THE NEW INDIA ASSURANCE COMPANY LIMITED, MUMBAI V. CIT-I, MUMBAI

ITA 3846/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49696 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 25-07-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 02-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATBIR SINGH
• Keywords: Business income; Depreciation; Opportunity of being heard; Revenue expenditure
• Section: 43B; 115JB; 63; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI R.S.SYAL, AM AN D SHRI N.V.VASUDEVAN, JM ITA NO.3846/MUM/2008 : ASST.YEAR 2004-2005 THE NEW INDIA ASSURANCE CO LIMITED CENTRAL ACCOUNTS, TAXATION DEPARTMENT NEW INDIA ASSURANCE BUILDING 87 MAHATMA GANDHI ROAD, FORT MUMBAI 400 001. PAN : AAACN4165C. VS. THE ADDL.COMMISSIONER OF INCOME-TAX RANGE 1(3) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI FARROKH V.IRANI RESPONDENT BY : SHRI SATBIR SINGH DATE OF HEARING :25 TH JULY, 2011 DATE OF PRONOUNCEMENT : 29 TH JULY, 2011 O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASSESSEE IS DIR ECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX U/S. 263 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED `THE ACT) ON 28.03.200 8 IN RELATION TO THE ASS ESSMENT YEAR 2004-2005. 2. BRIEFLY STATED THE FACTS OF THE CA SE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN GENERAL INSURANCE BUSINESS. TH E ASSESSMENT FOR THE RELEVANT YEAR WAS COMPLETED U/S.143(3) ON THE TO TAL INCOME OF RS.404,51,04, 804. ON THE PERUSAL OF THE ASSESSMENT ORDER AND OTHE R RELEVANT RECORDS, THE L EARNED CIT NOTED THAT THOUGH THE ASSESSING OFFICER DEALT WI TH THE PROVISIONS OF SECTI ON 44 READ WITH RULE 5 OF THE FIRST SCHEDULE OF THE ACT BUT ERRED IN OVERLOOKING THE FACT THAT THE ASSESSEE HAD NOT PROPERLY COMPLIED WITH SUCH SPECIAL PR OVISIONS. HE TOOK NOTE OF THE ABOVE PROVISIONS AND ALSO THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF GENERAL INSURANCE CORPORATION OF INDI A VS. CIT [(1999) 240 ITR 139 (SC)]. ON CERTAIN SPECIFIC POINTS, WHICH WE WILL ADVERT TO LATER, THE LEARNED CIT HELD THAT THE ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 2 ASSESSMENT ORDER WAS NOT CORRECTLY PA SSED AS THE SAME WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THROUGH THE LAST PARA OF THE IMPUGNED ORDER, HE SET ASIDE THE ASSESSMENT ORDER IN RESPECT OF ALL THE ISSUES EXCEPT THOSE WHICH WERE TAKEN UP AND DECIDED IN THE FIRS T APPEAL WITH THE OBSERVATION THAT SOME OBVIOUS ERRORS WERE POINTED OUT BY HIM IN HIS ORDER AND THE REMAINING POINTS INVOLVING INFRACTION OF THE PROVISIONS OF SECTION 44 READ WITH THE FIRST SCHEDULE MAY BE EXAMINED BY THE AO IN THE FRESH ASSESSMENT TO BE DONE DE NOVO AFTER ALLOWING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE IS A SUBSIDIARY OF GENERAL INSU RANCE CORPORATION OF INDIA. TOTAL INCOME OF AN ORDINARY ASSESSEE IS FINALIZED AS PER THE REGULAR PROVISIONS OF THE ACT. HOWEVER IF A SPECIAL PROVISION IS MADE TO DEAL WITH THE ASSESSMENT OF PARTICULAR TYPE OF ASSESSEES OR PARTICULAR TYPE OF BUSINESS, THEN SUCH SPECIAL PROVISIONS ARE APPLIED AND THE REGULAR PROVISIONS GOVERNING THE COMPUTATION OF TOTAL INCOME TAKE THE BACK SEAT. WE ARE DEALING WITH THE ASSESSMENT OF AN ASSESSEE WHO IS ENGAGED IN THE INSU RANCE BUSINESS. A SPECIAL PR OVISION IS CONTAINED IN SECTION 44 FOR THE PURPOSES OF COMPUTATION OF TOTAL INCOME OF TH E PRESENT ASSESSEE. IT WILL BE RELEVANT TO NOTE SEC. 44 AS UNDER:- INSURANCE BUSINESS. 44. NOTWITHSTANDING AN YTHING TO THE CONTRARY CONTAINED IN THE PROVISIONS OF THIS ACT RELATING TO THE COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD INTERES T ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS OR I NCOME FROM OTHER SOURCES, OR IN SECTION 199 OR IN SECTIONS 28 TO 43B, THE 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 TH E RULES CONTAINED IN THE FIRST SCHEDULE. ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 3 4. A BARE PERUSAL OF THE A BOVE PROVISION BRINGS OUT THAT IT IS A SPECIAL PROVISION REQUIRING THE COMPUTATION OF INCOME OF TH E INSURANCE COMPANI ES AS PER THE RULES CONTAINED IN THE FIRST SCHEDULE. SECT ION 44 OPENS WITH A NON-OBSTANTE CLAUSE PROVIDING THAT IN THE CASE OF COMPANIES CARRYING ON INSURANCE BUSINESS THERE WILL NOT BE ANY ASSESSMENT OF THE INCOME UN DER THE HEADS INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAIN S OR INCOME FROM OTHER SOURCES. THE ASSESSMENT HAS ONLY TO PROCEED UNDER TH E HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IT CAN FURTHER BE OBSERVED FROM THE LANGUAGE OF THE ABOVE PROVISION THAT THERE IS NO APPLICATION INTER ALIA OF SECTIONS 28 TO 43B OF THE ACT. THE PROFITS AND GAINS ARE TO BE COMPUTED IN ACCORDAN CE WITH THE RULES CONT AINED IN THE FIRST SCHEDULE. 5. WHEN WE APPROACH THE FIRST SCHEDULE IT IS NOTICED THAT THE SAME HAS BEEN DIVIDED INTO TWO PARTS, VIZ ., PART A CONTAINING RULES FR OM SR. NO. 1 TO 4 DEALING WITH COMPUTATION OF PROFITS OF LIFE INSU RANCE BUSINESS AND PART B CONTAINING ONLY RULE 5 DEALING WITH THE COM PUTATION OF PROFITS OF OTHE R INSURANCE BUSINESSES. THE INSTANT ASSESSEE IS CARRYING OTHER INSURAN CE BUSINESS DISTINCT FROM LIFE INSURANCE BUSINESS. HENCE IT IS COVERED UNDER PART B OF THE FIRST SC HEDULE. THE PROVISIONS OF RULE 5, AS APPLICABLE TO THE RELEVANT YEAR, AR E SET OUT HEREIN BELOW:- 5.THE PROFIT AND GAINS OF ANY BUS INESS OF INSURANCE OTHER THAN LIFE INSURANCE SHALL BE TAKEN TO BE THE BALANCE OF THE PROFITS DISCLOSED BY THE ANNUAL ACCOUNTS, COPIES OF WHICH ARE REQUIRED UNDER INSURANCE ACT, 1938 (4 OF 1938), TO BE FURNISHED TO THE CONTROLLER OF INSURANCE, SUBJECT TO THE FOLLOWING ADJUSTMENTS:- (A) SUBJECT TO THE OTHER PROVISIONS OF THIS RULE, ANY EXPENDITURE OR ALLOWANCE INCLUDING ANY AMOUNT DE BITED TO THE PROFIT AND LOSS ACCOUNT EITHER BY WAY OF A PROVISION FOR ANY TAX, DIVIDEND, RESERVE OR ANY OTHER PROVISION AS MAY BE PRESCRI BED WHICH IS NOT ADMISSIBLE UNDER THE PROVISIONS OF SECTIONS 30 TO 43B IN COMPUTING THE PROFITS AND GAINS OF BUSINESS SHALL BE ADDED BACK; ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 4 (B) (SINCE OMITTED). (C) SUCH AMOUNT CARRIED OVER TO A RESERVE FOR UNEXPIRED RISKS AS MAY BE PRESCRIBED IN THIS BEHALF S HALL BE ALLOWED AS A DEDUCTION. 