DCIT, Circle-6, Kolkata, Kolkata V. M/s National Insurance Co. Ltd., Kolkata

ITA 1825/KOL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1604 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 23-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOULEAN HANGSHINGCIT LD
• Assessee Lawyers: SANJAY BHATTACHARYA FCA LD
• Keywords: Business income; Depreciation; Bad and doubtful debts; Condonation of delay
• Section: 43B; 115JB

Judgement Text

1 ITA NOS. 1825 & 1826/KOL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUD ICIAL MEMBER I.T.A NO. 1825/KOL /2014 A.Y: 2007-0 8 I.T.A NO. 1826/KOL /2014 A.Y: 2010-1 1 D.C.I.T, CIR-6, KOLKATA VS. M/S. NATIONAL INSURAN CE CO. LTD. PAN:AAACN 9967E [APPELLANT] [RESPONDENT] FOR THE APPELLANT : SHRI GOULEAN HANGSHING, C IT, LD.DR FOR THE RESPONDENT : SHRI SANJAY BHATTACHARYA, FCA, LD.AR DATE OF HEARING : 13-06-2017 DATE OF PRONOUNCEMENT : 23-08-2017 ORDER SHRI S.S.VISWANETHRA RAVI, JM: THESE TWO APPEALS BY THE REVENUE ARE DIRECTED AGAIN ST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) -VI, KOLKATA BOTH DT. 07-07-2014 FOR THE A.YS 2007-08 AND 2010- 11. 2. THERE IS A DELAY OF 07 DAYS IN FILING BOTH THE A PPEALS. THE APPELLANT REVENUE FILED AN APPLICATION FOR CONDONAT ION OF DELAY OF 7 DAYS EACH. WE HAVE GONE THROUGH THE PETITION FILED FOR CONDONATION OF DELAY WHICH IS SUPPORTED BY WAY OF AN AFFIDAVIT. WE ARE CONVINCED THAT THE APPELLANT REVENUE HAD SUFFICIENT CAUSE IN NOT FILING BOTH THE APPEAL(S) IN TIME. HENCE, WE CONDONE THE SAME AND B OTH THE APPEALS ARE ADMITTED. 3. FIRST, WE SHALL TAKE UP THE APPEAL (ITA NO. 1825 /KOL/2014 FOR THE A.Y 2007-08 ( BY THE REVENUE). 2 ITA NOS. 1825 & 1826/KOL/2014 ITA NO. 1825/KOL/2014 A.Y 2007-08 ( BY THE REVENU E). 4. THE ONLY ISSUE IS TO BE DECIDED AS TO WHETHER TH E CIT-A WAS JUSTIFIED IN HOLDING THAT RESERVE FOR UNEXPIRED RIS K CREATED AS PER REQUIREMENT BY LAW OF A SUM OF RS.87,78,52,000/- NO T TO BE ADDED IN COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT, AS PER CLAUSE ( C ) TO EXPLANATION 1 OF SECTION 115JB(2) OF THE ACT, IN TH E FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE LD.DR RELIED ON THE ORDER OF THE AO. 6. IN REPLY, BEFORE US THE LD.AR SUBMITS THAT THE I SSUE IN HAND IS SQUARELY COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE BY THE ORDER DT. 5-08-2016 IN ASSESSEES OWN CASE FOR THE A.YS 2005-06, 07-08 AND 08-09. A COPY OF SUCH ORDER PLACED ON RE CORD. HE REFERRED TO PARA 11.4 OF SUCH ORDER AND ARGUED THAT THE RESE RVE CREATED FOR UNEXPIRED RISK NEED NOT BE ADDED BACK FOR THE PURPO SE OF COMPUTATION OF BOOK PROFITS U/S. 115JB OF THE ACT. 7. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE IN HAND IS SQUARELY COVERED BY THE ORDER DT. 05-08-2016 IN ASSESSEES OWN CASE, WHICH HAS RIGHTL Y POINTED OUT BY THE LD.AR OF THE ASSESSEE, WHEREIN THE TRIBUNAL HAD HELD THAT RESERVE CREATED FOR UNEXPIRED RISK NEED NOT BE ADDED BACK F OR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT. R ELEVANT PORTION OF SUCH ORDER DT. 05-08-2016 IS REPRODUCED HEREIN BELO W:- 11. ADDITION TOWARDS RESERVE CREATED FOR UNEXPIRED RISK U/S LI5JB OF THE ACT THE BRIEF FACTS OF THIS ISSUE IS THAT WHILE COMPUTI NG THE BOOK PROFIT U/S. 115JB OF THE ACT FOR THE PURPOSE OF MAT, THE LD.AO CONSIDERED A SUM OF RS.169.45.00.000/- BEING THE RESERVE FOR UNEXPIRED RISK CREATED AS PER THE R EQUIREMENT OF LAW, AS ALLEGEDLY REQUIRED TO BE ADDED BACK. THE ID AO ADDED BACK THE AFORESAID SUM OF RS. 169,45,00,000/- IN COMPUTING THE BOOK PROFIT. THE A SSESSEE SUBMITTED THAT AS PER THE INSURANCE ACT 1938, IN CASE OF AN INSURANCE COMPANY CARRYING ON GENERAL INSURANCE BUSINESS, PREMIUM IS RECOZNISED AS INCOME OVER THE CONTRACT PERIOD