DCIT 3(2)(1), MUMBAI vs. THE NEW INDIA ASSURANCE COMPANY LIMITED, MUMBAI

The Ld. DR submitted that the tribunal has confirmed the disallowance made by the AO stating that the claim of the assessee in the return of income is not in accordance with section 44 read with rule 5. The Ld. DR further submitted that the assessee therefore cannot claim bona fide intention since the assessee being an insurance company is bound by the above provisions of the act. The Ld. DR also submitted that the assessee cannot claim ignorance of the provisions under the act and therefore cannot claim unintentional error in the computation of income. The The New India Assurance Co. Ltd. Ld. DR argued that since the assessee has filed the return not in accordance with section 44 read with rule 5 the assessee has filed inaccurate particulars and accordingly the penalty has been rightly levied by the AO.

The Ld. AR on the other hand argued that the coordinate bench while considering the identical issue in assessee's quantum appeal in the case of Tata AIG General Insurance Company Ltd., vs DCIT (ITA No.1718/Mum/2020 dated 25.04.2022) and has held the same in favour of the assessee. The ld AR argued that though the penalty is levied on the ground that in assessee's case the Tribunal has decided the issue against the assessee, the decision in the case of Tata AIG (supra) goes to prove that the issues in the quantum appeal are capable of alternate interpretation. The Ld. AR further argued that the Hon'ble Bombay High Court has admitted the question of law which means that the issues are debatable and therefore no penalty could be levied. The Ld. AR also argued that the CIT(A) has considered the fact that the assessee has made full disclosure of the details pertaining to the claim made and accordingly has deleted the penalty. The Ld. AR in this regard drew our attention to the computation of income ( page 1 of paper book) to submit that the assessee has made disallowance towards provision for gratuity and claimed the amount actually paid. The Ld. AR submitted that the tribunal did not allow the claim of the assessee on payment basis stating that it is not in accordance with section 44 read with rule 5 which is double disallowance and this specific anomaly has been considered and allowed by the coordinate bench in the case of Tata AIG(Supra). The Ld. AR also submitted that bonafide claim by the assessee on payment basis which is denied to be allowed cannot be a ground for a levy of penalty. The ld AR also made a detailed written submission with regard to the disallowances upheld by the Tribunal based on which the penalty is levied.

We heard the parties and perused the material on record. The AO made certain disallowances in the order passed under section 143(3) r.w.s.263 and when the issue travelled up to the Tribunal, certain disallowances / additions are confirmed by the Tribunal. The disallowances / additions confirmed pertain to (i) Premium income taxed in F.Y. 2002-03 under clause 13 of form 3CD but accounted in F.Y. 2003-04, (ii) Balance amount of provisions not allowed in earlier years and paid during the P.Y., and (iii) Interest under section 234B & C disallowed in earlier year now credited to P&L account due to waiver. From the findings of Tribunal while confirming the disallowances / additions we notice that the basis for the Tribunal to arrive at the conclusion is that the assessee cannot claim any other deduction or make adjustments beyond what is accounted in the P&L account except those specified under Rule 5. In other words the adjustments made by the assessee assessee towards actual payment of provision towards gratuity/pension fund, adjustment towards premium income to the extent already taxed and adjustment towards interest waived credited based on disallowance made in earlier year are not allowed by the Tribunal on the ground that these adjustments are not as per Rule 5 and are outside the P&L account. We further notice that coordinate bench in the case of Tata AIG (supra) while considering the issue of similar adjustments made towards depreciation under section 32 has held that the such literal interpretation of section 44 read with Rule 5 would result in unjust result of double taxation and that the provisions need to be given a purposive interpretation to avoid any absurd and unjust result which would not be the legislative intent. The Tribunal further held that if the adjustment contemplated under Rule 5(a) is literally interpreted then it would result in only making disallowance under section 30 to 43B towards amount reflected in the P&L prepared under section 44 and not for any deduction otherwise allowable under the said sections. The Tribunal also held that such treatment would deprive The New India Assurance Co. Ltd. specifically the insurance companies that would lead to unintentional consequences of discrimination as compared to other assessee which the legislature would not have intended. From these analysis it is clear that the coordinate bench while deciding similar issue has deviated from the view taken in assessee's case by a harmonious interpretation of the provisions of section 44 read with Rule 5 so that there is no unjust treatment under the Act of the assessee engaged in Insurance business.

Now coming to the issue of levy of penalty for the reason that the Tribunal in assessee's own case has upheld the orders of the lower authorities. Penalty under section 27(1)(c) is levied where the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. The assessee in the present case has claimed certain amounts as deduction on payment basis and has made certain adjustments to the income on the ground that the income has already suffered tax in the earlier assessment year. As already stated the Tribunal did not allow the claim / adjustments made by the assessee by strictly interpreting the provisions of section 44 read with Rule 5 and while doing there is no allegation that the assessee has misrepresented or suppressed any information. We have while analyzing the decision in the case of Tata AIG (supra) noticed that the Tribunal took a different view from the view taken in assessee's case for the reason that the said view would result in double taxation. Accordingly, the claim made by the assessee under the bonafide belief that it is lawfully entailed to a claim on payment basis and the adjustment of income is permissible since it has already suffered tax cannot in our view be held as carried out with malafide intentions. Further it is not in dispute that the impugned claim /adjustments made by the assessee are debatable where two views are possible. During the course of hearing it has been brought to our attention that the Hon'ble Bombay High Court has accepted the The New India Assurance Co. Ltd. question of law with regard to the impugned issue in assessee's quantum appeal which supports the argument that the issue is debatable. Considering the facts and circumstances as explained herein above and the legal position with respect to levy of penalty under section 271(1)(c), we are of the considered view that there is no infirmity in the order of the CIT(A) in deleting the penalty.

In result the appeal of the revenue is dismissed.