED UNDER SECTION 143(3) R.W.S. 92CA(4) OF THE ACT. IN VIEW THEREOF, GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 32. NOW, COMING TO THE ISSUE RAISED VIDE GROUND OF APPEAL NO.5 BY THE ASSESSEE I.E. AGAINST THE ORDER OF ASSESSING OFFICER IN DISALLOWING RISK INSPECTION CHARGES OF RS.5,02,98,035/ - FOR WANT OF PURCHASE ORDERS. 33. BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSEE HAD INCURRED RISK INSPECTION CHARGES TO ASSESS THE RISK BEFORE DECIDING TO INSURE SUCH RISK AND ALSO TO DETERMINE THE TERMS AND CONDITIONS WHILE ISSUING INSURANCE POLICIES. ACCORDINGLY, IN CERTAIN CASES, THE ASSESSEE HAD OBTAINED RISK INSPECTI ON REPORTS FROM THIRD PARTY RISK INSPECTION SURVEYORS. THE ASSESSING OFFICER NOTED THAT IN ASSESSMENT YEAR 2008 - 09, RISK INSPECTION CHARGES WERE DISALLOWED IN THE ABSENCE OF PURCHASE ORDERS. ACCORDINGLY, THE ASSESSEE WAS SHOW CAUSED IN THIS REGARD. THE ASSESSEE EXPLAINED THE NATURE OF EXPENDITURE AND ALSO PRODUCED THE RISK INSPECTION REPORTS ALONG WITH COPIES OF INVOICES AND THE FACT THAT THE ASSESSEE HAD ENTERED INTO INSURANCE AGREEMENT WITH CERTAIN PARTIES WHO WERE INSPECTED TO PROVE THE GENUINENESS AN D BUSINESS EXPEDIENCY ON INCURRING THE RISK INSPECTION EXPENSES. THE NATURE OF EXPENDITURE WAS FULLY EXPLAINED BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD FURNISHED DETAILS OF RISK INSPECTION CHARGES I.E. NAMES, ADDRES SES, PAN, ETC. AND PRODUCED EVIDENCES IN THE FORM OF RISK INSPECTION REPORTS, INVOICES, WEBSITE SCREENSHOTS, RISK INSPECTION CHARGES, ETC. TO JUSTIFY THE GENUINENESS OF RISK INSPECTION EXPENSES OF RS.7,54,23,407/ - BUT COULD PRODUCED 16 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 PURCHASE ORDERS OF RS.2 ,51,25,372/ - . THE ASSESSING OFFICER FOLLOWING THE ORDER OF DRP FOR ASSESSMENT YEAR 2008 - 09, WHEREIN IT WAS OBSERVED THAT PURCHASE ORDER CONSTITUTE THE BASIC DOCUMENT FOR INSURANCE POLICY FINALIZATION AND WAS ESSENTIAL TO SUBSTANTIATE THE GENUINENESS OF SA ID EXPENDITURE AND SINCE THE ASSESSEE COULD PRODUCE THE PURCHASE ORDERS OF ONLY RS.2.51 CRORES, THE RISK INSPECTION CHARGES OF RS.5,02,98,035/ - WERE DISALLOWED AND ADDED TO THE INCOME OF ASSESSEE. 34. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER. 35. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 36. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT SIMILAR ISSUE HAD ARISEN BEFORE THE TRIBUNAL AND THE ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE. HE ALSO POINTED OUT THAT WHILE DECIDING THE ISSUE IN ASSESSMENT YEAR 2008 - 09, THE TRIBUNAL HAD SUSTAINED ADHOC DISALLOWANCE OF 25% OF EXPENSES AFTER GIVING CREDIT OF THE AMOUNT COVERED BY PURCHASE ORDERS. THE REASON FOR THE SAID DISALLOWANCE WAS THE STATEMENT OF THIRD PARTIES. HOWEVER, THE TRIBUNAL HAD RECORDED