HDFC ERGO GENERAL INSURANCE COMPANY LTD ( FORMELRY KNOWN AS HDFC CHUBB GENERAL INSURANCE COMPANY LTD), MUMBAI V. ITO 1(1)(4), MUMBAI

ITA 1748/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93015 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 03-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 03-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 43B; 143(3); 260A; 148

Judgement Text

, ' INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H , BENCH , , BEFORE S/SH. JOGINDER S INGH ,JUDICIA L MEMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 1747 & 1748 /MUM/20 1 1 , / ASSESSMENT YEAR - 2003 - 04 AND 2006 - 07 M/S. HDFC - ERGO GENERAL INSURANCE CO. LTD. (FORMERLY KNOWN AS HDFC CHUBB GENERAL INSURANCE COMPANY LIMITED)6T H FLOOR, LEELA BUSINESS PARK, ANDHERI KURLA ROAD ANDHERI (E)MUMBAI - 400 069. PAN: AABCH 0738 E VS INCOME TAX OFFICER - 1(1)(1) AAYKAR BHAVAN,M K ROAD, MUMBAI - 20 ( / A PPELLANT ) ( / RESPONDENT ) /. ITA NO. 3706 /MUM/201 3 , / ASSESSMENT YEAR - 200 6 - 07 INCOME TAX OFFICER - 1(1)(1) AAYKAR BHAVAN,M K ROAD, MUMBAI - 20 VS M/S. HDFC - ERGO GENERAL INSURANCE CO. LTD. (FORMERLY KNOWN AS HDFC CHUBB GENERAL INSURANCE COMPANY LIMIT ED) MUMBAI - 400 069. PAN:AABCH 0738 E ( / A PPELLANT ) ( / RESPONDENT ) /ASSESSEE BY :SHRI MADHUR AGARWAL / REVEN UE BY :SHRI JEETENDRA KUMAR, DR / DATE OF HEARING : 24 - 0 6 - 2015 / DATE OF PRONOUNCEMENT : 24 - 0 6 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER S OF THE CIT(A) - 1 MUMBAI, THE ASSESSEE HAS FILED FOR THE APPEAL FOR BOTH TH E ASSESSMENT YEAR S , WHEREAS THE ASSESSING OFFICER (AO) H AS FILED APPEAL FOR THE ASSESSMENT YEAR 20 06 - 07 ONLY. THE ASSESSEE HAS ALSO RAISED ADD ITIONA L GROUNDS OF APPEAL. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 20 03 - 04 READ AS U NDER : - ITA NO.1747/MUM/2011 ( ASSESSEES A PPEAL ) : - THE GROUNDS SET OUT BELOW ARE WITHOUT PREJUDICE TO ONE ANOTHER: L. THE COMMISSIONER OF INCOME - TAX (APPEALS) [HEREIN AFTER REFERRED TO AS 'CIT(A)'] ERRED IN UPHOLDING THE ASSESSING OFFICER'S ACTION OF RE - OPENING THE ASSESSMENT BY NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT, 1961 AND MAKING AN ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 147. 2. THE CIT(A) ERRED IN CONFIRMING THE ASSESSING OFFICER'S ACTION OF TAXING THE PROFIT ON SALE OF INVE STMENTS OF RS.23,87,403/ - . THE APPELLANTS PRAY THAT THE ASSESSING OFFICER BE DIRECTED TO EXEMPT THE PROFIT ON SALE OF INVESTMENTS OF RS.23,87,403/ - FROM TAX. ITA 1747,1748/11 & 3706/13(AY:03 - 04 & 06 - 07) M/S. HDFC ERGO 2 3. THE APPELLANTS PRAY THAT THE ORDER OF THE CIT (A) BE AMENDED TO GRANT THE RELIEF CLAIMED ABO VE. 4. THE APPELLANTS CRAVE LEAVE TO ADD TO, ALTER OR AMEND, ANY OF THE FOREGOING GROUNDS OF APPEAL, IF AND WHEN NECESSARY. FOLLOWING ADD ITIONA L GROUNDS WERE ALSO FILED BY THE ASSESSEE : - 1. THE INCOME - TAX OFFICER - 1(1)(1) (HEREIN AFTER REFERRED TO A S THE