M/s IFFCO Tokio General Insurance Company Ltd., Gurgaon V. ACIT, New Delhi

ITA 5551/DEL/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7590 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 01-10-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 08-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN
• Assessee Lawyers: ASEEM CHAWLA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Additional evidence
• Section: 143(3); 14A; 37; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I : NEW DELHI) BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER AND SHRI C.M. GARG, JUDICIAL MEMBER ITA NO.5551/DEL./2010 (ASSESSMENT YEAR : 2006-07) M/S. IFFCO TOKIO GENERAL INSURANCE VS. ACIT, CIRCL E 11 (1), COMPANY LIMITED, NEW DELHI. IFFCO TOWER, 4 TH & 5 TH FLOOR, PLOT NO.3, SECTOR 29, GURGAON 122 001 (HARYANA). (PAN : AAACI7573H) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ASEEM CHAWLA, ADVOCATE REVENUE BY : SHRI PEEYUSH JAIN, CIT DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE ASSESSING OFFICER MADE U/S 143(3) READ WITH SECTION 144C OF THE INCOME- TAX ACT, 1961 DATED 31.03.2006 FOR THE ASSESSMENT Y EAR 2006-07. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CARRYING OUT GENERAL INSURANCE. BASED ON ITS CAPACITY OF RETENT ION, THE ASSESSEE COMPANY ENTERS INTO FURTHER CONTRACT OF REINSURANCE OF THE RISKS UNDERWRITTEN BY IT ON DIRECT BASIS. UNDER THESE CO NTRACTS OF REINSURANCE, THE INSURANCE COMPANY PAYS A CERTAIN SHARE OF THE P REMIUM TO THE ITA NO.5551/DEL/2010 2 REINSURER AS A CONSIDERATION FOR THE REINSURER SHAR ING IN THE LOSSES OF THE INSURER ON ACCOUNT OF CLAIM PAYOUT TO THE INSURED. THUS UNDERLYING PRINCIPLE BEHIND REINSURANCE IS SPREADING OF THE UN DERWRITTEN RISK. THE INSURER REINSURES THAT PART OF THE UNDERWRITTEN RIS K, WHICH IS BEYOND ITS RETENTION CAPACITY. THE INSURER SHARES THE PREMIUM RECEIVED FROM THE INSURED WITH THE CONCERNED REINSURER UNDER A CONTRA CTUAL ARRANGEMENT, FOR EXAMPLE, UNDER TREATY OR UNDER FACULTATIVE ARRANGEM ENT. 3. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE READ AS UNDER :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER ('LD. AO')I LEAR NED TRANSFER PRICING OFFICER ('LD. TPO'), HAS GROSSLY E RRED IN NOT CONSIDERING SECTION 44 OF THE INCOME TAX ACT (THE ' ACT') WHICH MANDATES THAT PROFITS AND GAINS OF ANY BUSINE SS OF INSURANCE SHALL BE COMPUTED IN ACCORDANCE WITH RULE 5 OF THE FIRST SCHEDULE TO THE ACT; AND HAS COMPUTED THE INC OME OF APPELLANT UNDER NORMAL PROVISION OF THE ACT WITHOUT APPRECIATING THE FACT THAT APPELLANT IS ENGAGED IN THE BUSINESS OF GENERAL INSURANCE. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW LD. AO/TPO ERRED IN INVOKING THE PROVISIONS OF SECTION 92 OF THE ACT FOR COMPUTING THE -ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION ENTERED INTO BY TH E APPELLANT WITH ITS ASSOCIATED ENTERPRISES. 