DCIT 1(1)(2), MUMBAI V. HDFC ERGO GENERAL INSURANCE COMPANY LTD, MUMBAI

ITA 5455/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0215 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2005-2006
• Appeal Filed On: 24-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR SINGH LD
• Assessee Lawyers: MADHUR AGARWALLD
• Keywords: Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 40(a)(ia)

Judgement Text

ITA NO. 5455/MUM/2017 HDFC ERGO GENERAL INSURANCE COMPANY LTD. ASSESSMENT YEAR: 2005-06 1 IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI , , BEFORE HONBLE SHRI PAWAN SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.5455/MUM/2017 ( / ASSESSMENT YEAR: 2005-06 D Y. COMMISSIONER INCOME TAX 1(1)(2) 579, AAYKAR BHAVAN M.K. ROAD, MUMBAI-400 020 / VS. HDFC ERGO GENERAL INSURANCE COMPANY LIMITED 1 ST FLOOR, HDFC HOUSE 165/66, BACKBAY RECLAMATION H.T. PAREKH MARG MUMBAI-400 020. ./ ./PAN/GIR NO. AABCH-0738-E ( /APPELLANT ) : ( !' / RESPONDENT ) ASSESSEE BY : MADHUR AGARWAL - LD.AR REVENUE BY : MANOJ KUMAR SINGH-LD. DR / DATE OF HEARING : 13/11/2018 / DATE OF PRONOUNCEMENT : 05/12/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2005-06 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, ITA NO. 5455/MUM/2017 HDFC ERGO GENERAL INSURANCE COMPANY LTD. ASSESSMENT YEAR: 2005-06 2 MUMBAI, [CIT(A)], APPEAL NO.CIT(A)-2/IT-307/IT/797/2010-11 DATED 04/05/2017 ON FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF REINSURAN CE COMMISSION OF RS.1,03,12,055/- U/S 40(A)(IA) OF THE ACT, ON THE G ROUND THAT TDS IS NOT APPLICABLE? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A)HAS ERRED IN HOLDING THAT IN VIEW OF PROVISIO NS OF RULE 5(B) OF FIRST SCHEDULE OF IT ACT, THE PROFIT ON SALE OF INVESTMEN TS ARE NOT TAXABLE IN HANDS OF THE ASSESSEE; WITHOUT APPRECIATING THE FACT THAT THE TRANSACTION IN SHARES AND SECURITIES IS NORMAL BUSINESS ACTIVITY OF THE A SSESSEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF RS.1,90,91,589/- ON ACCOUNT OF AMORTIZATION OF DIFFERENCE IN THE VALUE OF APPRECIATION & DIMINU TION OF DEBT SECURITIES, WHICH IS IN THE NATURE OF AN EXPENSE; WITHOUT APPRE CIATING THE FACT THAT AS PER THE RULE 5(A) OF FIRST SCHEDULE TO THE I. T. ACT, N O DEDUCTIONS U/S 30 TO 43B OF THE ACT ARE ALLOWABLE TO INSURANCE COMPANIES BY WAY OF EXPENSE ALLOWANCE OR PROVISIONS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF RS.64,22,568/- ON ACCOUNT OF AMORTIZATION OF PREOPERATIVE EXPENSE, WHICH IS IN THE NATURE OF REVENUE EXPENDITURE; WITHOUT APPRECIATING THE FACT THAT AS PER THE RULE 5(A) OF THE FIRST SCHEDULE TO THE I.T.ACT, NO DEDUCTIONS U/S. 30 TO 43B OF THE AC T ARE ALLOWABLE TO INSURANCE COMPANIES BY WAY OF EXPENSE, ALLOWANCE OR PROVISION S ?' 2.1 BRIEFLY STATED THE ASSESSEE BEING RESIDENT CORPORATE ENTITY ENGAGED IN THE BUSINESS OF GENERAL INSURANCE WAS ASSESSED FOR IMPUGNED AY IN SCRUTINY ASSESSMENT U/S 143(3) ON 27/12/2007 BY LD. ASSISTANT COMMISSIONER OF INCOME TAX (OSD)-1(3) WHEREIN THE RETURNED LOSS OF RS.607.33 LACS WAS REDUCED TO RS.245.74 LACS WHICH HAS ARISEN OUT OF AGGREGATE ADJUSTMENTS OF RS.361.58 LACS MADE UNDER THE FOLLOWING HEADS:- NO. HEAD AMOUNT (RS.) 1. RE-INSURANCE COMMISSION 103.12 LACS 2. PROFIT ON SALE OF INVESTMENTS 67.55 LACS 3. AMORTIZATION OF DEBT SECURITIES 190.91 LACS TOTAL 361.58 LACS ITA NO. 5455/MUM/2017 HDFC ERGO GENERAL INSURANCE COMPANY LTD. ASSESSMENT YEAR: 2005-06 3 THE PROFITS AND GAINS OF THE INSURANCE BUSINESS HAS BEEN COMPUTED U/S 44 OF THE INCOME TAX ACT AS PER PART-B - OTHER INSURANCE BUSINESS OF THE FIRST SCHEDULE OF THE INCOME TAX ACT, 1961. 