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Income Tax Appellate Tribunal, DELHI BENCHES: ‘D’, NEW DELHI
Before: SMT. BEENA A PILLAI & SHRI PRASHANT MAHARISHI
ORDER PER BEENA A PILLAI, JUDICIAL MEMBER
Present appeal has been filed by Revenue against order dated 17/08/2015 passed by Ld.CIT(A)-22, New Delhi on following grounds of appeal: “
1. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition on account of accrued interest on loans, debentures and bonds amounting to Rs. 43,30,97,000/- made by the AO.
2. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting 50% disallowance of Rs. 33,77,999/- on ITA 6025/Del/2015 AY- 2007-08 ACIT vs. Oriental Insurance Co. Ltd. account of expenses incurred on Guest House repairing made by the AO.
3. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Rs. 7,01,22,000/- u/s 14A of the Act, instead of Rs. 5,38,40,920/- made by the AO.
4. Ld. CIT(A) has eared while deleting 14A addition of Rs.7,01,22,000/- as he had failed to consider the disallowance of Rs.1,62,81,080/- made by the assessee company in their computation of income.
5. On the facts and circumstances of the case and in law, Ld. CIT(A) has reversed the action of the AO for not computing income of the assessee u/s 115JB of the Act.
The appellant craves leave to, add to, alter, amend or vary from the above grounds of appeal at or before the time of hearing.
1.1. At the outset, Ld.Counsel submitted that all the issues are covered and decided in assessee’s own case for earlier Assessment Years.
1.2. Ld.Sr.DR supported the order of ld.AO but could not controvert above submissions of Ld.Counsel.
Ground No. 1 is in respect of deleting addition on account of accrued interest on loans, debentures and bonds amounting to Rs.43,30,97,000/-.
2.1. It has been submitted that this issue is decided in favour of assessee by this Tribunal in assessee’s own case for assessment year 2000-01 and 2001-02 reported in 130 TTJ 388 which has been ITA 6025/Del/2015 AY- 2007-08 ACIT vs. Oriental Insurance Co. Ltd. subsequently upheld by Hon’ble Delhi High Court reported in (2002) 125 Taxman 1094.
2.2. There has been no material brought on record by authorities which could distinguish the view upheld by Hon’ble high Court in assessee’s own case.
We have perused the said decision and observed that the issue has been decided as under:
“19. We have carefully considered the rival submission. In this appeal, we are concerned with the asst. yr. 1990-91 i.e., after the omission of sub-r. (b) of r. 5 of First Schedule to IT Act, 1961 w.e.f. 1st April, 1989. The learned CIT(A) has based his decision on CBDT Explanatory Notes on the changes brought about by the Act. The learned counsel for the assessee has pointed out that the discussion in para 45 of the circular in relation to omission of sub- r.(b) could at best be elucidation of the intention of the law of the matter was that such effect was not forthcoming from omission of cl. (b). On consideration, we find ourselves in substantial agreement with this argument. If the intention of the legislature was to exempt profit on sale of investments and to disallow deduction of loss on sale of investments, the fact remains that such intention has not been translated into statute. Omission of sub-r.(b) of r.5 does not bring about this change in the statute. In these circumstances, we Are left with the only question as to whether the write off/write down of investments made in the books of accounts of the assessee for the A.Y. before us can be considered to be ‘’ expenditure’ or ITA 6025/Del/2015 AY- 2007-08 ACIT vs. Oriental Insurance Co. Ltd. ‘allowance’. If it represents either of the two, provisions of ss.30 to 43B of the Act would come into operation and the amount claimed by the assessee by way of write off/write down of investments is neither an ‘expenditure’ nor an allowance’, the AO, is not clothed with any jurisdiction to interfere in the P&L a/c as drawn by the assessee in this behalf. On consideration of the matter, we find that the entries made in the assessee’s books of account in this behalf are strictly in accordance with the guidelines issued by General Insurance Corporation. These guidelines permit the assessee to book a loss which has for all practical purposes, been suffered on account of depreciation in value of investments beyond any reasonable hope of recovery. In such circumstances, the guidelines permitted the insurance company to book the loss in the accounts rather than waiting for actual realization of loss on sale of investment. Thus, the amounts claimed by the assessee are to be understood as a loss on investments suffered by the assessee. Such ‘loss’ can neither be considered an expenditure’ nor an ‘allowance’. We find support in this view from the judgment of Hon’ble Supreme Court in the case of General Insurance Corporation of India vs. CIT (1999) 156 CTR (SC) 425 : (1999) 240 ITR 139 SC). In that judgment Hon’ble Supreme Court held that ‘spending’ in the sense of ‘paying out or away’ of money is the primary meaning of expenditure’. ‘Expenditure’ is what is paid out or away and is something which is gone irretrievably. In that case, Hon’ble Supreme Court held : that certain amounts set apart which is treated to be an expenditure for the purpose of Insurance Act, 1938 cannot be treated so for the purpose if r. 5(a) of ITA 6025/Del/2015 AY- 2007-08 ACIT vs. Oriental Insurance Co. Ltd. the First Schedule for the reason that the amount set apart did not fall to be considered as an expenditure in the ordinary meaning of the expression. As we hold the view that write off of investments claimed by the assessee represents, ‘loss’ and not ‘expenditure’ nor ‘allowance’ we hold that the AO erred in adding back the same in the computation of assessee’s income chargeable to tax and similarly the CIT(A) erred in confirming the same. As to the judgment relied upon by the learned CIT-Departmental Representative in Indore Malwa United Mills Ltd. vs. CIT 1962) 45 ITR 210 (SC), we find the same to be out of context. In view of Tie discussion in the foregoing paras we direct deletion of the addition made by the AO in respect of amounts written off by the assessee on account of depreciation in the value of investments.” 3.1. It is further observed that for assessment year 2002-03 to 2005-06, this view has been consistently followed by this Tribunal.