FINDING TH AT PURCHASE ORDERS CANNOT FORM BASIS FOR DISALLOWANCE. FOR THE INSTANT ASSESSMENT YEARS 2009 - 10 AND 2010 - 11, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SUBSTANTIAL PURCHASE ORDERS WERE FILED TO JUSTIFY THE RECEIPT OF SERVICES AND GENUINENESS OF EXPENSES. HE FURTHER POINTED OUT THAT THE ASSESSING OFFICER HAD NEITHER FOUND ANY DISCREPANCY IN THE EVIDENCES FILED BY THE ASSESSEE NOR HAS RELIED ON ANY ADVERSE MATERIAL AND THE DISALLOWANCE HAS BEEN SUSTAINED IN THE ABSENCE OF PURCHA SE ORDERS. HENCE, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE CLAIMED THAT THE ENTIRE DISALLOWANCE SHOULD BE DELETED. ON 17 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 WITHOUT PREJUDICE BASIS, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT ADDITIONAL EVIDEN CE IN THE FORM OF PURCHASE ORDERS OF RS.66,19,569/ - HAVE BEEN FILED ONLY FOR ASSESSMENT YEAR 2009 - 10, WHEREIN DURING ASSESSMENT PROCEEDINGS, PURCHASE ORDERS WERE FILED TO THE EXTENT OF RS. 251,25,372/ - . IN ASSESSMENT YEAR 2010 - 11, AGAINST THE GROSS EXPENDI TURE OF RS.3 , 60, 40,926/ - , THE ASSESSEE CLAIMS THAT PURCHASE ORDERS WERE FILED TO THE EXTENT OF RS.2,23,46,348/ - AND THE BALANCE OF RS. 1,36,94,578/ - WAS DISALLOWED IN THE HANDS OF ASSESSEE. 37. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 38. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE OF ALLOWABILITY OF RISK INSPECTION CHARGES AROSE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 AND THE TRIBUNAL VI DE PARA 49 AT PAGES 38 TO 41 HELD THE ASSESSEE TO BE ENTITLED TO CLAIM THE SAID RISK INSPECTION CHARGES EVEN ON THE GROUND THAT THE ASSESSEE HAD FAILED TO PRODUCE EVIDENCE IN THE FORM OF PURCHASE ORDERS WITH RESPECT TO CERTAIN PORTION OF RISK INSPECTION CH ARGES. THE PLEA OF ASSESSEE THAT RISK INSPECTION ITSELF WOULD NOT RESULT ANY POLICY BEING ISSUED BY THE ASSESSEE FOR INSURING THE COMPANYS BUSINESS WAS ACCEPTED AS IT TOOK BUSINESS DECISION TO ADOPT BUSINESS OF PROVIDING GENERAL INSURANCE. HOWEVER, BECA USE OF THE EVIDENCE COLLECTED DURING ASSESSMENT PROCEEDINGS OF TWO COMPANIES IN THE NAME OF WHICH ACCOMMODATION ENTRIES WERE BEING ISSUED TO BENEFICIARIES TO INFLATE THEIR EXPENSES INCLUDING THE ASSESSEES , 25% OF NET EXPENDITURE WAS DISALLOWED IN THE HAND S OF ASSESSEE. THE RELEVANT FINDINGS VIDE PARA 49 A RE AS UNDER: - 49. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN THE FACTS RELATING TO THE ISSUE, DURING THE COURSE OF SEARCH ON ONE SHRI SANDEEP SITANI, CA CARRIED OUT ON 22.06.2008 AND SURVEY UNDER SECTION 133A OF THE ACT CARRIED 18 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 OUT ON HIS OFFICIAL PREMI SES, VARIOUS DOCUMENTS INCLUDING BILLS, ETC. WERE FOUND FROM HIS PREMISES. WHEN HE WAS CONSIDERED THE SAID DOCUMENTS, HE