6. WHEN WE VIEW THE PROVISIONS OF SECT ION 44 IN JUXTAPOSITI ON TO THE FIRST SCHEDULE, IT BECOMES PATENT THAT THE PROF ITS AND GAINS OF THE PRESENT ASSESSEE ARE REQUIRED TO BE COMPUTED IN ACCORDANCE W ITH THE ABOVE REFERRED RULE 5. A PLAIN READING OF THIS RULE SIGNIFIES THAT TH E PROFIT AS DISCLOSED BY THE ANNUAL ACCOUNTS PREPARED IN ACCORDANCE WITH THE RELEVANT SCHEDULES OF IN SURANCE ACT, 1938 IS TO BE TAKEN AS THE TOTAL INCOME SUBJ ECT TO THE ADJUSTMENTS SPECIF ICALLY PROVIDED IN CLAUSES (A) AND (C). HERE IT IS IM PORTANT TO MENTION THAT CLAUSE (B) WAS OMITTED BY THE FINANCE ACT, 1988 WITH EFFECT FROM 1.4.1989. WE ARE NOT CONCERNED WITH THE RE- INSERTION OF CLAUSE (B) BY THE FINANCE (NO.2) ACT, 2010 WITH EFFECT FROM 1.4.2011 AS THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2004-2005. 7. COMING TO CLAUSE (A) OF RULE 5 IT IS NOTICED THAT THE SAME REFERS TO MAKING ADDITIONS TO THE AMOUNT OF PROFIT DISCLOSED AS PER THE PROFIT AND LOSS ACCOUNT AS PER THE INSURANCE ACT. THIS CL AUSE STIPULATES THAT ANY EXPENDITURE OR ALLOWANCE OR ANY AMOUNT WHICH HAS BEEN DEBITED TO TH E PROFIT AND LOSS ACCOUNT EITHER BY WAY OF PROVISION FOR TAX, DIVIDEND, RESERVE OR A NY OTHER PROVISION WHICH IS NOT ADMISSIBLE UNDER THE PROVISIONS OF SEC TION 30 TO 43B IN COMPUTI NG THE PROFITS AND GAINS OF BUSINESS SHALL BE ADDED BACK. THE EFFECT OF THIS CLAUSE IS THAT IF THE INSURANCE COMPANY HAS CLAIMED DEDUCTIO N FOR ANY EXPENDITURE OR ALLOWANCE OR HAS DEBITED ANY AMOUNT TO THE PROFIT AND LOSS ACCOUNT BY WAY OF PROVI SION OR RESERVE ETC. WHICH IS NOT ADMISSIBLE AS PER THE PROVISIONS OF SECTI ON 30 TO 43B , THAT SHALL BE DISALLOWED. IN OTHER WORDS CLAUSE (A) TALK S OF `ADDITIONS TO THE AMOUNT OF PROFIT DISCLOSED BY THE AMOUNTS WHICH ARE NOT ALLO WABLE AS PER SECTIONS 30 TO 43B OF THE ACT. WHEREAS CLAUSE (A) REFL ECTS `ADDITIONS TO THE AMOUNT OF PROFIT DISCLOSED BY ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 5 PROFIT AND LOSS ACCOUNT AS PER THE INSURANCE ACT, CLAUSE (C) ALLO WS `DEDUCTION IN RESPECT OF RESERVE FOR UNEXPIRED RISKS AS MAY BE PRESCRIBED. THE CR UX OF CLAUSES (A) AND (C) IS THAT WHEREAS THE FORMER SWELLS THE PROFIT DI SCLOSED BY THE PROFIT AND LOSS ACCOUNT AS PER THE INSURANCE ACT, THE LATTER SHRINKS IT. 8. ON A CONJOINT READING OF SECTION 44 RE AD WITH RULE 5 OF THE FIRST SCHEDULE IT BECOMES MANIFEST THAT THE TO TAL INCOME OF THE ASSESSEE IS REQUIRED TO BE STRICTLY MADE AS PER RULE 5 OF THE FIRST SCHEDULE. BY NECESSARY IMPLICATION AND BY VIRTUE OF NON-OBSTANTE CLAUSE IN S ECTION 44 ALL OTHER PROVISIONS RELATING TO THE COMPUTATION OF TOTAL INCOME STAND EXCLUDED. THE PROCESS OF COMPUTATION OF THE TOTAL INCOME OF THE ASSESSEE, THEREFORE, REQUIRES FIRSTLY, PICKING UP THE FIGURE OF PROFIT DISCLOSED BY THE PROFIT AND LOSS ACCOUNT AS PER THE INSURANCE ACT AND THEN MAKING ADJUSTMENTS AS PER CLAUSES (A) AND (C) OF RU LE 5. STARTING POINT FOR THE COMPUTATION OF TOTAL INCOME, BEING THE BALANCE OF PR OFIT DISCLOSED BY THE PROFIT AND LOSS ACCOUNT AS PER THE INSURANCE ACT IS SACROSANCT A ND HENCE UNTOUCHABLE. IT IS NOT OPEN TO AUTHORITIES UNDER THE ACT TO EXAMINE THE ITEMS SEPARATELY DEBITED OR CREDITED TO THE PROFIT AND LOSS ACCOUNT WITH A VIEW TO DETERMINE THEIR DE DUCTIBILITY OR INCLUSION IN THE TOTAL INCOME OF THE ASSE SSEE AS PER THE PROVISIONS OF THE ACT. ONCE THE PROFIT AND LOSS ACCOUNT IS PREPARED AS PER TH E INSURANCE ACT, THE AMOUNT OF PROFIT SO DISCLOSED GIVES THE FOUNDATION, AMENAB LE ONLY FOR THE ADJUSTMENTS EXPRESSLY SANCTIONED BY THE MANDATE OF CLAUSES (A) AND (C ) OF RULE 5, FOR COMPUTING THE TOTAL INCOME. TO SUCH AMOUNT OF TH E PROFIT, THE ITEMS SPECIFIED AS PER CLAUSE (A) REQUIRE ADDITIONS AND THE ITEM AS PER CL AUSE (C) REQUIRE DEDUCTION. 9. IF THE ASSESSING OFFICER HOLDS THE OPINI ON THAT A PARTICULAR DEDUCTION CLAIMED IS OF THE NATURE WHICH IS NOT PERMISSIBLE AS PER THE REGULAR PROVISIONS OF THE ACT, HIS HANDS ARE TIED SO LONG AS THE PROFIT AND LOSS ACCOUNT HAS BEEN DRAWN AS PER THE INSURANCE ACT. HE CANNOT MAKE SUCH ADD ITION. AS THE PROFIT AND LOSS ACCOUNT SO ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 6 DRAWN IS BINDING ON THE AO, SO IS THE CASE WITH THE ASSESSEE AS WELL. IF CERTAIN AMOUNT HAS BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT SO PREPARED AND THE ASSESSEE HOLDS THE OPINION THAT IT CANNOT BE SUBJECTED TO TAX EITHER BECAUSE OF EXEMPTION UNDER THE NORMAL PROVISIONS OF THE ACT OR FOR ANY OTHER REASON WHATEVER, HE CANNOT CLAIM DEDU CTION IN RESPECT OF SUCH AMOUNT IN THE COMPUTATION OF TOTAL INCOME. SECTION 44 READ WITH RULE 5 OF THE FIRST SCHE DULE MAKES THE FIGURE OF PROFIT DISCLOSED BY THE PROFIT AND LOSS ACCOUNT DRAWN AS PER THE INSURANCE ACT AS ABSOLUTE AND BINDING BOTH ON THE ASS ESSEE AS WELL AS THE REVENUE. ONLY THE ADJUSTMENTS SPECIFIED IN CLAU SES (A) AND (C) CAN BE GIVEN EFFECT TO WHILE COMPUTING THE TOTAL INCOME. 