THE NEW INDIA ASSURANCE COMPANY LTD, MUMBAI V. ADDL CIT RG 1(3), MUMBAI

ITA 3180/MUM/2009

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88517 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 22-01-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 43B; 14A; 115JB; 69; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 THE NEW INDIA ASSU RANCE COMPANY CENTRAL ACCOUNTS-TAXATION SECTION, NEW INDIA ASSURANCE BUILDING, 87, MAHATMA GANDHI ROAD, FORT, MUMBAI 400 001 PAN:AACN 4165 C VS. ACIT RG - 1(3) MUMBAI (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI FARROKH IRANI REVENUE BY : SH RI KISHAN VYAS DATE OF HEARING : 11 .02.2015 DATE OF ORDER : 27 .02.2015 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID APPEALS HAVE BEEN FILED BY THE ASSE SSEE AGAINST ORDER DATED 20.02.2007 AND 26.02.2009, PASSED BY LD . CIT(A)-21, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143 (3) FOR THE A.YS. 2004-05 AND 2006-07 RESPECTIVELY. 2. SINCE THE FACTS AND ISSUES INVOLVED IN BOTH THE APPEALS ARE COMMON, ARISING OUT OF IDENTICAL SET OF FACTS THERE FORE, SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. WE WILL FIRST TAKE UP THE APPEAL FOR THE A.Y. 2004- 05. ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 2 3. AT THE OUTSET, LEARNED COUNSEL, SHRI FARROKH IRA NI SUBMITTED THAT OUT OF VARIOUS GROUNDS OF APPEAL AS HAVE BEEN RAISE D BY THE ASSESSEE, THE COD HAS GIVEN APPROVAL FOR CONTESTING GROUND NO . 1, 2, 3, 5 & 11. THE RELEVANT GROUNDS WHICH ARE BEING CONTESTED ARE AS UNDER:- 2.A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER OF T AXING PROFIT ON SALE OF INVESTMENTS OF RS. 406,81,17,320/- BY TREAT ING AS 'BUSINESS INCOME'. YOUR APPELLANT SUBMITS THAT THE PROFIT ON SALE OF INVESTMENTS IS EXEMPT FROM TAX. IT IS PRAYED THA T THE ADDITION OF RS. 406,81,17,320/- BE DELETED. B) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER OF TREATING THE PROFIT ON SALE OF INVESTMENTS AS BUSINESS INCOME AND NOT AS CAPITAL GAINS. YOUR APPE LLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO TREAT THE PROFIT ON SALE OF INVESTMENTS AS LONG TERM CAPITAL GAINS AND NOT AS B USINESS INCOME. 3. A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER OF D ISALLOWING RS. 60,00,000/- ON ESTIMATED BASIS U/S 14A OF THE INCOM E TAX ACT, 1961. B) YOUR APPELLANT SUBMITS THAT LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, DISALLOWANCE OF RS. 60,00,000/- U/S 14A OF THE INCOME TAX ACT, 1961 IS NOT PERMITTED BY THE COMPUTATIONAL MACHINERY APPLICABLE TO THE IN SURANCE COMPANIES LIKE THE APPELLANT. IT IS PRAYED THAT THE DISALLOWANCE OF EXPENSES U/S 14A OF THE INCOME TAX ACT, 1961 BE DEL ETED. 5. A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING THE DEDUCTION OF AMORTIZATION OF PREMIUM PAID ON PURCHASE OF SECURIT IES OVER THE RESIDUAL PERIOD OF MATURITY OF SECURITIES. B) YOUR APPELLANT SUBMITS THAT THE CLAIM FOR THE DE DUCTION OF PREMIUM IS IN ACCORDANCE WITH THE IRDA GUIDELINES A ND ACCOUNTING POLICIES FOLLOWED CONSISTENTLY BY THE AP PELLANT AND HENCE THE ASSESSING OFFICER BE DIRECTED TO ALLOW TH E DEDUCTION FOR AMORTIZATION OF PREMIUM OF RS. 9,26,36,131/- AS CLA IMED. ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 3 11. A) THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, ERR ED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN M AKING ADDITION OF RS. 79,32,000/- ON ACCOUNT OF PROFIT ON SALE OF SECURITIES ARISING BY SUBSTITUTING THE COST OF SECURITIES SOLD , WORKED OUT ON WEIGHTED AVERAGE BASIS AS AGAINST FIFO METHOD FOLLO WED BY THE APPELLANT CONSISTENTLY. B) YOUR APPELLANT SUBMITS THAT THERE IS NO CHANGE I N THE METHOD OF WORKING OUT PROFIT ON SALE OF SECURITIES AS ALLE GED BY THE ASSESSING OFFICER AND HENCE ADDITION MADE ON THIS A CCOUNT OF RS. 79,32,000/- REQUIRES TO BE DELETED. 