OR THE PERIOD OF RISK, WHICHEVER IS APPROPRIATE. PREMIUM RECEIVED IN ADVANCE WHICH REPRESENTS PREMIUM INCOME NOT RELATING TO THAT PARTICULAR ACCOUNTING P ERIOD IN WHICH THE SAID PREMIUM HAS BEEN RECEIVED, IS SEPARATELY DISCLOSED IN THE FINAN CIAL STATEMENTS OF AN INSURANCE COMPANY. THAT PART OF INCOME WHICH IS ATTRIBUTABLE TO THE SUCCEEDING ACCOUNTING PERIOD OR PERIODS IS REDUCED FROM THE TOTAL PREMIUM S RECEIVED DURING AN ACCOUNTING PERIOD BY WAY OF CREATION OR A RESERVE FOR UNEXPIRE D RISK IN ACCORDANCE WITH SECTION 64V(1)(II)(B) OF THE INSURANCE ACT 1938. THE AFORES AID RESERVE IS TO BE CREATED FOR A MINIMUM AMOUNT AS PRESCRIBED UNDER THE ABOVE MENTIO NED SECTION. APPRECIATING THE 3 ITA NOS. 1825 & 1826/KOL/2014 SPECIAL NATURE OF THE INSURANCE BUSINESS, THE LAW M AKERS PRESCRIBED SPECIAL PROCEDURE FOR COMPUTATION OF TOTAL INCOME OF AN INSURANCE COM PANY CARRYING ON BUSINESS OF INSURANCE OTHER THAN LIFE INSURANCE WHICH ARE TO BE FOUND IN RULE 5 OF THE FIRST SCHEDULE TO THE INCOME-TAX ACT. 1961 READ WITH RULE 6E OF THE INCOME-TAX RULES. 1962. THIS PARTICULAR PROCEDURE HAS TO BE MANDATORI LY COMPLIED WITH IN MAKING THE ASSESSMENT FOR INCOME-TAX PURPOSES. EVERY YEAR ADJUSTMENTS ARE MADE TO THE EXISTING RES ERVE FOR UNEXPIRED RISK BY WAY OF CREDITING OR DEBITING BY THE AMOUNT OF DIFFE RENCE BETWEEN THE RESERVE CREATED IN THE IMMEDIATE PRECEDING YEAR AND THE RESERVE REQ UIRED TO BE CREDITED DURING THE CURRENT ACCOUNTING YEAR. THIS CANNOT BE CONSIDERED AS ANY ALLEGED 'AMOUNT CARRIED TO ANY RESERVE' DEBITED TO THE PROFIT & LOSS ACCOUNT, BUT IT SHOULD BE APPRECIATED THAT THIS RESERVE REPRESENTS THAT PART OF PREMIUM INCOME WHICH DOES NOT RELATE TO THE CURRENT ACCOUNTING PERIOD. IT MUST BE APPRECIATED T HAT AS PER THE MERCANTILE SYSTEM OF ACCOUNTING, IT IS ONLY THAT INCOME/EXPENDITURE WHIC H RELATE TO THE CURRENT ACCOUNTING PERIOD, SHOULD FIND PLACES IN 'THE REVENUE/PROFIT & LOSS ACCOUNT OF THE YEAR. HENCE IT WAS SUBMITTED THAT IN CASE OF AN INSURANCE COMPANY (CARRYING ON GENERAL INSURANCE BUSINESS), THE CREATION OF 'RESERVE FOR UNEXPIRED R ISK' CANNOT BE CONSIDERED TO BE SIMILAR TO THOSE 'RESERVES' WHICH HAVE BEEN REFERRE D TO IN CLAUSE (B) OF EXPLANATION (L) TO SECTION 115JB(2). IT MAY ALSO BE APPRECIATED THA T THE 'RESERVE FOR UNEXPIRED RISK' CAN. IN ANY CASE, NOT BE CONSIDERED AS ANY PROVISIO N MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES AS REFERRED TO IN CLAU SE ( C) OF EXPLANATION (1) TO SECTION 115JB(2). ON THE BASIS OF THE ABOVE FACTS IT MAY KINDLY BE AP PRECIATED THAT THERE HAS NOT BEEN REQUIREMENT TO ADD BACK ANY SUM IN RELATION TO THE 'RESERVE FOR UNEXPIRED RISK' WHILE COMPUTING 'BOOK PROFIT' U/S.115JB(2) FOR THE ASSESS MENT YEAR 2008-09. ACCORDINGLY, THE ASSESSEE SUBMITTED THAT THE 'RESERVE FOR UNEXPI RED RISKS' NOT BEING OF THE NATURE AS SPECIFIED IN CLAUSE (B) OR EXPLANATION 1 TO SECT ION 115JB(2), THE ACTION OF THE LD AO IN MAKING AN ADDITION PR SUCH RESERVE SHOULD BE HEL D AS UNJUSTIFIED. HENCE, THE ASSESSEE SUBMITTED THAT THE ID AO MAY KINDLY BE DIR ECTED TO DELETE THE ADDITION OF RS.169,45,00,000/- MADE BY HIM IN COMPUTING THE BOO K PROFIT U/S 115JB OF THE ACT. 11.1 THE ID CITA OBSERVED THAT THE PROVISIONS CONT AINED IN RULE 6E OF THE INCOME-TAX RULES, 1962 HAS ALSO BEEN CONSIDERED. SECTION 115JB (2)- EXPLANATION (1)(B) REQUIRES INCREASING 'THE AMOUNTS CARRIED TO ANY RESERVE, BY WHATEVER NAME CALLED, OTHER THAN A RESERVE SPECIFIED U/S. 33AC' IF SUCH AMOUNT IS DEBI TED TO THE PROFIT & LOSS ACCOUNT. IT IS HELD THAT THE RESERVE FOR UNEXPIRED RISK HAS NOT BEEN DEBITED IN THE PROFIT & LOSS ACCOUNT AT ANY POINT OF TIME, THEREFORE EXPLANATION 1 TO SUB-SECTION 2 OF SECTIONL15JB IS NOT APPLICABLE IN