AO) OUGHT TO HAVE ALLOWED DEDUCTION FOR PRE - OPERATIVE EXPENSES OF RS. 29,20,949 ( RUPEES TWENTYNINE LACS TWENTY THOUSAND NINE HUNDRED FORTY NINE) AMORTISED DURING THE YEAR UNDER APPEAL. THE APPELLANTS CRAVE LEAVE TO ADD TO, AMEND, ALTER, VARY, O MIT OR SUBSTITUTE THE AFORESAID GROUNDS OF APPEAL OR ADD A NEW GROUND OR GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL AS THEY MAY BE ADVISED. IN THE CROSS APPEALS FOR THE ASSESSMENT YEAR 20 06 - 07 TH E ASSESSEE AND THE AO HAD FILED FOLLO WING GROUNDS OF APPEAL AND ADD ITIONAL GROUNDS: - ITA NO.174 8 /MUM/2011 ( ASSESSEES A PPEAL ) : - THE GROUNDS SET OUT BELOW ARE WITHOUT PREJUDICE TO ONE ANOTHER: 1. THE COMMISSIONER OF INCOME - TAX (APPEALS) [HEREIN AFTER REFERRED TO AS [ 'CIT (A)'] ERRED IN CONFIRMING THE ASSESSING OFFICER'S ACTION OF TAXING THE PROFIT ON SALE OF INVESTMENTS OF RS.21,23,3 1 6/ - . THE APPELLANTS PRAY THAT THE ASSESSING OFFICER BE DIRECTED TO EXEMPT THE PROFIT ON SALE OF INVESTMENTS OF RS.21 ,23,316/ - FROM TA X. 2. THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF AMORTISATION OF DEBT SECURITIES OF RS.3,33,69,811 / - CLAIMED AS A DEDUCTION BY THE APPELLANTS IN THEIR RETURN OF INCOME. 3. THE CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO DETERMINE THE UNABSORBED DEPRECIATION AND BUSINESS LOSS TO BE CARRIED FORWARD FOR SET OFF AGAINST THE TAXAB LE INCOME, IF ANY, OF SUBSEQUENT YEARS. 4. THE APPELLANTS PRAY THAT THE ORDER OF THE CIT (A) BE AMENDED TO GRANT THE RELIEF CLAIMED ABOVE. 5. THE APPEL LANTS CRAVE LEAVE TO ADD TO, ALTER OR AMEND, ANY OF THE FOREGOING GROUNDS OF APPEAL, IF AND WHEN NECESSARY. FOLLOWING ADDITIONAL GROUNDS WERE ALSO FILED BY THE ASSESSEE : - 1 . THE INCOME - TAX OFFICER - 1(1)(4) (HEREIN AFTER REFERRED TO AS THE AO) OUGH T TO HAVE ALLOWED DEDUCTION FOR PRE - OPERATIVE EXPENSES OF RS. 64,22,568 ( RUPEES SIXTY FOUR LACS TWENTY TWO THOUSAND FIVE HUNDRED SIXTY EIGHT) AMORTISED DURING THE YEAR UNDER APPEAL. THE APPELLANTS CRAVE LEAVE TO ADD TO, AMEND, ALTER, VARY, OMIT OR SUBSTITUTE THE AFORESAID GROUNDS OF APPEAL OR ADD A NEW GROUND OR GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL AS THEY MAY BE ADVISED. ITA NO. 3706 /MUM/201 3 ( REVENUE S A PPEAL ) : - ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE PENALTY U/S.271(1)(C) OF RS.1,19,46,987/ - DURING THE CO URSE OF HEARING BEFORE US, THE A UTHORISED R EPRESENTATIVE(AR) SUBMITTED THAT THE ADD ITIONA L GROUNDS RAISED BY THE ASSESSEE WERE PURELY LEGAL IN NATURE AND WERE ARISING OUT OF THE ORDER OF THE FIRST APPELLATE AUTHORITY ( FAA ) . A F TER GOING THROUGH THE ADD ITIONA L GROUNDS , WE FIND THAT THE SUBMISSION MADE BY AR IS FACTUALLY CORRECT. THEREFO R E , ADD ITIONA L GRO UND S, RAISED BY THE ASSESSEE , FOR BO TH THE YEARS ARE ADMITTED. 