4. GROUND NO. 1 HAS BEEN STATED TO BE GENERAL IN NA TURE AND THEREFORE, NO SEPARATE ADJUDICATION IS REQUIRED. TH E SAME SHALL BE DEALT IN GROUND NO. 2. THE FIRST ISSUE RAISED VIDE GROUND NO. 2 IS, TAXING THE PROFIT ON SALE OF INVESTMENT. THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF GENERAL INSURANCE, THEREFORE, ITS INCOME IS TO BE C OMPUTED U/S 44 OF THE INCOME-TAX ACT. IN THE COMPUTATION OF INCOME, THE A SSESSEE HAS CLAIMED PROFIT ON SALE OF INVESTMENT AS EXEMPT FROM TAX IN VIEW OF THE CBDT CIRCULAR NO. 528 DATED 16.12.1988 TO THE TUNE OF RS .406,81,17,320/-. 5. BEFORE THE ASSESSING OFFICER, THE ASSESSEE HEAVI LY RELIED UPON THE SAID BOARD CIRCULAR AND STATED THAT SUCH A PROFIT S HOULD NOT BE TAXED AND IN THE ALTERNATIVE, IT WAS SUBMITTED THAT SUCH A PR OFIT WAS IN THE NATURE OF LONG TERM CAPITAL GAIN ON THE SALE OF LONG TERM CAPITAL ASSET AND THEREFORE, IT IS NOT IN THE NATURE OF INCOME. THE A SSESSING OFFICER HELD THAT ASSESSEE IS GOVERNED BY SECTION 44 READ WITH R ULE 5 OF THE FIRST SCHEDULE OF THE INCOME-TAX ACT AND IN THIS REGARD H IS RELEVANT OBSERVATIONS ARE AS UNDER:- 1.7 IF, ONE ANALYSES THE PROVISION, IT STARTS WITH THE WORDINGS 'PROFITS AND GAINS OF ANY BUSINESS OF INSURANCE OTH ER THAN LIFE INSURANCE SHALL BE TAKEN TO BE THE BALANCE OF THE P ROFITS DISCLOSED BY ANNUAL ACCOUNT COPIES OF WHICH ARE REQUIRED UNDE R THE INSURANCE ACT, 1938 TO BE FURNISHED .....'. IN THE STATEMENT OF INCOME SUBMITTED ALONGWITH THE RETURN OF INCOME, TH E ASSESSEE ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 4 HAS TAKEN THE STARTING POINT FOR COMPUTING THE INCO ME AS THE BALANCE OF THE PROFIT DISCLOSED IN THE ANNUAL ACCOU NTS OF THE RELEVANT ALE OF INVESTMENT A SUM OF RS. 406,81,17,3 20/-. IF, ONE ANALYSES THE ADJUSTMENTS REQUIRED TO BE MADE FROM T HE PROFITS DISCLOSED IN THE ANNUAL ACCOUNT BY VIRTUE OF SUB CL AUSE (A) AND (C) OF RULE 5, IT REFERS TO ANY EXPENDITURE OR ALLO WANCE INCLUDING IN THE AMOUNT DEBITED TO THE PROFIT & LOSS ACCOUNT EITHER BY WAY OF PROVISION OF TAX, DIVIDEND, RESERVES OR ANY OTHE R PROVISIONS AS MAY BE PRESCRIBED WHICH IS NOT ADMISSIBLE UNDER THE PROVISIONS OF SECTION 30 TO 43B WILL HAVE TO ADDED BACK AND AS PE R SUB CLAUSE (C) OF RULE 5 OF THE FIRST SCHEDULE, SUCH AMOUNT CA RRIED OVER TO THE RESERVES FOR UNEXPIRED RISK AS MAY BE PRESCRIBE D IN THIS REGARD SHALL BE REDUCED AS DEDUCTION. FROM THE ABOV E, IT IS NOTICED THAT NOWHERE IN THE RULE 5 OF THE FIRST SCH EDULE IT IS MENTIONED THAT PROFIT ON SALE OF INVESTMENTS IS. TO BE REDUCED. THEREFORE NEITHER IN SECTION 44 NOR IN RULE 5 OF TH E FIRST SCHEDULE IT IS MENTIONED THAT PROFIT ON SALE OF INVESTMENTS IS TO BE REDUCED. IT MAY BE RELEVANT HERE TO MENTION THAT TH E CLAUSE (B) WHICH WAS REFERRING TO ADJUSTMENT IN RESPECT OF WRI TE OFF OR RESERVES OR ANY APPRECIATION OR ANY GAINS ON REALIZ ATION OF INVESTMENT HAVE BEEN OMITTED BY THE FINANCE ACT, 19 88 WITH EFFECT FROM 1 SE APRIL, 1989. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE ADJUSTMENT MADE BY THE ASSESSEE BY REDUCING THE PROFIT ON SALE OF INVESTMENT FROM THE INCOME IS NOT ACCORDING TO THE LAW, AND THEREFORE, REQUIRED TO BE ADDED BACK. ACCORDING LY, A SUM OF RS. 406,81,17,320/- IS ADDED BACK. THIS WILL RESULT IN AN ADDITION OF RS.406,81,17,320J- IN THE TOTAL INCOME OF THE AS SESSEE. 1.8 IN VIEW OF THE ABOVE DISCUSSION, EXEMPTION OF R S. 406,81,17,320/- UNDER RULE 5(B) OF THE FIRST SCHEDU LE CANNOT BE GRANTED TO THE ASSESSEE. FURTHER THE BOARD'S CIRCUL AR WOULD INVARIABLY BE IN RELATION TO ANY PROVISION OF THE I .T. ACT. IN THE INSTANT CASE THERE IS NO PROVISION IN THE I.T. ACT WHICH ENABLES THE ASSESSEE COMPANY TO CLAIM EXEMPTION ON PROFIT O N SALE OF INVESTMENTS. ON THE CONTRARY VIDE RULE 5 OF THE FIR ST SCHEDULE IT IS MANDATORY TO THE ASSESSEE COMPANY TO OFFER TO TA X THE PROFITS AND GAINS OF ANY BUSINESS OF INSURANCE SHALL BE THE BALANCE OF THE PROFITS DISCLOSED BY THE ANNUAL ACCOUNTS. ASSESSEES ALTERNATE CONTENTION WAS ALSO REJECTED O N THE SAME GROUND THAT ASSESSEE COMPANY IS GOVERNED BY SECTION 44, WH ICH IS A NON OBSTANTE CLAUSE AND THEREFORE, THE INCOME CHARGEABL E UNDER THE HEAD ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 5 CAPITAL GAINS SHALL BE COMPUTED IN ACCORDANCE WITH THE RULES CONTAINED IN FIRST SCHEDULE AND THEREFORE, CAPITAL GAINS IS N OT APPLICABLE TO SECTION 44. 