3.2. Respectfully following the same we allow claim of assessee.
3.3. Accordingly ground No. 1 raised by revenue stands dismissed.
Ground No. 2 has been raised against deleting 50% disallowance of Rs. 33,77,999/-on account of expenses incurred on Guest house repairing.
4.1. It has been submitted that this issue is decided in favour of assessee by this Tribunal in assessee’s own case for assessment year 2000-01 and 2001-02 reported in 130 TTJ 388.
ITA 6025/Del/2015 AY- 2007-08 ACIT vs. Oriental Insurance Co. Ltd. 5. We have perused the said decision and observed that the issue has been decided as under:
12. We have carefully considered the rival contentions and gone through the records. The Tribunal in A.Y. 1999-2000 has held that expenditure incurred for maintenance of the company’s own guest houses is covered u/s 30(a)(ii) of the Act. Therein the Tribunal accepted the plea of the assessee that in respect of the guest houses owned by the assessee, repair expenses will have to be allowed as deduction u/s 30(a)(ii) of the Act. Once the expenditure is allowable u/s 30(a)(ii), if the expenditure is incurred on repair and maintenance of guest house taken on lease should also be allowed. In the light of the aforesaid order of the Tribunal, we decide the matter, for the AYs in question, in favour of assessee.
5.1. It is also observed that for assessment year 2002-03 to 2005- 06, this view has been consistently followed by this Tribunal, and there is nothing brought on record by Ld.Sr.D.R. to distinguish on facts.
5.2. Respectfully following the same, we allow claim of assessee.
5.3. Accordingly ground No.2 raised by revenue stands dismissed.
6. Ground No.3 & 4 are in respect of deleting the addition amounting to Rs.7,01,22,000/- under section 14 A of the Act. It has also been alleged by the revenue that Ld.CIT(A) failed to consider the disallowance of Rs.1,62,81,080/-, made by assessee.
6.1. At the outset, Ld.AR submitted that assessee suo moto disallowed Rs.1,62,81,080/- under section 14A and Ld.AO has ITA 6025/Del/2015 AY- 2007-08 ACIT vs. Oriental Insurance Co. Ltd. applied provisions of Rule 8D and recomputed disallowance at Rs.7,01,22,000/-. It is also submitted that income of assessee has to be computed as per the provisions of section 44 read with Rule 5 of First Schedule, and section 14 A are not applicable.
6.2. Ld.Sr.DR placed reliance upon the orders of authorities below.
We have perused submissions advanced by both sides in the light of records placed before us.
7.1. It is observed that this Tribunal in assessee’s own case for assessment year 2000-01 and 2001-02 reported in 130 TTJ 338 (supra) has dealt with this issue as under:
“ 22. We have considered the rival contentions and gone through the records. The provisions of sec.44 read as under.
44. Insurance business – Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head ‘ Interest on securities’, ‘ Income from house property’, ‘ Capital gains’ or ‘ Income from other sources’, or in sec.199 or in s.28 to 43B, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a cooperative society, shall be computed in accordance with the rules contained in the First Schedule.