2.2 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT THE ASSESSEE PAID RE-INSURANCE COMMISSION FOR RS.103.12 LACS WITHOUT DEDUCTION OF TAX AT SOURCE AND THEREFORE, THE SAME CALLED FOR DISALLOWANCE U/S 40(A)(IA). THE ASSESSEE EXPLAINED THAT THE ASSESSEE ENTERED INTO FACULTATIVE INSURANCE ARRANGEMENT WITH OTHER INSURANCE PLAYERS IN TERMS OF WHICH ASSESSEE WAS TO RECEIVE PREMIUM OF 16.67% FROM ICICI LOMBARD AND 0.5% FROM AIC AND THE CLAIMS WERE ALSO TO BE BORNE BY THE ASSESSEE IN SAME PROPORTION WHICH IS REPRESENTED BY THE AFORESAID SUM. HOWEVER, NOT CONVINCED, LD. AO DISALLOWED THE SAME U/S 40(A)(IA). 2.3 THE SECOND ADDITION OF PROFIT ON SALE OF INVESTMENT AMOUNTING TO RS.67.55 LACS STEM FROM THE FACT THAT THE SAID SUM WAS CREDITED IN THE PROFIT & LOSS ACCOUNT BUT CLAIMED AS NON TAXABLE IN THE COMPUTATION OF INCOME IN TERMS OF CBDT CIRCULAR NO. 528 DATED 16/12/1988. HOWEVER, DISREGARDING THE SAME, THE ADDITION THEREOF WAS MAD E IN THE HANDS OF THE ASSESSEE. 2.4 THE LAST ADDITION OF RS.190.91 LACS PERTAINS TO AMORTIZATION OF DEBT SECURITIES HELD AS INVESTMENT WHICH HAS BEEN DISALL OWED SINCE THE SAME, IN THE OPINION OF LD. AO, WAS NOTIONAL LOSS AS WELL AS CAPITAL EXPENDITURE. 3. AGGRIEVED, THE ASSESSEE AGITATED ALL THE THREE A DDITIONS BEFORE LD. FIRST APPELLATE AUTHORITY VIDE IMPUGNED ORDER DATED 04/05/2017 WHEREIN THE ADDITIONS U/S 40(A)(IA) WERE DELETED BY MAKING FOLLOWING OBSERVATIONS:- ITA NO. 5455/MUM/2017 HDFC ERGO GENERAL INSURANCE COMPANY LTD. ASSESSMENT YEAR: 2005-06 4 3.4 I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES O F THE CASE, SUBMISSIONS AND ARGUMENTS OF THE APPELLANT AND THE ASSESSMENT ORDER . THE AO HAS DISALLOWED A SUM OF RS.1,03,12,055/- UND ER REINSURANCE COMMISSION FOR NON-DEDUCTION OF TDS U/S 40(A)(IA) WHEREAS THE AR OF THE APPELLANT ARGUES THAT THE AMOUNT PAID TO VARIOUS INSURANCE COMPANIES ARE NOT IN THE FORM OF COMMISSION BUT IS ONLY ADMINISTRATION CHARGES PAID TO THEM TO ADMINISTER THE INSURANCE. THE AR IS RELYING ON THE CENTRAL BOARD OF EXCISE AND CUSTO MS NOTIFICATION NUMBER F.NO.332/29/2009-TRU DATED 16/04/2010, WHICH IS AS UNDER:- 4. THE ISSUE HAS BEEN EXAMINED. AS EXPLAINED IN PA RA 2 ABOVE, THE ARRANGEMENT BETWEEN THE INSURANCE COMPANY AND THE REINSURANCE IS ONLY S HARING OF EXPENSES AND THERE IS NO SERVICES PROVIDED BY THE INSURANCE COMPANY TO THE R E-INSURER FOR A CONSIDERATION. SINCE THE POLICYHOLDER MAY NOT EVEN BE AWARE OF THE OPERATION S OF THE REINSURER, IT CANNOT BE SAID THAT THE PAYMENT MADE BY THE RE-INSURER TO THE INSURANCE COMPANIES FOR ITS BUSINESS PROMOTIONS OR A SERVICE ON BEHALF OF THE RE-INSURANCE COMPANY (I.E. BUSINESS AUXILIARY SERVICE). IN FACT, IT IS THE REINSURER WHICH PROVIDES INSURANCE SERVICE T O THE INSURANCE COMPANY. AS BOTH THE INSURANCE COMPANY AND REINSURER PAY SERVICE TAX ON THE ENTIRE AMOUNT OF PREMIUM CHARGED BY THEM, THE QUESTION OF CHARGING SERVICE TAX UNDER ANY OTHER TAXABLE SERVICE DOES NOT ARISE. FURTHER THE AR IS ALSO RELYING ON