6. THE LEARNED CIT(A) CONFIRMED THE ORDER OF THE AO MAINLY ON THE GROUND THAT IN THE EARLIER YEAR LD. CIT(A) HAS DECI DED THIS ISSUE AGAINST THE ASSESSEE IN THE A.YS. 200203 AND 2003-04 AND HE LD THAT FIRST SCHEDULE READ WITH SECTION 44 DOES NOT PROVIDE FOR SUCH EXEMPTION AS CLAIMED BY THE ASSESSEE. 7. BEFORE US, LEARNED COUNSEL, SHRI FARROKH IRANI S UBMITTED THAT THOUGH IN THE A.YS. 2002-03 AND 2003-04, THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL VIDE ORDER DAT ED 19.11.2008, HOWEVER, THE SAID ORDER OF THE TRIBUNAL CANNOT BE H ELD TO BE APPLICABLE IN THE WAKE OF CATENA OF DECISIONS RENDERED BY THE TRIBUNAL IN VARIOUS CASES OF INSURANCE COMPANIES, WHEREIN IT HAS BEEN H ELD THAT, THERE IS NO SPECIFIC PROVISION FOR MAKING THE ADJUSTMENT ON ACC OUNT OF PROFITS ON SALE OF INVESTMENT AFTER REMOVAL OF CLAUSE 5(B) W.E .F. 01.04.1989 AND TILL CLAUSE 5(B) WAS INSERTED W.E.F. 01.04.2011. IN SUPP ORT OF HIS CONTENTION HE FILED COMPILATION OF 10 SUCH DECISIONS OF THE TR IBUNAL IN THE CASE OF GENERAL INSURANCE CORPORATION OF INDIA AND OTHERS I NSURANCE COMPANIES ON SIMILAR ISSUE. HE FURTHER SUBMITTED THAT, SPECIF IC AMENDMENT IN RULE 5 TO FIRST SCHEDULE, CAME W.E.F. 01.04.2011, WHEREI N IT HAS BEEN SPECIFICALLY PROVIDED THAT ANY GAIN OR LOSS ON REAL IZATION OF INVESTMENT SHALL BE ADDED OR DEDUCTED IF SUCH GAIN OR LOSS IS NOT CREDITED OR DEBITED TO THE P& L ACCOUNT. PRIOR TO THIS THERE WAS NO SUC H PROVISION. THIS AMENDMENT HAS BEEN SPECIFICALLY BROUGHT W.E.F.01.04 .2011 APPLICABLE FROM A.Y. 2011-12 AND CANNOT HAVE RETROSPECTIVE EFF ECT. THIS HAS BEEN CLARIFIED BY THE NOTES AND CLAUSES TO FINANCE ACT A MENDING THE SAID ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 6 SECTION. HE SUBMITTED THAT PRIOR TO 01.04.1989, CLA USE (B) TO RULE 5 WAS THERE, WHICH HAS BEEN OMITTED W.E.F. 01.04.1989. TH US, FROM 01.04.1989 TO 01.04.2011, SUCH A PROVISION WAS NOT THERE IN THE STATUTE, THEREFORE THE SAME CANNOT BE READ INTO BETWEEN THIS PERIOD. THIS ISSUE PRECISELY HAS BEEN DEALT BY THE TRIBUNAL IN THE VAR IOUS CASES. AT THE TIME OF PASSING OF THE TRIBUNAL ORDER IN ASSESSEES CASE FOR A.Y. 2002-03 & 2003-04, SUCH AN AMENDMENT WAS NOT BROUGHT ON THE S TATUTE, WHICH CLARIFIES THE LEGISLATIVE INTENT, THAT PRIOR TO 01. 04.2011 SUCH AN ADJUSTMENT OF PROFIT AND SALE OF INVESTMENT CAN BE MADE. 8. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON T HE ORDER OF THE LD. CIT(A) AND THE TRIBUNAL ORDER FOR THE EARLIER Y EARS AND SUBMITTED THAT THE TRIBUNAL ORDER IN ASSESSEES OWN CASE SHOU LD BE FOLLOWED. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT FINDING GIVEN BY THE AO AS WELL AS LD. CIT(A). THE COMPUTATION OF TAXABLE PROFIT OF AN INSURANCE COMPANY IS GOVERNED BY SPECIFIC PROVISION AS GIVEN IN SECTION 44, READ FIRST SCHEDULE TO THE INCOME-TAX ACT. UNDER THE SAID SCHEME, ONLY SUCH ADJUSTMENT CAN BE MADE T O THE PROFITS AS DISCLOSED IN THE ANNUAL ACCOUNTS DRAWN UNDER THE IN SURANCE ACT, 1938, WHICH ARE SPECIFICALLY PROVIDED UNDER RULE 5. PRIOR TO 01.04.1989, CLAUSE B TO RULE 5 READ AS UNDER:- (B) ANY AMOUNT EITHER WRITTEN OFF OR RESERVED IN T HE ACCOUNTS TO MEET DEPRECIATION OF OR LOSS ON THE REALIZATION OF INVESTMENTS SHALL BE ALLOWED AS A DEDUCTION, AND ANY SUMS TAKEN CREDIT FOR IN THE ACCOUNTS ON ACCOUNT OF APPRECIATION OF OR GAINS ON THE REALIZATION OF INVESTMENTS SHALL BE TREATED AS PART OF THE PROFITS AND GAINS: PROVIDED THAT THE ASSESSING OFFICER IS SATISFIED AB OUT THE REASONABLENESS OF THE AMOUNT WRITTEN OFF OR RESERVE D IN THE ACCOUNTS, AS THE CASE MAY BE, TO MEET DEPRECIATION OF OR LOSS ON THE REALIZATION OF INVESTMENT. ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 7 SUCH A PROVISION WAS OMITTED BY FINANCE ACT, 1988, W.E.F. 01.04.1989. THE NOTES AND CLAUSES TO THE FINANCE ACT AND THE CB DT CIRCULAR CLARIFIED THAT, IT WAS OMITTED TO PROVIDE EXEMPTION OF THE PR OFITS EARNED BY THE GENERAL INSURANCE CORPORATION ON THE SALE OF INVEST MENT. THE RELEVANT NOTE NF CLAUSES READ AS UNDER:- UNDER THE EXISTING PROVISIONS OF SECTION 44 OF THE INCOME-TAX CT, THE PROFITS AND GAINS OF ANY INSURANCE BUSINESS IS COMPUTED IN ACCORDANCE WITH THE RULE CONTAINED IN FIRST SCHEDUL E TO THE ACT. IN RULE 5 OF THIS SCHEDULE, PROFITS AND GAINS OF AN Y BUSINESS OF INSURANCE, OTHER THAN LIFE INSURANCE, ARE TAKEN TO BE BALANCE OF PROFITS DISCLOSED IN THE ANNUAL ACCOUNTS FURNISHED TO THE CONTROLLER TO INSURANCE SUBJECT TO CERTAIN ADJUSTME NTS. ONE OF THE ADJUSTMENTS PROVIDED THEREIN RESPECT OF ANY AMOUNT EITHER WRITTEN OFF OR RESERVED IN THE ACCOUNTS TO MEET DEP RECIATION OR LOSS ON THE REALIZATION OF INVESTMENT WHICH IS ALLO WED AS DEDUCTION. SIMILARLY, ANY SUM TAKEN CREDIT FOR IN T HE ACCOUNT ON ACCOUNT OF APPRECIATION OF OR GAIN ON THE REALIZATI ON OF INVESTMENTS IS TAKEN AS PART OF THE PROFITS AND GAI NS OF THE BUSINESS. WITH A VIEW TO ENABLE THE GENERAL INSURANCE CORPOR ATION AND ITS SUBSIDIARIES PLAY A MORE ACTIVE ROLE IN CAP ITAL MARKETS FOR THE BENEFIT OF POLICY HOLDERS, IT PROPOSED TO PROVI DE FOR EXEMPTION OF THE PROFITS EARNED BY THEM ON THE SALE INVESTMEN TS. AS COROLLARY, IT IS PROPOSED TO PROVIDE THAT THE LOSSE S INCURRED BY GENERAL INSURANCE CORPORATION ON THE REALIZATION OF INVESTMENT SHALL NOT BE ALLOWED AS DEDUCTION IN COMPUTING THE PROFITS CHARGEABLE TO TAX. TO ACHIEVE THIS OBJECT CLAUSE (B ) OF RULE 5 OF THE FIRST SCHEDULE TO THE INCOME-TAX ACT IS PROPOSE D TO DELETED. 10. NOW AGAIN BY FINANCE ACT 2009, CLAUSE (B) HAVE BEEN INTRODUCED W.E.F. 01.04.2011 WHICH READS AS UNDER:- (B) (I) ANY GAIN OR LOSS ON REALIZATION OF INVESTM ENTS SHALL BE ADDED OR DEDUCTED, AS THE CASE MAY BE, IF SUCH GAIN OR LOSS IS NOT CREDITED OR DEBITED TO THE PROFIT AND LOSS ACCOUNT; (II) ANY PROVISION FOR DIMINUTION IN THE VALUE OF I NVESTMENT DEBITED TO THE PROFIT AND LOSS ACCOUNT, SHALL BE AD DED BACK; ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 8 THIS HAS BEEN CLARIFIED BY FINANCE ACT THAT THE AME NDMENT WILL BE EFFECTIVE FROM A.Y. 2011-12 ONWARDS. THUS, IT IS AM PLY CLEAR FROM THE LEGISLATIVE INTENT THAT, PRIOR TO 01.04.2011, ADJUS TMENT OF SUCH A GAIN ON REALIZATION OF INVESTMENT CANNOT BE ADDED. THIS ASP ECT OF THE MATTER HAVE BEEN DEALT EXTENSIVELY AND UPHELD BY THE CO-O RDINATE BENCHES OF THE TRIBUNAL WHICH HAVE BEEN REFERRED TO THE LEARNE D COUNSEL. ACCORDINGLY WE HOLD THAT PROFIT ON SALE OF INVESTME NT CANNOT BE TAXED. THUS, GROUND NO. 2 AS RAISED BY THE ASSESSEE IS ALL OWED. 11. IN GROUND NO. 3, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF RS. 16 LAKHS MADE U/S 14A ON ESTIMATED BASIS. IT HA S BEEN ADMITTED BY BOTH THE PARTIES THAT PROVISION OF SECTION 14A HAS NO APPLICABILITY IN THE CASES OF GENERAL INSURANCE COMPANY, WHICH ARE GOVER NED BY SPECIFIC PROVISION LAID DOWN IN SECTION 44, AS HELD BY VARIO US DECISIONS OF THE TRIBUNAL INCLUDING THAT, IN ASSESSEES OWN CASE FOR THE A.Y. 2000-01 & 2003-04 AND IN THE CASE OF OTHER GENERAL INSURANCE CORPORATION OF INDIA SPECIFICALLY IN ITA NO. 3554/MUM/2011, FOR A.Y. 200 7-08. IN VIEW OF THE AFORESAID SUBMISSIONS AND ALSO ON THE PERUSAL OF VA RIOUS DECISIONS OF THE TRIBUNAL INCLUDING THAT OF THE ASSESSEE, WE FIND TH AT IT HAS BEEN CONSISTENTLY HELD THAT, PROVISION OF SECTION 14A IS NOT APPLICABLE IN THE CASES OF INSURANCE COMPANY WHICH ARE GOVERNED BY SE CTION 44, BECAUSE IT IS NON OBSTANTE PROVISION WHEREIN THE INCOME IS TO BE COMPUTED AS PER P&L ACCOUNT PREPARED UNDER THE INSURANCE ACT 1938. SECTION 14A CONTEMPLATES EXCEPTION FOR DEDUCTION ALLOWABLE UNDE R THE ACT, WHEREAS SECTION 44 CREATES SPECIAL APPLICATION OF PROVISION OF COMPUTATION OF PROFIT AS PER THE INSURANCE ACT. THUS, NO DISALLOWA NCE U/S 14A CAN BE MADE AND ACCORDINGLY, GROUND NO. 3 IS ALLOWED IN FA VOUR OF THE ASSESSEE. ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 9 12. IN GROUND NO. 5 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF AMORTIZATION OF PREMIUM OF RS.9,26,36,131/-. THE AS SESSEE HAS CLAIMED AN AMOUNT OF RS.9,26,36,131/- AS REVENUE EXPENSES, WHICH REPRESENTED PREMIUM PAID ON PURCHASE OF INVESTMENT OF SECURITIE S AMORTIZED OVER THE RESIDUAL PERIOD OF SECURITIES. THE ASSESSEE CLA IMED THAT SUCH AN AMORTIZATION IS AS PER IRDA REGULATIONS AND THE AMO UNT CANNOT BE TREATED AS PART OF THE COST OF THE INVESTMENT AS TH E ASSESSEE CANNOT GET MORE THAN THE FACE VALUE AT THE TIME OF MATURITY OF SUCH INVESTMENTS. THE ASSESSING OFFICER THOUGH ADMITTED THE FACT THAT ASSESSEE DOES NOT GET MORE THAN THE FACE VALUE AT THE TIME OF MATURIT Y, HOWEVER, HE OBSERVED THAT SUCH A PREMIUM PAID ON PURCHASE OF SE CURITIES TREATED AS INVESTMENT WOULD BE ALLOWABLE AS DEDUCTION ONLY AT THE TIME OF SALE/REDEMPTION/MATURITY OF THE SECURITY. THESE ARE CAPITAL COST INCURRED TO THE PURCHASE OF THE SECURITIES AT A PREMIUM. THI S HE HELD THAT, IS AKIN TO THE DIMINUTION IN THE VALUE OF INVESTMENT IN SHA RES WHICH THE ASSESSEE PROVIDES ON PRUDENTIAL NORMS WHEN THE VALU E OF SUCH SHARES FALLS BELOW ITS ACQUISITION PRICE. THE ASSESSEE REC OGNIZED THIS LOSS ON DIMINUTION PROVISION AGAINST THE PROFIT, BUT AS PER ITS OWN COMPUTATION DISALLOWS SUCH PROVISIONS FROM THE TAXABLE INCOME. HE FURTHER HELD THAT PRUDENTIAL NORMS LAID BY IRDA FOR RECOGNITION OF IN VESTMENTS MAY BE APPROPRIATE FOR THE PURPOSE OF NET WEALTH OF THE IN SURANCE COMPANIES, BUT THE SAID AMOUNT CANNOT BE APPLIED TO TAXATION O N ACCOUNTING NORMS SAID BY VARIOUS REGULATORS. SPECIFIC PROVISION UNDE R THE INCOME-TAX ACT HAVE BEEN LAID DOWN FOR AMORTIZATION OF EXPENSES WH ICH ARE CAPITAL IN NATURE. ACCORDINGLY, HE DISALLOWED THE CLAIM OF THE ASSESSEE. ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 10 13. THE LD. CIT(A) TOO CONFIRMED THE CONCLUSION DRA WN BY THE AO AND HELD THAT THE BOOKS OF ACCOUNT AND FINAL ACCOUNTS O F THE ASSESSEE THOUGH ARE PREPARED IN TERMS OF IRDA BUT THEY DO NO T COME IN THE WAY OF OPERATION OF STATUTORY PROVISION OF INCOME TAX A CT. SUCH AN IRDA REGULATION CANNOT DETERMINE THE COMPUTATION OF INCO ME UNDER THE INCOME-TAX ACT. ACCORDINGLY, HE CONFIRMED THE ADDIT ION AFTER OBSERVING AND HOLDING AS UNDER:- I DO NOT FIND ANY CONTRADICTION BETWEEN THE ACCOUN TING STANDARD, PRESCRIPTIONS, DIRECTIVES ETC. ISSUED BY THE REGULA TORY AUTHORITIES AND THE COMPUTATION PROVISIONS OF INCOME-TAX ACT BE CAUSE BOTH OPERATE IN DIFFERENT SPHERES. THERE IS NO PROVISION UNDER THE INCOME-TAX ACT TO CONSIDER SUCH DIRECTIVES OF REGUL ATORY AUTHORITIES NEITHER VICE-VERSA I.E., THAT SUCH DIRE CTIVES WILL BE CONSIDERED FOR THE PURPOSE OF DETERMINING THE TAXAB LE INCOME OF THE CONCERN UNDER THE INCOME-TAX ACT. IN VIEW OF TH IS DISCUSSION, THE RELIANCE PLACED BY THE APPELLANT FOR AMORTIZATI ON OF PREMIUM IS CONTRARY TO THE LEGAL PROVISIONS IN THIS BEHALF BECAUSE BEING EXPENDITURE OF CAPITAL NATURE FOR ACQUIRING SUCH SE CURITIES, THE SAME IS LIABLE TO BE CAPITALIZED. IN ANY CASE, SINC E THE APPELLANT IS NOT A TRADER IN SECURITIES AND IT HAS A DIFFERENT B USINESS OF INSURANCE AND ALSO THAT THE SAID SECURITIES HAVE BE EN HELD AS INVESTMENT, AS DISCUSSED IN THE FOREGOING PARAGRAPH S, THE PREMIUM UNDER QUESTION IS NOT ALLOWABLE AS BUSINESS EXPENDITURE FOR THE PURPOSE OF COMPUTATION OF TAXABLE INCOME. 14. BEFORE US, THE LEARNED COUNSEL, SHRI FARROKH IR ANI SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF I TAT MUMBAI BENCH IN THE CASE OF TATA AIG GENERAL INSURANCE COMPANY LTD. , IN ITA NO. 2597/MUM/2009 ORDER DATED 22.10.2010, WHEREIN THE T RIBUNAL AFTER DISCUSSING THIS ISSUE IN DETAIL, HAS HELD THAT SUCH AN EXPENDITURE CLAIMED ON ACCOUNT OF AMORTIZATION OF PREMIUM PAID ON THE P URCHASE OF INVESTMENT IS TO BE ALLOWED AS THERE IS NO SPECIFIC PROVISION THAT IT HAS TO BE DISALLOW SUCH AN EXPENDITURE UNDER PROVISION OF SECTIONS 30 TO 43(B). ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 11 15. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE AO AS WELL AS LD. CIT(A). 