2. THE DETAILS OF DATES OF FILING OF RETURNS RETURNED INCOMES DATES OF ASSESM E N T ORDERS ETC. CAN BE SUMMA R ISED AS UNDER FOR THE ABOVE MENTIONE D TWO ASSESSMENT YEAR S : - ITA 1747,1748/11 & 3706/13(AY:03 - 04 & 06 - 07) M/S. HDFC ERGO 3 AY RETURN FILED ON RETURNED INCOME (RS.) ASSESSED INCO ME (RS.) DATE OF PENALTY ORDER PENALTY LEVIED (RS.) 2003 - 049(ITA NO.1747/M/11) 24/11/2003 ( - )4,29,37,910/ - ( - )4,05,50,506/ - - - 2006 - 07 (ITA NO.1748/M/11) 02/11/2006 NIL NIL - - 2006 - 07 (ITA NO.3706/M/13) 02/11/2006 NIL NIL 28.3.2012 1,19,46,987/ - 3. ITA 1747/MUM/2011 : - THE 1 ST EFFECTIVE GROUND OF APPEAL IS ABOUT TAXING THE PROFIT ON SALE OF INVESTMENT OF RS.23.87 LACS. DURING THE C O URSE OF HE A R IN G B EFOR E US, THE REPRESENTATIVES OF BOTH THE SIDES AGREED THAT SIMILAR ISSUE HAD BEEN DECIDED BY THE TRIBUNA L WHILE ADJUDICATING THE APPEAL FOR THE AY 20 04 - 05 AND AY 20 07 - 08, THAT FOR THE AY 20 04 - 05 THE APPEAL WAS FILED BY THE ASSESSEE WHEREAS FOR AY 20 07 - 08 THE AO HAD FILED THE APPEAL REGARDING THE IDENTICAL ISSUE .WE WOULD LIKE TO REPRODUCE THE RELEVANT PART O F THE ORDER PASSED BY THE TRIBUNAL FOR ASSESSMENT YEAR 20 07 - 0 8 ( ITA NO. 5 3 57/ MU M/2013 DT.13.1.15 ) 2. APROPOS GROUND NO.1 OF DEPARTMENTAL APPEAL, THE SAME WAS STATED TO BE COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AND REFERENCE WAS M ADE TO THE ORDER DATED 17/09/2010 IN ITA NO.338/MUM/2009 FOR ASSESSMENT YEAR 2004 - 05, WHEREIN SIMILAR ISSUE WAS RAISED BY THE ASSESSEE REGARDING TAXABILITY OF PROFIT ON SALE OF INVESTMENT AND TRIBUNAL HAS HELD THAT PROFIT ON SALE OF INVESTMENT IN THE CASE OF THE ASSESSEE CANNOT BE BROUGHT TO TAX. IT WAS PLEADED THAT FACTS AND CIRCUMSTANCES OF THE PRESENT YEAR ARE SAME AS WERE FOR ASSESSMENT YEAR 2004 - 05. COPY OF THE SAID ORDER WAS ALSO PLACED ON OUR RECORD AND WAS ALSO GIVEN TO LD. DR. LD. DR AFTER G OING THROUGH THE DECISION OF THE TRIBUNAL STATED THAT FACTS AND CIRCUMSTANCES ARE SAME. HOWEVER, HE RELIED UPON THE ORDER PASSED BY AO. 2.1 WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. AFTER CAREFUL CONSIDERATION W E FIND THAT THE ISSUE IS COVERED BY THE AFOREMENTIONED DECISION OF THE TRIBUNAL AND WHILE GIVING RELIEF LD. CIT(A) HAS REFERRED TO THE AFOREMENTIONED ORDER, RELEVANT PORTION OF WHICH HAS ALREADY BEEN REPRODUCED IN THE ORDER OF LD. CIT(A) AND IT IS ALSO REPRODUCED BELOW FOR THE SAKE OF CONVENIENCE. 6. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING TAXABILITY OF GAIN ON SALE OF INVESTMENT IN CASE OF THE ASSESSEE WHICH IS IN THE BUSINESS OF GENERAL INS URANCE. THE PROFIT OF A GENERAL INSURANCE COMPANY IS REQUIRED TO BE COMPUTED UNDER THE PROVISIONS OF SECTION 44 READ WITH RULE 5 OF PART B OF 1ST SCHEDULE. THE RULE 5(B) WHICH WAS APPLICABLE TILL ASSESSMENT YEAR 1988 - 89 SPECIFICALLY PROVIDED FOR TAXABILITY OF GAIN ON SALE OF INVESTMENT. THE SAID RULE 5(B) WAS HOWEVER DELETED W.E.F ASSESSMENT YEAR 1989 - 90. THE CBDT IN CIRCULAR NO.528 DATED 16.12.88 WHICH HAS BEEN REPRODUCED IN PARA 3 EARLIER HAS CLARIFIED THAT THE AMENDMENT OF RULE 5(B) FROM