M/s. The Oriental Insurance Co. Ltd., New Delhi V. DCIT (LTU), New Delhi

ITA 5796/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4136 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2007-2008
• Appeal Filed On: 21-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: TARAN DEEP
• Keywords: Depreciation; Benefit of exemption
• Section: 143(3); 234B; 32; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: G , NEW DELHI BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 5 7 96 /DEL/201 5 A.Y. 20 07 - 08 THE ORIENTAL INSURANCE CO.LTD. A 25/27, ASAF ALI ROAD NEW DELHI 110 002 PAN: AA ACT0627R VS . DCIT (LTU) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SH. TARANDEEP, ADV. RESPONDENT BY SHRI SS RANA, CIT, D .R. DATE OF HEARING 03.01.2018 DATE OF PRONOUNCEMENT 12.01.2018 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER T HE PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST THE ORDER DATED 17/08/15 PASSED BY LD.CIT(A) - 22, NEW DELHI FOR ASSESSMENT YEAR 2007 - 08 ON THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN LAW THE CIT(A) ERRED IN UPHOLDING AN ADDITION TO TOTAL INCOME OF RS.600,01,47,000/ - ON ACCOUNT OF PROFIT ON SALE/REDEMPTION OF INVESTMENTS. 1.1 . THAT ON FACTS AND IN LAW THE CIT(A)/AO ERRED IN NOT APPRECIATING THAT BY VIRTUE OF CBDT CIRCULAR NO.528 DT. 16. 12.1988 INCOME EARNED ITA NO. 5796/DEL/2015 ASSESSMENT YEAR:2007 - 08 THE ORIENTAL INSURANCE CO.LTD. VS. DCIT(LTU) PAGE 2 OF 9 BY THE APPELLANT FROM PROFIT ON SALE/REDEMPTION OF INVESTMENTS IS NOT LIABLE TO TAX. 2. WITHOUT PREJUDICE, THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN UPHOLDING THE ACTION OF AO IN DENYING BENEFIT OF EXEMPTION U/S 10(38) OF THE INCOM E TAX ACT OF RS.570,06,36,179/ - . 3. THAT ON THE FACTS AND IN LAW THE CIT(A) ERRED IN UPHOLDING A DISALLOWANCE OF RS.7,01,24,122/ - OUT OF THE TOTAL DEPRECIATION ALLOWANCE CLAIMED BY THE APPELLANT U/S 32 OF THE ACT. 3.1. THAT ON FACTS AND IN LAW THE CIT(A)/A O ERRED IN MAKING/UPHOLDING THE ABOVE DISALLOWANCE WITHOUT CONSIDERING THE FACT THAT UNLIKE EARLIER YEARS ASSESSMENTS/APPEALS ALL NECESSARY DETAILS RELEVANT TO DEPRECIATION ALLOWANCE CLAIM FOR ASSESSMENT YEAR 2007 - 08 WERE FURNISHED BEFORE THE AO DURING THE COURSE OF ASSESSMENT VIDE SUBMISSION DT. 12 TH NOVEMBER, 2009. 4. THAT ON THE FACTS AND IN LAW THE CIT(A) ERRED IN UPHOLDING LEVYING INTEREST U/S 234B AND 234D OF THE ACT. 5. THAT ON THE FACTS AND IN LAW THE ORDER OF ASSESSMENT U/S 143(3) PASSED BY THE ASS ESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) IS BAD IN LAW AND VOID AB - INITIO. 6. THAT ON THE FACTS AND IN LAW THE ORDER PASSED BY CIT(A) TO THE EXTENT IT UPHOLDS THE ASSESSMENT ORDER IN PART IS BAD IN LAW AND VOID AB - INITIO. 