2.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. AOI/LD. TPO ERRED IN MAKING AN ADJUSTME NT OF RS.42,02,000/- 2.2 THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. AO HAS ERRED IN RE-COMPUTING THE ARMS LENGTH PRICE WITHOUT ASSIGNING ANY BASIS WHILST REJECTING THE ARM'S LENGTH PRICE COMPUTED BY THE APPELLANT. ITA NO.5551/DEL/2010 3 2.3 THE LD. AO/TPO ERRED IN APPRECIATING THE ETYMOLOGICAL DIFFERENCE IN 'TREATY' AND 'FACULTATIV E' TRANSACTIONS WITH RESPECT TO REINSURANCE CONTRACTS AND THAT THE TWO ARE NOT COMPARABLE. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/TPO ERRED IN INVOKING THE PROVISION S OF SECTION 37 OF THE ACT FOR DISALLOWING THE EXPENSES INCURRED ON COURTESIES AND ENTERTAINMENT AMOUNTING TO RS.47,30, 966/-. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. AO/TPO ERRED IN INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT AND MAKING A DISALLOWANCE OF RS.6,70,000/-. 5. THAT THE LD. AO HAS GROSSLY ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. 6. THAT THE IMPUGNED ORDER PASSED BY THE LD.AO IS N ON SPEAKING IN NATURE. 7. THAT THE ORDERS PASSED BY THE LD. AO IN PURSUANC E TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL AND THAT OF THE TPO ARE BAD IN LAW AND VOID AB INITIO. 4. GROUND NOS.1 AND 2 INCLUDING SUB-GROUNDS 2.1, 2. 2 & 2.3 ARE AGAINST THE ADDITION OF RS.42,02,000/- MADE ON ACCO UNT OF ARMS LENGTH PRICE. 5. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE E NTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES (AES) FOR CONTRACT OF REINSURANCE. THE AO/TPO COMPUTED ARMS LENGTH PRICE (ALP) FOR REINSURANCE COMMISSION UNDER FACULTATIVE REINSURANCE CONTRACTS AND MADE THE ADDITION ON ACCOUNT OF ALP. THE TPO O BSERVED IN ITS REPORT THAT IT IS NOT THE CASE OF THE ASSESSEE THAT RISK TRANSFERRED UNDER THE ITA NO.5551/DEL/2010 4 TREATY ARRANGEMENT IS IN ANY MANNER DIFFERENT TO TH E RISK TRANSFERRED IN THE CONTRACTS UNDER FACULTATIVE ARRANGEMENTS. NO PRO OF OF ANY DIFFERENCE IN THE RISKS TRANSFERRED UNDER THE TWO ARRANGEMENTS HA S BEEN FURNISHED BY THE ASSESSEE. IT IS ALSO OBSERVED BY TPO THAT THE ASSESSEE HAS ALSO NOT FURNISHED THE DIFFERENCE IN THE CONTRACT-WISE DETAI LS OF RISK COVERED AND RISK TRANSFERRED IN THE CONTRACT UNDER THE FACULTAT IVE ARRANGEMENT WITH THE AE AND NON-AE PARTIES. IT WAS HELD THAT ASSESSEE S HOULD HAVE EARNED THE COMMISSION AT THE SAME RATE WHICH IS 38% IN TREATY BUSINESS AND SUGGESTED ADJUSTMENTS. THE AO MADE THE ADDITIONS A S SUGGESTED BY TPO AND THE DRP CONFIRMED THIS ADJUSTMENT BY HOLDING TH AT ASSESSEE COULD NOT ESTABLISH AS TO WHY THE RATE OF COMMISSION CHAR GED ON THE FACULTATIVE PREMIUM CEDED FROM AES WAS LOWER THAN THE RATE OF C OMMISSION