THE PECULIAR FACTS OF THE GENERAL INSURANCE BUSINESS CARRIED OUT BY THE ASSESSEE. IN THE ASSESSEE'S CASE, FIRSTLY THE CONCE RNED RESERVE FOR UNEXPIRED RISK HAS NOT BEEN CREATED THROUGH ANY DEBIT ENTRY MADE IN TH E PROFIT & LOSS ACCOUNT. THE RESERVE HAS BEEN CREATED IN ACCORDANCE WITH THE REL EVANT PROVISIONS OF THE INSURANCE ACT, 1938, BY WAY OF DEBITING THE PREMIUM RECEIVED FOR ADJUSTING THE AMOUNT OF PREMIUM THAT MAY BE RELATED TO FUTURE YEAR OR YEARS . IT IS NOTED THAT RULE 5 OF THE FIRST SCHEDULE OF THE INCOME-TAX ACT 1961, WHICH SPECIFIE S THE PROCEDURE TO BE FOLLOWED FOR COMPUTING THE BUSINESS INCOME OF A GENERAL INSURANC E BUSINESS, SPECIFICALLY ALLOWS DEDUCTION FOR RESERVE CARRIED OVER FOR UNEXPIRED RI SK AND RULE 6E OF THE INCOME-TAX RULES, 1962 PROVIDES THAT SUCH DEDUCTION WILL BE AL LOWED TO THE MAXIMUM EXTENT OF 50% OF THE NET PREMIUM RECEIVED DURING THE RELEVANT YEAR. HENCE, THIS CREATION OF RESERVE OUT OF THE PREMIUM RECEIVED DURING THE YEAR , IS A STATUTORY REQUIREMENT AND THE SAME IS DULY RECOGNISED BY THE INCOME-TAX ACT/R ULES. AS ALREADY MENTIONED HEREINABOVE, THIS PARTICULAR RESERVE DOES NOT FAIL IN THE CATEGORY OF THOSE RESERVES WHICH HAVE BEEN SPECIFIED IN EXPLANATION 1 (B) TO S ECTION 115JB(2). THEREFORE, THIS RESERVE VIZ., THE RESERVE FOR UNEXPIRED RISK IN THE CASE OF A GENERAL INSURANCE BUSINESS, SHOULD NOT BE ADDED BACK FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S. 115JB(2) FOR MAT PURPOSES. ON THE BASIS OF THIS OBS ERVATION, IT WAS HELD THAT THE ID AO'S ACTION IN ADDING BACK A SUM OFRS.169,45,00,000 /- BEING RESERVE CREATED FOR UNEXPIRED RISK, WAS NOT IN ACCORDANCE WITH THE RELE VANT PROVISIONS OF THE INCOME-TAX ACT. 1961 AND ACCORDINGLY DELETED THE ADDITION. 11.2. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- '4. THE CIT(A) ERRED 011 THE FACTS OF THE CASE AND IN LAW IN HOLDING THE SUM OF RS 1694500000 BEING THE RESERVE CREATED FOR UNEXPIR ED RISK SHOULD BE CONSIDERED AS RESERVE FOR COMPUTING THE BOOK PROFI T UNDER SECTION 115JB OF THE INCOME-TAX ACT.' 11.3 THE LD.DR VEHEMENTLY RELIED ON THE ORDER OF TH E LD.AO. IN RESPONSE TO THIS, THE LD. AR VEHEMENTLY RELIED ON THE ORDER OF THE LD. CI TA. 4 ITA NOS. 1825 & 1826/KOL/2014 11.4 WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND T HAT THE LD. CITA HAD DEALT THIS ISSUE VERY ELABORATELY AND HAD GIVEN PROPER FINDING THAT THE RESERVE CREATED FOR UNEXPIRED RISK NEED NOT BE ADDED BACK FOR THE PURPO SE OF COMPUTATION OF BOOK PROFITS U/S. 115JB OF THE ACT. THE REVENUE WAS NOT ABLE TO CONTROVERT THE FINDINGS OF THE LD. CITA BEFORE US. HENCE WE FIND NO INFIRMITY IN THE O RDER PASSED BY THE LD. CITA IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 4 RAISED BY THE REVENUE FOR ASST YEAR 2008-09 IS DISMISSED. 8. IN VIEW OF ABOVE, WE ARE OF THE VIEW THAT CIT-A WAS JUSTIFIED IN HOLDING THAT A SUM OF RS.87,78,52,000/- IS NOT TO B E ADDED IN COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 9. THE APPEAL OF REVENUE IN ITA NO.1825/KOL/14 FOR THE A.Y 2007- 08 IS DISMISSED. 10. NOW, WE SHALL TAKE UP THE APPEAL ( ITA NO. 1826 /KOL/2014 OR THE A.Y 2010-11 ( BY THE REVENUE). ITA NO. 1826/KOL/2014 OR THE A.Y 2010-11 ( BY THE REVENUE) . 11. GROUND NO.1 IS RELATING TO DELETION OF ADDITION OF RS.1,67,74,000/- BEING INVESTMENT WRITTEN OFF BY TH E CIT-A. 12. THE LD.DR RELIED ON THE ORDER OF THE AO. 13. IN REPLY, THE LD.AR SUBMITS THAT THE ISSUE IN H AND IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY SUCH ORDER DT. 05- 08-2016 IN ASSESSEES OWN CASE IN ITA NOS. ITA NOS. 674, 982 & 983/KOL/2012 FOR THE A.YS 2005-06, 07-08 AND 08-09 AND PLACED ON RECORD THE COPY OF SUCH ORDER. HE FURTHER ARGUED THAT FOR THE A.YS 2000-01, 02-03 AND 04-05 THE CIT-A HAVING HIS JURISDICTION DELETE D THE DISALLOWANCE MADE ON INVESTMENT WRITTEN OFF. 14. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L ON RECORD. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY ORDER DT. 05-08-2016 SUPRA AS RIGHTLY BEEN POINTED OUT BY THE LD.AR OF THE ASS ESSEE. WE FURTHER FIND THAT THE LD. DR COULD NOT CONTROVERT T HE FINDINGS OF THE CIT-A GIVEN FOR THE A.YS 2002-01, 02-03 AND 04-05 . THE TRIBUNAL CONSIDERING THE SAME, DELETED THE SAID ADDITION MAD E ON ACCOUNT OF 5 ITA NOS. 1825 & 1826/KOL/2014 INVESTMENT WRITTEN OFF FOR THE A.YS 2005-06, 07-08 AND 08-09 IN ASSESSEES OWN CASE VIDE ORDER DT. 05-08-2016. RELE VANT PORTION OF SUCH ORDER DT. 05-08-2016 SUPRA IS REPRODUCED HEREIN BELOW:- 9. DISALLOWANCE OF INVESTMENT WRITTEN OFF THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE WROTE OFF RS.4,22,26,000/- OUT OF INVESTMENTS BY CHARGING THE SAID SUM TO ITS PROF IT & LOSS ACCOUNT. THE LD. AO HELD THAT THE ABOVE-MENTIONED WRITE OFF COULD ALLEGEDLY NOT BE ALLOWED AS ADMISSIBLE DEDUCTION AND HE DISALLOWED RS.4,22,26,000/-. THE A SSESSEE SUBMITTED THAT THE SUM OF RS.4,22,26,000/- WHICH HAD BEEN DEBITED TO THE PROF IT & LOSS ACCOUNT HAD REPRESENTED THE AMOUNT OF INVESTMENT WRITTEN OFF AND THE SUM WA S NEITHER AN EXPENDITURE NOR AN ALLOWANCE. SINCE THE AFORESAID SUM HAD NOT BEEN OF THE NATURE OF ANY EXPENDITURE OR ALLOWANCE, THE SAME COULD NOT BE ADDED BACK AS PER THE PROVISIONS OF SECTION 44 READ WITH RULE 5 OF THE FIRST SCHEDULE TO THE INCOME-TAX ACT, 1961. THE ASSESSEE ALSO SUBMITS THAT THE ID AO HAD THE POWER TO ADD BACK ON LY THAT EXPENDITURE OR ALLOWANCE OR A PROVISION WHICH WAS NOT ADMISSIBLE UNDER THE P ROVISIONS OF SECTIONS 30 TO 43B. THE APPELLANT HAD BROUGHT TO THE ATTENTION OF THE ID AO OF THE FACTS AND THE DECISION OF THE HON'BLE SUPREME COURT REPORTED IN 240 ITR 139 (SC). HOWEVER, WHILE MAKING THE ASSESSMENT THE ID AO HAD NOT CONSIDERED THE ASSESSE E'S REFERENCE MADE TO THE DECISION OF THE HON'BLE SUPREME COURT AS REPORTED I N 240 ITR 139 (SC) AND HE DISALLOWED THE SUM OF RS.4,22,26,000/-. THE ASSESSE E FURTHER SUBMITTED THAT AS PER THE FACTS AND THE DECISION OF THE HONBLE SUPREME C OURT IN THE CASE OF CIT V. ORIENTAL FIRE & GENERAL INSURANCE CO. LTD. [2007] 291 ITR 37 1(SC) ANY AMOUNT HAVING BEEN WRITTEN OFF, CANNOT BE CONSIDERED AS AN EXPENDITURE OR ALLOWANCE WHICH COULD BE ADDED BACK AS PER THE PROVISIONS OF SECTION 44 READ WITH RULE 5 OF THE FIRST SCHEDULE. WITHOUT PREJUDICE TO THE SUBMISSION MADE HEREINABO VE, THE ASSESSEE SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 4 READ WITH R ULE 5 OF THE FIRST SCHEDULE ALL THE INCOMES OF THE ASSESSEE WERE TO BE CONSIDERED AS AS SESSABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. AS PER THE RE LEVANT PROVISIONS OF THE ACT. THERE IS NO PROVISION FOR ASSESSMENT OF ANY INCOME OF THE AS SESSEE UNDER ANY HEAD OTHER THAN UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION '. HENCE, ALL THE ASSETS OF THE ASSESSEE WERE TO BE CONSIDERED AS ASSETS UTILIS ED FOR THE ASSESSEE'S BUSINESS. THOUGH IN THE BALANCE SHEET SOME OF THE ASSETS ARE BEING SHOWN UNDER THE HEAD 'INVESTMENTS'', STILL THOSE ARE ALSO TO BE CONSIDE RED AS BUSINESS OR TRADING ASSETS OF THE ASSESSEE. ANY WRITING OFF OF INVESTMENTS WHICH HAVE BEEN CONSIDERED AS BAD, SHOULD BE TREATED AS WRITING OFF OF BAD DEBTS. HENC E, THE ASSESSEE SUBMITTED THAT WRITING OFF OF INVESTMENTS SHOULD HAVE BEEN CONSIDE RED BY THE LD AO AS WRITING OFF OF BAD DEBTS WHICH WERE ALLOWABLE U/S. 36(1)(VII). THE LD AO SHOULD HAVE APPRECIATED THAT INCOME FROM THOSE INVESTMENTS HAD ALWAYS BEEN SHOWN UNDER THE HEAD 'BUSINESS INCOME' AND. THEREFORE. THE REQUIREMENT OF SECTION 