PRINCIPAL COMMISSIONER OF INCOME TAX vs. M/S SHRIRAM GENERAL INSURANCE COMPANY LIMITED

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ITA/59/2024HC RajasthanRJHC02028198202426 August 2025Author: K.R. SHRIRAM,MANEESH SHARMA6 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the ITAT was justified in setting aside the PCIT's order. Firstly, regarding the PCIT's power under Section 263, the Tribunal noted that the AO had raised queries concerning Section 14A during the assessment proceedings, and the assessee had provided explanations. Citing the Bombay High Court's decision in Aroni Commercials Ltd. v. Deputy Commissioner of Income-Tax, the Tribunal held that once a query is raised and answered, it is considered to have been examined by the AO, even if not explicitly mentioned in the assessment order. Therefore, the PCIT's finding that the AO had not considered the issue was incorrect, and the assessment order was not erroneous on this ground. Secondly, the Tribunal agreed with the ITAT's finding that Section 14A was not applicable to the assessee, an insurance company, given the specific computation mechanism provided under Section 44 of the Act. The Tribunal found no substantial questions of law arising from the ITAT's order. The appeal was dismissed.

What were the facts?

The assessee, M/s Shriram General Insurance Company Limited, filed its return of income for Assessment Year 2018-19, declaring a total income of Rs. 5,33,11,66,150/-. The Assessing Officer (AO) passed an assessment order on March 1, 2021, accepting the declared income. The Principal Commissioner of Income Tax (PCIT) initiated proceedings under Section 263 of the Income Tax Act, 1961, alleging the assessment order was erroneous and prejudicial to the interest of revenue. The PCIT's order dated March 30, 2023, set aside the AO's order and directed a de-novo examination, particularly concerning the applicability of Section 14A. The assessee challenged the PCIT's order before the Income Tax Appellate Tribunal (ITAT), which, by an order dated June 28, 2023, set aside the PCIT's order. The Revenue has appealed this ITAT order.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the ITAT was justified in setting aside the PCIT's order under Section 263, which held the AO's order to be erroneous and prejudicial to the revenue? 2. Whether the ITAT was justified in holding that Section 14A of the Act is not applicable to insurance companies? 3. Whether the ITAT was justified in ignoring that Section 44 of the Act, dealing with the computation of income of insurance companies, does not exclude the application of Section 14A? 4. Whether the ITAT was justified in ignoring that computation of income under Section 44 requires expenses to pass the test of admissibility under Section 37 and disallowance under Section 14A? Contentions of the Revenue: The Revenue argued that the PCIT was justified in revising the assessment order under Section 263 because the AO's order was erroneous and prejudicial to the revenue. They contended that Section 14A should apply to insurance companies, and the ITAT erred in holding otherwise, particularly by overlooking the interplay between Section 44 and Section 14A, and the requirement for expenses to be admissible under Section 37. Contentions of the Assessee: The assessee argued that the AO had considered the issue of Section 14A during the assessment proceedings, as evidenced by queries raised and their replies. They contended that Section 14A is not applicable to insurance companies as their income is computed as per the First Schedule under Section 44 of the Act. They relied on the Bombay High Court's decision in Aroni Commercials Ltd. v. Deputy Commissioner of Income-Tax.

Which sections of the Income-tax Act were involved?

Section 260A,Section 263,Section 14A,Section 44,Section 143(3),Section 142(1),Section 37

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
[2025:RJ-JP:33859-DB] HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 59/2024 Principal Commissioner Of Income Tax, Jaipur-Ii, At New Central Revenue Building Statue Circle, Jaipur (Raj.)-302005. ----Appellant Versus M/s Shriram General Insurance Company Limited, E-8, EPIP RIICO Industrial Area, Sitapura Jaipur(Rajasthan). ----Respondent For Appellant(s) : Ms. Jaya P. Pathak Advocate with Mr. Sandeep Pathak Advocate. For Respondent(s) : Mr. Javed Khan Advocate. HON'BLE THE CHIEF JUSTICE MR. K.R. SHRIRAM HON'BLE MR. JUSTICE MANEESH SHARMA

Judgment REPORTABLE 26/08/2025

1.