ASSESSMENT YEAR 1989 - 90 WAS WITH A VIEW TO PROVIDE EXEMPTION OF THE PROFIT EARNED ON SALE OF IN INVESTMENTS . WE FIND THAT IMPACT OF AMENDMENT OF RULE 5(B) FROM ASSESSMENT YEAR 1989 - 90 ON THE TAXABILITY OF GAIN ON SALE OF IN - VESTMENT HAS BEEN SPECIFICALLY CONSIDERED BY TH E PUNE BENCH OF THE TRIBUNAL IN CASE OF BAJAJ ALLIANZ VS. ADDL. CIT IN ITA NO.1447/PN/2007 FOR ASSESSMENT YEAR 2003 - 04. THE TRIBUNAL IN THE SAID ORDER OBSERVED THAT TILL ASSESSMENT YEAR 1988 - 89 RULE 5(B) PROVIDED FOR TAXATION OF PROFIT ON SALE OF INVESTMEN T WHICH WAS DELETED FROM ASSESSMENT YEAR 1989 - 90 AND AFTER DELETION NO CLAUSE WAS INTRODUCED TO PROVIDE FOR TAXATION OF SUCH GAIN. THE TRIBUNAL THEREFORE CONCLUDED THAT ITA 1747,1748/11 & 3706/13(AY:03 - 04 & 06 - 07) M/S. HDFC ERGO 4 AFTER THE DELETION OF RULE 5(B) OF THE FIRST SCHEDULE, PROFIT ON SALE OF INVESTMENT IN CASE OF GENERAL INSURANCE COMPANIES CANNOT BE TAXED UNDER SECTION 44 OF THE I. T ACT. THE SAID DECISION OF THE TRIBUNAL HAS BEEN FOLLOWED BY THE MUMBAI BENCHES OF THE TRIBUNAL IN CASE OF M/S. RELIANCE GENERAL INSURANCE CO. LTD. (SUPRA). THE CASE OF THE ASS ESSEE IS IDENTICAL AND THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF TRIBUNAL (SUPRA), WE HOLD THAT PROFIT ON SALE OF INVESTMENT IN CASE OF THE ASSESSEE CANNOT BE BROUGHT TO TAX IN ASSESSMENT YEAR 2004 - 05. ACCORDINGLY WE SET ASIDE THE ORDER OF CIT(A) A ND ALLOW THE APPEAL OF THE ASSESSEE. IN VIEW OF THE ABOVE, WE DISMISS GROUND NO.1 OF THE REVENUES APPEAL. F OLLOWING THE ABOVE WE ARE DECIDING THE EFFECTIVE GROUND OF APPEAL IN F AVOUR OF THE ASSESSEE . 4. THE ADD ITIONA L GROUND, RAISED BY THE ASSESSEE , IS ABOUT DEDUCTION OF PRE - OPERATIVE EXPENSES OF RS. 29.20 LACS . IT WAS BROUGHT TO OUR NOTICE THAT WHILE DECIDING APPEAL FOR ASSESSMENT YEAR 2007 - 08, FILED BY THE AO, THE TRIBUNAL H AD DECIDED THE ISSUE OF AMORTIS ATION OF DEBT SECURITIES AGAINST THE AO AND IN F AVOUR OF THE ASSESSEE . W E FIND THAT IN PARA NO.3. 3.1 A N D 3.2 (ITA 5357/MUM/ 2013 DT. 13.1.2015), THE TRIBUNAL HAD DISCUSSED AND DECIDE D THE ISSUE AS UNDER ) . 3. APROPOS GROUND NO.2, IT WAS SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF TRIBUNAL I N THE CASE OF TATA AIG GENERAL INSURANCE VS. ACIT, ORDER DATED 22/10/2010 IN ITA NO.2597/MUM/2009. (COPY OF ORDER PLACED ON OUR RECORD AND ALSO GIVEN TO LD. DR. 3.1 ACCORDING TO FACTS OF THE PRESENT CASE, THE ASSESSEE HAS AMORTIZED DEBIT SECURITIES FOR R S.3,27,69,854/ - INVOLVING BONDS/INVESTMENTS AND DEBIT SECURITIES AND CLAIMED AS DEDUCTION IN THE RETURN OF INCOME CLAIMING THAT PREMIUM/DISCOUNT RELATING TO THE SECURITIES IS AMORTIZED OVER A PERIOD TILL THE MATURITY. THE AO DID NOT AGREE AND REJECT THE CLAIM OF THE ASSESSEE. LD.CIT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE ON THE BASIS OF AFOREMENTIONED DECISION OF ITAT IN THE CASE OF TATA AIG GENERAL INSURANCE VS. ACIT(SUPRA) AND REFERRED TO THE FOLLOWING OBSERVATIONS