36(2) SHOULD HAVE BEEN CONSIDERED AS HAVING BEEN FULFILLED BY THE ASSESSEE. THE ASSES SEE FURTHER SUBMITTED THEN IN RESPECT OF THE ASSESSMENT YEAR 200:2-03 (GROUND NO. 1 ) THE LD.CIT(A) VIDE HIS APPELLATE ORDER DATED 24-01-2007 (PARAGRAPH NO. 7) DELETED THE DISALLOWANCE IN RESPECT OF THE BAD DEBTS BEING INVESTMENT WRITTEN O FF. ON THE BASIS OF THE ABOVE FACTS, THE ABOVE-REFERRED TWO DECISIONS OF THE HON 'BLE SUPREME COURT AS WELL AS THE APPELLATE DECISION IN THE ASSESSEE'S OWN ASSESSMENT FOR THE ASSESSMENT YEAR 2002-03, AS REFERRED TO ABOVE, THE ASSESSEE SUBMITTED THAT T HE DISALLOWANCE OF RS. 4,22,26,000/- IN RESPECT OF INVESTMENTS WRITTEN OFF MAY KINDLY BE DELETED. IT WAS ALSO SUBMITTED THAT THE LD CITA HAD DELETED THE DISALLOWANCES ON INVESTMENTS WRITTEN OFF FOR THE ASST YEARS 2000-01 , 2002-03 AND 2004-05 VIDE ORDERS DATED 30.1.2009, 24.1.2007 AND 15.6.2009 RESPECTIVE LY. THE LD CITA DELETED THE DISALLOWANCE MADE BY THE LD AO. AGGRIEVED, THE REVE NUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- '3. THE CIT(A) ERRED ON THE FACTS OF THE CASE AND I N LAW IN HOLDING THAT A SUM OF RS.4,22,26,000/- BEING THE INVESTMENTS WRITTEN OFF IS AN ALLOWABLE DEDUCTION. ' 9.1. THE ID DR VEHEMENTLY RELIED ON THE ORDER OF TH E LD AO. IN RESPONSE TO THIS, THE LD AR VEHEMENTLY RELIED ON THE ORDER OF THE ID CIT A. 9.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LD CITA HAD DELETED THE DI SALLOWANCE BY OBSERVING AS UNDER:- '23. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS O F THE ASSESSING OFFICER IN [HE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT A ND BOTH THE DECISIONS 6 ITA NOS. 1825 & 1826/KOL/2014 REFERRED TO ABOVE OF HON'BLE SUPREME COURT AND THE COPIES OF THE APPELLATE ORDERS FOR THE ASSESSMENT YEARS 2000-01,2002-03 AND 2004-05 OF THE CIT(A)- VI, KOLKATA. THE AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT THE TRANSACTIONS IN INVESTMENTS BEING A PART OF BUSINES S OF THE ASSESSEE, THE WRITING OFF OF INVESTMENTS SHOULD BE CONSIDERED AS DEDUCTIB LE FOR THE PURPOSE OF COMPUTING THE BUSINESS INCOME OF ASSESSEE. SINCE TH E ASSESSEE HAS BEEN CARRYING ON THE GENERAL INSURANCE BUSINESS AND CONS EQUENTLY ITS ASSESSMENT IS REQUIRED TO BE MADE IN ACCORDANCE WITH THE PROVISIO NS OF SECTION 44 READ WITH THE RULE 5 OF THE FIRST SCHEDULE TO THE INCOME-TAX ACT. 1961, THE ASSESSING OFFICER IS EMPOWERED TO MAKE ADDITIONS/DISALLOWANCE S ONLY IN ACCORDANCE WITH THE ABOVE-MENTIONED RULE 5. ANY SUM WHICH HAS BEEN WRITTEN OFF CANNOT BE CONSIDERED AS EITHER 'EXPENSE' OR 'ALLOWANCE' OR 'P ROVISION'. 24. IT IS OBSERVED THAT IN THE ABOVE-REFERRED RULE 5 OF THE FIRST SCHEDULE IT HAS BEEN MENTIONED THAT CERTAIN EXPENDITURE OR ALLOWANC E OR PROVISION CAN BE ADDED BACK ONLY IF THE SAME IS NOT ADMISSIBLE UNDER SECTIONS 30 TO 438 OF THE ACT AND THERE IS NO SPECIFIC MENTIONING OF ADDING B ACK OF ANY AMOUNT WRITTEN OFF OUT OF INVESTMENTS. FROM THE ABOVE-REFERRED SUPREME COURT DECISIONS IT IS CLEAR THEFT IF THE PARTICULAR ITEM OF DISPUTE (DEBIT ENTR Y MADE IN THE PROFIT & LOSS ACCOUNT) FALLS UNDER THE CATEGORY OF 'EXPENDITURE' OR 'ALLOWANCE' OR 'PROVISION', AND THE SAME IS NOT ADMISSIBLE UNDER THE ACT, ONLY THEN THE CONCERNED ITEM CAN BE ADDED BACK IN COMPUTING THE INCOME FROM GENERAL INSURANCE BUSINESS. FROM THE ABOVE FACTS IT APPEARS THAT THE DISALLOWANCE OF THE WRITING OFF OF INVESTMENTS, MADE BY THE ASSESSING OFFICER IS NOT I N ACCORDANCE WITH THE PRESCRIBED SPECIFIC PROCEDURE IN THE APPELLANT'S CA SE. 25. RESPECTFULLY FOLLOWING THE ABOVE-REFERRED TWO S UPREME COURT DECISIONS, SUBMISSIONS OF THE APPELLANT AND THE APPELLATE ORDE RS FOR THE ASSESSMENT YEARS 2000-01, 2002-03 AND 2004-05 OF THE CIT(A)-VI, KOLK ATA AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS MENTIONED HEREINABOVE, IT IS HELD THAT BECAUSE OF THE RESTRICTIONS CONTAINED IN SECTION 44 READ WITH RULE 5 OF THE FIRST SCHEDULE, THERE COULD NOT BE ANY DISALLOWANCE OF THE AMOUNT W RITTEN OFF OUT OF INVESTMENTS AND, ACCORDINGLY, THE DISALLOWANCE OF R S. 4,22,26,000/- IS DELETED. HENCE, GROUND NO. 5 IS ALLOWED. WE FIND THAT THE REVENUE WAS NOT ABLE TO CONTROVERT THE DETAILED FINDINGS OF THE LD. CIT(A) BEFORE US. HENCE WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN THIS REGARD. ACCORDINGLY, THE GRO UND NO. 3 RAISED BY THE REVENUE FOR THE ASST YEARS 2007-08 AND 2008-09 ARE DISMISSED. THE DECISION TAKEN IN ASST YEAR 2007-08 WITH REGARD TO THIS GROU ND WOULD APPLY WITH EQUAL FORCE TO ASST YEAR 2008-09 AS SIMILAR DISALLOWANCE WAS MADE IN ASST. YEAR 2008-09 EXCEPT WITH VARIANCE IN FIGURES. 15. IN VIEW OF ABOVE, WE ARE OF THE VIEW THAT CIT-A WAS JUSTIFIED IN HOLDING THAT A SUM OF RS. 1,67,74,000/- BEING INVES TMENT WRITTEN OFF IS AN ALLOWABLE DEDUCTION. THUS, THE GROUND NO. 1 R AISED BY THE REVENUE IS DISMISSED. 16. GROUND NO. 2 IS RELATING TO DELETION OF ADDITIO N OF RS.4,62,08,000/-, WHICH IS ALLOWABLE BEING AMORTIZA TION OF PREMIUM PAID ON INVESTMENT. 17. THE LD.DR RELIED ON THE ORDER OF THE AO. 18. IN REPLY, THE LD.AR OF THE ASSESSEE SUBMITS THA T THE ISSUE IN HAND IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY I TAT ORDER DT. 05- 7 ITA NOS. 1825 & 1826/KOL/2014 08-2016 IN ASSESSEES OWN CASE SUPRA AND REFERRED TO PARA 8 OF SUCH ORDER. 19. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L ON RECORD. WE FIND THAT THE ISSUE IN HAND IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY SUCH ORDER DT. 05-08-2016 IN ASSESSEES OWN CASE, AS RIGHTLY POINTED OUT BY THE LD.AR OF THE ASSESSEE. W E FIND THAT THIS TRIBUNAL IN ASSESSEES OWN CASE SUPRA DELETED THE SAID DISALLOWANCE ON THE GROUND THAT THE CIT-A HAS GIVEN RELIEF TO AS SESSEE BY PLACING HIS RELIANCE ON THE DECISIONS OF THE HONBLE SUPREM E COURT IN THE CASES OF GENERAL INSURANCE CORPORATION OF INDIA VS. CIT REPORTED IN (1999) 240 ITR 139(SC) AND CIT VS. ORIENTAL FIRE & GENERAL INSURANCE CO. LTD REPORTED IN (2007) 291 ITR 370(SC ), WHEREIN IT WAS HELD THAT THE AO HAD NO GENERAL POWER TO MAKE ANY ADJUSTMENT IN THE ACCOUNTS OF A GENERAL INSURANCE COMPANY. WE FURTHER FIND THAT THE REVENUE WAS NOT ABLE TO CONTROVERT THE DETAILE D FINDINGS OF THE CIT-A. RELEVANT PORTION OF SUCH ORDER DT. 05-08-201 6 SUPRA IS REPRODUCED HEREIN BELOW:- 8. DISALLOWANCE OF AMORTISATION OF PREMIUM PAID ON PURCHASE OF INVESTMENTS THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE CLAIMED RS. 6,02,18,000/- TOWARDS AMORTIZATION OF PREMIUM PAID ON INVESTMENTS. WITHOU T ASSIGNING ANY REASON, THE LD AO STATED IN HIS ORDER THAT THE SAID CLAIM OF AMORTIZA TION COULD ALLEGEDLY NOT BE ALLOWED AS ADMISSIBLE DEDUCTION AND ACCORDINGLY DISALLOWED THE SAME. THE ASSESSEE SUBMITTED THAT IT HAS BEEN CARRYING ON THE BUSINESS OF INSURANCE O THER THAN LIFE INSURANCE AND ACCORDINGLY ITS INCOME TAX ASSESSMENTS WERE REQUIRE D TO BE MADE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 44 READ WITH RULE 5 OF THE FI RST SCHEDULE TO THE INCOME TAX ACT. ACCORDING TO THE AFORESAID PROVISIONS, THE PROFITS AND GAINS OF THE INSURANCE BUSINESS OTHER THAN LIFE INSURANCE SHALL BE TAKEN TO BE THE BALANCE OF PROFITS DISCLOSED BY THE PROFIT & LOSS ACCOUNT COPY OF WHICH ARE REQUIRED UNDER THE INSURANCE ACT, 1938 TO BE FURNISHED TO THE COMPTROLLER OF INSURANCE SUBJECT T O THE FOLLOWING ADJUSTMENTS :- A) ANY EXPENDITURE OR ALLOWANCE WHICH IS NOT ADMISS IBLE UNDER THE PROVISIONS OF SECTION 30 TO 43B SHALL BE ADDED BACK. B) AMOUNT CARRIED OVER TO A RESERVE