This appeal has been filed under Section 260A of the Income Tax Act, 1961 (hereinafter referred to ‘the Act’).

2.

Following four substantial questions of law have been proposed in appeal: (1) Whether in the facts and circumstances of the case and in law, Ld. ITAT was justified in setting aside the order dated 30.03.2023 passed by Ld. PCIT under Section 263 of the Act of 1961 by which it was held that the order passed by AO was erroneous and so far as prejudicial to the interest of revenue? (2) Whether in the facts and circumstances of the case and in law, Ld. ITAT was justified to hold that Section 14A of the Act of 1961 is not applicable on insurance companies? (3) Whether in the facts and circumstances of the case and in law, Ld. ITAT was justified in ignoring that Section 44 of the Act of 1961, which deals with computation of income of Insurance Companies, does not exclude the application of Section 14A of the Act of 1961? (4) Whether in the facts and circumstances of the case and in law, Ld. ITAT was justified in ignoring the fact that while computing income as per Section 44 of the Act of 1961, the

[2025:RJ-JP:33859-DB] (2 of 6) [ITA-59/2024] income has to be computed as per First Schedule of the Act of 1961, which means that expenses claimed under Section 30 to 43B of the Act of 1961 have to pass the test of admissibility under Section 37 and disallowance under Section 14A of the Act of 1961?

3.

The assessee, who is respondent in this appeal, is engaged in the business of General Insurance and filed return of income on 28th September

2018,

declaring

total

income

of Rs.5,33,11,66,150/- and assessment order dated 01st March 2021 under Section 143(3) came to be passed accepting return of income of Rs.5,33,11,66,150/-.

4.

After examining the assessment order passed, the Principal Commissioner of Income Tax (hereinafter referred to ‘the PCIT’) issued a notice dated 15th February 2022 under Section 263 of the Act stating that assessment order was erroneous and prejudicial to the interest of the Revenue. He found problem with four issues and after following due process, an order dated 30th March 2023 was passed. The PCIT held that assessment order dated 01st March 2021 was liable to be revised under clause (a), (b) and (c) of Explanation (2) to Section 263 of the Act and after setting aside the assessment order, the Assessing Officer was directed to examine the issue and pass suitable order after affording opportunity of being heard to the assessee. The assessee challenged this order before the Income Tax Appellate Tribunal, Jaipur (hereinafter referred to ‘the ITAT’), which by an order pronounced on 28th June 2023, set aside the order of PCIT. It is that order of the ITAT that is in question before us.

5.

In the assessment order dated 01st March 2021, the Assessing Officer raised following three issues: (i) Claim of Any Other Amount Allowable as Deduction in Schedule BP

[2025:RJ-JP:33859-DB] (3 of 6) [ITA-59/2024] (ii) ICDS Compliance and Adjustment (iii) Expenses Incurred for Earning Exempt Income” Thereafter, assessment order also mentions that notices were issued by the department and assessee furnished information as called for. The Assessing Officer further says that information furnished in respect to the above issue has been examined and no addition is warranted.

6.

There is no discussion in the assessment order regarding these three issues mentioned therein.

7.

Therefore, the PCIT exercising its power under Section 263 of the Act, apart from the three issues raised, a fourth issue was raised regarding dis-allowance under Section 14A of the Act. The assessee-respondent gave explanation in response to the notice under Section 263 of the Act and the PCIT, in its order dated 30th March 2023, accepted the explanation of the assessee with regard to three issues, which were raised by the Assessing Officer but on the issue of Section 14A of the Act, remanded it for de-novo consideration.

8.

The ITAT in its order impugned dated 28th June 2023, has given a factual finding and that is not disputed before us also, that (i) during course of assessment proceedings, the Assessing Officer had raised queries with regard to Section 14A of the Act; (ii) Question No.7 of notice dated 23rd November 2020 under Section 142(1) of the Act required the assessee to furnish the details of investigation, details of exempt income earned during the year under consideration, details of expenses incurred for earning exempt income and computation as per Rule 8D read with Section 14A of the Act; (iii) Assessee in its reply dated 07.12.2020 had

[2025:RJ-JP:33859-DB] (4 of 6) [ITA-59/2024] submitted that Section 14A of the Act was not applicable, as assessee was a General Insurance Company and, therefore, as per Section 44 of the Act, it provides that income of insurance business is required to be computed in accordance with First Schedule of the Act.

