DCIT, NEW DELHI vs. M/S. SAHARA INDIA LIFE INSURANCE CO. LTD., LUCKNOW

5. A perusal of the order of the Ld. CIT(A) shows that the Ld. CIT(A) has observed in Para 4.3 of the impugned order that even if it was to be assumed that the impugned amount of interest had not been taxed, the revenue audit objection as well as the consequent reassessment proceeding was not on sound legal footing in the absence of finding that the income computed by the assessee was not in accordance with the provisions of First Schedule or that the said amount of interest was to be included as per the computation provided in parts A or B of the said Schedule and was not so included. The Ld. CIT (A) has further observed that there is no such finding by the C & AG or the Revenue in this regard and therefore the reassessment order was liable to be annulled. Further, a perusal of Para 5.5 of the impugned order again shows that the facts clearly indicate that there was no material in possession of the AO other than the observation of revenue audit to proceed against the assessee. The Ld. CIT (A) has observed that the change of opinion was not even based on any fact observed by the AO but on a presumptive observation of revenue audit and, therefore, the case squarely fell within the realm of ‘change of opinion’ which could not have been the basis for reopening of settled assessments, particularly after the lapse of 4 years. The Ld. CIT (A) held that on this ground also the said proceedings are not legally tenable. In Para 8, the Ld. CIT (A) has expressly held that the reassessment order passed u/s 147 of the Act is annulled.

Thus, it is obvious that the Ld. CIT (A) has quashed the reassessment proceedings but the department has not challenged such annulment before us. The department has only challenged the deletion of addition on merits which is obvious from the grounds of appeal and, therefore, we are afraid that the department has no case in this regard.

Accordingly, in absence of a ground challenging the quashing of reassessment proceedings by the Ld. CIT (A), we find no reason to interfere and we dismiss the appeal of the department bearing caption No. 3509/Del/2013 as in fructuous.

5.2 6243/Del/2013, 5624/Del/2011, 1347/Del/2013, 6245/Del/2013 and 6246/Del/2013 – All these six appeals raise challenge to the direction given by the Ld. CIT (A) that the assessee’s income should be assessed by the AO under the provisions of Section 44 of the Act. The facts are undisputed that the assessee company is carrying on business of life insurance and is duly registered and governed by IRDA. Accordingly, it is also undisputed that the assessee company has to maintain its books of accounts and prepare its financial statements according to the Insurance Act and further as per the provisions of Section 44 of the Income Tax Act, 1961 read with the First Schedule and the profit and gains from the life insurance business are to be computed separately from any other business of the assessee. It is also settled position that these provisions are non obstante i.e. they override the other provisions of the Act and, therefore, the income chargeable of tax of an insurance company has to be computed in accordance with provisions thereof. It is also undisputed that initially the assessee had not filed its return/s of income under the correct provisions of the Act but later, during the course of first appellate proceedings, had filed revised computation/s along with additional ground and the Ld. CIT (A) allowed the additional ground in all the years under appeal and restored the appeal to the file of the Assessing Officer with a direction to compute the income of the assessee as per the provisions of Section 44 of the Act. Since it is settled law that Section 44 of the Act over rides other provisions of the Act for the purpose of computation of profit and gains from the life insurance business, we find no reason to interfere with the directions of the Ld. CIT (A) in all the captioned years and we uphold his direction that the income of the assessee should be computed in accordance with the provisions of Section 44 of the Act.

Accordingly we dismiss the grounds raised by the department in all the six appeals. Accordingly 6244/Del/2013, 5624/Del/2011, 1347/Del/2013, 6245/Del/2013 and 6246/Del/2013 stand dismissed.

5.3 In this appeal the assessee is challenging the upholding of penalty of Rs. 6,13,947/- imposed u/s 271(1)(c) of the Act. It is evident from the notice issued u/s.274 r.w.s. 271 of the Act dated 05.09.2011 for the impugned year that the Assessing Officer has not specifically mentioned as to under which limb of Section 271(l)(c) of the Act the penalty proceedings had been initiated by him, i.e., whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Hon’ble High Court of Karnataka in the case of CIT vs. Manjunatha Cotton & Ginning Factor, reported in 359 ITR 565 (Kar) has, under identical facts, held as under:

"(p) Notice under section 274 of the Act should specifically state the grounds mentioned in Section 271(l)(c), i.e., whether it is for concealment of income or for furnishing of inaccurate particulars of income. (q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law."

5.3.1 The said above-said judgment of the Hon’ble High Court of Karnataka in the case of CIT vs. Manjunatha Cotton & Ginning Factor (supra) has been followed by the Hon’ble High Court of Karnataka in the case of Commissioner of Income Tax vs. SSA’s Emerald Meadows, reported in (2016) 73 taxmann.com 241 (Kar) and the relevant paragraphs of the said judgment read as under-

"2. This appeal has been filed raising the following substantial questions of law, Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.s. 271(i)(c) is bad in law and invalid despite the amendment of Section 271 (1 B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same ? (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the 'assessee has concealed particulars of income?’ 3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(l)(c) of the Income Tax Act. 1961 for short 'the Act') to be bad in law as it did not specify which limb of Section 271 (l)(c) of the Act: the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered, in the case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 359ITR 565/218 Taxman 423/35 taxmann.com 250 (Kar.).

5.3.2 Further, the SLP filed by the Revenue against the judgment of the Karnataka High Court in the case of Commissioner of Income Tax vs. SSA’s Emerald Meadows (supra) was dismissed by the Hon’ble Supreme Court of India. Therefore, respectfully following the judgment of the Hon’ble Karnataka High Court as above-mentioned we are of the considered view that the Assessing Officer is required to specify which limb of Section 271 (1)(c) of the Act, the penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. From the perusal of the notice issued u/s 274 r.w.s. 271 of the Act, it is clear that the Assessing Officer has not specified as to under which limb of the section the penalty was imposable. The notice, in fact, is in the standard pro forma wherein the irrelevant clauses have not been struck off. This indicates non-application of mind on the part of the Assessing Officer while issuing the penalty notice. Thus, in the circumstances and facts of the case, the penalty proceedings initiated by the Assessing Officer are bad in law and deserve to be deleted. Accordingly, the impugned order is set aside and the AO is directed to delete the penalty in both the cases.

Accordingly stands allowed.

6.0 In the final result, all the seven appeals of the department stand dismissed whereas the sole appeal of the assessee stands allowed.

Order pronounced in the open court on 31.10.2018