EXPLAINED THE MODUS OPERANDI OF THE TRANSACTIONS, UNDER WHICH HE ADMITTED THAT HE WAS CONTROLLING THE TRANSACTIONS OF MORE THAN 25 COM PANIES FOR THE PURPOSE OF ISSUING BOGUS BILLS ON COMMISSION. FROM THE DETAILS GIVEN IN THE STATEMENT AND THE ACCOUNTS OF THE ASSESSEE AND BANK ACCOUNT WITH CORPORATION BANK, BHAYANDER BRANCH, MUMBAI, OF THE SAID COMPANIES REFLECTED VARIOUS PAYMENTS RECEIV ED FROM ASSESSEE, ON DIFFERENT DATES AS TABULATED AT PAGE 14 OF THE DRAFT ASSESSMENT ORDER, TOTALLING RS.1,08,31,179/ - . THE ASSESSEE WAS GIVEN AN OPPORTUNITY TO PRODUCE THE DOCUMENTS TO ESTABLISH ITS CLAIM OF RISK INSPECTION CHARGES OF RS.14,62,61,001/ - . BEFORE THE ASSESSING OFFICER, THE ASSESSEE FURNISHED EVIDENCE OF PAYMENT OF RS.2,71,49,800/ - ONLY. HOWEVER, NO EVIDENCE WITH REGARD TO BALANCE AMOUNT OF EXPENDITURE OF RS.11.91 CRORES WAS PRODUCED. HOWEVER, THE ASSESSEE BY WAY OF REVISED RETURN HAD WITH DRAWN THE CLAIM TO THE EXTENT OF RS.32,67,497/ - . BEFORE THE DRP, THE ASSESSEE FURTHER FURNISHED ADDITIONAL EVIDENCE OF PURCHASE ORDERS TOTALLING RS.68,07,042/ - AND CLAIMED THAT THE SAME SHOULD BE ALLOWED AS DEDUCTION. BEFORE US, THE LEARNED AUTHORIZED RE PRESENTATIVE FOR THE ASSESSEE HAS REFERRED TO THE SAMPLE COPIES OF RISK INSPECTION INVOICES ALONG WITH PURCHASE ORDERS FILED BEFORE THE LOWER AUTHORITIES PLACED AT PAGES 225 TO 248 OF THE PAPER BOOK. THE LIST OF PARTIES FOR WHOM ADDITIONAL PURCHASE ORDERS WERE FILED BEFORE THE DRP ALONG WITH SAMPLE COPIES OF PURCHASE ORDERS PLACED AT PAGES 382 TO 410 OF THE PAPER BOOK. THE CLAIM OF THE ASSESSEE BEFORE US IS TWO - FOLD THAT THE RISK INSPECTION CHARGES WERE INCURRED AS NON - ROUTINE EXPENSES AND HAD RECEIVED SE RVICES FROM VARIOUS RISK INSPECTION CHARGES, WHO HAD CARRIED OUT THE AFORESAID RISK INSPECTION ON BEHALF OF THE ASSESSEE. IN THIS REGARD, IT WAS FURTHER POINTED OUT BY THE ASSESSEE THAT IT WAS NOT NECESSARY THAT PROSPECTIVE CLIENTS WHO HAD BEEN SURVEYED O R FOR WHOM RISK INSPECTION REPORTS WERE PREPARED WAS NECESSARILY INSURED BY THE ASSESSEE. THE SAID INSPECTION REPORTS WERE USED FOR PRIMARY ASSESSMENTS OF WHETHER TO CHANNEL ITS SALES EFFORTS VIS - A - VIS SUCH CLIENTS. FURTHER THE CASE OF THE ASSESSEE BEFOR E US WAS THAT AS AGAINST INSURANCE RECEIPTS OF RS.1415 CRORES, TOTAL CLAIM OF RISK INSPECTION CHARGES WAS ONLY TO THE EXTENT OF RS.14 CRORES, OUT OF WHICH RS.2.71 CRORES HAVE ALREADY BEEN ALLOWED IN THE HANDS OF ASSESSEE. FURTHER, THE CLAIM OF ABOUT RS.32 LAKHS WAS WITHDRAWN BY THE ASSESSEE AND IN RESPECT OF ABOUT RS.68 LAKHS, THE ASSESSEE FURNISHED ADDITIONAL EVIDENCE AND THE CLAIM OF THE ASSESSEE BEFORE US IS THAT THE SAID EXPENDITURE HAVING BEEN INCURRED DURING THE COURSE OF ITS BUSINESS OF INSURANCE, I S ALLOWABLE IN THE HANDS OF ASSESSEE. THE RISK