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PE RUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS. THE ASSESSEE IN THE COURSE OF CARRYING OF ITS INSURANCE BUSINESS, IS REQUIRED TO INVEST ITS FUND IN SPECIFIC DEBTS SECURITIES OF GOVERNMENT OR PSU BOND S OR OTHER SECURITIES IN ACCORDANCE WITH THE INSURANCE ACT, 1938 AND IRDA REGULATIONS. THE ASSESSEE HAS PURCHASED SECURITIES AT A PRICE WHICH WAS SLIGHTLY HIGHER THAN THE FACE VALUE OF THE SECURITY BECAUSE OF ACCU MULATED INTEREST ON SUCH SECURITIES ACCORDING TO THE TERMS OF ISSUE OF THE SECURITIES, THE ASSESSEE WAS TO GET ONLY THE FACE VALUE AT THE TIME OF REDEMPTION OR MATURITY. IRDA REGULATION PRESCRIBES, THE ACCOUNTIN G PRINCIPLE FOR PREPARATION OF FINANCIAL STATEMENT, WHEREBY THE ASS ESSEE IS REQUIRED TO PREPARE THE FINANCIAL STATEMENTS IN THE MANNER PROV IDED IN THE SAID REGULATION. THE SAID REGULATION READ WITH RELEVANT RULES GIVEN IN THE SCHEDULES THEREIN, PROVIDES THAT DEBTS SECURITIES I NCLUDING, GOVERNMENT SECURITIES SHALL BE CONSIDERED AS HELD TO MATURITY AND SHALL BE MEASURED AT HISTORICAL COST SUBJECT TO AMORTIZATION . THIS IRDA REGULATION ARE BINDING ON THE INSURANCE COMPANIES. THE TRIBUNA L IN THE CASE OF TATA AIG GENERAL INSURANCE COMPANY LTD. HAS DEALT T HIS PRECISE ISSUE IN DETAIL AFTER ANALYZING THE RELEVANT PROVISION AND T HE DECISION OF THE HONBLE SUPREME COURT AND OBSERVED AND HELD AS UNDE R:- 7. ON A CAREFUL CONSIDERATION OF THE FACTS AND THE RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT THE AMORTIZATI ON CLAIM CANNOT BE CONSIDERED AS 'AN EXPENDITURE OR ALLOWANC E WITHIN THE MEANING OF RULE 5(A) OF THE FIRST SCHEDULE. AS HELD BY THE SUPREME COURT IN THE CASE 01 INDIAN MOLASSES CO. (P RIVATE) LTD. VS. CIT, WEST BENGAL (1959)'37 ITR 66:(SC}, SPENDIN G IN THE SENSE PAYING OUT OR AWAY OF MONEY IS THE PRIMARY ME ANING OF ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 12 EXPENDITURE. EXPENDITURE IS WHAT IS PAID OUR OR AW AY AND IS SOMETHING WHICH IS GONE IRRETRIEVABLY EXPENDITURE , WHICH IS DEDUCTIBLE FOR INCOME TAX, IS ONE WHICH IS TOWARDS A LIABILITY ACTUALLY EXISTING AT THE TIME, BUT THE PUTTING ASID E 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 AMORTIZAT ION CLAIM CANNOT BE CONSIDERED AS EXPENDITURE AND, THEREFORE, CANNOT BE ADDED BACK TO THE BALANCE OF THE PROFITS. IN GENERA L INSURANCE CORPORATION (OF INDIA VS. CIT (1999) 240 ITR 139 (S C). THE SUPREME COURT HELD THAT EVEN IF AN ITEM OF DEBIT IS CONSIDERED AS AN EXPENDITURE, IT SHOULD FURTHER BE SUCH AN EXPEND ITURE CONTEMPLATED IN SECTIONS 30 TO 43A AND, THEREFORE, UNLESS THERE WAS A SPECIFIC PROHIBITION FOR SUCH AN ALLOWANCE, T HE DEPARTMENTAL 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 UN DER THE PROVISIONS OF SECTIONS 30 TO 43B. THE WORDS 'EXPEND ITURE OR ALLOWANCE WHICH IS NOT ADMISSIBLE UNDER THE PROVI SIONS OF SECTIONS 30 TO 438' APPEARING IN THE SUB-RULE HAS B EEN EXPLAINED BY THE SUPREME COURT TO MEAN THAT THERE SHOULD BE A SPECIFIC PROHIBITION AGAINST THE EXPENDITURE OR ALLOWANCE I N WHICH CASE ALONE THE ASSESSING OFFICER CAN ADD BACK THE SAME T O THE BALANCE OF PROFITS. IT IS COMMON GROUND THAT THERE IS NO SU CH SPECIFIC PROHIBITION AGAINST, THE ALLOWANCE OF THE EXPENDITU RE IN THE ABOVE SECTIONS-OF THE ACT. IT MAY BE NOTED THAT THOUGH RU LE 5(A) OF THE FIRST SCHEDULE CONSIDERED BY THE SUPREME COURT IN T HE ABOVE JUDGMENT WAS SLIGHTLY DIFFERENT, BUT THE WORDS AN Y EXPENDITURE OR ALLOWANCE WHICH IS NOT ADMISSIBLE UNDER THE PROV ISIONS OF SECTION 30 TO 43A WERE PRESENT AND THE SAME WORDS BEING PRESENT IN THE AMENDED SUB-RULE, THEY HAVE TO BE GI VEN THE SAME MEANING AS WAS GIVEN BY THE SUPREME COURT. THEREFOR E, EVEN IF THE DEBIT FOR AMORTIZATION IS CONSIDERED AS AN EXPE NDITURE OR ALLOWANCE, THERE BEING SO SPECIFIC PROHIBITION AGAI NST THE EXPENDITURE OR ALLOWANCE IN SECTION 30 TO 43B, THE DEPARTMENTAL AUTHORITIES WERE NOT JUSTIFIED IN ADDING BACK THE A MOUNT OF THE BALANCE OF THE PROFITS. THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF GENERAL INSURANCE CORPORATION OF INDIA (SUP RA) TAKES CARE OF ALL THE ARGUMENTS ADVANCED ON BEHALF OF THE REVE NUE. WE, THEREFORE, DELETE THE ADDITION OF RS.1,91,33,945/- AND ALLOW THE FIRST GROUND. ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 13 SINCE, NO CONTRARY DECISION HAVE BEEN BROUGHT TO OU R NOTICE, THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT SUCH AN AMORTIZATION CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE IS A LLOWABLE. ACCORDINGLY, ASSESSEES GROUND NO. 5 IS TREATED AS ALLOWED. 17. IN GROUND NO. 11 THE ASSESSEE HAS CHALLENGED TH E ADDITION ON ACCOUNT OF PROFIT ON SALE OF SECURITIES OF RS.79,72 ,000/-. IT HAS BEEN ADMITTED BY BOTH THE PARITIES, IF GROUND NO. 2 IS A LLOWED IN FAVOUR OF THE ASSESSEE, THEN THIS GROUND WILL NOT SURVIVE. SINCE, WE HAVE ALREADY ALLOWED GROUND NO. 2 THEREFORE, THIS GROUND HAS BEC OME INFRUCTUOUS. ACCORDINGLY, THIS GROUND WILL NOT SURVIVE. 18. BESIDES THIS, THE ASSESSEE HAS RAISED ADDITIONA L GROUND THAT THE PROVISIONS OF SECTION 115JB HAS NO APPLICATION TO T HE ASSESSEE. 19. BEFORE US, LEARNED COUNSEL SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY VARIOUS DECISIONS OF THE CO-ORDINATE BEN CHES IN THE CASE OF GENERAL INSURANCE CORPORATION AND OTHER DECISIONS. LD. DR ALSO ADMITTED THAT THIS ISSUE IS COVERED BY VARIOUS DECI SIONS OF THE TRIBUNAL AS FILED BY THE ASSESSEE. 20. AFTER CONSIDERING THE DECISIONS IN THE CASE OF GENERAL INSURANCE CORPORATION AND OTHER DECISIONS FILED BY THE LEARNE D COUNSEL, WE FIND THAT THE ISSUE OF NON-APPLICABILITY OF MAT U/S 115J B TO THE GENERAL INSURANCE COMPANY HAS BEEN UPHELD. EVEN OTHERWISE A LSO THE PROVISION OF MAT WILL ONLY COME INTO PLAY, ONLY WHEN ASSESSEE PREPARES ITS P&L ACCOUNT IN ACCORDANCE WITH PART (II) AND PART (III) OF SCHEDULE (VI) OF THE COMPANIES ACT. SINCE THE ASSESSEES P&L ACCOUNT IS PREPARED IN ACCORDANCE WITH INSURANCE ACT 1938, AS SPECIFICALLY PROVIDED IN SECTION 44 READ WITH FIRST SCHEDULE, THEREFORE, THE PROVISI ON OF SECTION 115JB WILL ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 14 NOT APPLY IN CASE OF ASSESSEE. THIS HAS BEEN HELD I N THE CASE OF GENERAL INSURANCE CORPORATION IN ITA NO. 3554/MUM/2011 ORDE R DATED 05.02.2012 AND ITA NO. 8824/MUM/2011 ORDER DATED 15 .01.2014. THUS THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALL OWED. 21. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AS MOST OF THE GROUND HAVE NOT BEEN PRESSED DUE TO NON APPROVAL BY COD. 22. NOW WE WILL TAKE UP, APPEAL FOR A.Y. 2006-07. B RIEFLY STATED THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: (I) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT PROFIT OF RS.11,336,10,10,144/- ON SALE OF INVESTME NT IS LIABLE FOR TAX. (II) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N CONFIRMING THE DISALLOWANCE U/S 14A READ WITH RULE 8D. (III) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE OF RS.12,12,81,613/- WHICH WAS CLAIMED BY THE ASSESSEE AS DEDUCTION ON ACCOUNT OF AMORTIZATION PR EMIUM OF SECURITIES. (IV) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N CONFIRMING THE ADDITION OF RS.5,48,000/- U/S 69B. (V) THE LD. CIT(A) HAS ERRED IN LAW IN UPHOLDING TH E ADDITION OF RS.38,26,860/- ON ACCOUNT OF TAXES PAID BY THE ASSE SSEE ON FOREIGN DIVIDEND. (VI) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N UPHOLDING THE ADDITION TO THE BOOK PROFIT U/S 115JB WITH REGARD T O DISALLOWANCE U/S 14A AND ASSESSEES CLAIM 35 DDA. BESIDES THIS ASSESSEE HAS ALSO RAISED ADDITIONAL GR OUND THAT PROVISION OF SECTION 115JB IS NOT APPLICABLE. 23. AS ADMITTED BY BOTH THE PARTIES THE ISSUES RAIS ED IN GROUND NO. (I), (II) & (III) ARE SIMILAR TO GROUNDS RAISED IN A.Y. 2004-05 AND ACCORDINGLY, ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 15 THE FINDING GIVEN THEREIN WILL APPLY MUTATIS MUTAND IS IN THIS YEAR ALSO. THUS GROUND NO. 1, 2 AND 3 ARE TREATED AS ALLOWED. 24. BRIEF FACTS QUA THE ISSUE RAISED IN GROUND NO. 4 ARE THAT THE AO NOTED THAT SHARES IN THE POSSESSION OF THE ASSESSEE WERE IN EXCESS OF BOOK VALUE SHOWN IN ITS ACCOUNT TO THE EXTENT OF RS .5.48 LAKHS. BEFORE THE AO, THE ASSESSEE SUBMITTED THAT PROVISION OF SE CTION 69B WILL NOT APPLY AS ASSESSEE COMPUTATION IS GOVERNED BY SECTIO N 44, HOWEVER, THE ASSESSING OFFICER ADDED THE SAME U/S 69 B. THE LD. CIT(A) TOO CONFIRMED THE SAID ADDITION ON THE GROUND THAT NON OBSTANTE C LAUSE APPEARING IN SECTION 44 DOES NOT HIT THE PROVISION OF SECTION OF SECTION 69B AND SAME IS FULLY APPLICABLE. 