National Insurance Company Limited, Kolkata V. DCIT, C ircle- 6, Kolkata, Kolkata

ITA 931/KOL/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74949 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2001-2002
• Appeal Filed On: 07-05-2010
• Court: TRIBUNAL
• Department Lawyers: RAVI JAIN
• Assessee Lawyers: S BHATTACHARY A
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 115JB

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () BEFORE , /AND . . . . ' '' ''# '#'# '#, $% ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI ABRAHAM P. GEORGE, AM] & & & & / I.T.A NOS. 930 & 931/KOL/2010 '( )* '( )* '( )* '( )*/ // / ASSESSMENT YEARS: 2000-01 & 2001-02 NATIONAL INSURANCE CO. LTD. VS. DEPUTY COMMI SSIONER OF INCOME-TAX, (PAN: AAACN9967E) CIRCLE-6, KOLKATA (,- /APPELLANT ) (./,-/ RESPONDENT ) DATE OF HEARING: 08.01.2014 DATE OF PRONOUNCEMENT: 10.01.2014 FOR THE APPELLANT: SHRI S. BHATTACHARYA FOR THE RESPONDENT: SHRI RAVI JAIN, CIT, DR $0 / ORDER PER SHRI MAHAVIR SINGH, JM: BOTH THESE APPEALS BY ASSESSEE ARE ARISING OUT OF S EPARATE ORDERS OF CIT(A)-VI, KOLKATA IN APPEAL NOS. 685&684/CIT(A)-VI/09-10/CIR-6/KOL OF EVEN DATED 16.02.2010. ASSESSMENTS WERE FRAMED BY DCIT, CIRCLE-6, KOLKATA U/S. 251 R.W .S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSME NT YEARS 2000-01 AND 2001-02 VIDE HIS SPARATE ORDERS BOTH DATED 08.04.2009. 2. THE FIRST COMMON ISSUE IN THESE APPEALS OF ASSES SEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF EXPENSES QUA EXEMPTE D INCOME BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT R.W.R 8D OF INCOME-TAX RULES , 1962. FOR THIS, ASSESSEE HAS RAISED FOLLOWING COMMON GROUND NOS. 1, 2 FOR BOTH THE ASSE SSMENT YEARS AND GROUND NO. 4 FOR AY 2000-01 AND FOR THE SAKE OF CONVENIENCE, WE REPRODU CE THE SAID GROUNDS FROM ITA NO.930/K/2010: 1. THAT THE CIT(A) WAS WRONG IN CONFIRMING THE ACT ION OF THE ASSESSING OFFICER IN APPLYING RULE 8D AND CONSEQUENTLY IN DISALLOWING RS .4,53,25,000/- UNDER SECTION 14A. 2. THAT WITHOUT PREJUDICE TO THE CONTENTION RAISED IN GROUND NO.1 ABOVE, THE CIT(A) WAS WRONG IN NOT APPRECIATING THE FACT THAT THE ASS ESSING OFFICERS COMPUTATION OF DISALLOABLE EXPENSES UNDER SECTION 14A AT RS.4,53,2 5,000 HAD NOT BEEN CORRECT. 4. THAT THE CIT(A) WAS WRONG IN CONFIRMING THE ACTI ON OF THE ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFIT U/S. 115JB, IN ADDING BAC K A SUM OF RS.4,53,25,000 AS THE EXPENDITURE ALLEGEDLY RELATABLE TO EXEMPT INCOME. 2 ITA NO. 930-931/K/2010 NATIONAL INSURANCE CO. LTD.. , AY:2000-01 & 2001-02 THE ASSESSEE ALSO RAISED FOLLOWING GROUND NO. 3 QUA THIS ISSUE IN ITA NO. 930/K/2010. 3. THAT THE CIT(A) WAS WRONG IN CONFIRMING THE ACT ION OF THE ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB IN AD DING BACK RS.2,19,68,919/- BEING THE PROVISION FOR UNDENTIFIED MOTOR THIRD PARTY CLA IM. 3. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STAT ED THAT THE TRIBUNAL IS TAKING A CONSISTENT VIEW THAT RULE 8D WILL NOT APPLY PRIOR TO AY 2008-0 9. LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSUE IS COVERED BY THE DECISION IN ITA NOS. 2 270 & 2271/K/2010, DCIT VS. THE ASHOKA TRADING CO. PVT. LTD.,AY 2006-07 AND 2007-08 DATED 23.03.2012, WHEREIN IT HAS BEEN HELD AS UNDER: WE FIND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT [2010] 328 ITR 81 (BOM.) HAS ALREADY HELD APPLICABILITY OF RULE 8D OF THE RULES AS PROSPECTIVE AND NOT RETROSPECTIVE W.E.F. A SSESSMENT YEAR 2008-09, WHEREIN HONBLE HIGH COURT HAS ALSO DIRECTED TO RECOMPUTE T HE DISALLOWANCE IN CASE THERE IS A NEXUS FOR EXPENSES WITH EXEMPT INCOME BY LAYING DOW N THE PRINCIPLE AS UNDER: (V) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RU LES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, SHALL APPLY WITH EFFECT FROM THE ASSESSMENT YEAR 2008-09; (VI) EVEN PRIOR TO THE ASSESSMENT YEAR 2008-09, WHE N RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DET ERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECOR D; (VII) THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2002 -03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) I N RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE T OTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT REASON ABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT AND GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE WE FURTHER FIND THAT THE TRIBUNAL, KOLKATA BENCH ON THE SELF SAME FACTS IN THE CASE OF SAGRIKA GOODS & SERVICES PVT. LTD. VS. INCOME-TAX O FFICER, I.T.A NO. 1278/KOL/2010, ASSESSMENT YEAR 2005-06 DATED 24 TH SEPTEMBER, 2010 HAS HELD AS UNDER: 5. HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL A VAILABLE ON RECORD AND THE DECISIONS RELIED ON BY THE LD. AUTHORISED REPRE SENTATIVE OF THE ASSESSEE CITED SUPRA. WE FIND THAT ON THE ISSUE OF DISALLOWANCE U/ S. 14A, THIS BENCH OF THE TRIBUNAL HAS BEEN TAKING A CONSISTENT VIEW THAT THI S DISALLOWANCE SHOULD BE RESTRICTED TO 1% OF DIVIDEND INCOME. FOLLOWING THE SAME, IN THIS APPEAL ALSO WE HOLD THAT THE DISALLOWANCE U/S 14A FOR EARNING EXEM PT DIVIDEND INCOME SHOULD BE RESTRICTED TO 1% OF DIVIDEND INCOME. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO DO SO AND WORK OUT THE QUANTUM OF DISALLOWANCE. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED AS DIRECTED ABOVE. 3 ITA NO. 930-931/K/2010 NATIONAL INSURANCE CO. LTD.. , AY:2000-01 & 2001-02 IN VIEW OF THE ABOVE, WE RESTRICT THE DISALLOWANCE U/S. 14A OF THE ACT TO 1% OF TOTAL EXEMPT INCOME AND DIRECT THE ASSESSING OFFICER TO W ORK OUT THE QUANTUM OF DISALLOWANCE ACCORDINGLY. THIS GROUND OF APPEAL OF REVENUE IS PA RTLY ALLOWED. FURTHER, AS THE ISSUE IS COVERED, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE AT 1% OF THE TOTAL EXEMPT INCOME AND WORK OUT THE QUANTUM OF DISALLOWA NCE ACCORDINGLY. THESE GROUNDS OF APPEAL OF ASSESSEE IS PARTLY ALLOWED. 4. THE SECOND ISSUE IN ITA NO. 930/K/2010 FOR AY 20 00-01 IS AS REGARDS TO COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT THEREBY MAKING ADDITION OF PROVISIONS OF UNIDENTIFIED THIRD PARTY CLAIM OF MOTOR ACCIDENT. FOR THIS, ASESSEE H AS RAISED FOLLOWING GROUND NO.3: 3. THAT THE CIT(A) WAS WRONG IN CONFIRMING THE ACT ION OF THE ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB IN AD DING BACK RS.2,19,68,919/- BEING THE PROVISION FOR UNIDENTIFIED MOTOR THIRD PARTY CL AIM. 5. LD. COUNSEL FOR THE ASSESSEE ALSO STATED THAT TH IS ISSUE IS COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.812/K/200 9 FOR AY 2001-02 DATED 11.10.2011, WHEREIN IT HAS BEEN HELD AS UNDER: 13. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAR EFUL PERUSAL OF MATERIALS AVAILABLE ON RECORD IT IS OBSERVED THAT LD. CIT(A) HAS DELETED T HE ADDITION OF DISALLOWANCE OF RS.3.17 LAKHS WHILE COMPUTING THE REGULAR TAXABLE INCOME BY OBSERVING THAT KEEPING IN MIND OF THE SPECIFIC PROVISIONS CONTAINED IN THE I.T.ACT 19 61 AS REGARDS THE PROCEDURE FOR ASSESSMENT OF AN ASSESSEE CARRYING ON GENERAL INSUR ANCE BUSINESS AND ALSO THE ABOVE REFERRED TWO DECISIONS OF THE SUPREME COURT, THE AO S ACTION IN DISALLOWING DOES NOT APPEAR TO BE CORRECT. WHEN ONCE THIS OBSERVATION HA S BEEN MADE BY LD. CIT(A) IT IS NOT FAIR ON THE PART OF LD. CIT(A) TO TAKE A CONTRARY V IEW WHILE COMPUTING THE MAT U/S. 115JB OF THE ACT BY STATING THAT THE CLAIM OF ASSES SEE IS IN THE NATURE OF AD HOC ONE WORKING OUT ON SPECIFIC PERCENTAGE AGAINST ANTICIPA TED/UNDETERMINED LIABILITY. IT IS FURTHER OBSERVED FROM THE CORRESPONDENCE AND MINUTE S OF OBSERVATIONS HELD BY THE ASSESSEE COMPANY WITH GENERAL INSURANCE CORPORATION OF INDIA AND OTHER SUBSIDIARIES IN RESPECT OF UNIDENTIFIED MOTOR THIRD PARTY CLAIM WHI CH WERE PLACED AT PAGES 31 TO 34 OF THE PAPER BOOK THAT ASSESSEES LIABILITY TOWARDS UN IDENTIFIED MOTOR THIRD PARTY CLAIM CANNOT BE STATED AS UNASCERTAINED LIABILITY. IN OUR CONSIDERED OPINION THE LIABILITY ON ACCOUNT OF UNIDENTIFIED MOTOR THIRD PARTY CLAIM IS CERTAIN. HOWEVER THE QUANTIFICATION IS NOT CERTAIN. HOWEVER, AS REGARDING QUANTIFICATION A LSO ALL THE SUBSIDIARY COMPANIES OF THE GENERAL INSURANCE CORPORATION OF INDIA ALONG WI TH THE ASSESEE COMPANY HAS ADOPTED THE SAME METHOD DECIDED BY THE HOLDING COMP ANY I.E. GENERAL INSURANCE CORPORATION OF INDIA. 13.1. KEEPING IN VIEW OF THE ABOVE, WE ARE OF THE V IEW THAT THE POVISION CREATED ON ACCOUNT OF UNIDENTIFIED MOTOR THIRD PARTY CLAIM WIL L NOT FALL UNDER SUB-SECTION 1L5JB (2) EXPLANATION 1(C) OFTHE I T ACT. THEREFORE, NO ADDIT ION IS REQUIRED WHILE COMPUTING THE TAX LIABILITY U/S 115JB OF THE I. T. ACT. HENCE WE SET ASIDE THE ORDES OF THE REVENUE AUTHORITIES ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER NOT TO MAKE ANY ADJUSTMENT ON ACCOUNT OF THE PROVISION UNDER UNIDENTIFIED MOTOR T HIRD PARTY CLAIM WHILE COMPUTING THE TAX LIABILITY U/S. 115JB OF THE I. T. ACT. THIS GR OUND OF THE ASSESSEE IS ALLOWED. 4 ITA NO. 930-931/K/2010 NATIONAL INSURANCE CO. LTD.. , AY:2000-01 & 2001-02 LD. SR. DR HAS NOT CONTESTED THAT THERE IS ANY FACT UAL DIFFERENCE IN THE FACTS OF THIS CASE AND AS DECIDED BY TRIBUNAL IN EARLIER YEAR AND ALSO CONCED ED THAT THE ISSUE IS COVERED BY THE TRIBUNALS DECISION IN FAVOUR OF ASSESSEE. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE, CITED SUPRA. HENC E, FOR THE SAKE OF CONSISTENCY, WE ALLOW THIS GROUND OF APPEAL OF ASSESSEE. 6. IN THE RESULT, APPEALS OF ASSESSEE ARE PARTLY AL LOWED AS INDICATED ABOVE. 7. ORDER IS PRONOUNCED IN THE OPEN COURT ON 10.01.2 014 SD/- SD/- . . . . ' '' ''# '#'# '# , $% , (ABRAHAM P. GEORGE) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 10TH JANUARY, 2013 12 '3' 4 JD.(SR.P.S.) $0 5 . 6$ )7- COPY OF THE ORDER FORWARDED TO: 1 . ,- / APPELLANT NATIONAL INSURANCE CO. LTD., 2, MIDDLET ON STREET, KOLKATA-700 071 2 ./,- / RESPONDENT DCIT, CIRCLE-6, KOLKATA. 3 . 0' ( )/ THE CIT(A), KOLKATA 4. 5. 0' / CIT KOLKATA <= .' / DR, KOLKATA BENCHES, KOLKATA / ./ TRUE COPY, $0'>/ BY ORDER, ' /ASSTT. REGISTRAR .