FOR ANY UNEXPIR ED RISKS AS PRESCRIBED IN THIS BEHALF SHALL BE ALLOWED AS A DEDUCTION. THE ASSESSEE ALSO SUBMITTED THAT THE HONBLE SUPREM E COURT IN THE CASE OF GENERAL INSURANCE CORPORATION OF INDIA VS CIT REPOR TED IN (1999) 240 ITR 139 (SC) HAD HELD THAT THE ASSESSING OFFICER HAD NO GENERAL POWE R TO MAKE ANY ADJUSTMENT. IN THE ACCOUNTS OF A GENERAL INSURANCE COMPANY. THE ASSESS EE ALSO SUBMITTED THAT THE HONBLE SUPREME COURT IN THE CASE OF CIT VS ORIENTAL FIRE & GENERAL INSURANCE CO LTD REPORTED IN (2007) 29 ITR 370 (SC) HAD HELD THAT PROVISIONS MAD E TOWARDS INCOME TAX AND BAD AND DOUBTFUL DEBTS, NOT BEING OF THE NATURE OF EXPENDIT URE, COULD NOT BE ADDED BACK BY THE ASSESSING OFFICER WHILE COMPUTING THE BUSINESS INCO ME OF AN ASSESSEE CARRYING ON GENERAL INSURANCE BUSINESS COVERED U/S 44 OF THE IN COME TAX ACT. THE ASSESSEE FURTHER SUBMITTED THAT AS PER THE ABOVE REFERRED SECTION 44 OF THE INCOME TAX ACT, ALL CLASSES OF INCOME OF THE ASSESSEE ARE REQUIRED TO BE ASSESSED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' . HENCE THE ASSESSING OFFIC ER SHOULD HAVE APPRECIATED THAT ALL 8 ITA NOS. 1825 & 1826/KOL/2014 EXPENSES AND; OR ADJUSTMENTS MADE IN THE ASSESSEE'S ACCOUNTS WERE TO BE CONSIDERED AS HAVING DIRECT NEXUS TO THE ASSESSEE'S BUSINESS OF I NSURANCE. THE ASSESSEE FURTHER SUBMITTED THAT SINCE THERE DOES NOT EXIST ANY SPECI FIC PROVISION IN THE ACT FOR DISALLOWANCE OF PREMIUM PAID ON INVESTMENTS, THE LD AO SHOULD NOT HAVE MADE THE DISALLOWANCE OF RS. 6,02,18,000/- AS PER RULE 5 OF THE 1 ST SCHEDULE TO THE INCOME TAX ACT, 1961. ACCORDINGLY, THE ASSESSEE SUBMITTED THAT THE LD AO SHOULD HAVE HELD THAT PREMIUM PAID ON INVESTMENTS BY THE ASSESSEE COULD N OT BE DISALLOWED AND HIS ACTION IN MAKING THE DISALLOWANCE SHOULD BE CONSIDERED AS UNJ USTIFIED. IT WAS ALSO SUBMITTED THAT THE TRANSACTIONS IN INVESTMENTS BEING A PART OF THE BUSINESS OF THE ASSESSEE, THE AMORTIZATION OF PREMIUM PAID ON INVESTMENTS SHOULD BE CONSIDERED AS DEDUCTIBLE FOR THE PURPOSE OF COMPUTING THE BUSINESS INCOME OF THE ASS ESSEE. IT WAS SUBMITTED FURTHER THAT THIS WAS THE FIRST YEAR IN WHICH SUCH DISALLOWANCE HAS BEEN MADE. THE ASSESSEE BUYS THE GOVERNMENT SECURITIES ON PREMIUM. THE PREMIUM AMOUN T IS AMORTISED AND IS BEING CHARGED TO PROFIT & LOSS ACCOUNT ON PRORATA BASIS D EPENDING ON THE NUMBER OF YEARS WHEN THE SECURITIES WILL BE PAID BACK. THE PURCHASI NG OF THE SECURITIES AT PREMIUM IS COMPULSORY AS PER THE GUIDELINES OF THE GOVERNMENT OF INDIA AND THERE IS NO CHOICE WITH ASSESSEE FOR NOT TO BUY THE SAME. THE ASSESSEE DIST RIBUTES THE PREMIUM PAID OVER A PERIOD OF HOLDING RATHER THAN DEBITING THE SAME IN THE YEAR OF PURCHASE WHICH WILL GIVE A DISTORTED LOOK TO THE PROFIT & LOSS ACCOUNT AND WIL L NOT BE REFLECTING THE TRUE AND FAIR VIEW OF THE COMPANY AS PER THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT SINCE THE ASSESSEE HA S BEEN CARRYING ON THE GENERAL INSURANCE BUSINESS AND CONSEQUENTLY ITS ASS ESSMENT IS REQUIRED TO BE MADE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 44 READ W ITH RULE 5 OF FIRST SCHEDULE TO THE INCOME TAX ACT. 1961, THE LD AO IS EMPOWERED TO MAK E ADDITIONS/DISALLOWANCES ONLY IN ACCORDANCE WITH THE ABOVE MENTIONED RULE 5. ANV SUM WHICH HAS BEEN AMORTISED CANNOT BE CONSIDERED AS EITHER EXPENSE' OR 'ALLOWANCE OR 'PROVISION'. LT WAS SUBMITTED THAT IN THE ABOVE REFERRED RULE 5 OF THE FIRST SCHEDULE, IT HAS BEEN MENTIONED THAT CERTAIN EXPENDITURE OR ALLOWANCE OR PROVISION CAN BE ADDED BACK ONLY IF THE SAME IS NOT ADMISSIBLE U/S 30 TO 43B OF THE ACT AND THERE IS NO SPECIFIC MENTIONING OF ADDING BACK OF ANY AMOUNT AMORTISED IN RELATION TO PREMIUM PAID ON INVESTMENTS. FROM THE ABOVE REFERRED SUPREME