OF 38% CHARGED FROM THE TREATY PREMIUM CEDED TO AE. THE D RP FURTHER OBSERVED THAT THE INTERNATIONAL TRANSACTION OF THE FACULTATIVE PREMIUM CEDED TO THE AES AND COMMISSION CHARGED THEREON WER E NOT AT ARMS LENGTH. IT WAS ALSO OBSERVED BY THE DRP THAT THE D EPARTMENT IS IN APPEAL BEFORE THE HON'BLE HIGH COURT IN THE EARLIER YEARS, THEREFORE, FOR THE SAKE OF CONSISTENCY AND TO PROTECT THE INTEREST OF REVEN UE, THE OBJECTION OF THE ASSESSEE WAS REJECTED. THE ASSESSEE HAS ALSO SUBMI TTED AN APPLICATION UNDER RULE 29 OF THE ITAT RULES, 1963 FOR ADMITTING ADDITIONAL EVIDENCES. LD. AR PLEADED THAT THE ASSESSEE COULD NOT GET ADEQUATE/ SUFFICIENT OPPORTUNITY TO FURNISH THE REQUISITE COP IES OF THE CONTRACTS ITA NO.5551/DEL/2010 5 WHICH ARE NECESSARY TO DEMONSTRATE A COMPARISON OF RISK PROFILE OF THE FACULTATIVE REINSURANCE BUSINESS VIS--VIS THE TREA TY REINSURANCE. HE PLEADED TO ADMIT THESE ADDITIONAL EVIDENCES. 6. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE H AVE ALSO GONE THROUGH THE VARIOUS CASE LAWS RELIED UPON. BEFORE US, IN AN APPLICATION UNDER RULE 29 OF THE ITAT RULES, 1963 FOR ADMISSION OF ADDITIONAL EVIDENCE WAS ALSO FILED (TOTAL PAGES 28). WE HAVE ALREADY OBSERVED ABOVE THAT ASSESSEE COMPANY IS ENGAGED IN THE GENER AL INSURANCE BUSINESS AND IT WAS IN RECEIPT OF CERTAIN COMMISSIONS FROM A ES ON ACCOUNT OF REINSURANCE BUSINESS (BOTH TREATY AND FACULTATIVE R EINSURANCE). THE TPO MADE ADJUSTMENT OF RS.42,02,200/- FOR THE REASON TH AT THE COMMISSION EARNED BY THE ASSESSEE FROM ITS AES ON ACCOUNT OF F ACULTATIVE REINSURANCE WAS NOT AT ARMS LENGTH. THE COMMISSION ON FACULTA TIVE REINSURANCE WAS AT LOWER SIDE IN COMPARISON TO THE COMMISSION RECEI VED FROM TREATY REINSURANCE. THE REASONS GIVEN BY THE REVENUE AUTH ORITIES FOR ARRIVING AT SUCH CONCLUSION WAS THAT A COMPARISON OF A RISK PRO FILE OF A FACULTATIVE REINSURANCE BUSINESS COULD NOT BE ESTABLISHED ON TH E BASIS OF DOCUMENTS IN COMPARISON TO THE TREATY REINSURANCE. ON THIS I SSUE, WE ALSO NOTE THAT ASSESSEE WAS NOT PROVIDED AN OPPORTUNITY TO FURNISH THE REQUISITE EVIDENCE IN THE FORM OF COPY OF CONTRACTS BEFORE THE TPO. I N VIEW OF THESE FACTS, WE HOLD THAT THE DOCUMENTS SUBMITTED ALONG WITH THI S APPLICATION UNDER RULE 29 OF THE ITAT RULES, 1963 WHICH ARE COPIES OF ILLUSTRATIVE ITA NO.5551/DEL/2010 6 CONTRACT/COVER NOTES PERTAINING TO THE FACULTATIVE REINSURANCE SHALL BE NECESSARY IN COMPARATIVE ANALYSIS OF THE RISK FACTO R IN THE REINSURANCE UNDER TREATY REINSURANCE AND FACULTATIVE REINSURANC E. IN VIEW OF THESE FACTS, WE ADMIT THESE ADDITIONAL EVIDENCES FURNISHE D BY ASSESSEE AND IN THE INTEREST OF JUSTICE AND EQUITY AND FOR THE CAUS E OF ADVANCEMENT OF JUSTICE AND FOR FAIR PLAY, WE FIND IT APPROPRIATE T O REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING DE NOVO AFTER CONSIDERING THE ADDITIONAL EVIDENCES AS ADMITTED BY US. WE ORDER A CCORDINGLY. GROUND NOS.1 AND 2 & 2.1 TO 2.3 ARE RESTORED BACK TO THE F ILE OF THE ASSESSING OFFICER. 7. GROUND NO.3 IS AGAINST THE DISALLOWANCE OF DEDUC TION CLAIMED BY THE ASSESSEE AMOUNTING TO RS.47,30,966/- U/S 37 OF THE INCOME-TAX ACT, 1961. 8. AT THE OUTSET OF THE HEARING, LD. AR SUBMITTED T HAT THIS ISSUE IS COVERED BY THE DECISION OF ITAT, DELHI BENCH C, N EW DELHI IN ITA NOS.5771/DEL/2011 & 5880/DEL/2011 DATED 21.06.2013 AND THE ITAT VIDE THE AFORESAID ORDER RESTORED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER. 9. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH TH E AFORESAID ORDER OF THE ITAT. THE ITAT HAS RESTORED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTIONS GIVEN IN PARA 11 OF THE SAID ORDER WHICH IS REPRODUCED BELOW :- ITA NO.5551/DEL/2010 7 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. ON A CAREFUL CONSIDE RATION OF THE ENTIRE FACTUAL MATRIX, WE ARE OF THE VIEW THAT IN T HE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, IT IS CONSIDER ED NECESSARY THAT A VIEW IS ARRIVED AT AFTER TAKING INTO CONSIDE RATION THE RELEVANT FACTS. WE CONSIDERED IT NECESSARY IN THE LIGHT OF THE ARGUMENTS ADVANCED BEFORE THE BENCH THAT THE AO SHA LL EXAMINE THE POSITION OF DOUBLE TAXATION VIS--VIS T HE AMOUNTS WHICH ALREADY STOOD OFFERED TO TAX U/S FRINGE BENEF IT TAX. THE PAST POSITION CAN BE CONSIDERED BUT SIMPLY BECAUSE IT WAS NOT CHALLENGED IN THE EARLIER YEAR IS NOT A GOOD ENOUGH REASON TO RESORT TO AD HOCISM THE AO IS DIRECTED TO ASCERTAIN THE CORRECT FACTS AND THEN DECIDED THE ISSUE IN ACCORDANCE WITH LAW BY WAY OF SPEAKING ORDER AFTER GIVING THE ASSESSEE A REASO NABLE OPPORTUNITY OF BEING HEARD. THE IMPUGNED ORDER AS SUCH IS SET ASIDE, GROUND NO-1 OF THE ASSESSEE AND GROUND NO-2 OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF THE I TAT, WE RESTORE BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. 10. WITH REGARD TO GROUND NO.4, AT THE OUTSET OF TH E HEARING, LD. AR SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISIO N OF ITAT, DELHI BENCH C, NEW DELHI IN ITA NO.5771/DEL/2011 DATED 21.06. 2013. 11. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. AFT ER GOING THROUGH THE ORDER OF THE AFORESAID DECISION OF ITAT, BENCH C, NEW DELHI, WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF THE I TAT AND THE RELEVANT PARA OF THE ORDER IS REPRODUCED BELOW :- 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE JUDGEMENTS AND ORDERS WHICH HAVE BEEN REFERRED TO FOR OUR CONSIDERATION H AVE ALSO BEEN TAKEN INTO CONSIDERATION. IT MAY BE RELEVANT AT THIS POINT OF TIME TO REPRODUCE THE RELEVANT FINDINGS OF THE C IT(A) WHICH IS UNDER CHALLENGE:- ITA NO.5551/DEL/2010 8 7. I HAVE GONE