2. BRIEF FACTS OF THE CASE ARE AS UNDER : T HE ASSESSEE FILED ITS RETURN OF INCOME ON 24/10/07 DECLARING TOTAL INCOME OF RS.500,25,19,846/ - UNDER SECTION 115 JB OF THE ACT. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE A CT AND NOTICES UNDER SECTION 143(2) OF THE A CT WAS ISSUED AND DULY SERVED UPON THE ASSESSEE. IN RESPONSE TO NOTICES RECEIVED, R EPRESENTATIVES OF ASSESSEE APPEARED BEFORE LD.AO AND FILED REQUISITE DETAILS AS CALLED FOR FROM TIME TO TIME. ITA NO. 5796/DEL/2015 ASSESSMENT YEAR:2007 - 08 THE ORIENTAL INSURANCE CO.LTD. VS. DCIT(LTU) PAGE 3 OF 9 2.1 . DURING THE ASSESSMENT PROCEEDINGS LD.AO OBSERVED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF INSURANCE , OTHER THAN LIFE INSURANCE BUSINESS. IT WAS OBSERVED THAT INSURANCE BUSINESS OF THE ASSESSEE IS PRIMARILY CLASSIFIED IN TO 3 CATEGORIES BEING FIRE INSURANCE, MARINE INSURANCE AND MISCELLANEOUS INSURANCE WHICH COV ERS VEHICLE INSURANCE, MEDICAL INSURANCE ETC. ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) BY MAKING FOLLOWING ADDITIONS: 1 . PROFIT ON SALE OF INVESTMENT - RS.6,00,01,47,000/ - 2 . INTEREST RECOGNITION ON REALISATION - RS.43,30,97 , 000/ 3 . DEPRECIATION BEING DISALLOWED - RS.7,01,24,122/ - 4 . GUESTHOUSE EXPENSES DISALLOWED - RS.33,77,79/ - 5 . DISALLOWANCE UNDER SECTION 14 A RS.7,01,22,000/ - 6 . ADDITION TO THE BOOK PROFIT RS.7,01,22,000/ - 2.2 . A GGRIEVED BY THE ASSESSMENT ORDER PASSED, ASSESSEE PREFERRED APPEAL BEFORE LD.CIT(A) . LD.CIT(A) GAVE PARTIAL RELIEF TO ASSESSEE BY CONFIRMING CERTAIN ADDITIONS MADE BY LD.AO. 3 . AGGRIEVED BY THE ORDER OF LD.CIT(A) ASSESSEE IS IN APPEAL BEFORE US NOW. 4. GROUND NO. 1 RAISED BY ASSESSEE IS IN RESPECT OF ADDITION ON ACCOUNT OF PROFIT ON SALE/REDEMPTION OF INVESTMENTS AT RS.600,01,47,000/ - . 4.1 . LD. COUNSEL AT THE OUTSET SUBMITTED THAT ISSUE STANDS COVERED IN FAVOUR OF ASSESSEE BY DECISION OF HON BLE HIGH COURT IN ASS ESSEE S OWN CASE FOR ASSESSMENT YEAR 2005 - 06 IN ITA NO. 327, 447 AND 448 OF 2015 V IDE ORDER DATED 30 TH OF AUGUST 2017. ITA NO. 5796/DEL/2015 ASSESSMENT YEAR:2007 - 08 THE ORIENTAL INSURANCE CO.LTD. VS. DCIT(LTU) PAGE 4 OF 9 WHEREAS LD.DR PLACED RELIANCE UPON THE ORDER PASSED BY LD.CIT(A) . 4.2. IT IS OBSERVED THAT THE QUESTION RAISED BEFORE HON BLE HIGH COURT WAS FRAMED FOR DETERMINATION AS UNDER: WHETHER THE ITAT WAS CORRECT IN LAW IN HOLDING THAT THE INCOME EARNED ON SALE/REDEMPTION OF INVESTMENTS IS CHARGEABLE TO TAX? 4.3 . WE HAVE PERUSED THE DECISION OF HON BLE HIGH COURT AND OBSERVED THAT THE ISSUE HAS BEEN DULY DELIBERATED UPON IN PARAGRAPH 30 - 49 OF THE ORDER. THE RELEVANT PORTION OF THE ORDER WHERE HON BLE HIGH COURT HAS OPINED UPON THE ISSUE IS REPRODUCED HEREUNDER: 46. THE DIFFERENT BENCHES OF THE I'TAT HAVE, IN OTHER CASES, CONSISTENTLY HELD THAT DURING THE PERIOD WHEN RULE 5(B) WAS NOT OPERATIONAL THE PROFIT ON SALE OF INVESTMENTS MADE