10. IN THE CASE OF GENERAL INSURANCE CORPORATION OF INDIA VS. CIT (SUPRA) THE ASSESSEE MADE A DEBIT ENTRY FOR AN AMOUNT OF RS.3,00,30,700 IN THE PROFIT AND LOSS ACCOUNT AND TRANSFERRED THE AMOUNT TO TH E PREFERENCE SHARE CAPITAL REDEMPTION ACCOUNT. THE ITO ADDED BACK THIS AM OUNT TO THE INCOME . THE ASSESSEE WAS SUCCESSFUL BEFORE THE FIRST APPELLATE AUT HORITY AS WELL AS THE TRIBUNAL. WHEN THE MATTER CAME UP BEFORE THE HONBLE HIGH CO URT, THE ISSUE WAS DECIDED IN REVENUES FAVOUR BY HOLDING THAT THE SUM OF RS.3.0 0 CRORE AND ODD WAS LIABLE TO BE ADDED BACK TO THE TOTAL INCOME OF THE ASSESS EE. THE HONBLE SUPR EME COURT OVERTURNED THE JUDGEMENT OF THE HONBLE HIGH COURT BY HOLDING THAT TH E OBJECT OF RULE 2(2)(A) OF GIB RULES IS TO REDUCE THE AMOUNT OR PROFIT OF CORPORATION BY THE AMOUNTS SET APART AS RESERVE BY ARTIFICIALLY TREATING THE AMOUNT OF RESERVE AS AN ITEM IN THE EXPENDITURE COLUMN AND IF THE SAME AM OUNT WAS ALLOWED TO BE ADDED BACK TO PROFITS UNDER RULE 5(A) OF THE FIRST SCHEDULE OF THE ACT , THEN THE OBJECT SOUGHT TO BE ACHIEVED BY THE RULES WOULD BE DEFEATED. THE HON BLE SUMMIT COURT FURTHER NOTED THAT THE NON-OBSTANTE CLAUSE WITH WHICH SECTION 44 OP ENS AND GIVES IT AN OVERRIDING EFFECT ONLY ON THE PROVISIONS OF THE ACT WOULD EARN AN OVERRIDING EFFECT ON THE PROVISIONS OF OTHER EN ACTMENT ALSO THOUGH THE PAR LIAMENT HAS NOT CHOSEN TO GIVE SECTION 44 OF THE ACT SUCH AN E FFECT. IT WAS FINALLY OBSERVED THAT : THE FIGURES ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 7 IN THE ACCOUNTS OF TH E ASSESSEE DRAWN UP IN ACCORDANCE WITH THE PROVISIONS OF THE FIRST SCHEDULE TO THE INCOME-TAX ACT AND SATISFYING THE REQUIREMENTS OF THE INSURANCE ACT ARE BINDING ON THE ASSESS ING OFFICER UNDER TH E INCOME-TAX ACT AND HE HAS NO GENERAL POWER TO CORRECT THE ERRORS IN THE ACCOUNTS OF AN INSURANCE BUSINESS AND UNDO THE ENTRIES MADE THEREIN . FROM THE ABOVE OBSERVATIONS GIVEN BY THE HONBLE APEX COURT, IT IS AMPLY BOR NE OUT THAT THE AMOUNT OF PROFIT AS PER THE PROFIT AND LOSS ACCOUNT OF AN ASSESSEE CARRYING ON INSURANCE BUSINESS AND SATISFYING THE REQUIREMENTS OF THE INSURAN CE ACT IS FINAL AND CANNOT BE ALTERED BY THE ASSESSING OFFICER. IF A PARTICULAR ITEM IS DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE INSURANCE COMPANY WH ICH SATISFIES THE REQUIREMENT S OF THE INSURANCE ACT BUT IS OTHERWISE NOT DEDUC TIBLE AS PER THE PROVISIONS OF THE INCOME-TAX ACT, THE SAME WILL SLICE OUT THE AMOUNT OF PROFIT AND TH E ASSESSING OFFICER WILL HAVE NO POWER TO ADD BACK THE SAME BY RESORTING TO THE GE NERAL PROVISION OF THE ACT. IN THE LIKE MANNER IF A PARTICULAR ITEM IS CREDITED TO THE PROFIT AND LOSS ACCOUNT OF THE INSURANCE COMPANY WHICH SATISFIES THE REQUIREMENTS OF INSURANCE ACT BUT IS OTHERWISE NOT CHARGEABLE TO TAX, THE SAME WOULD STAND INCLUDED IN THE TOTAL INCOME AND THE ASSESSEE WILL NOT BE JUS TIFIED IN ARGUING THAT THIS PARTICULAR ITEM ALTHOUGH INCLUDIBLE IN THE PROFIT AND LOSS ACCOUNT AS PER THE INSU RANCE ACT BUT IS OTHERWISE NOT CHARGEABLE TO TAX AND HENCE THE SAM E BE EXCLUDED. THE VERY RATIONALE OF SECTION 44 MAKING THE PROVISIONS OF SECTIONS 28 TO 43B AS INEFFECTIVE BUT FOR THE PURPOSES OF MAKING ADDITIONS AS PER RULE 5(A) OF THE FIRST SCHEDULE, MAKES IT EXPLICITLY CLEAR THAT IN COMPUTING THE TO TAL INCOME OF THE INSURANCE COMPANY THE NORMAL PROVISIONS OF THE ACT RELATING TO THE COMPUTATION OF TOTAL INCOME ARE NOT TO BE TAKEN INTO CONSIDERATION EXCEPT FOR THEIR LIMITED APPLICABILITY AS EXPRESSLY PROVIDED. 11. SECTION 28 LISTS OUT CERTAIN ITEMS OF INCOME WHICH SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD `PROFITS AND GA INS OF BUSINESS OR PROF ESSION. THERE ARE VARIOUS CLAUSES OF SECTION 28 WHICH INCLUDE CERTAIN ITEMS OF INCOME WITHIN ITS ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 8 AMBIT. IF THERE IS ANY ITEM OF INCOME WHIC H IS NOT COVERED U/S. 28, THAT CANNOT BE INCLUDED IN THE BUSINESS INCOME UNDER TH E REGULAR PROVISIONS OF THE INCOME-TAX ACT. BUT WHEN WE TURN TO THE PROVISIONS OF SECTION 44, SUCH ITEM OF INCOME ALBEIT NOT COVERED BY SECTION 28 BUT CREDITED TO THE PROFIT AND LOSS ACCOUNT AS PER THE INSURANCE ACT, SHALL FALL WITHIN THE NET OF TAXATION. AN OVERVIEW OF THE PROVISIONS OF SECTION 44 READ WITH RULE 5 OF THE FIRST SCHEDULE DEMONSTRATES THAT THE MANNER OF COMPUTATION OF INCOME OF AN INSURA NCE COMPANY IS LIKE A BASKET CONTAINING BOUQUETS AS WELL AS BRICKBATS VIS--VI S A PERSON DOING NON-INSURANCE BUSINESS GOVERNED BY THE REGULAR PROVISIONS OF TH E ACT. WHEREAS THE AS SESSEE CARRYING ON INSURANCE BUSINESS GETS BENEFIT BY WAY OF CERTAIN DEDUCTIONS WHICH MAY NOT BE OTHERWISE ALLOWABLE BUT FOR THE PROVISIONS OF THE INSURANCE ACT ALLOWING DEBIT TO THE PROFIT AND LOSS ACCOUNT, THE REVENUE GE TS BENEFIT BY WAY OF CERTAIN ITEMS CREDITED TO THE PROFIT AND LO SS ACCOUNT WHICH MAY NOT BE OTHERWISE CHARGEABLE TO TAX BUT FIND THEIR PLACE IN THE TOTAL INCOME OF THE ASSESSEE BECA USE OF THE PROVISIONS OF THE INSURANCE ACT. 12. WE HAVE NOTICED ABOVE THAT SECTION 44 IS A SPECI AL PROVISION ENSHRINED IN THE ACT FOR ASCERTAINING THE PROFITS AND GAIN S OF AN ASSESSEE CA RRYING BUSINESS OF INSURANCE. IT IS A SETTLED LEGAL POSITION THAT THE SPECIAL PROVISION OVERRIDES THE GENERAL PROVISION. THE LEGAL MAXIM ` GENERALIA SPECIALIBUS NON DEROGANT MEANS THAT THE GENERAL THINGS DO NOT DEROGATE FR OM SPECIAL. IT IMPLIES THAT THE SPECIAL PROVISION OVERRIDES THE GENERA L PROVISIONS. IF THERE ARE TWO CONFLICTING PROVISIONS IN THE SAME SECTION OR CLAUSE, THE SPEC IAL PROVISION WILL PREVAIL AS THE SAME IS EXCLUDED FROM THE GENERAL PROVISION. TO PUT IT SIMPLE WORDS, IF A SPECIAL PROVISION IS MADE ON A CERTAIN SUBJECT, THAT MA TTER SHALL BE EXCLUDED FROM THE GENERAL PROVISION. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF FORBES FORBES CAMPBELL AND CO. LTD. VS. CIT [(1994) 206 ITR 495 (BOM.)] HAS QUOTED THE ABOVE MAXIM WITH APPROVAL. IT HAS ALSO BEEN APPLIED BY THE HONBLE MADRAS HIGH COURT ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 9 IN THE CASE OF CIT VS. COPES VULCEN INC. [(1987) 167 I TR 884 (MAD.)] , IN WHICH CASE IT WAS HELD THAT SECTION 9( 1)(I) IS GENERAL IN NATURE AND SECTION 9(1)(VII) REFERS TO A PARTICULAR TYPE OF INCOME AND IS A SPECIAL PROVISION DE ALING WITH EVEN FOR TECHNICAL SERVICES RENDERED BY THE FORE IGN COMPANY. AFTER CONSIDERING THE ARGUMENTS FROM BOTH SIDES IT WAS HELD THAT SECTION 9(1)(VII) WOULD APPLY. T HE HONBLE SUPREME COURT IN THE CASE OF BRITANIA INDUSTRIES LTD. VS. CIT [(2005) 278 ITR 546 (SC)] HAS ALSO REITERATED THE SAME PRINCIPLE BY HOLDING THAT THE EXPENDITURE TOWARDS RENT, RE PAIRS, MAINTENANCE OF GUEST HOUSE USED IN CONNECTION WITH THE BUSINESS IS TO BE DISALLOWED U/S. 37(4) BECAUSE THIS IS A SPECIAL PROVISION OVERRIDING THE GENERAL PROVISION. IT THEREFORE, FOLLOWS THAT IF A SPECIFIC PROVISION IS MADE THEN THAT MATTER IS EXCLUDED FROM THE GENERAL PROV ISION. THE ABOVE RULE OF GENERALIA SPECIALIBUS NON DEROGANT HAS BEEN EXPRESSLY INCO RPORATED IN SECTION 44 BY SPECIFICALLY PROVIDING INTER ALIA THAT NOTHING CONTAINED IN THE PROVISIONS OF SECTIONS 28 TO 43B SHALL APPLY TO THE PR OFITS AND GAINS OF BUS INESS OF INSURANCE WHICH SHALL BE COMPUTED IN ACCORDANCE WITH THE RULE S CONTAINED IN THE FIRST SCHEDULE. WHEN WE VIEW SECTION 44 WITH RULE 5 OF THE FIRST SCHEDULE, IT IS MANIFESTED THAT THE PROVISIONS OF SECTION 28 TO 43B ARE NOT TO BE CONSIDERED FOR ALLOWING ANY DEDUCTION IN COMPUTING THE TOTA L INCOME OF THE ASSESSEE, BUT IF ANY AMOUNT IS NOT ADMISSIBLE AS PER THESE PROVI SIONS, THEN THAT SHALL BE ADDED BACK TO THE AMOUNT OF PROFIT. THUS ONLY THE DISA BLING PART OF THE MO ST OF THESE OTHERWISE ENABLING PROVISIONS HAS BEEN ACTIVATED IN SO FAR AS THE COMPUTATION OF THE TOTAL INCOME OF THE PERSON E NGAGED IN INSURANCE BUSINESS IS CONCERNED. 13. IN THE LIGHT OF THE ABOVE DISCUSSION, WE SUM UP THE PROCEDURE FOR COMPUTING PROFITS AND GAINS OF BUSINESS OF INSURANCE OTHER THAN LIFE INSURANCE. THE AMOUNT OF PROFIT, AS DISCLOSED BY THE PROFIT AND LOSS ACCOUNT DRAWN AS PER THE INSURANCE ACT, SHALL BE TAKEN AS AN INITIAL POINT. SUCH AMOUNT OF PROFIT SHALL BE INCREASED BY THE AMOUNTS WHICH ARE NOT ADMISSIBLE UNDER TH E PROVISIONS OF SECTIO N 30 TO 43B IN ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 10 COMPUTING THE PROFITS AND GAINS OF BUSINESS AS PER RULE 5(A). THE RESULTANT FIGURE OF PROFIT SHALL BE REDUCED BY THE AMOUNT OF RESERVES FOR UNEXPI RED RISKS AS PER CLAUSE (C) OF RULE 5. NO ADJUSTMENT OT HER THAN THOSE SPECIFICALLY PERMITTED AS PER RULE 5 CAN BE CARRIED OUT TO THE AMOUNT OF PROFIT AS PER THE PROFIT AND LOSS ACCOUNT. 14. ARMED WITH THE ABOVE PRINCIPLES, WE SHALL NOW PROCEED TO EXAMINE VARIOUS POINTS HELD BY THE LD. CIT MA KING THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. I. INVESTMENTS WRITTEN OFF 15. WHILE DETERMINING THE TOTAL INCOME , THE ASSESSEE MADE DISALLOWANCE OF RS.(-)86,17,402 THROUGH POINT 4 OF THE COMPUTATION OF IN COME. THE FOLLOWING IS THE ELABORATION OF THE ASSESSEE S CLAIM IN THIS REGARD. INVESTMENTS WRITTEN O FF 164301796 ADD : DIMINUTION IN VALU E OF ASSETS - 62019611 LESS: IMPAIRMENT PROVISION OF WRIT TEN BACK (-)110899587 -------------- - 8617402 -------------- 15.1 THE LEARNED CIT NOTICED THAT THE ASSESSEE REDUCED ITS PROFITS BY RS.86.17 LAKH WHICH WAS NEITHER EXPENDITURE NOR AN ALLOWANCE AND HENCE WAS OUT OF THE PURVIEW OF RULE 5(A). IN HI S OPINION THIS AMOUNT WAS NOT ALLOWABLE AS DEDUCTION. 15.2 THE ASSESSEE INITIALLY DEBITED A SUM OF RS.16.43 CRORE TO ITS PROFIT AND LOSS ACCOUNT REPRESENTING THE INVESTMENTS WRITTEN OF F IN THIS YEAR. AT THE SAME TIME A SUM OF RS.17.29 CRORE (RS.6.20 CRORE + RS.11.09 CRORE) WAS CREDITED TO THE P&L ACCOUNT REPRESENTING REVERSAL OF THE PROVI SION FOR DIMINUTION OF INVESTMENTS MADE IN EARLIER YEARS, WHICH WAS NOT REQUIRED BE CAUSE OF APPRECIATION OR GAINS ON THE ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 11 REALIZATION OF INVESTMENTS. HOWEVER WHILE COMPUTING THE TOTAL INCOME, THE AMOUNT OF RS.16.43 CRORE WHICH WAS DEBITED TO TH E P&L ACCOUNT WAS ADDED BACK AND THE SUM OF RS.17.29 CRORE WHICH WAS CREDITE D TO THE P&L ACCOUNT WAS REDUCED FROM THE FIGURE OF PROFIT BEFORE TAX AS DEDUCED FROM ITS ANNUAL ACCOUNTS. HERE IT IS IMPORTANT TO MENTION THAT THE AMOUNT OF PROF IT BEFORE TAX TAKEN BY THE ASSESSEE IN ITS COMPUTATION OF TOTAL INCOME HAS BEEN DETERMINED AS PER THE PROFIT AND LOSS ACCOUNT DRAWN IN ACCORDANCE WITH THE INSU RANCE ACT. THE LD. CIT HAS NOT DISPUTED THIS FACT. HIS ONLY GRIEVANCE IS THAT THE SAID AMOUNT OF RS.86 LAKH IS NOT DEDUCTIBLE. 15.3 AT THIS JUNCTURE IT WOULD BE PERTINENT TO NOTE THAT BEFORE OMISSION WITH EFFECT FROM 1.4.1989, CLAUSE (B) OF RULE 5 STOOD AS UNDER:- (B) ANY AMOUNT EITHER WR ITTEN OFF OR RESERVED IN THE ACCOUNTS TO MEET DEPRECIATION OF OR LOSS ON THE REALI ZATION 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 ASSESSI NG OFFICER IS SATISFIED ABOUT THE REASONABLENESS OF THE AMOUNT WRITTEN OFF OR RESERVED IN THE ACCOUNTS, AS THE CASE MAY BE, TO MEET DEPRECI ATION OF OR LOSS ON THE REALIZATION OF INVESTMENT. 15.4. AS PER CLAUSE (B) IN THE PRE-OMISSION ER A, THE AMOUNT OF PROFIT DETERMINED AS PER THE ANNUAL ACCOUNTS OF THE INSURANCE COMPANY WAS REQUIRED TO BE ADJUSTED BY WAY OF DEDUCTION TOWARDS THE DEPRECIATION RESERVE OR LOSS ON REALIZATION OF INVESTMENTS AND INCREMENT TOWARDS APPRECIAT ION IN OR GAINS ON THE REALIZATION OF INVESTMENTS. CLAUSE (B) WAS OMITTED BY THE FINANCE ACT, 1998 LEADING TO THE SITUATION THAT NOW NEITHER TH E LOSS WRITTEN OFF OR RESERV ED IN THE ACCOUNTS TO MEET DEPRECIATION IS REQUIRED TO BE REDUCED FROM THE PROFITS NOR APPR ECIATION IN OR GAIN ON THE REALIZATION OF INVESTMENTS IS TO BE A DDED. THIS POSITION HA S BEEN CLARIFIED BY ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 12 THE MEMORANDUM EXPLAINING THE PROVISION IN THE FINANCE BILL, 1988 IN 170 ITR 182 (ST.) BY PARA 17, WHICH READS AS UNDER:- 17. UNDER THE EXISTING PROVISIONS OF SECTION 44 OF THE INCOME-TAX ACT, THE PROFITS AND GAINS OF ANY INSURANCE BUSINESS IS COMPUTED IN ACCORDANCE