THROUGH THE ABOVE SUBMISSIONS OF THE APPELLANT AND HAVE ALSO PERUSED THE ITATS ORD ER IN APPELLANTS OWN CASE FOR ASSESSMENT YEAR 2004-05 AND HAVE GONE THROUGH THE JUDGEMENTS CITED ABOVE. IN MY VIEW, THIS ISSUE HAS BEEN CLEARLY DEALT BY THE HONBLE ITAT IN THEIR ORDER DATED 26.03.2009 IN APPELLANTS OWN CASE FOR ASSESSMENT YEAR 2004-05. THE ITAT HAS IN NO UNCERTAIN TERM, AFTER ANALYZING THE DECISIONS OF GENERAL INSURANCE CO. VS CIT (1999) (2 40 ITR 139) (SC) HAS HELD THAT IN VIEW OF PROVISIONS O F SECTION 44, READ WITH RULE 5 OF THE FIRST SCHEDULE, THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE IN THE APPELLANTS CASE. 7.1. IN VIEW OF THE ABOVE STATED FACTS, I FIND NO REASON TO AGREE WITH THE DECISION OF THE AO, HENCE THE ADDITION OF RS.1,50,000 MADE UNDER SECTIO N 14A TO BE DELETED. 6.1. WE FIND OURSELVES IN AGREEMENT WITH THE FINDIN GS OF THE CIT(A). IT IS SEEN THAT THE CIT(A) HAS RELIED UPON THE ASSESSEES OWN CASE DECIDED BY A CO-ORDINATE BENCH IN ITA NO.213/DEL/2008 PLACED IN PAGES 68-70 OF THE PAPER BOOK WHEREIN PAGE 67, THE CO-ORDINATE BENCH WAS PLACED T O OBSERVE AS UNDER :- 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. THE ORDER OF THE TRIBUNAL IN TH E CASE OF ORIENTAL INSURANCE CO. LTD. (SUPRA) WAS BAS ED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GENERAL INSURANCE CO. OF INDIA LTD. VS CIT(1999) 240 ITR 139, IN WHICH THE APEX COURT CATEGORICALLY HELD THAT THE PROVISIONS CONTAINED IN SECTION 44 ARE SPECIAL PROVISIONS DEALING WITH COMPUTATION OF THE PROFITS OF INSURANCE BUSINESS. LOOKING TO THE DECISION AND THE ORDER, IT IS HELD T HAT THE PROFITS OF THE BUSINESS HAD TO BE COMPUTED IN ACCORDANCE WITH SECTION 44 AND RULE 5 OF THE FIRST SCHEDULE. THE LEARNED DR WAS NOT ABLE TO POINT OU T ERROR IN THE DISALLOWANCE COMPUTED BY THE LEARNED C IT (APPEALS). THEREFORE, IT IS HELD THAT THERE IS NO SUCH ERROR IN HIS ORDER, WHICH REQUIRES CORRECTION FROM US. THUS, GROUNO.-3 IS DISMISSED. ITA NO.5551/DEL/2010 9 6.2. ON A PERUSAL OF THE SAME IN THE PECULIAR FACTS AND CIRCUMSTANCES, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL, G ROUND NO-1 OF THE DEPARTMENT IS DISMISSED. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING THE AF ORESAID ORDER OF THE ITAT, WE ALLOW GROUND NO.4 OF THE ASSESSEES APPEAL . 12. GROUND NO.5 IS AGAINST THE INITIATION OF PENALT Y PROCEEDINGS U/S 271(1)(C) OF THE ACT. THIS GROUND IS PREMATURE AND STANDS DISMISSED ACCORDINGLY. 13. GROUND NOS.6 & 7 ARE GENERAL IN NATURE AND DO N OT REQUIRE ANY ADJUDICATION. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 15 TH DAY OF DECEMBER, 2014. SD/- SD/- (C.M. GARG) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 15 TH DAY OF DECEMBER, 2014 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) 5.CIT(ITAT), NEW DELHI. AR/ITAT