INSPECTION REPORTS ARE CLAIMED TO HAVE BEEN PROCURED FROM INDEPENDENT PARTIES, WHO ARE NOT RELATABLE TO THE ASSESSEE AND WERE NECESSARY PART OF CARRYING ON THE BUSINESS OF INSURANCE. THE ASSESSING OFFICER HA D RECEIVED INFORMATION IN RESPECT OF PAYMENTS TOTALLING RS.1.08 CRORES. HOWEVER, NO OTHER INFORMATION WAS RECEIVED BY THE ASSESSING OFFICER AND ON THE BASIS OF THE SAID INFORMATION OF RS.1.08 CRORES, BALANCE CLAIM WAS DISALLOWED IN THE HANDS OF ASSESSEE O N THE PREMISE THAT THE ASSESSEE HAS NOT PRODUCED THE PURCHASE ORDERS. AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE PLEA OF THE ASSESSEE TO THE EXTENT THAT EACH OF THE RISK INSPECTION REPORTS RECEIVED BY THE ASSESSEE MAY NOT HAVE RESULTED IN THE BUSINESS BEING ALLOTTED TO THE ASSESSEE OR AFTER CONSIDERING THE PROFILE OF THE COMPANIES AGAINST WHOM THE ASSESSEE HAS RECEIVED RISK INSPECTION REPORTS, THE ASSESSEE ITSELF TAKES A VIEW THAT IT WAS NOT WORTHWHILE TO OFFER INSURANCE SERVICES TO SUCH COMPANIES WHOSE RISK INSPECTION REPORTS WERE RECEIVED BY IT. ADMITTEDLY, THE ONUS WAS HIGHER UPON THE ASSESSEE TO ESTABLISH ITS CLAIM IN VIEW OF THE INFORMATION RECEIVED BY THE ASSESSING OFFICER PURSUANT TO THE SEARCH C ONDUCTED UPON SHRI SANDEEP SITANI, CA. HOWEVER, THE INFORMATION RECEIVED BY THE ASSESSING OFFICER WAS LIMITED TO THE EXTENT OF PART OF THE RISK INSPECTION CHARGES PAID BY THE ASSESSEE. NO FURTHER INFORMATION WAS COLLECTED BY THE AUTHORITIES BELOW TO DISP ROVE THE CLAIM OF THE ASSESSEE. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES AND CONSIDERING THE EXPLANATION OF THE ASSESSEE, WE FIND NO MERIT IN REJECTION OF THE CLAIM OF THE ASSESSEE ON THE 19 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 GROUND THAT THE ASSESSEE HAD FAILED TO PRODUCE THE EVIDENCE IN THE FORM OF PURCHASE ORDERS WITH RESPECT TO THE RISK INSPECTION CHARGES TOTALLING RS.14.62 CRORES. THE ASSESSEE HAS EXPLAINED AND IT IS AN ADMITTED POSITION THAT THE RISK INSPECTION ITSELF WOULD NOT RESULT IN POLICY BEING ISSUED BY THE ASSESS EE FOR INSURING THE COMPANIES BUSINESSES. HOWEVER, THE CARRYING ON OF SUCH RISK INSPECTION BY THE ASSESSEE WAS NECESSARY AS IT WAS IN THE BUSINESS OF PROVIDING GENERAL INSURANCE TO ITS CLIENTS AND IT HAD TO BE SURE THAT THE COMPANIES TO WHOM IT WAS PROVID ING THE SERVICES WAS THE CORRECT DECISION OF ITS BUSINESS. AS WE ARE AWARE THAT AS AGAINST THE INSURANCE CHARGES PAID BY THE RESPECTIVE INSURER IN CASE OF THE DAMAGES BEING COMPENSATED BY THE INSURANCE COMPANY, THE VOLUMES ARE VERY HIGH. IN SUCH CIRCUMST ANCES, IT WAS THE RESPONSIBILITY OF THE ASSESSEE TO TAKE THE REQUISITE STEPS TO PROTECT ITSELF FROM FUTURE LOSSES, IF ANY, IN THIS REGARD. THE RISK INSPECTION WAS THE NECESSARY TOOL IN THE HANDS OF THE ASSESSEE. HOWEVER, IN VIEW OF