WITH THE RULES CONTAINED IN THE FIRST SCHEDULE TO THE ACT. IN RULE 5 OF THIS SC HEDULE, PROFITS AND GAINS OF ANY BUSINESS OF INSURANCE, OTHER THAN LIFE INSURANCE, ARE TAKEN TO BE BALANCE OF PROFITS DISCLOSED IN THE ANNUAL ACCOUNTS FURNISHED TO THE CONTROLLER OF INSURANCE SUBJECT TO CERTAIN ADJUST MENTS. ONE OF THE ADJUSTMENTS PROVIDED THEREIN IS IN RESPECT OF ANY AMOUNT EITHER WRITTEN OFF OR RESERVED IN THE ACCOUNTS TO MEET DEPRECIATION OR LOSS ON THE REALIZATION OF INVESTMENT WHICH IS ALLOWED AS DEDUC TION. SIMILARLY, ANY SUM TAKEN CREDIT FOR IN THE A CCOUNT ON ACCOUNT OF APPRECIATION OF OR GAIN ON THE REALIZATION OF INVESTMENT IS TAKEN AS PART OF THE PROFITS AND GAINS OF THE BUSINESS. WITH A VIEW TO ENABLE THE GENE RAL INSURANCE CORPORATION AND ITS SUBSIDIARIES PLAY A MORE ACTIVE ROLE IN CAPITAL MARKETS FOR THE BENEFIT OF POLICY HOLDERS, IT IS PROPOSED TO PROVIDE FOR EXEMPTIO N OF THE PROFITS EARNED BY THEM ON THE SALE OF INVESTMENTS. AS A COROLLARY, IT IS PROPOSED TO PROVIDE THAT THE LOSSES INCURRED BY THE GENERAL INSURANCE CORPORATION ON THE REALIZATION OF INVESTMENT SHALL NOT BE ALLOWED AS DEDUCTION IN COMPUTING THE PROFITS C HARGEABLE TO TAX. TO ACHIEVE THIS OBJECT CLAUSE (B) OF RULE 5 OF THE FIRST SCHEDULE TO THE INCOME-TAX ACT IS PROPOSED TO BE DELETED. 15.5. FURTHER THE NOTE ON CLAUSES CLARIFY THE POSITION THAT WITH THE OMISSION OF CLAUSE (B) THE PROFITS AND GAINS ON INV ESTMENTS MADE BY THE INSURANCE COMPANIES SHALL BE EXEMPT. CIRCULAR NO. 528 DATE D 16.12.1998 ALSO THROWS LIGHT ON THIS POSITION VIDE PARA 45.1 AS UNDER:- TO ENABLE THE GENERAL IN SURANCE CORPORATION AND ITS SUBSIDIARIES TO PLAY A MORE ACTIVE ROLE IN CAPITA L MARKETS FOR THE BENEFIT OF POLICY- HOLDERS, THE FINANCE ACT HAS AMENDED SUB-RULE (B) OF RULE 5 OF THE FIRST SCHEDULE TO PROVIDE FOR EXEMP TION OF THE PROFITS EARNED BY THEM ON THE SALE OF INVESTMENT. AS A CORO LLARY, IT HAS ALSO BEEN PROVIDED THAT THE LOSSES INCURRED BY THE GENERAL INSURANCE CORPORATION ON THE ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 13 REALIZATION OF THE INVESTMENT SHALL NOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE PROFITS CHARGEABLE TO TAX. 15.6 AS CAN BE SEEN FROM THE LE GISLATIVE INTENT MADE EXPLICIT THROUGH MEMORANDUM EXPLAINING THE PROVISION, NOT ES AND CLAUSES AND ALSO CIRCULAR ISSUED BY THE CBDT THAT EXEMPTION IS TO BE PROV IDED IN RESPECT OF THE PROFITS EARNED BY THE INSURANCE COMPANY ON SALE OF INVESTMENT AND CONSEQUE NTLY NO DEDUCTION IS TO BE ALLOWED TOWARDS LOSSES INCU RRED ON THE REALIZATION OF INVESTMENTS. IN SIMPLE WORDS THE PRESCRIPTION OF THE HITHERTO CLAU SE (B) OF RULE 5 HAS BEEN TAKEN BACK, WHICH GRANTED DEDUCTION TOWARDS THE DEPRECI ATION RESERVE OR LOSS ON REALIZATION OF INVESTMENTS AND INCREMENT TOWARDS APPRECIAT ION IN OR GAINS ON THE REALIZATION OF INVESTMENTS. 15.7. ADVERTING TO THE FACTS OF THE INSTANT CASE IT IS S EEN THAT THE ASSESSEE WROTE OFF A SUM OF RS.16.43 CR ORE TOWARDS DIMINUTION IN TH E VALUE OF INVESTMENT IN ITS PROFIT AND LOSS ACCOUNT FO R THE YEAR, WHICH WAS ADDED BACK TO THE FIGURE OF PROFIT BEFORE TAX. INSOFAR AS RECOVERY OF DIMINU TION IN THE VALUE OF ASSET IN THE EARLIER YEARS AMOUNTING TO RS.17.29 CRORE IS C ONCERNED, THE ASSESSEE RECOVERED SUCH DIMINUTION AND EARNED THE PROFIT AND CR EDITED SUCH AMOUNT TO ITS P&L ACCOUNT, WHICH AMOUNT WAS REDUCED FROM THE FIGURE OF PROFIT BEFORE TAX WHILE COMPUTING ITS TOTAL INCOME. THE CASE OF TH E LEARNED CIT IS THAT THE NE T AMOUNT OF RS.86.17 LAKH IS NOT REQUIRED TO BE DEDUCTED. WE ARE UNA BLE TO APPRECIATE HI S VIEW POINT FOR THE REASON THAT WITH THE OMISSION OF CLAUSE (B) OF RULE 5 IT HAS B EEN MADE CLEAR THAT NEITHER THE LOSS ON ACCOUNT OF DIMINUTION IN THE VALUE OF INVESTMENT SHALL BE ALLOWED AS DEDUCTION NOR ANY INCOME ON INVESTMENT SHALL BE SUBJECTED TO TAX. BOTH THE ITEMS OF LOSS AND INCOME FROM THE INVE STMENTS ARE TO BE CONSIDERED AS NEITHER DEDUCTIBLE NOR INCLUDIBLE IN THE TOTAL IN COME OF THE ASSESSEE. THE ASSESSEE HAD INITIALLY DEBITED RS.16.43 CRORE IN ITS PR OFIT AND LOSS ACCOUNT AND CREDITED RS.17.29 CRORE IN THE PROFIT AND LOSS ACCOUNT. HOWEV ER WHILE COMPUTING TH E TOTAL INCOME THE SAID AMOUNTS OF RS.16.43 CRORE AND RS. 17.29 CRORE WERE ACCORDINGLY REVERSED, ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 14 LEADING TO THE RESULT THAT IN THE ULTIMATE ANALYSIS NEITHER THER E WAS ANY DEDUCTION ON ACCOUNT OF LOSS NOR INCREMENT ON ACCOUNT OF INCOME FROM INVESTMENTS. WE, THEREFORE HOLD THAT THE LEARNED CIT WAS NOT JUSTIFIED ON THIS ISSUE. II. PENSION AND GRATUITY 16. THE SECOND POINT ON WHICH THE LEARNE D CIT HELD THE ASSESSMENT ORDER AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE HAS BEEN DISCUSSED IN PARA 6 OF THE IMPUGNED ORDER. IT WAS SEEN THAT THE ASSESSEE CLAI MED DEDUCTION FOR AND THEN ADDED BACK THE FOLLOW ING AMOUNTS TO ITS INCOME. ITEM NO.7 PENSION DEBITED TO YOUR ACCOUNT 365,08,89,500 ITEM NO. 8 GRATUITY DEBITED TO YOUR ACCOUNT 101,33,54,300 AS AGAINST THAT, THE DEDUCTION WAS CLAIMED IN THE COMPUTATION OF TOTAL INCOME AS UNDER: ITEM NO.11 PENSION PAID TO THE FUND 404,00,00,000 ITEM NO. 12 GRATUITY PAID TO THE FUND 110,00,00,000 THE LD. CIT NOTICED THAT THE SUM WAS PROVIDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT BUT WAS NOT ACTUALLY PAID DURI NG THE YEAR AND WAS THUS HIT BY SECTION 43B WHICH REQUIRED ADDI TION TO THE INCOME. 