OF THE TRIBUNAL: 7. ON A CAREFU L CONSIDERATION OF THE FACTS AND THE RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT THE AMORTIZATION CLAIM CANNOT BE CONSIDERED AS AN EXPENDITURE OR ALLOWANCE WITHIN THE MEANING OF RULE 5(A) OF THE FIRST SCHEDULE. AS HELD BY THE SUPREME COURT IN THE CASE OF I NDIAN MOLASSES CO. (PRIVATE) LTD. VS. CIT, WEST BENGAL (1959) 37 ITR 66 (SC), SPENDING IN THE SENSE PAYING OUT OR AWAY OF MONEY IS THE PRIMARY MEANING OF EXPENDITURE. EXPENDITURE IS WHAT IS PAID OUT OR AWAY AND IS SOMETHING WHICH IS GONE IRRETRIEVABLY. EXP ENDITURE, WHICH IS DEDUCTIBLE FOR INCOME TAX PURPOSES, IS ONE WHICH IS TOWARDS A LIABILITY ACTUALLY EXISTING AT THE TIME, BUT THE PUTTING ASIDE OF MONEY WHICH MAY BECOME EXPENDITURE ON THE HAPPENING 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 1TR 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 DEPARTMEN TAL 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 S ECTIONS 30 TO 43B. THE WORDS EXPENDITURE OR ALLOWANCE WHICH IS NOT ADMISSIBLE UNDER THE PROVISIONS OF SECTIONS 30 TO 43B APPEARING IN THE SUB - RULE HAS BEEN EXPLAINED BY THE SUPREME COURT TO MEAN THAT THERE SHOULD BE A SPECIFIC PROHIBITION AGAINST THE E XPENDITURE OR ALLOWANCE IN WHICH CASE ALONE THE ASSESSING OFFICER CAN ADD BACK THE SAME TO THE BALANCE OF PROFITS. IT IS COMMON GROUND THAT THERE IS NO SUCH SPECIFIC PROHIBITION AGAINST THE ALLOWANCE OF THE EXPENDITURE IN THE ABOVE SECTIONS OF THE ACT. IT MAY BE NOTED THAT THOUGH RULE 5(A) OF THE FIRST SCHEDULE CONSIDERED BY THE SUPREME COURT IN THE ABOVE JUDGMENT WAS SLIGHTLY DIFFERENT, BUT THE WORDS ANY EXPENDITURE OR ALLOWANCE WHICH IS NOT ADMISSIBLE UNDER THE PROVISIONS OF SECTIONS 30 TO 43A WERE PRES ENT AND THE SAME WORDS BEING PRESENT IN ITA 1747,1748/11 & 3706/13(AY:03 - 04 & 06 - 07) M/S. HDFC ERGO 5 THE AMENDED SUB - RULE, THEY HAVE TO BE GIVEN THE SAME MEANING AS WAS GIVEN BY THE SUPREME COURT. THEREFORE, EVEN IF THE DEBIT FOR AMORTIZATION IS CONSIDERED AS AN EXPENDITURE OR ALLOWANCE, THERE BEING NO SPECIFIC PROH IBITION AGAINST THE EXPENDITURE OR ALLOWANCE IN SECTIONS 30 TO 43B, THE DEPARTMENTAL AUTHORITIES WERE NOT JUSTIFIED IN ADDING BACK THE AMOUNT TO THE BALANCE OF THE PROFITS. THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF GENERAL INSURANCE CORPORATION OF I NDIA (SUPRA) TAKES CARE OF ALL THE ARGUMENTS ADVANCED ON BEHALF OF THE REVENUE. WE, THEREFORE, DELETE THE ADDITION OF RS.1,91,33,945/ - AND ALLOW THE FIRST GROUND. 3.2 WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. LD . DR DID NOT DISPUTE THE CONTENTION OF LD.AR THAT THE ISSUE IS COVERED BY THE AFOREMENTIONED DECISION OF TRIBUNAL IN THE CASE OF TATA AIG GENERAL INSURANCE VS. ACIT (SUPRA). IN THIS VIEW OF THE SITUATION , RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOL D THAT LD. CIT(A) DID NOT COMMIT ANY ERROR IN ACCEPTING THE CLAIM OF THE ASSESSEE AND THIS GROUND OF THE REVENUE IS