COURT DECISIONS, IT IS CLEAR THAT IF THE PARTICULAR ITEM OF DISPUTE (DEBIT ENTRY MADE IN THE PROFIT AND LOSS ACCOUNT) FALLS UN DER THE CATEGORY OF 'EXPENDITURE' OR 'ALLOWANCE' OR 'PROVISION' AND THE SAME IS NOT ADMI SSIBLE UNDER THE ACT, ONLY THEN THE CONCERNED ITEM CAN BE ADDED BACK IN COMPUTING THE I NCOME FROM GENERAL INSURANCE BUSINESS. FROM THE ABOVE FACTS, IT IS CLEAR THAT TH E DISALLOWANCE OF AMORTISED PREMIUM PAID ON INVESTMENTS MADE BY THE LD AO IS NOT IN ACC ORDANCE WITH THE PRESCRIBED SPECIFIC PROCEDURE IN THE ASSESSEE'S CASE. THE LD CITA DULY APPRECIATED THE CONTENTIONS OF THE ASSESSEE AND BY FOLLOWING THE RATIO DECIDENDI OF TH E TWO SUPREME COURT DECISIONS SUPRA, DELETED THE DISALLOWANCE OF RS. 6,02,18,000/- MADE BY THE LD AO. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GRO UND:- '2. THE CIT(A) ERRED ON THE FACTS OF THE CASE AND I N /01'1' IN HOLDING THAT A SUM OF RS. 6,02,18,000/- BEING AMORTIZATION OF PREMIUM PAID ON PURCHASE OF INVESTMENTS IS AN ALLOWABLE DEDUCTION WHILE COMPUTI NG THE INCOME. ' 8.1. THE LD DR- VEHEMENTLY RELIED ON THE ORDER OF T HE ID AO. IN RESPONSE TO THIS, THE LD AR VEHEMENTLY RELIED ON THE ORDER OF THE ID CITA. 8.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE REVENUE WAS NOT ABLE TO CONTROVERT THE DETAILED FINDINGS OF THE LD CIT A BEFORE US. WE ALSO FIND THAT THE ID CIT A HAD GRANT ED RELIEF TO THE ASSESSEE AFTER ELABORATELY DISCUSSING THE FACTS OF THE CASE AND BY PLACING RELIANCE ON THE TWO SUPREME COURT JUDGMENTS SUPRA. RESPECTFULLY FOLLOWING THE S AME, WE FIND NO INFIRMITY IN THE ORDER OF THE LD CIT A IN THIS REGARD. ACCORDINGLY, THE GR OUND NO. 2 RAISED BY THE REVENUE FOR THE ASS! YEARS 2007- 08 AND 2008-09 ARE DISMISSED. THE DECISION TAKEN IN ASST YEAR 2007-08 WITH REGARD TO THIS GROUND WOULD APPLY WITH EQUAL FORCE TO ASST YEAR 2008-09 AS SIMILAR DISALLOWANCE WAS MADE IN ASST YEAR 2008-09 EXCEPT WITH VARIANCE IN FIGURES. 20. IN VIEW OF ABOVE, WE ARE OF THE VIEW THAT CIT-A WAS JUSTIFIED IN HOLDING THAT A SUM OF RS. 4,62,08,000/- WAS ALLOWAB LE EXPENDITURE BEING AMORTIZATION OF PREMIUM PAYMENT ON INVESTMENT . THUS, THE GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. 9 ITA NOS. 1825 & 1826/KOL/2014 21. REGARDING GROUND NO. 3 IS AS TO WHETHER THE CIT -A WAS JUSTIFIED IN HOLDING THAT A SUM OF RS.161,86,66,000/- IS NOT TO BE ADDED IN COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT AS PER CLAUSE ( C ) TO EXPLANATION 1 OF SECTION 115JB(2) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 22. WE FIND THAT THIS ISSUE IS SIMILAR AND IDENTICA L WITH GROUND NO.1 RAISED BY THE REVENUE IN ITA NO.1825/KOL/2014 FOR T HE A.Y 2007-08, WHICH WE HAVE ALREADY DISPOSED OFF AS ABOVE BY DISM ISSING THE GROUND RAISED BY THE REVENUE. THEREFORE, FOLLOWING THE SAME VIEW AS TAKEN BY US IN GROUND NO.1 IN THE REVENUE IN ITA NO. 1825/KOL/2014, THE GROUND NO.3 RAISED IN THE REVENU E IN ITA NO. 1826/KOL/2014 FOR THE A.Y 2010-11, WE DISMISS THIS GROUND NO. 3 BY UPHOLDING THE IMPUGNED FINDING OF THE CIT-A ON THIS ISSUE. GROUND NO.3 RAISED BY THE REVENUE IS DISMISSED. 23. THE APPEAL OF THE REVENUE IN ITA NO. 1826/KOL/2 014 FOR THE A.Y 2010-11 IS DISMISSED. 24. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23-0 8-2017 SD/- SD/- J. SUDHAKAR REDDY S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23-08-2017 10 ITA NOS. 1825 & 1826/KOL/2014 PP(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT/REVENUE: THE DCIT, CIR-6, AAYKAR BHAWAN, 6 TH FLOOR, ROOM NO. 6/17, P-7 CHOWRINGHEE SQUARE, KOLKATA-69. 2 RESPONDENT/ASSESSEE: NATIONAL INSURANCE COMPANY LIM ITED 3 MIDDLETON STREET, KOLKATA-17. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, SR.PS/H.O.O ITAT KOLKATA