16.1 WHILE COMPUTING THE TOTAL IN COME THE ASSESSEE DISALLOWED THE ABOVE REFERRED TWO SUMS AS PER ITEM NO.7 AND ITEM NO.8 AND ALSO SIMULTANEOUSLY CLAIMED DEDUCTION OF THE ITEMS GIVEN BELOW VIDE ITEMS 11 AND 12. IN OTHER WORDS, THE ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 15 ASSESSEE DEBITED ITS PROFIT AND LOSS ACCOUN T WITH A SUM OF RS. 365.08 CRORE TOWARDS PENSION AND CLAIMED DEDUCTION OF RS.404.00 CRORE BY CLAIMING IT AS ACTUALLY PAID. A COPY OF ACCOUNT OF PENSION HAS BEEN PLACED ON RECORD. IT IS NOTICED THAT A SUM OF RS.60.68 CRORE WAS CONSIDERED AS DEFERRED REVENUE EXPENDITURE AND THIS BALANCE WAS CARRIED OVER TO THE NEXT YEAR OUT OF THE DEBIT TO THE ACCOUNT OF PENSION AT RS.425.769 CRORE. THE CLAI M OF THE ASSESSEE IS THAT SUM OF RS.404.00 CRORE ON ACCOUNT OF PENSION FUND SHOULD BE ALLOWED AS DEDUCTION AS IT REPRESENTED THE AMOUNT ACTUALLY PAID AS AGAINST THE AMOUNT OF RS.365.08 CRORE DEBITED TO THE PROFIT AND LOSS ACCOUNT. IT WAS AC CENTUATED THAT THE AMORTIZA TION WAS REQUIRED TO BE DONE AS PER THE IRDA GUIDELINES. WE ARE UNABLE TO COUNTENANCE THIS CONTENTION FOR THE REASON THAT CLAUSE (A) OF RU LE 5 TALKS OF THE `ADDITIONS TO BE MADE IN RESPECT OF DISALLOWANCES U/S.30 TO 43B. IT DOES NOT PROVIDE FOR GRANTIN G ANY DEDUCTION. THE DEDUCTION PART HAS TO BE VIEWED FROM THE PROFIT AND LOSS ACCO UNT DRAWN AS PER THE INSURANCE ACT. WE HAVE NO TICED ABOVE THAT THE AMOUNT OF PROFIT DIVULGED BY THE PROFIT AND LOSS ACCOUNT IS REQUI RED TO BE ADJUSTED AS PER THE ITEMS GIVEN IN RULE 5. CLAUSE (A) REFERS TO THE DISALLOWANCE TO BE MADE INTER ALIA U/S 43B. IT IMPLIES THAT IF A PARTICULAR SUM IS DEBITED TO THE PROF IT AND LOSS ACCOUNT, BU T A PART OF THE SAME HAS NOT BEEN PAID/DEPOSITED BEFORE THE DUE DATE, TH EN THAT PART, WHICH WOULD OTHERWISE HAVE BEEN DEDUCTIBLE IF PAID, SHA LL NOT BE ALLOWED AS DEDUCTION. THUS THE ESSENCE OF SEC. 43B IS TO MAKE DISALLOWANCE IN RESPECT OF THE UNPA ID AMOUNT OF TAX, DUTY, CESS OR FEE ETC. THE DEDUCTIBILITY OF THE AMOUNT IS GOVERNED BY THE PROFIT AND LOSS ACCOUNT DRAWN AS PER THE INSURANCE ACT , BUT THE ADDITION TO THE INCOME IS TAKEN CARE OF BY RULE 5(A). EVEN IF A PAR TICULAR AMOUNT MAY BE DEDUCTIBLE UNDER THE REGULAR PROVISIONS OF THE ACT BUT UNLESS IT FALLS STRIC TLY WITHIN THE SCOPE OF SECTION 44 READ WITH RULE 5 OF THE FIRST SCHEDULE, THE SAME CANNOT BE ALLOWED AS DEDUCTION. IN THE FACTS OF THE CASE, THE ASSESSEE DEBITED RS.365.08 CRORE ON ACCOUNT OF PENSION, WHICH AMOUNT WAS RIGHTLY DEDUCTIBLE. BUT THE DISALLOWANCE IS TO BE CONSIDERED AS PER SECTION 43B. SINCE THE AS SESSEE PAID SUCH AMOUNT OF RS.365.08 CRORE IN FULL AND ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 16 ALSO MADE SOME FURTHER PAYM ENT WHICH HAS NOT BEEN DEBITE D TO THE PROFIT AND LOSS ACCOUNT BECAUSE OF ITS TREAT MENT GIVEN AS DEFERRED REVE NUE EXPENDITURE TO THAT EXTENT, THE EXCESS SO PAID CANNOT BE ALLO WED BY TAKING RECOURSE TO THE PROVISIONS OF SEC. 43B IN THE CONTEXT OF RULE 5(A), WH ICH BRINGS WITHIN ITS SWEEP THE AMOUNTS TO BE ADDED TO THE TOTAL INCOME AND DOES NOT PERMIT DEDUCTIONS. IT IS IMPERMISSIBLE TO CLAIM DEDUCTION FOR A SUM MORE THAN THAT DEBITED TO THE PROFIT AND LOSS ACCOUNT. WHAT IS CONTEMPLATED FOR DEDUCTION FROM THE PROFITS AS PER ANNUAL ACCOUNTS IS SUBJECT MATTER OF CLAUSE (C) OF RULE 5. TH IS CLAUSE DOES NOT REFE R TO ANY AMOUNT OF THE NATURE WHICH IS PRESENTLY IN DISPUTE. FURTHER IT IS NOT THE CASE OF THE ASSESSEE THAT THE DEDUCTION FOR THE EXCESS SALES TAX PAID BE ALLOWED AS PER CLAUSE (C). AS CLAUSE (A) TALKS OF ONLY MAKI NG ADDITIONS TO THE AMOUNT OF PROFIT AS PER THE PROFIT AND LOSS ACCOUNT, THE SAME CANNOT BE TAKE N RECOURSE TO FOR ALLOWING ANY FURTHER DEDUCTION. 16.2. BOTH THE SIDES AR E IN AGREEMENT THAT THAT FA CTS AND CIRCUMSTANCES OF THE CLAIM FOR GRATUITY ARE MUTATIS MUTANDIS SIMILAR TO THAT OF TH E PENSION. THE ASSESSEE DEBITED A SUM OF RS.101.33 CRORE IN ITS PROFIT AND LOSS ACCOUNT BUT CLAIMED DEDUCTION FOR RS.110 CRORE. THIS COURSE OF ACTION IS NOT PERMISSIBLE WITHIN THE SCOPE OF RULE 5. WE, THEREFORE, PARTLY APPROVE THE VIEW TAKE N BY THE LEARNED CIT BY HOLDING THAT THE DEDUCTION ON ACCOUNT OF PENSION IS ADMISSIBLE FOR A SUM OF RS.365.08 CRORE AND TOWARDS GRATUITY FOR A SUM OF RS.101.33 CRORE. III. LEAVE ENCASHMENT 17. THE NEXT POINT ON WHICH THE ASSESSMEN T ORDER HAS BEEN HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE IS THE CLAIM OF DEDUCTION BY THE ASSESSEE ON ACCOUNT OF LEAVE ENCASHMENT. THE ASSESSE E DEBITED A SUM OF RS.55.74 CRORE IN RESPECT OF LEAVE ENCASHMENT TO ITS PROFIT AND LOSS ACCOUNT. AN AMOUNT OF RS.32.36 CRORE WAS PAID DURING THE YEAR. THIS PAYMENT INCLUDED A SUM OF RS.4.45 CRORE REPRESENTING THE AMOUNT WHICH WAS CLAIME D AS DEDUCTION IN THE PRECEDING YEAR. ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 17 THE UNPAID AMOUNT OF RS.27.83 CRORE (R S.55.74 CRORE RS.27.91CRORE [RS.32.36 CRORE RS.4.45CRORE] WAS VOLUNTARILY DISALLOWED BY THE ASSESSEE U/S.43B. THE LEARNED CIT TOOK THE VIEW THAT THE ASSES SEE SHOULD HAVE DISALLOWED THE ENTIRE SUM OF RS.55.74 CRORE. IN HIS OPINION THE IN COME WAS UNDER-ASSESSED BY RS.27.91 CRORE. 17.1 THE ASSESSEE DEBITED A SUM OF RS.55.74 CRORE IN ITS PROFIT AND LOSS ACCOUNT AND CLAIMED DEDUCTION ON THAT ACC OUNT, WHICH WAS REQUIRED TO BE GRANTED AS PER MAIN PART OF RULE 5. THEN CLAUSE (A) REFERS TO TH E DISALLOWANCES REQUIRED TO BE MADE WHICH INTER ALIA INCLUDES UNDER SECTION 43B. AS PE R SECTION 43B ANY AMOUNT WHICH IS OTHERWISE CLAIMED AS DEDUCTION SHALL NOT BE SO ALLOWED UNLESS IT IS PAID ON OR BEFORE DUE DATE U/S.139(1) OF THE ACT. THE ASSESSEE ADMITTED LY PAID A SUM OF RS.27.91 CRORE AS RELATING TO THE INSTANT YEAR THEREBY L EAVING THE UNPAID AMOUNT AT RS.27.83 CRORE WHICH WAS VOLUNTARILY ADDED BACK TO ITS INCOME IN THE COMPUTATION OF THE TOTAL INCOME. IN OUR CONSIDERED OPINION THE COURSE OF ACTION ADOPTED BY THE ASSESSEE IS PERFECTLY IN ORDER INASMUCH AS IT CLAIMED DEDUCTION OF RS.55.74 CRORE REPRESENTING THE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT AND ALSO DISALLOWED THE AMOUNT UNPAID U/S.43B AS PER CLAUSE (A) OF RULE 5. TH E LEARNED CIT HAS DIRECTED TO DISALLOW THE ENTIRE SUM OF RS.55.74 WHICH IS NOT CORRECT FOR