DISMISSED. R ESPECTFULLY FOLL OWIN G THE ABOVE WE ARE DECIDING THE GR OUND N O.2 IN F AVOUR OF THE ASSESSEE . AS WE HAVE DECIDED THE EFFECTIVE GR OUND S IN F AVOUR OF THE ASSESSEE , THEREFORE, THE ISSUE RAISED BY THE ASSESSEE , ABOUT RE - OPENING IS NOT BEING ADJUDICATED, CONSIDERING IT TECHNICAL IN NATURE. ITA NO. 1748/MUM/11 ( AY 20 06 - 07): 5. THE FIRST EFFECTIVE GROUND OF APPEAL IS ABOUT SALE OF INVEST MENT OF RS.21.23 LACS. FOLLOWING THE OUR ORDER FOR ASSESSMENT YEAR 2003 - 04, WE DECIDE GR OUND NO.1 IN F AVOUR OF THE ASSESSEE . 6. THE 2 ND GROUND OF APPEAL IS ABOUT AMORTIZATION OF DEBT SECURITIES OF RS. 3.33 CR. WHILE DECIDING THE APPEAL FOR ASSESSMENT YE AR 20 03 - 04 , WE HAVE DECIDED THE ISSUE IN F AVOUR O F THE ASSESSEE. F OLLOWING THE SAME , GROUND NO.2 IS DECIDED IN F AVOUR OF THE ASSESSEE . 7. THE 3 RD GROUND OF APPEAL RAISED BY THE ASSESSEE IS ABOUT UNABSORBED DEP R ECIATION AND BUSINESS LOSS TO BE CARRIED F ORWARD FOR SET OFF AGAINST TAXABLE INCOME. IT WAS BROUGHT TO OUR NOTICE THAT WHILE ADJUDICATING THE APPEAL FOR ASSESSMENT YEAR 20 07 - 08 IN ITA 5420/M/2013, FILED BY THE ASSESSEE THE TRIBUNAL HAD RESTORED BAC K THE ISSUE TO THE AO, I N FOLLOWING MANNER : 5. APROPOS GROUND NO.3, IT WAS SUBMITTED BY LD. AR THAT THIS ISSUE WAS RAISED BY THE ASSESSEE BEFORE LD. CIT(A), WHO HAS REJECTED THE SAID GROUND AS PER FOLLOWING OBSERVATIONS: 11. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE ASSESSEE. THE EARLIER YEARS BROUGHT FORWARD LOSSES OR DEPRECIATION ARE ALLOWED AS PER LAW BY VERIFYING THE SAME FROM RECORDS OF EARLIER YEARS AND, THEREFORE, THERE IS NO NEED TO SEPARATELY DETERMINE THEM EVERY YEAR. HENCE, THE GROUND OF APPEAL IS REJECTED. 5.1 IT WAS SUBMITTED THAT INSTEAD OF REJECTING THE GROUND LD. CIT(A) SHOULD HAVE DIRECTED THE AO TO RECORD THE EARLIER YEARS UNABSORBED DEPRECIATION AND BROUGHT FORWARD BUSINESS LOSS TO BE CARRIED FORWARD FOR SET OFF AGAINST THE INCOME IN THE SUBSEQUENT YEARS. 5.2 ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY LD. CIT(A). 5.3 WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. THE DUE BENEFIT OF SET OFF OF BROUGHT FORWARD DEPRECIATION AND BUSINESS LOSS HAS TO BE GRAN TED TO THE ASSESSEE AND RECORDING OF SUCH UNABSORBED DEPRECIATION AND BUSINESS LOSS WHICH IS ENTITLED TO BE CARRIED FORWARD IS ALSO NECESSARY FOR GETTING SUCH BENEFIT IN THE SUBSEQUENT YEAR. THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF AO WITH A DIREC TION TO DETERMINE SUCH BROUGHT FORWARD AND CARRIED FORWARD UNABSORBED DEPRECIATION AND BUSINESS LOSS AS PER LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. ITA 1747,1748/11 & 3706/13(AY:03 - 04 & 06 - 07) M/S. HDFC ERGO 6 RESPECTFULLY FOLL OWING TH E ABOVE , WE ARE REMITTING BACK THE ISSU E TO THE AO WHO WILL DECIDE THE ISSUE AFRESH , AFTER AFFORDING REASONABLE OPPORTUNITY OF H EARING TO THE ASSESSEE . 8 . THE ADD ITIONAL GR OUND , RA ISED BY THE ASSESSEE , DEALS WITH PRE - OPERATIVE EXPENSES OF RS.64.22 LACS, A MO RTISED DURING THE Y EA R UNDER APPEAL. WE HAVE DECIDED THE IDENTICAL ISSU E IN F AVOUR OF ASSESSEE IN ASSESSMENT YEAR 20 03 - 04 IN PARA - 4 O F OUR ORDER . F OLLOWING THE SAME ADD ITIONAL GR OUND R AISED BY THE ASSESSEE STANDS ALLOWED. ITA NO. 3706 /M UN /13 : - 9 . THE ONL Y ISSUE IN THE APPEAL FILED BY THE REVENUE IS ABOUT LEVY OF PENALTY U/S. 271(1) (C) OF THE ACT. DURING THE COURSE OF H EARING B EFORE US , IT WAS BROUGHT TO OUR NOTICE THAT IN SIMILAR CIRCUMSTANCES THE TRIBUNAL HAD DELETED THE PENALTY WHILE DECIDING THE APPEAL FOR ASSESSMENT YEAR 20 04 - 05 IN ITA/1206/M UM / 20 11 DT.12.11.14. W E FIND THAT THE TRIBUNAL HAD DEALT THE ISSUE AS UNDER : - 2.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS IN THE BUSINESS OF GENERAL INSURANCE, EARNED PROFIT OF RS.6,10,00,234/ - ON SALE OF INVESTMENT AND CLAIMED THE SAME AS EXEMPT IN ITS RETURN FILED ON 27 TH OCTOBER 2004. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. THE ASSESSING OFFICER OPINED TH AT INVESTMENT IN SECURITIES OR SHARES, BEING NON OBLIGATORY, CANNOT BE CONSIDERED AS A PART OF LEGITIMATE INSURANCE BUSINESS AND THUS THE PROFIT ON SALE OF INVESTMENT WAS TREATED AS INCOME FROM BUSINESS. PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT WERE AL SO INITIATED. ON APPEAL THE QUANTUM ADDITION TRAVELLED UP TO THE TRIBUNAL WHEREIN SUCH ADDITION WAS DELETED. SINCE, THE QUANTUM ADDITION WAS DELETED BY THE TRIBUNAL, THE LD. COMMISSIONER OF INCOME TAX (APPEALS), FOLLOWED THE DECISION OF THE TRIBUNAL AND DELETED THE PENALTY AGAINST WHICH THE REVENUE IS AGGRIEVED AND IS IN APPEAL BEFORE THIS TRIBUNAL. 2.2. BEFORE US, THE STAND OF THE REVENUE IS TWO FOLD, FIRSTLY, THE PENALTY WAS WRONGLY DELETED AND SECONDLY THE DEPARTMENT HAS FILED AN APPEAL U/S 260A OF TH E ACT BEFORE THE HONBLE HIGH COURT AGAINST THE ORDER OF THE TRIBUNAL DELETING QUANTUM ADDITION. (A). SO FAR AS, DELETING THE PENALTY BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS), IS CONCERNED, WE NOTE THAT THE TRIBUNAL FOUND THAT RULE 5(B) WAS DELETED WITH EFFECT FROM 1/4/1989. THE CBDT VIDE CIRCULAR NO. 528 DT. 16/12/1988, CLARIFIED THE EFFECT OF SAID DELETION OF RULE 5(B) ON TAXABILITY OF PROFIT ON SALE OF INVESTMENT IN PARA 45.1, WHICH HAS BEEN REPRODUCED AT PAGE 2 ONWARDS OF THE ORDER OF THE TRIBU NAL (ITA NO.338/MUM/2009 ORDER DATED 17/09/2010, IN THE CASE OF THE ASSESSEE ITSELF, ON QUANTUM ADDITION). FINALLY, THE TRIBUNAL CONCLUDED THAT AFTER DELETION OF RULE 5(B) OF THE FIRST SCHEDULE, PROFIT ON SALE OF INVESTMENT IN CASE OF GENERAL INSURANCE CO MPANIES CANNOT BE TAXED U/S 44 OF THE ACT AFTER PLACING RELIANCE UPON THE DECISION IN THE CASE OF M/S RELIANCE GENERAL INSURANCE COMPANY LIMITED (ITA NO. 3083/MUM/2008) AND BAJAJ ALLIANZ GENERAL INSURANCE COMPANY VS ADDL. CIT (ITA NO. 1447/PN/2007). OUR V IEW FURTHER FINDS SUPPORT FROM THE DECISION AND THE RATIO LAID DOWN IN CIT VS S.P VIZ CONSTRUCTION COMPANY 176 ITR 47 (PATNA) AND K.C. BUILDERS VS ACIT 265 ITR 562 (SUPREME COURT). WE ARE OF THE VIEW WHERE THE PENALTY FOR CONCEALMENT OR FURNISHING INACCURA TE PARTICULARS WAS LEVIED AND AFTER DELETING THE QUANTUM ADDITION, THERE REMAINS NO BASIS AT ALL FOR LEVYING THE PENALTY. ORDINARILY, PENALTY CANNOT STAND IF THE ASSESSMENT ITSELF IS SET ASIDE OR CANCELLED BY THE TRIBUNAL OR OTHERWISE. THE PENALTY CANNOT STAND BY ITSELF BECAUSE FALSE RESULT MAY BE PRODUCED BY THE FALSITY OF ONE OR MORE OF THE CONSTITUENT ITEMS IN THE RETURN. THE WORD INACCURATE PARTICULARS WOULD COVER FALSITY IN THE FINAL FIGURE AND ALSO THE CONSTITUENT ELEMENTS OR ITEMS. THEY SIMPLY WOULD MEAN INACCURATE IN SOME SPECIFIC OR DEFINITE RESPECT WHETHER IN THE CONSTITUENT OR SUBORDINATE ITEMS OF INCOME OR THE END RESULT. CONCEALMENT OR FURNISHING INACCURATE PARTICULARS IMPLIES SOME DELIBERATE ACT ON THE PART OF ITA 1747,1748/11 & 3706/13(AY:03 - 04 & 06 - 07) M/S. HDFC ERGO 7 THE ASSESSEE IN WITHHOLDING THE TRUE FACTS FROM THE AUTHORITIES. SINCE, THE BASIS OF LEVYING PENALTY REMAINS NO MORE IN EXISTENCE, AFTER DELETION OF QUANTUM ADDITION, THEREFORE, FROM THIS ANGLE THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS JUSTIFIED. (B). SO FAR AS, THE CONTENTION OF THE LD. DR THAT APPEAL U/S 260A OF THE ACT HAS BEEN FILED BEFORE THE HONBLE HIGH COURT AGAINST THE DELETION OF QUANTUM ADDITION BY THE TRIBUNAL, IS CONCERNED, NO ORDER HAS BEEN PRODUCED BEFORE US REVERSING/STAYING THE ORDER OF THE TRIBU NAL, THEREFORE, AS ON TODAY, THE ORDER OF THE TRIBUNAL STANDS, CONSEQUENTLY, MERE FILING OF APPEAL IS NOT ENOUGH. HOWEVER, IF AT ANY STAGE, THE ORDER OF THE TRIBUNAL IS REVERSED, THE CONSEQUENCES MAY FOLLOW AND THE DEPARTMENT IS FREE TO TAKE THE LEGAL REC OURSE. THEREFORE, WE FIND NO FORCE IN THE ARGUMENT OF THE LD. DR FROM THIS ANGLE ALSO. 3. FINALLY, WE FIND NO INFIRMITY IN THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), CONSEQUENTLY, THE APPEAL OF THE REVENUE IS DISMISSED. IN THE CASE UNDE R CONSIDERATION IN DECIDING QUANTUM APPEAL, WE HAVE DELETED THE ADD ITION S M A DE BY AO AND CONFIRMED BY THE FAA . AS THE QUANTUM APPEAL HAS BEEN ALLOWED/PARTLY ALLOWED WITH REGARD TO G ROUND OF APPEAL / A DD ITIONA L G ROUND OF APPEAL RAISED BY THE ASSESSEE. T HEREFO RE, WE ARE OF THE OPINION THAT PENALTY PROCEEDINGS WOULD NOT SURVIVE. CONFIRMING THE ORDER OF THE FAA, WE DECIDE THE EF FECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE ASSESSEE FOR AY - 200 3 - 04 STANDS ALLOWED AND THE APPEAL FOR THE AY. 20 06 - 07 IS PARTLY ALLOWED.A PPEAL OF THE AO FOR THE AY.06 - 07 IS DISMISSED. . . 2003 - 04 . . 2006 - 07 . . . 06 - 07 . ORDER PRONOUNCED I N THE OPEN COURT ON 24 TH , JUNE ,2015. 24 , 2015 SD/ SD/ - ( / JOGINDER S INGH ) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE:24 .0 6 .2015 . . . JV . SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.