BY G ENERAL INSURANCE COMPANIES CANNOT BE BROUGHT TO TAX. IN BAJAJ ALLIANZ GENERAL INSURANCE CO . LTD. V. ADDITIONAL COMMISSIONER OF INCOME 'TAX ( 2010 ) 130 TT J (PU NE) 398, THE ITAT ADDRESSED THE SPECIFIC QUESTION OF WHETHER A LOGICAL CONCLUSION COULD BE DRAWN THAT AN INCOME THAT IS NOT TAXED IN TERMS OF RULE 5(B) COULD, EVEN AFTER SUCH AMENDMENT WAS DELETED, BE TAXED IN THE HANDS OF THE INSURANCE COMPANY. IT WAS HE LD THAT INCOME WHICH WAS EARLIER TAXABLE UNDER ONE SPECIFIC CLAUSE COULD NOT BE BROUGHT TO TAX AFTER THE DELETION OF SUCH CLAUSE. 47. IT IS FUTILE, THEREFORE, FOR THE REVENUE TO SEEK TO BRING TO TAX PROFITS ON SALE OF INVESTMENT BECAUSE IN SOME EARLIER YE AR THE ASSESSEE MAY HAVE TAKEN WHAT APPEARS TO DC A CONTRADICTORY STAND. IN ANY EVENT, THE ASSESSEE APPEARS TO HAVE EXPLAINED THAT THE ISSUE THAT AROSE IN THE EARLIER CASE WAS REGARDING INVESTMENTS WRITTEN OFF - AND NOT PROFIT ON SALE / REDEMPTION OF INVESTMEN TS . THE OBSERVATIONS OF ITAT IN ITS ORDER FOR AY 1990 - 91 WITH REGARD TO THE PROFIT ON SALE/REDEMPTION O F INVESTMENT COULD, AT BEST, BE TREATED AS OBITER SINCE THAT WAS NOT IN ISSUE IN THE CASE BEFORE IT . 48. THE COURT IS, THEREFORE, LIABLE TO SUBSCRIBE TO THE SUBMISSION OF MR.MANCHANDA THAT THE CIRCULAR - NO.518 HAS NO APPLICATION TO THE PRESENT CASE. THE DECISION IN J.K. SYNTH E TI C S V. CB D T (SUPRA) RELIED ITA NO. 5796/DEL/2015 ASSESSMENT YEAR:2007 - 08 THE ORIENTAL INSURANCE CO.LTD. VS. DCIT(LTU) PAGE 5 OF 9 UPON BY HIM HAS NO APPLICATION TO THE FACTS OF THE CASE . FURTHERMORE, IT IS NOT EVEN THE CAS E OF THE REVENUE THAT THE SAID CIRCULAR IS ULTRA VIRES OF THE ACT. 49 . THE QUESTION FRAMED IN ITA NO.372 OF 2015 IS ACCORDINGLY ANSWERED IN THE NEGATIVE, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, BY HOLDING THAT THE ITAT ERRED IN HOLDING THAT THE INCOME EARNED ON SALE/REDEMPTION OF INVESTMENT WAS CHARGEABLE TO TAX. 4.4 . O N THE BASIS OF THE ABOVE DISCUSSIONS WE DO NOT FIND ANY REASON TO DEVIATE FROM VIEW TAKEN BY HON BLE HIGH COURT AS ASSESSEE HAD TAKEN IDENTICAL PLEA REGARDING PROFIT ON SALE OF INVESTMENT BEING EXEMPT AS THE SAME IS NOT COVERED BY SECTION 44 OF THE I NCOME T AX A CT. FURTHER IT IS OBSERVED FROM THE ASSESSMENT ORDER THAT ASSESSEE HAS BEEN CONSISTENTLY CREDIT ING THE PR OFIT ON SALE OF INVESTMENT TO GENERAL RESERVE AND THE CHANGE IN ITS TREATMENT WAS MADE ONLY DUE TO THE CHANGE BEING MANDATED BY I R DA R EGULATION IN 2002. IT IS OBSERVED THAT HON BLE HIGH COURT IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2005 - 06 HAS OBSERVED THIS CHANGE OF ACCOUNTING PA TTERN FOR NON LIFE INSURANCE COMPANIES WERE REQUIRED TO CREDIT INCOME FROM SALE OF INVESTMENTS DIRECTLY TO P&L ACCOUNT WHICH WAS MADE APPLICABLE ONLY FROM ASSESSMENT YEAR 2011 - 12. HON BLE HIGH COURT HAS ALSO OBSERVED THAT PRIO R TO 01/04/11 THERE WAS NO SUCH PROVISION WHICH WOULD REQUIRE REVENUE TO DISALLOW THE CLAIM OF ASSESSEE IN RESPECT OF SALE OF INVESTMENT . 