THE EVIDENCE COLLECTED BY THE REVENUE DEPARTMENT AND IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, WE HOLD THAT THE ENTIRE EXPENDITURE IS NOT ALLOWABLE IN THE HANDS OF THE ASSESSEE. IT IS NOT CORRECT TO MAKE ESTIMATED DISALLOWANCE OF EXPENSES. HOWEVER, IN VIEW OF THE EVIDEN CE FILED AGAINST THE ASSESSEE AND IN THE ABSENCE OF COMPLETE DETAILS AVAILABLE BEFORE US AND TO PREVENT LEAKAGE OF REVENUE, WE ARE CONSTRAINED TO DISALLOW 25% OF THE SAID EXPENDITURE IN THE HANDS OF ASSESSEE. THE DISALLOWANCE WOULD BE WORKED OUT BY TAKING NET EXPENDITURE OF RS.11.91 CRORES I.E. TOTAL EXPENDITURE OF RS.14.62 CRORES MINUS RS.2.17 CRORES ALLOWED BY THE ASSESSING OFFICER. FURTHER, THE ASSESSEE HIMSELF HAD WITHDRAWN THE CLAIM OF EXPENDITURE OF RS.32,67,497/ - AND HAS FURTHER FURNISHED EVIDENCE OF RS.68,07,042/ - . THE ASSESSING OFFICER SHALL VERIFY THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE AND IF THE SAME IS FOUND TO BE IN ORDER, THE SAID EXPENDITURE WOULD BE ALLOWED IN THE HANDS OF THE ASSESSEE. THEN OUT OF BALANCE REMAINING, THE ASSESSING OFFICER SHALL DISALLOW 25% OF THE EXPENDITURE. THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THUS, PARTLY ALLOWED. 39. THE ISSUE ARISING IN THE PRESENT APPEAL BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2008 - 09. MER E ABSENCE OF PURCHASE ORDERS WOULD NOT DISENTITLES THE ASSESSEE FROM THE CLAIM OF RISK INSPECTION CHARGES. HOWEVER, WE FIND MERIT IN THE PLEA OF ASSESSEE THAT IN THE ABSENCE OF ANY ADVERSE EVIDENCES COLLECTED DURING THE YEAR, NO DISALLOWANCE IS TO BE MADE IN THE HANDS OF ASSESSEE IN THE INSTANT ASSESSMENT YEAR. THE ASSESSEE HAS FURTHER FILED PURCHASE ORDERS BY WAY OF ADDITIONAL EVIDENCE BEFORE US. HOWEVER, IN THE ENTIRETY OF THE RATIO LAID DOWN IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008 - 09, ABSENCE O F PURCHASE ORDERS WOULD NOT DISENTITLES THE ASSESSEE TO CLAIM THE SAID EXPENDITURE. ACCORDINGLY, WE ALLOW THE CLAIM OF ASSESSEE IN ENTIRETY. THE GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 20 ITA NO S . 10 71 & 1072 /PUN/201 5 ITA NOS.1269 & 1270/PUN/2015 CO NO.31 & 32/PUN/2017 40. THE FACTS AND ISSUES IN ASSESSMENT YEAR 2010 - 11 ARE IDENTICAL TO THE FACTS AND ISSUES IN ASSESSMENT YEAR 2009 - 10 AND OUR DECISION SHALL APPLY MUTATIS MUTANDIS TO ASSESSMENT YEAR 2010 - 11. 41. IN THE RESULT, APPEALS OF ASSESSEE ARE PARTLY ALLOWED AND THE APPEALS OF REVENUE AND CROSS OBJECTIONS OF ASSESSEE ARE DISMISSED. ORDER PRO NOUNCED ON 29 TH DAY OF SEPTEMBER , 201 7 . SD/ - SD/ - (ANIL CHATURVEDI) ( SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 29 TH SEPTEMBER , 2017 . GCVSR / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS) - 1, PUNE 4. THE CIT - 1, PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE