M/s. Agriculture Insurance Company of India Ltd., New Delhi V. DCIT, New Delhi

ITA 3115/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6571 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 17-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AAKASH SINGHAL
• Assessee Lawyers: S L ANURAGI
• Keywords: Opportunity of being heard
• Section: 43B; 14A; 28

Judgement Text

\IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA : JUDICIAL MEMBER ITA NO. 3115/DEL/2013 ASSTT. YRS: 2008-09 M/S AGRICULTURE INSURANCE VS. DCIT, CIRCLE 1(1), COMPANY OF INDIA LTD., DELHI. 13 TH FLOOR, AMBA DEEP BLDG., 14, K.G. MARG, NEW DELHI. 110001. PAN: AAECA 2874 P ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI AAKASH SINGHAL CA ASSESSEE BY : SHRI S.L. ANURAGI DR DATE OF HEARING : 18/02/2016. DATE OF ORDER : 01/03/2016. O R D E R PER S.V. MEHROTRA, A.M: THIS IS ASSESSEES APPEAL AGAINST THE ORDER DATED 20.02.2013, PASSED BY THE LD. CIT(A)-IV, NEW DELHI, RELATING TO A.Y. 2008-09. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPAN Y IN THE RELEVANT ASSESSMENT EYAR WAS ENGAGED IN THE BUSINESS OF AGRI CULTURE CROP INSURANCE. IT HAD FILED ITS RETURN DECLARING INCOME OF RS. 247,79 ,13,474/-. THE AO WHILE COMPLETING THE ASSESSMENT MADE DISALLOWANCE OF RS. 4,28,13,369/- U/S 14A AND ALSO MADE ADDITION OF RS. 14,54,000/- ON ACCOUN T OF PROVISION FOR STOCK HOLDING AND OTHER CHARGES. 2 3. LD. CIT(A) IN HIS ORDER HAS NOTED THAT THE AO RE DUCED THAT AMOUNT AND ADDED ONLY RS. 58,11,413/- IN THE RECTIFIED ORD ER AS AGAINST ORIGINAL DISALLOWANCE OF RS. 4,28,13,369/-. 4. BEFORE LD. CIT(A) IT WAS SUBMITTED THAT SECTION 44 PROVIDED FOR APPLICATION OF SPECIAL PROVISIONS FOR COMPUTATION O F PROFITS AND GAINS OF INSURANCE BUSINESS IN ACCORDANCE WITH RULE 5 OF THE FIRST SCHEDULE AND, THEREFORE, IT WAS NOT PERMISSIBLE FOR THE AO TO TRA VEL BEYOND SEC. 44 AND THE FIRST SCHEDULE AND MAKE DISALLOWANCE U/S 14A. THE A SSESSEE PLACED RELIANCE ON THE DECISION OF ITAT MUMBAI IN THE CASE OF GENER AL INSURANCE CORPN. OF INDIA VS. ADDL. CIT IN ITA NO. 3554/MUM/2011 DATED 15.02.2012, WHEREIN THE ENHANCEMENT MADE BY THE CIT(A) WAS DELETED IN R ESPECT OF SALE OF INVESTMENT. 5. LD. CIT(A) OBSERVED THAT THE SAID DECISION WAS G IVEN IN RESPECT OF ASSESSMENT YEAR 2007-08 WHILE RULE 8D HAD BEEN MADE APPLICABLE FROM AY 2008-09. MOREOVER, THE SAID DECISION WAS IN RESPECT OF SALE OF INVESTMENT AND NOT IN RESPECT OF DIVIDEND INCOME. HE RESTRICTE D THE DISALLOWANCE TO RS. 23,31,454/-. 6. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US A ND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEAL) HAS ERRED IN 1) IN UPHOLDING THE DISALLOWANCE OFRS.58,11,413/- U NDER SECTION 14A OF THE INCOME TAX ACT AS AGAINST THE DI SALLOWABLE AMOUNT OF RS.23,31,454/- ONLY. 2) UPHOLDING THE ADDITION OF RS.14, 54,000/- UNDER THE HEAD 'PROVISION FOR STOCK HOLDING CHARGES' ON ACCOUNT OF THE DISALLOWANCE MADE BY THE LD. AO BY NOT APPRECIATING THE APPELLANT'S CLAIM THAT THE IMPUGNED AMOUNT HAS ACTU ALLY BEEN 3 'PAID' DURING THE YEAR AND WAS NOT A 'PROVISION' TH OUGH STATED ERRONEOUSLY IN THE BOOKS OF ACCOUNT. ADDITIONAL GROUND OF APPEAL THE APPELLANT REQUESTS FOR ADMISSION OF THE FOLLOWI NG ADDITIONAL GROUND, BEING PURELY A LEGAL GROUND NOT REQUIRING A NY INVESTIGATION OF FACTS. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE PR OVISIONS OF SECTION 14A OF THE INCOME TAX ACT ARE NOT APPLICABL E TO THE APPELLANT CASE IN VIEW OF THE SPECIAL PROVISIONS OF SEE 44 OF THE INCOME TAX ACT AND IN ACCORDANCE WITH THE JUDGMENTS IN FOLLOWING CASES GIC V. ADDL. CIT RANGE 13, T. BOM, 2012(ID2) ITA NO . 6260/MUM GIC VS. ACIT. KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. V. AC IT DATED 30.09.2011, ITA NO. 2901/MUM/2010. CIT V. KRIBHCO DATED 18.07.2012 (DELHI HC) 2012-(34 9)-ITA- 0618-DEL. 7. FIRST WE TAKE UP THE ADDITIONAL GROUND. IN THIS REGARD LD. COUNSEL REFERRED TO THE DECISION OF ITAT DELHI BENCH C IN THE CASE OF ORIENTAL INSURANCE CO. LTD. VS. ACIT (ITA NO. 5462 & 5463/DE L/2003 DATED 27.2.2009) 130 TTJ (DEL) 388., WHEREIN THE TRIBUNAL IN PARAS 22 TO 24 HAS OBSERVED AS UNDER: 22. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND G ONE THROUGH THE RECORDS. THE PROVISIONS OF SECTION 44 R EAD AS UNDER: INSURANCE BUSINESS, - 44. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE PROVISIONS OF THIS ACT RELATING TO THE COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS OR INCOME FROM OTHER SOURCES, OR IN SECTION 199 OR IN SECTIONS 28 TO 43B, THE 4 PROFITS AND GAINS OF ANY BUSINESS OF INSURANCE, INCLUDING ANY SUCH BUSINESS CARRIED ON BY A MUTUAL INSURANCE COMPANY OR BY A CO-OPERATIVE SOCIETY, SHALL BE COMPUTED IN ACCORDANCE WITH THE RULES CONTAINED IN THE FIRST SCHEDULE. 23. THE ABOVE PROVISION MAKES IT VERY CLEAR THAT SE CTION 44 APPLIES NOTWITHSTANDING ANYTHING TO THE CONTRARY CO NTAINED WITHIN THE PROVISIONS OF THE INCOME-TAX ACT RELATIN G TO COMPUTATION OF INCOME CHARGEABLE UNDER DIFFERENT HE ADS. WE AGREE WITH THE LEARNED COUNSEL THAT THERE IS NO REQ UIREMENT OF HEAD-WISE BIFURCATION CALLED FOR WHILE COMPUTING T HE INCOME U/S 44 OF THE ACT IN THE CASE OF A INSURANCE COMPAN Y. THE INCOME OF THE BUSINESS OF INSURANCE IS ESSENTIALLY TO BE AT THE AMOUNT OF THE BALANCE OF PROFITS DISCLOSED BY THE A NNUAL ACCOUNTS AS FURNISHED TO THE CONTROLLER OF INSURANC E. THE ACTUAL COMPUTATION OF PROFITS AND GAINS OF INSURANC E BUSINESS WILL HAVE TO BE COMPUTED IN ACCORDANCE WITH RULE 5 OF THE FIRST SCHEDULE. IN THE LIGHT OF THESE SPECIAL PROVISIONS COUPLED WITH NON OBSTANTE CLAUSE THE AO IS NOT PERMITTED TO TRAV EL BEYOND THESE PROVISIONS. 24. SECTION 14A CONTEMPLATES AN EXCEPTION FOR DEDUC TIONS AS ALLOWABLE UNDER THE ACT ARE THOSE CONTAINED U/S 28 TO 43B OF THE ACT. SECTION 44 CREATES SPECIAL APPLICATION OF THESE PROVISIONS IN THE CASES OF INSURANCE COMPANIES. WE, THEREFORE, AGREE WITH THE ASSESSEE AND DELETE THE DISALLOWANCE MADE BY THE AO WHICH IS BASED ON THE APPLICATION OF SEC. 14 A OF THE ACT AS ACCORDING TO US, IT IS NOT PERMISSIBLE TO THE AO TO TRAVEL BEYOND SECTION 44 AND FIRST SCHEDULE OF THE INCOME -TAX ACT. 8. RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF ORIENTAL INSURANCE CO. LTD. (SUPRA), THE ADDITIONAL GROUND RAISED BY ASSESSEE IS ALLOWED. ACCORDINGLY, IT IS HELD THAT THE PROVIS IONS OF SECTION 14A ARE NOT APPLICABLE IN THE CASE OF ASSESSEE. THEREFORE, THE ADDITION OF RS. 23,31,454/- STANDS DELETED. 5 9. BRIEF FACTS APROPOS GROUND NO. 2 ARE THAT IN THE P&L A/C ASSESSEE HAD DEBITED A SUM OF RS. 14,54,000/- ON ACCOUNT OF PROV ISION FOR STOCK HOLDING AND OTHER CHARGES. THE ASSESSEE EXPLAINED THAT THES E CHARGES WERE PAID TO THE CUSTODIANS OF ITS SHARES, SECURITIES, BONDS AND DEB ENTURES, WHICH FORMED PART OF ITS INVESTMENT PORTFOLIO. INCOME FROM ITS INVEST MENT PORTFOLIO WAS OFFERED FOR TAXATION AND, THUS, EXPENSES WERE CLAIMED. THE AO REJECTED THE ASSESSEES CLAIM FOR THE FOLLOWING TWO REASONS: IT IS CLEARLY REFLECTED AS A PROVISION IN THE BALA NCE SHEET AS PART OF ANNUAL REPORT SUBMITTED BY THE ASSESSEE. TH E BALANCE SHEET IS DULY SCRUTINIZED & AUDITED BY THE ASSESSEE COMPANY. THEREFORE, IT IS NOT PAID EXPENSES BUT MERELY A PRO VISION AND THIS CONTINGENT LIABILITY WHICH IS NOT ALLOWABLE AS PER THE PROVISIONS OF THE 1.T. ACT. 2. FOR THE SAKE OF ARGUMENT, IF IT IS ACCEPTED THAT IT IS NOT PROVISION BUT INADVERTENTLY PLACED UNDER THE HEAD P ROVISION. EVEN THEN THIS AMOUNT IS NOT ADMISSIBLE AS EXPENSES TO THE ASSESSEE. AS ASSESSEE IS CLAIMING RSA.7 CRORES AS E XEMPTED INCOME COMPRISING OF DIVIDEND & LONG TERM CAPITAL G AIN WHICH DIRECTLY ARISES FROM INVESTMENTS IN SHARES, SECURIT IES, BONDS & DEBENTURES. THEREFORE THIS AMOUNT IS DIRECTLY ATTRI BUTABLE TO EARNING OF EXEMPTED INCOME AND THEREFORE NOT ALLOWA BLE U/S 14A OF THE LT. ACT, 1961 R.W.R. 8D(I) OF THE I.T. R ULES, 1962. AS IT IS HELD BY THE UNDER SIGNED IN PARAGRAPH 3 OF THIS ORDER THAT EXPENSES RELATED TO EXEMPTED COMPANY EARNED BY THE ASSESSEE COMPANY IS TO BE COMPUTED IN ACCORDANCE WI TH RULE 80 OF THE 1.T. RULES, 1962 AND THEREFORE TO BE DISALLO WED. 10. LD. CIT(A) CONFIRMED THE ADDITION. LD. COUNSEL REFERRED TO PAGE 106 OF THE PB, WHEREIN P&L ACCOUNT FOR THE YEAR ENDING 31.3.2008 IS CONTAINED. 11. LD. COUNSEL SUBMITTED THAT THE EXPENDITURE ON T HIS HEAD OF ACCOUNT WAS ACTUALLY PAID BY THE ASSESSEE BUT INADVERTENTLY SHOWN IT AS PROVISION. LD. COUNSEL FURTHER SUBMITTED THAT THIS EXPENDITURE HAS BEEN ALLOWED IN EARLIER YEARS. LD. COUNSEL FURTHER SUBMITTED THAT T HIS EXPENDITURE SHOULD BE 6 ALLOWED IN TERMS OF SECTION 43B ALSO. HE FURTHER SU BMITTED THAT ASSESSEE DID NOT GET SUFFICIENT OPPORTUNITY TO EXPLAIN THE FACTS IN THIS REGARD. 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES. WE ARE OF THE OPINION THAT THE FACTS IN REGARD TO THIS ISSUE NEED S TO BE RE-MARSHALED. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF AO FOR DECIDING THE ISSUE DE NOVO IN ACCORDANCE WITH LAW, AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 13. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCEMENT IN OPEN COURT ON 01/03/2016. SD/- SD/- (SUDHANSHU SRIVASTAVA) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 01/03/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.