4.5 . SINCE THERE IS NO DIFFERENCE IN THE FACTS FOR THE YEAR UNDER CONSIDERATION VIZ - A - VIZ ASSESSMENT YEAR 2005 - 06, AN D THAT THE YEAR UNDER CONSIDERATION BEFORE US IS ASSESSMENT YEAR 2007 - 08, ITA NO. 5796/DEL/2015 ASSESSMENT YEAR:2007 - 08 THE ORIENTAL INSURANCE CO.LTD. VS. DCIT(LTU) PAGE 6 OF 9 RESPECTFULLY FOLLOWING THE RATIO OF HON BLE HIGH COURT WE ALLOW THIS GROUND RAISED BY ASSESSEE. 4.6. ACCORDINGLY THE GROUND RAISED BY ASSESSEE STANDS ALLOWED. 5. GROUND NO. 2 IS IN R ESPECT OF DENIAL OF EXEMPTION UNDER SECTION 10 (38) OF THE A CT. 5.1 . IN T HE ASSESSMENT ORDER IT IS OBSERVED THAT ASSESSEE HAD RAISED AN ALTERNATIVE PLEA IN RESPECT OF PROFIT ON SALE OF INVESTMENTS BEING EXEMPT UNDER SECTION 10 (38) OF THE A CT. IN OUR CONSIDERED OPINION THIS GROUND NOW BECOMES IN FRUCTUOUS IN VIEW OF G ROUND NO. 1 WHICH HAS BEEN DECIDED IN FAVOUR OF ASSESSEE. 5.2. ACCORDINGLY GROUND NO. 2 RAISED BY ASSESSEE STANDS DISMISSED. 6. GROUND NO. 3 RELATES TO THE DISALLOWANCE MADE BY LD. AO IN RESPECT OF THE DEPRECIATION CLAIMED BY ASSESSEE. 6.1. LD.AO WHILE DEALING WITH THE ISSUE IN THE ASSESSMENT PROCEEDINGS HAD OBSERVED THAT SIMILAR ADDITIONS WERE MADE FROM ASSESSMENT YEAR 2000 - 01 ONW A RDS WHICH WAS CONFIRMED BY THIS T RIBUNAL. THE LD.AO THEREFORE FOLLOWING THE SIMILAR VIEW AS THE FACTS PREVALENT WERE IDENTICAL, DISALLOWED DEPRECIATION CLAIMED BY ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 6.2 . LD. AR SUBMITTED THAT DURING THE ASSESSMENT YEAR 2000 - 01 ASSESSEE HAD NOT FILED ANY DETAILS REGAR DING THE ASSETS ON WHICH THE DEPRECIATION WAS CLAIMED. HE SUBMITTED THAT THIS T RIBUNAL FOR ASSESSMENT YEAR 2000 - 01 AND 2001 - 02 V IDE ORDER DATED 27/02/09 REPORTED IN 130 TTJ 338 UPHELD THE ADDITION BY OBSERVING AS UNDER: 34. WE HAVE CAREFULLY GONE THROUGH THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS. WE AGREE WITH THE REASONING GIVEN BY THE CIT(A) IN SUSTAINING THE DISALLOWANCE. IF THE ASSESSEE CLAIMS TO HAVE MADE ITA NO. 5796/DEL/2015 ASSESSMENT YEAR:2007 - 08 THE ORIENTAL INSURANCE CO.LTD. VS. DCIT(LTU) PAGE 7 OF 9 ADDITION TO THE ASSETS, IT IS OBLIGATORY ON ITS PART TO GIVE ALL THE DETAILS OF SUCH AS SETS ADDED, TO THE AO SO THAT HE MAY SCRUTINIZE THEM AND ALLOW DEPRECIATION AS PER THE PROVISIONS OF LAW. THE ASSESSEE HAS NOT GIVEN THE BASIC DETAILS, THEREFORE, THE QUESTION OF ALLOWING ANY DEPRECIATION ON SUCH ASSETS CANNOT BE ACCEPTED. WE ENDORSE THE FINDINGS OF THE CIT(A), HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 6.3 . LD. COUNSEL ADVERTING TO THE FACTS IN THE PRESENT CASE SUBMITTED THAT ADMITTEDLY FOR THE YEAR UNDER CONSIDERATION ASSESSEE HAS SUBMITTED ALL THE RELEVANT