25. BEFORE US LEARNED COUNSEL SUBMITTED THAT IT IS AN ADMITTED FACT THAT THE SHARES WERE SOLD BY THE ASSESSEE, HOWEVER THE B UYER HAS FAILED TO TAKE THE DELIVERY OF THESE SHARES OR DID NOT GET TR ANSFER THE SHARES IN THEIR NAMES. THUS, THE SAME WAS LYING WITH THE ASSE SSEE. IN SUCH A SITUATION HOW SECTION 69B CAN BE INVOKED. ON THESE FACTS, THE ADDITION CANNOT BE SUSTAINED. ON THE OTHER HAND, LD. DR STRO NGLY RELIED UPON THE ORDER OF THE LD. CIT(A). 26. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE FINDING GIVEN IN THE IMPUGNED ORDER, WE FIND THAT L D. CIT(A) HAS NOTED THE FOLLOWING FACTS: I HAVE LOOKED INTO THE FACTS OF THE CASE AND FIND THAT THESE WERE THE SHARES SOLD BY THE APPELLANT, BUT THE BUYER HAS FAILED TO TAKE THE DELIVERY OF THESE SHARES OR GET IT TRANSFERRED IN THEIR NAMES. THUS, THE SAME ARE LYING WITH THE APPELLANT AS UNCL AIMED PROPERTY. IN SUCH A SITUATION, THE PROPERTY/VALUE O F THE SHARES IS AVAILABLE WITH THE APPELLANT AND POSSESSED BY IT BY VIRTUE OF BUSINESS OPERATION. HOWEVER, THE SAME IS NOT EXISTI NG IN ITS BOOKS OF ACCOUNT FOR THE RELEVANT YEAR. ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 16 THE ASSESSEE HAS SOLD THE SHARES AND BUYERS HAVE FA ILED TO TAKE THE DELIVERY, THEN IN SUCH A CASE HOW THE PROVISION OF 69B GETS ATTRACTED BECAUSE HERE IT IS NOT A CASE THAT THE INVESTMENT EXCEEDS THE AMOUNT RECORDED IN THE BOOKS OF ACCOUNT. ON THESE FACTS AL ONE, THE ADDITION CANNOT BE SUSTAINED. ACCORDINGLY, THE SAME IS DELET ED. IN THE RESULT, THE GROUND NO. 4 IS TREATED AS ALLOWED. 27. IN GROUND NO. 5, ASSESSEE HAS CHALLENGED THE AD DITION OF RS.38,28,860/- ON ACCOUNT OF TAXES PAID ON FOREIGN DIVIDEND. IN THE ANNUAL ACCOUNTS, THE ASSESSEE HAD SHOWN THAT IT HAS ACCOUNTED DIVIDEND ON FOREIGN INVESTMENT NET OF WITHHOLDING T AX. THE DETAILS OF DIVIDEND ON FOREIGN INVESTMENT WERE AS UNDER:- NAME OF THE COMPANY GROSS DIVIDEND (RS.) NET DIVIDEND (RS.) INDIA INTERNATIONAL P. LTD. 9920634.93 7936507.94 KENINDIA ASSURANCE 1625350.00 1462815.00 PRESTIGE ASSURANCE NIGERIA 8954099 8058689 NEW INDIA ASSU (T&T) 7847876.67 7063089 TOTAL 28347960.6 24521100.94 THE ASSESSING OFFICER ON THE BASIS OF EARLIER ORDER PASSED BY THE AO FOR THE A.Y. 2004-05 HELD THAT, DIFFERENCE BETWEEN GROS S DIVIDEND AND THE NET DIVIDEND IS TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE AND ALSO HELD THAT ASSESSEES CLAIM FOR CREDIT OF TDS OF RS. 38,26,860/- IS NOT ALLOWABLE AS THERE IS NO TAX ON DIVIDEND INCOME IN INDIA. THE LD. CIT(A) CONFIRMED THE SAID DISALLOWANCE ON THE GROUND THAT TAXES PAID ON SUCH DIVIDEND DO NOT CONSTITUTE EXPENDITURE. ITA NO. 3562/MUM/2007 ITA NO. 3180/MUM/2009 ASSESSMENT YEAR: 2006-07 & 2007-08 17 28. AFTER HEARING BOTH THE PARTIES, WE FIND MERIT I N THE REASONING GIVEN BY THE AO AS WELL AS LD. CIT(A) BECAUSE TAXED PAID DO NOT QUALIFY AS EXPENDITURE FOR THE PURPOSE OF BUSINESS AND ENTIRE GROSS DIVIDEND SHOULD HAVE ACCOUNTED FOR IN THE P&L ACCOUNT. THUS GROUND NO. 5 IS TREATED AS DISMISSED. 29. SO FAR AS THE ISSUE RAISED IN THE ADDITIONAL GR OUND, SAME HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE WHIL E ADJUDICATING THE SIMILAR ADDITIONAL GROUND IN THE APPEAL FOR THE A.Y . 2004-05. ACCORDINGLY, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALL OWED. 30. SINCE WE HAVE HELD THAT PROVISION OF MAT U/S 11 5JB IS NOT APPLICABLE THEREFORE, GROUND NO. 6 HAS BECOME INFRU CTUOUS. ACCORDINGLY, THE ASSESSEES APPEAL FOR A.Y. 2006-07 IS PARTLY AL LOWED. 31. IN THE RESULT, THE BOTH THE APPEAL OF THE ASSESSEE ARE PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF FEBRUARY, 2015. SD/- SD/- (N. K. BILLAIYA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 27.02.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR I BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.