THE JURISDICTIONA L HONBLE ITAT DECISION IN THE CASE OF TATA AIG GENERAL INSURANCE CO. LTD. VS ITO (OSD) 3(2) WHEREIN RELIANCE WAS PLACED ON THE DECISION OF GENERAL INSURANCE CORPORA TION OF INDIA V ACIT [2009] 29 SOT 453 (MUM) FOR HOLDING THAT NO TAX IS REQUIRED T O BE DEDUCTED AT SOURCE ON THE COMMISSION PAID ON REINSURANCE CEDED UNDER SECTION 194D OF THE ACT SINCE THE CEDING INSURANCE COMPANIES HAVE NOT PROVIDED ANY SE RVICE OF SOLICITING OR PROCURING INSURANCE BUSINESS FOR THE ASSESSEE COMPANY AND THA T THE ASSESSEE COMPANY HAS PROVIDED REINSURANCE TO THE INSURANCE COMPANIES. SO IN THE LIGHT OF THE ABOVE DISCUSSION, THE DISALL OWANCE MADE OF RS.1,03,12,055/- UNDER REINSURANCE COMMISSION DISALLOWED U/S 40(A)(I A) MAY NOT BE JUSTIFIABLE ONE BY THE AO. SO RESPECTFULLY FOLLOWING THE JURISDICTIONA L HONBLE ITAT DECISION CITED ABOVE I.E. TATA AIG GENERAL INSURANCE COMPANY LTD VS ITO (OSD) 3(2), I AM OF THE OPINION THAT IT IS NOT LIABLE DEDUCTING TDS. THEREF ORE, I DIRECT THE AO TO DELETE THE ABOVE ADDITION. THE ADDITION ON ACCOUNT OF PROFIT ON SALE OF INVESTMENTS WAS DELETED BY FOLLOWING THE DECISION OF THIS TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR AY 2003-04 & 2006-07 VIDE COMMON ORDER ITA NOS. 1747- 48/MUM/2011 & ITA NO.3706/MUM/2013 DATED 24/06/2015 . THE OPERATIVE PORTION OF TRIBUNALS ORDER FOR AY 2006-0 7 HAS ALREADY BEEN REPRODUCED IN PARA 4.3 OF THE IMPUGNED ORDER. SIMILARLY, THE ADDITION OF RS.190.91 LACS ON ACCOUNT OF AMORTIZATION OF DEBT S ECURITIES HAS BEEN DELETED BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2003-04. AGGRIEVED, THE REVENUE IS IN FURTHE R APPEAL BEFORE US. ITA NO. 5455/MUM/2017 HDFC ERGO GENERAL INSURANCE COMPANY LTD. ASSESSMENT YEAR: 2005-06 5 4. THE LD. AUHTORIZED REPRESENTATIVE FOR ASSESSEE [ AR], SHRI MADHUR AGARWAL POINTED OUT THAT THE ISSUE STOOD SQUARELY COVERED B Y THE DECISIONS OF THIS TRIBUNAL RENDERED IN ASSESSEES O WN CASE AS WELL AS IN OTHER CASES UNDER SIMILAR CIRCUMSTANCES WHICH HAS B EEN RELIED UPON BY LD. FIRST APPELLATE AUTHORITY. ALTHOUGH, LD. DEPART MENTAL REPRESENTATIVE [DR] SUPPORTED THE STAND OF LD. AO YET NO DISTINGUI SHING FACTS COULD BE BROUGHT OUT ON RECORD. 5. UPON CAREFUL CONSIDERATION, WE FIND THAT THE FIR ST APPELLATE AUTHORITY HAS PROVIDED RELIEF TO THE ASSESSEE BY PLACING RELI ANCE ON THE DECISION OF THIS TRIBUNAL RENDERED IN ASSESSEES OWN CASE AS WE LL AS IN THE CASE OF OTHER ASSESSEE RENDERED ON SIMILAR FACTS. NOTHING O N RECORD SUGGEST THAT THE AFORESAID DECISIONS HAVE EVER BEEN OVER-RULED B Y ANY COMPETENT JUDICIAL AUTHORITY. THE FACTS ARE CIRCUMSTANCES ARE PARI MATERIA THE SAME. RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE T RIBUNAL, WE FIND NO INFIRMITY IN THE STAND OF FIRST APPELLATE AUTHORITY AND THEREFORE, DISMISS THE APPEAL. 6. IN NUTSHELL, THE APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH DECEMBER, 2018 SD/- SD/- (PAWAN SINGH) ( MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 05/12/2018 SR.PS:- JAISY VARGHESE ITA NO. 5455/MUM/2017 HDFC ERGO GENERAL INSURANCE COMPANY LTD. ASSESSMENT YEAR: 2005-06 6 !'#$ # / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. ) ( ) / THE CIT(A) 4. ) / CIT CONCERNED 5. * +!$, , , , / DR, ITAT, MUMBAI 6. + -./ / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.