INFORMATION IN RESPECT OF THE ASSETS FOR WHICH DEPRECIATION HAS BEEN CLAIMED WHICH IS EVIDENT FROM THE OBSERVATIONS MADE BY LD.AO IN PARAGRAPH 4.3 OF HIS ORDER. FOR THE SAKE OF CONVENIENCE THE SAME IS REPRODUCED HEREUNDER: 4.3. SUBSEQUENTLY DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAS SUBMITTED THE DETAILS OF AUDITOR S REPORT INDICATING THE USE OF ASSETS FOR MORE THAN 180 DAYS AND LESS THAN 180 DAYS IN THE PRESCRIBED PROFORMA. FURTHERMORE, DURING THE COURSE OF HEARING THE ASSESSEE HAS GIVEN THE C OMPLETE DETAILS AS PER THE REQUIREMENT OF COLUMN NO.14(D) OF THE TAX AUDIT REPORT (TAR) IN RESPECT OF ASSETS ON WHICH DEPRECIATION COMES TO RS.4,69,52,695/ - . 6.4. LD.COUNSEL SUBMITTED THAT THE TAX AUDIT REPORT FOR THE YEAR UNDER CONSIDERATION PLACED AT P AGE 5 0 - 63 OF THE PAPER BOOK REVEALS THAT ASSESSEE HAD FILED THE NECESSARY DETAILS IN TERMS OF ADDITION/REDUCTION OF ASSETS DURING THE YEAR AND THE DATE OF PUT TO USE INCLUDING ADJUSTMENTS ON ACCOUNT IN COLUMN 14 (D) OF THE TABLE. HE SUBMITTED THAT A SSESSIN G O FFICER HAS DISALLOWED THE CLAIM OF DEPRECIATION SIMPLY FOLLOWING THE ORDER OF THIS T RIBUNAL PASSED IN A SSESSMENT Y EAR 2000 - 01 WH ERE THE FACTS WERE NOT THE SAME, WITHOUT APPLICATION OF MIND. ITA NO. 5796/DEL/2015 ASSESSMENT YEAR:2007 - 08 THE ORIENTAL INSURANCE CO.LTD. VS. DCIT(LTU) PAGE 8 OF 9 6.5. HE SUBMITTED THAT IN THE INTEREST OF JUSTICE THE ISSUE MAY BE SET ASIDE TO LD. AO FOR VERIFICATION OF THE DETAILS FILED , ALONG WITH AUDIT REPORT WHICH IS A PART OF RECORD. 6.6. LD. DR SUPPORTED THE ORDER PASSED BY LD. CIT(A) . 6.7. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. 6.8. AS WE COMPARE THE FACTUAL POSITION PREVALENT DURING ASSESSMENT YEAR 2000 - 01 AND 2001 - 02 BASED ON WHICH THE T RIBUNAL CONFIRMED THE DISALLOWANCE OF DEPRECIATION, WE OBSERVE THAT IT WAS SO DECIDED BECAUSE ASSE SSEE FAILED TO FURNISH RELEVANT INFORMATION BEFORE THE A SSESSING O FFICER ALONG WITH AUDIT REPORT. F ACTS OF THE PRESENT ASSESSMENT YEAR ARE DIFFERENT AS LD.AR SUFFICIENTLY DEMONSTRATED THAT THE DETAILS WERE VERY MUCH AVAILABLE BEFORE LD.AO AND A SSESSING O FFICER HAS NOT TAKEN ANY STEPS TO VERIFY THE SAME. 6.9. WE THEREFORE ARE INCLINED TO SET ASIDE THIS ISSUE TO LD. AO FOR PROPER VERIFICATION OF THE DETAILS FILED BY ASSESSEE. LD.AO IS DIRECTED TO DECIDE THE ISSUE AS PER LAW AFTER TAKING INTO CONSIDERATIO N ALL THE MATERIAL FACTS AVAILABLE ON RECORD. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 1 2 T H JANUARY, 2018. S D / - S D / - (N.K.SAINI) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1 2 T H JANUARY, 2018 *MV ITA NO. 5796/DEL/2015 ASSESSMENT YEAR:2007 - 08 THE ORIENTAL INSURANCE CO.LTD. VS. DCIT(LTU) PAGE 9 OF 9 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER ASST. REGISTRAR ITAT, DELHI BENCHES, NEW DELHI