9.

Admittedly, assessee has also given further explanation as to the non-applicability of Section 14A of the Act.

10.

Assessing Officer was satisfied with the explanation and hence, did not even consider it necessary to mention it as an issue in the assessment order.

11.

A Division Bench of Bombay High Court in Aroni Commercials Ltd. Versus Deputy Commissioner of Income- Tax and Another1 has held that once a query is raised during the assessment proceedings and assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment and it is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. Para 14 of the judgment reads as under:

“14. We find that during the assessment proceedings the petitioner had by a letter dated July 9, 2010, pointed out that they were engaged in the business of financing, trading and investment in shares and securities. Further, by a letter dated September 8, 2010, during the course of the assessment proceedings on a specific query made by the Assessing Officer, the petitioner has disclosed in detail as to why its profit on sale of investments should not be taxed as business profits but charged to tax under the head. “Capital gains”. In support of its contention the petitioner had also relied upon the Central Board of Direct Taxes Circular No.4 of 2007, dated June 15, 2007 (The reasons for reopening furnished by the Assessing Officer also places reliance upon Central Board of Direct Taxes Circular dated June 15, 2007). It would, therefore, be noticed that the very ground on which the notice dated March 28, 2013, seeks to reopen the assessment for the assessment year 2008-09 was considered by the Assessing Officer while originally passing the 1 [2014] 362 ITR 403 (Bom)

[2025:RJ-JP:33859-DB] (5 of 6) [ITA-59/2024] assessment order dated October 12, 2010. This by itself demonstrates the fact that notice dated March 28, 2013, under Section 148 of the Act seeking to reopen the assessment for the assessment year 2008-09 is based on mere change of opinion. However, according to Mr. Chhotaray, learned Counsel for the revenue, the aforesaid issue now raised has not been considered earlier as the same is not referred to in the assessment order dated October 12, 2010, passed for the assessment year 2008-09. We are of the view that once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. If an Assessing Officer has to record the consideration bestowed by him on all issues raised by him during the assessment proceeding even where he is satisfied then it would be impossible for the Assessing Officer to complete all the assessments which are required to be scrutinized by him under Section 143(3) of the Act. Moreover, one must not forget that the manner in which an assessment order is to be drafted is the sole domain of the Assessing Officer and it is not open to an assessee to insist that the assessment order must record all the questions raised and the satisfaction in respect thereof of the Assessing Officer. The only requirement is that the Assessing Officer ought to have considered the objection now raised in the grounds for issuing notice under Section 148 of the Act, during the original assessment proceedings. There can be no doubt in the present facts as evidenced by a letter dated September 8, 2012, the very issue of taxability of sale of shares under the head “Capital gains” or the head “Profits and gains from business” was a subject matter of consideration by the Assessing Officer during the original assessment proceedings leading to an order dated October 12, 2010. It would, therefore, follow that the reopening of the assessment by impugned notice dated March 28, 2013, is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceeding leading to the order dated October 12, 2010. This change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment.” The law is settled inasmuch as once a query has been raised during the assessment proceedings and the assessee has answered the query, it would mean that the issue was in consideration of the Assessing Officer during the assessment proceedings even if it does not find mention in the assessment order.

12.

Therefore, the ITAT came to a finding that the Assessing Officer has taken a view and there was no need to remand the

[2025:RJ-JP:33859-DB] (6 of 6) [ITA-59/2024] matter to him for de novo consideration. In fact, the ITAT has also considered the matter on merits and came to a finding that Section 14A of the Act was not applicable to the facts and circumstances of the case.

13.

In the circumstances, we see no reason to interfere and in our view, no substantial questions of law arises.

14.

Appeal dismissed. (MANEESH SHARMA),J (K.R. SHRIRAM),CJ SANJAY KUMAWAT/17

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