Kavita Agarwal, New Delhi V. ACIT, Central Circle- 19, New Delhi

ITA 5858/DEL/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1378 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 11-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAMITA M BISWAS
• Keywords: Depreciation; Retrospective amendment; Bad and doubtful debts; Unabsorbed depreciation; Set aside; Capital Gains
• Section: 271(1)(c); 43B; 143(3); 72(1); 234B; 14A; 115JB; 143(1); 201; 43; 13; 22; 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBU NAL DELHI BENCH E: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.4535/DEL/2016 (ASSESSMENT YEAR 2010-11) M/S THE ORIENTAL INSURANCE CO. LTD. A-25/27, ASAF ALI ROAD, NEW DELHI-110 002 PAN AAACT 0627R VS. DY.CIT LTU, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY SH. TARANDEEP SINGH, ADV. RESPONDENT BY SH. PRAMITA M. BISWAS, CIT-DR DATE OF HEARING 04.06.2021 DATE OF PRONOUNCEMENT 30.06.2021 ORDER PER SUDHANSHU SRIVASTAVA, JM: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSE E AGAINST THE ORDER DATED 21 ST JUNE 2016 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 22, NEW DELHI {CIT (A FOR ASS ESSMENT YEAR 2010-11. 2 ITA NO.4535/DEL/2016 M/S THE ORIENTAL INSURANCE CO. LTD. VS. DCIT 2.0 FACTS IN BRIEF ARE THAT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FILED THE RETURN O F INCOME DECLARING TOTAL LOSS OF RS 4,44,00,88,739/- AND BOOK PROFIT O F RS 83,72,07,564/- UNDER SECTION 115JB OF THE INCOME TA X ACT, 1961 (HEREINAFTER CALLED THE ACT). THE RETURN WAS PROCE SSED UNDER SECTION 143(1) OF THE ACT. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT AND VIDE ORDER OF ASSESSMENT DATED 28 TH FEBRUARY 2013, THE ASSESSING OFFICER (AO) ASSESSED THE TOTAL INCOME OF THE ASSESSEE AT RS 2,2 4,18,46,485/- UNDER NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961 AND BOOK PROFIT OF RS 1,71,06,49,743/- U/S 115JB OF THE ACT. THE AO COMPLETED THE ASSESSMENT UNDER SECTION 143(3) BY MA KING THE FOLLOWING ADDITIONS: I. PROFIT ON SALE OF INVESTMENT RS. 5,35,25,23,496/- II. INTEREST NOT PROVIDED AS INCOME RS. 92,00,59,000/ - III. DISALLOWANCE OF DEPRECIATION RS.1,47,75,105/- IV. GUEST HOUSE EXPENSES DISALLOWED RS. 46,07,965/- V. DISALLOWANCE UNDER SECTION 14A - RS. 38,43,09,793/- VI. PROVISION FOR STANDARD ASSET DISALLOWED RS 56,59, 609/- 3 ITA NO.4535/DEL/2016 M/S THE ORIENTAL INSURANCE CO. LTD. VS. DCIT 2.1 BEING AGGRIEVED BY THE ASSESSMENT ORDER PASSE D, THE ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A). T HE LD. CIT (A), VIDE THE IMPUGNED ORDER, GAVE PARTIAL RELIEF TO THE ASSESSEE BY CONFIRMING CERTAIN ADDITIONS MADE BY THE AO. 2.2 AGGRIEVED BY THE ORDER OF THE LD. CIT (A), TH E ASSESSEE IS IN APPEAL BEFORE US NOW. TO THE EXTENT D ISALLOWANCES/ ADDITIONS WERE DELETED BY THE LD CIT (A), REVENUE P REFERRED AN APPEAL BEFORE THIS TRIBUNAL (ITAT) WHICH STANDS DISM ISSED VIDE ORDER DATED 22 ND OCTOBER 2019 IN ITA NO. 4818/DEL/2016. 