THE REASON THAT THE AMOUNT DEBITED TO THE PROFIT AND LOSS A CCOUNT IS REQUIRED TO BE DEDUCTED TO THE EXTENT IT IS ACTUALLY PAID ON OR BEFORE THE DUE DATE U/S. 139(1). BY THE ACTION OF THE LEARNED CIT THE ASS ESSEE HAS BEEN DENIED THE DEDUC TION FOR THE AMOUNT DEBITED TO THE P&L ACCOUNT AND ALSO PAID AS WELL BEFORE THE DUE DA TE. WE, THEREFORE, DO NOT APPROVE THE VIEW TAKEN BY THE LEARNED CIT ON THIS ISSUE. IV. INTEREST AND INCOMES RELATING TO EARLIER YEAR 18. THE NEXT ITEM CONSIDERED BY THE LEARNE D CIT IS THE ADJUSTMENT IN RESPECT OF INCOME AND EXPENDITURE NOT RE LATING TO CURRENT YEAR. IN THE COMPUTATION OF INCOME THE ASSESSEE ADDED BACK INCOME AND EXPENDITURE OF EARLIER YEAR. IT ALSO CLAIMED ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 18 DEDUCTION IN RESPECT OF CERTAIN INTEREST AND INCOMES RELATING TO EARLIER YEAR BUT ACCOUNTED FOR IN THE CURRENT YEAR AS UNDER:- PREMIUM INCOME TAXED IN F.Y. 02-03 UNDER CLAUSE 13 OF FORM 3CD BUT ACCOUNTED IN F.Y.03-04 1492844 BALANCE AMOUNT OF PROVISIONS NOT ALLOWED IN EARLIER YEAR S AND PAID DURING THE P.Y. (AS PER CLAUSE 21 (10 ANNEX XI OF TAX AUDIT REPORT) 784747 INTEREST CHARGED U/S.234B FOR A.Y. 1996-97 PAID AND DISALLOWED IN A.Y. 1999-2000 WAIVED AND ACCOUNTED IN F.Y. 2004-05 (ANNEXURE-3) 278732314 INTEREST CHARGED U/S.234B & C FOR A.Y. 98-99 PAID AND DISALLOWED IN A.Y. 2000-01 WAIVED AND ACCOUNTED IN F.Y.03-04. 51870052 IT WAS HELD BY THE LD. CIT THAT THE ABOVE ADJUSTMENTS DID NOT FALL WITHIN THE PROVISIONS OF SECTION 30 TO 43B AND HENCE WERE NOT PERMISSIBLE. 18.1. THE FIRST ITEM IS THE PREM IUM INCOME OF RS.14,92,844 WHICH AS PER THE ASSESSEE WAS TAXED IN THE PRECEDING YEAR BUT ACCOUNTED FOR IN THE INCOME OF THE CURRENT YEAR. IT IS OBSERVED THAT THE SAID SUM OF RS.14.92 LAKH WAS INCLUDED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT AS PER THE PROVISIONS OF INSURANCE ACT. ONCE A PARTICULAR SUM IS INCLUDED TO THE CREDIT OF PROFIT AND LOSS ACCOUNT, THE SAME WILL CONTINUE TO FIND ITS PLACE IN THE TOTAL INCOME AS PER RULE 5 UNLESS IT IS COVERED UNDER ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 19 CLAUSE (C) OF RULE 5. SIMILAR IS THE POSITION ABOUT OTHER THRE E ITEMS WHICH WERE INCLUDED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT FOR THE CURRENT YEAR. THE CONTENTION THAT THESE AMOUNTS WERE OFFERE D FOR TAXATION IN THE EARLIER YEAR AND HENCE THE SAME SHOULD NOT BE CHARGED TO TAX IN THE CURREN T YEAR, IS DEVOID OF ANY MERIT IN THE CONTEXT OF SECTION 44 READ WITH RULE 5 OF THE FIRST SCHEDULE. SIMILARLY AS REGARDS INTEREST CHARGED U/S.234B FOR EARLIER YEARS WHICH WAS PAID AND DISALLOWED IN THE EARLIER YEARS BUT WAIVED IN THE CURRENT YEAR AND ACCOUNTED FOR ACCORDINGLY WILL ALSO REMA IN INCLUDED IN THE AMOUNT OF PROFIT FOR THE OBVIOUS REASON THAT THERE IS NO PROVI SION TO ALLOW DEDUCTION IN R ESPECT OF SUCH SUMS IN THE CONTEXT OF SECTION 44 READ WITH RULE 5 OF THE FIRST SCHEDULE. AS WE HAVE DISCUSSED ABOVE THAT SECTION 44 IS A SPECIA L PROVISION, NATURALLY THE EFFE CT HAS TO BE GIVEN TO IT WHETHER OR NOT IT FAVOURS THE ASSESSEE. THERE IS NO SCOPE FOR ARGUING ABOUT THE EQUITY INSOFAR AS THE PROVISIONS OF TAXA TION LAWS ARE CONCERNED. ONCE A PARTICULAR ITEM OF INCOME FALLS WITHIN THE NET OF TAXATION AS PER THE RELEVANT PR OVISION, THE SAME CANNOT BE EXCLUDED UNL ESS THERE IS A SPECI FIC PROVISION PROVIDING OTHERWISE. IN OUR CONSIDERED OPINION THE LEARNED CIT WAS JUSTIFIED IN HOL DING THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVE NUE ON THIS ISSUE BY WHICH DEDUCTION ON ACCOUNT OF ABOVE FOUR ITEMS CLAI MED BY THE ASSESSEE WAS ALLOWED BY THE AO WITHOUT ANY VERIFICATI ON. WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE LD. CIT ON THIS ISSUE. 19. APART FROM THE ABOVE DISCUSSED FOUR ITEMS OF INCOME DISTINCTLY, THE LEARNED CIT IN PARA 11 HAS NOTICED THAT THE AUDITORS HAVE QUALIFIED THE AUDIT REPORT ON CERTAIN MATTERS ESPECIALLY REGARDING NON-COMPLI ANCE OF IRDA REGULATIONS AND THE AO FAILED TO VERI FY THESE AMOUNTS FROM THE ANGLE OF TAXABILITY. ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 20 20. THE QUALIFICATIONS OF THE AUDITORS TO WHICH THE LEARNED CIT IS REFERRING TO CAN BE FOUND ON PAGES 84 AND 85 OF THE ANNUAL REPORT OF THE ASSESSEE-COMPANY. IT IS IMPORTANT TO MENTION TH AT IN THE SAME ANNUAL REPORT ON PAGE 50, REFERRING TO PAGES 84 AND 85, CLEARLY STATES THAT : H OWEVER, THIS NON-COMP LIANCE DO NOT HAVE ANY IMPACT ON THE WORKING RESU LTS OF THE COMPANY. IT IS, THEREFORE, CLEAR THAT THE QUALIFICATION MADE BY THE AUDITORS DID NO T HAVE ANY IMPACT ON THE WORKING RESULTS OF THE COMPANY. THE LEARNED CIT HAS NOT POINTED OUT AS TO HOW THE INCOME OF THE ASSESSEE WAS NOT FULLY BROUGHT TO TAX BY NON-COMPLIANCE OF THE IRDA REGULATIONS. WE, THEREFORE, DO NOT FIND ANY MERIT ON THE VIEW POINT TAKEN BY HI M ON THIS ISSUE, WHICH IS OTHERWISE A GENERA L OBSERVATION NOT REFERRING TO ANY SPECIFIC ITEM OF INCOME WHICH MADE THE ASSESSMENT ORDE R ERRONEOUS AND CAUSED LOSS TO THE REVENUE. 21. IN PARAS 12 AND 13 THE LEARNED CIT HAS REFERRED TO COM PUTATION OF INCOME U/S.115JB. WE HAVE GONE THROUGH THE ORDER PASSED BY THE A.O. U/S.143(3) DATED 23.12.2005 WHICH HAS BECOME SUBJECT MATTE R OF REVISION BY THE LEARNED CIT. THE ASSESSING OFFICER HAS COMPUTED TOTAL INCO ME AT RS.404.51 CRORE UNDER THE REGULAR PROVISIONS. ON LAST PAGE IT HAS BEEN OBSERVED THAT : AS, THE TAX ON INCOME COMPUTED UNDER NORMAL PROVISI ONS OF THE INCOME TAX ACT , 1961 IS GREATER THAN THE TAX CALCULATED ON THE BOOK PROFIT U/S.115JB, THE LA TTER IS IGNORED. FROM HERE IT CAN BE NOTICED THAT THE A.O. COMPUTED INCOME AS PER THE NORMAL PROVISIONS OF THE ACT AND TAX ON THE SAME WAS GREATER THAN THE TAX CALCULATED ON THE BOOK PROFIT U/S.115JB. IN OTHER WORDS THE PROVISIONS OF SECTION 115JB ARE NOT ATTRACTED IN THIS CASE. IN SUCH A SITUATION THE LEARNED CIT WAS NOT JUSTIF IED IN COMMENTING UPON THE COMPUTATION U/S.115JB WHICH HAD BEEN DI SREGARDED BY THE A.O. AS INAPPLICABLE BECAUSE OF THE RESULTANT LOWER TAX. WE ARE, THEREFORE, NOT INCLINED TO ACCEPT THE VIEW POINT OF THE LEARNE D CIT ON THIS ISSUE. ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 21 22. IN THE LAST PARA OF THE IMPUGNED ORDE R, THE LEARNED CIT SET ASIDE THE ENTIRE ASSESSMENT ORDER WITH A DIRECTION TO THE ASSESSING OFFICER TO FRAME THE ASSESSMENT DE NOVO AFTER CONSIDERING THE PROVISIONS OF SEC TION 44 READ WITH RULE 5 OF THE FIRST SCHEDULE OF THE ACT. IT IS AXIOMATIC THAT THE PRE-REQUI SITE CONDITION FOR EXERCISING JURISDICTION UNDER SECTION 2 63 IS THAT THE CIT SHOULD FI ND THE ASSESSMENT ORDER TO BE BOTH ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE POWER OF THE LD. CIT U/S 263 REQUIRING THE AO TO FRESHLY ADJUDICATE ON CERTAIN ISSUES EXTENDS ONLY TO THE SUCH POINTS AS HAVE B EEN SPECIFICALLY DEAL T WITH BY THE FORMER IN HIS ORDER ON WHICH THE ASS ESSMENT ORDER IS WANTING EITH ER FOR NON APPLICATION OR IMPROPER EXERCISE OF MIND BY TH E LATTER. THE LD. CIT CANNOT ORDINARILY EXERCISE THIS POWER IN A SWEEPING MANNER DIRECTING THE AO TO FRAME TH E ENTIRE ASSESSMENT AFRESH, WHEN THE ASSESSMENT ORDER INDICATES THE CONSIDERATION OF THE MAJORITY OF THE RELEVANT ISSUES. IN SUCH A SITUATION IT IS OBLIGATORY ON HIM TO DEMONSTRATE HOW THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDIC IAL TO THE INTEREST OF THE REVENUE ON SPECIFIC POINTS. ONLY THEN AND ON THOSE SPECIFIC POINTS THE AO WILL BE OBLIGED TO DECIDE THE CASE AFRESH. IF THE COURSE OF ACTION ADOPTED BY THE LD. CIT IN THE PRESENT CASE THROUGH THE LAST PARA OF THE IMPUGNED ORDER IS SANCTIONED, THEN IN EVERY CASE THE CIT MAY EXERCISE HIS POWER U/S 263 WITHOUT DEPICTING AS TO HOW THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, WHICH WOULD, IN TURN, GIVE UNLIMITED JURISDIC TION TO THE AO TO TAKE UP THE ASSESSMENT TIME AND AGAIN, WHICH IS CONTRARY TO THE SCHEME OF THE ACT. AS THE LEARNED CIT HAS DEALT WITH CERTAIN SPECIFIC ISSUES IN THE IMPUGNED ORDER ON WH ICH THE ASSESSMENT ORDER IN HIS OPINION WAS ERRONEOUS AND AL SO CAUSED LOSS TO THE REVENUE, WE ARE CONVINCED THAT HE WAS JUSTIF IED IN ASSUMING JURISDICTION AND DECIDING SUCH ISSUES AS PER HIS POINT OF VIEW. BUT WE ARE NOT PERSUADED TO UPHOLD HIS OBSERVATIONS IN THE LAST PARA BY WHICH HE DIRECTED THE AS SESSING OFFICER TO EX AMINE ANY OTHER POINT IN THE FRESH ASSESSMENT. OUR VIEW IS FORT IFIED BY THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT IN CIT VS. HINDUSTHAN COCONUT OIL MILL [(2002) 255 ITR ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 22 428 (KOL.)] IN WHICH IT HAS BEEN HELD THAT EVEN IF THE RE VISIONAL AUTHORITY SETS ASIDE THE ENTIRE ASSESSMENT ORDER AND CALLS FOR TH E ASSESSMENT TO BE MADE AGAIN, THE ITO HAS NO JURISDICTION TO TOUCH ON HIS OWN ON CE AGAIN THE MATTER WHICH THE REVISIONAL AUTHORITY HAS LEFT COMPLETELY UNTOUCHED . WE HOLD THAT SUCH OBSERVATIONS ARE UNWARRANTED AND THUS REFU SE TO APPROVE THE SAME. 23. THE LEARNED A.R., APART FROM ARGUING HIS CASE ON MERITS, HAS ALSO TAKEN A PLEA THAT IT IS A CASE OF REVISION U/S.263 AND IF TWO VIEWS ARE POSSIBLE ON A PARTICULAR POINT THEN SUCH A CASE SHOUL D BE EXCLUDED FROM THE AMBIT OF SECTION 263. HE PUT FORTH THAT SINCE ON ALL THE ISSUES TA KEN UP BY THE LD. CIT IN THE REVISIONAL ORDER, THERE IS POSSIBILITY OF FORMING THE VIEW AS HAS BEEN CANVASSED BY THE ASSESSEE AND ACCEPTED BY THE AO, THE IMPUGNED ORDER MAY BE SET ASIDE. WE FULLY ENDORSE THE LEGAL CONTENTION PROPOUNDED ON BEHALF OF THE ASSESSEE THAT IF TWO VIEWS ARE POSSIBLE ON A POINT, THEN THE JURISDICTION U/S 263 IS OUSTED. BUT THIS LEGAL PRINCIPLE IS NOT APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE. THE OBVIOUS REASON IS THAT THE ASSESSING OFFICER FAILED TO CONSIDER THE PROVISIONS OF SECTION 44 READ WITH RULE 5 OF FIRST SCHEDULE IN PROPER PERSPECTIVE. TO THE EXTENT WE HAVE UPHELD THE ORDER OF THE CIT U/S. 263 ABOVE, IT IS A SIMPLE AND PLAIN THAT ON THE CORRECT APPLICATION OF TH E RELEVANT PROVISIONS THE AMOUNTS DISCUSSED WERE LIABLE TO BE INCLUDED IN THE TOTAL INCOME, WHIC H THE AO FAILED TO DO SO. THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. VS . CIT [(2000) 243 ITR 83 (SC)] HAS HELD THAT AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS . AS THE ASSESSING OFFICER FAILED TO CORRECTLY APPLY THE STAT UTORY PROVISIONS IN THIS REGARD WHICH ARE RELEVANT FOR DETERMINING THE INCOME OF INSU RANCE COMPANY, WE HOLD THAT THE CASE IS STRICTLY COVERED WITHIN THE PURVIEW OF SECT ION 263. IN ORDER TO DESCRIBE A POINT AS DEBATABLE, IT IS SINE QUA NON THAT THERE MUST BE TWO LEGALLY POSSIBLE VIEWS ON IT. IF THERE EXISTS A SOLE VIEW, IT WILL NOT MAKE THE SUBJECT DEBATABLE. ON A PERTINENT QUERY FROM THE BENCH, THE LEARNED A.R. C OULD NOT POINT OUT ANY CASE LAW DIRECTLY ITA NO.3846/MUM/2008 THE NEW INDIA ASSURANCE CO. LIMITED. 23 ON THE ISSUE WHICH BOLSTERS HI S POINT OF VIEW. ON THE CONT RARY THE POINTS ON WHICH WE HAVE UPHELD THE IMPUGNED OR DER, IT IS AMPLY BORNE OUT TO BE A SIMPLE CASE OF INCORRECT APPLICATION OF THE PROVISIONS OF SECTION 44 READ WITH RULE 5 OF THE FIRST SCHEDULE BY THE AO. AS SUCH WE JETTISON THE CONTENTION PUT FORTH ON BEHALF OF THE ASSESSEE THAT THE IS SUES TAKEN UP BY THE LEARNED CI T ARE DEBATABLE AND HENCE THE IMPUGNED ORDER SHOULD BE SET ASIDE. 24. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN TH E OPEN COURT ON THIS 29 TH DAY OF JULY, 2011. SD/- SD/- (N.V.VASUDEVAN) (R.S.SYAL) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI : 29 TH JULY, 2011. DEVDAS*` COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) -I, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.