The above provision makes it very clear that sec.44 applies not withstanding anything to the contrary contained within the sections of the IT Act relating to computation of income chargeable under different heads. We agree with the learned counsel that there is 7
ITA 6025/Del/2015 AY- 2007-08 ACIT vs. Oriental Insurance Co. Ltd. requirement of head wise bifurcation called for while computing the same u/s 44 of the Act in the case of an insurance company. The income of the business of insurance is essentially to be at the amount of the balance of profits disclosed by the annual accounts as furnished to the Controller of Insurance. The actual computation of profits and gains of insurance business will have to be computed in accordance with r.5 of the First Schedule. In the light of these special provisions coupled with non obstante clause the AO is not permitted to travel beyond these provisions.
Sec.14A contemplates an exception for deductions as allowable under the Act are those contained under ss. 28 to 43B of the Act. Sec.44 creates special application of these provisions in the cases of insurance companies. We therefore, agree with the assessee and delete the disallowance made by the AO which is based on the application of s.14A of the Act as according to us, it is not permissible to the AO to travel beyond s.44 and First Schedule of the IT Act.”
7.2. It is also observed that for assessment year 2002-03 to 2005- 06, this view has been consistently followed by this Tribunal.
7.3. Respectfully following the same we allow the claim of assessee.
7.4. Accordingly ground No.3-4 raised by revenue stands dismissed.
ITA 6025/Del/2015 AY- 2007-08 ACIT vs. Oriental Insurance Co. Ltd. 8. Ground No. 5 has been raised since Ld.CIT (A) reversed action of Ld.AO by not computing income of assessee under section 115 JB of the Act.
8.1. Ld.AR submitted that this issue has been decided by this Tribunal in assessee’s own case for assessment year 2005-06 in vide order dated 21/11/14. It has also been submitted that the view of this Tribunal has been upheld by Hon’ble Delhi High Court in assessee’s own case for assessment year 2005- 06 reported in (2017) 84 Taxmann.com 312.
8.2. Ld. Sr.DR placed reliance upon the orders of authorities below.
8.3. We have perused submissions advanced by both sides in the light of the records placed before us.
8.4. It is observed that this Tribunal for assessment year 2005-06 (supra) in assessee’s own case decided as under:
“ 7. Ground no.5 is regarding computation of book profits. The assessee has filed an additional ground on this issue which reads as follows. “1. On the facts and in the circumstances of the case and in law, the AO has erred in computing the income of the appellant u/s 115 JB of the Act. 1.1. On the facts and in law the AO ought to have appreciated that provisions of S.115 JB of the Act are not applicable to the appellant as the appellant prepares its account as per the IRDA principles on financial statements and auditor’s report of insurance
ITA 6025/Del/2015 AY- 2007-08 ACIT vs. Oriental Insurance Co. Ltd. companies Regulation 2002 and not as per the provisions of Part 2 and Part 3 of Schedule XI to the Companies Act, 1956.
7.1. After hearing the rival contentions we admit these additional grounds for the reason that all the facts are on record and the ground is a legal ground by following the decision of Hon’ble Supreme Court in the case of NTPC Ltd. Vs. CIT reported in 229 ITR 383. We further find that the issue in question is covered in favour of the assessee and against the Revenue by the decision of the Mumbai I Bench of the Tribunal in the case of ICICI Lambard General Insurance Co.Ltd. Range 10(1) Mumbai 54 SOT 3 538 Mumbai wherein it is held that the provisions of S.115 JB of the Act are not applicable in case of Insurance Companies, as they are not required to prepare the accounts as per Part 2 and 3 of Schedule VI to the Companies Act. Respectfully following the same we allow this ground of the assessee and delete the computation made u/s 115 JB of the Act.”
8.5. Further Hon’ble High Court dealt with this issue as under:
“54. Turning now to the question concerns the applicability of Section 115 JB of the Act to insurance companies. The ITAT has permitted the assessee to raise this question since, in a large number of judgements of the ITAT, the question has been answered in favour of the assessee.
It is plain, from a reading of Section 44 read with the First Schedule of the Act, that insurance companies are required to prepare accounts as per the IA and the regulations of the IRDA and not as per
ITA 6025/Del/2015 AY- 2007-08 ACIT vs. Oriental Insurance Co. Ltd. Parts II and III of Schedule VI of the Comapnies Act. The assessee prepares its accounts as per the IRDA principles. The IRDA Regulations govern the preparation of the auditor’s report.
Consequently, the question framed in is answered in the affirmative, i.e. in favour of the assessee and against the revenue by holding that Section 115 JB of the Act does not apply to insurance companies.”
8.6. Respectfully following the same we do not find any merits in favour of revenue.
8.7. Accordingly this ground raised by revenue stands dismissed.
In the result appeal filed by revenue stands dismissed.
Order pronounced in the open court on 27th February, 2019.