2.3 THE ASSESSEE HAS RAISED 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.561,92,07,000(I.E ., RS.535,25,23,496/- AND RS.26,66,83,544/-) ON ACCOUN T OF PROFIT ON SALE/REDEMPTION OF INVESTMENTS. 1.1 THAT ON THE FACTS AND IN LAW THE CIT (A)/AO ERR ED IN NOT APPRECIATING THAT BY VIRTUE OF CBDT CIRCULAR NO.528 DATED 16 TH DECEMBER, 1988 INCOME EARNED BY THE APPELLANT FROM PROFIT ON SALE/REDEMPTION OF INVESTMENTS IS NOT LIABLE TO TAX . 2. WITHOUT PREJUDICE, ON FACTS AND IN LAW THE CIT ( A)/AO ERRED IN NOT APPRECIATING THAT PROFIT ON SALE/REDEM PTION OF 4 ITA NO.4535/DEL/2016 M/S THE ORIENTAL INSURANCE CO. LTD. VS. DCIT INVESTMENTS WILL BE CHARGEABLE TO TAX AS INCOME UND ER THE HEAD CAPITAL GAINS. 2.1 WITHOUT PREJUDICE, THAT ON THE FACTS AND IN LAW THE CIT (A) ERRED IN UPHOLDING THE ACTION OF AO IN DENYING BENE FIT OF EXEMPTION U/S 10(38) OF THE INCOME TAX ACT. 2.2 WITHOUT PREJUDICE, ON THE FACTS AND IN LAW THE CIT (A) ERRED IN UPHOLDING THE ACTION OF AO IN DENYING BENEFIT OF CONCESSIONAL RATE OF TAX AS PER SECTION 111A AND / OR SECTION 11 2 OF THE INCOME TAX ACT. 3. THAT ON FACTS AND IN LAW THE CIT (A)/AO ERRED IN UPHOLDING A DISALLOWANCE OF RS.1,47,75,105/- OUT OF THE TOTAL DEPRECIATION ALLOWANCE CLAIMED BY THE APPELLANT UNDER SECTION 32 OF THE ACT. 3.1 THAT ON THE FACTS AND IN LAW THE AO/CIT (A) ERR ED IN MAKING / UPHOLDING THE ABOVE DISALLOWANCE WITHOUT C ONSIDERING THE FACT THAT UNLIKE EARLIER YEARS ASSESSMENTS / AP PEALS ALL NECESSARY DETAILS RELEVANT TO DEPRECIATION ALLOWANC E CLAIM FOR AY 2010-11 WERE ON RECORD. 4. THAT ON THE FACTS AND IN LAW THE CIT (A) ERRED I N UPHOLDING A DISALLOWANCE OF RS.56,59,609/- BEING PROVISION MA DE FOR STANDARD ASSETS. 5. THAT ON THE FACTS AND IN LAW THE CIT (A) ERRED I N NOT ADJUDICATING UPON GROUND NOS.7 AND 8 RAISED BY THE APPELLANT IN THE APPEAL MEMO BEFORE HIM. 5 ITA NO.4535/DEL/2016 M/S THE ORIENTAL INSURANCE CO. LTD. VS. DCIT 6. THAT ON THE FACTS AND IN LAW THE CIT (A) ERRED I N UPHOLDING LEVY OF INTEREST UNDER SECTIONS 234B AND 234D OF TH E INCOME TAX ACT. 7. THAT ON THE FACTS AND IN LAW THE ORDER OF ASSESS MENT U/S 143(3) PASSED BY THE ASSESSING OFFICER {HEREINAFTER REFERRED TO AS THE AO} IS BAD IN LAW AND VOID AB-INITIO. 8. THAT ON THE FACTS AND IN LAW THE ORDER PASSED BY COMMISSIONER OF INCOME TAX {HEREINAFTER REFERRED TO AS THE CIT (A)}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