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Income Tax Appellate Tribunal, KOLKATA BENCH ‘(A
Before: Shri P.M. Jagtap(KZ) & Shri S.S. Godara, JM]
order : December 11, 2019 ORDER PER P.M. JAGTAP, VICE-PRESIDENT (KZ & HZ) This appeal is preferred by the Revenue against the order of Ld. CIT(A) -2, Kolkata dated 28.03.2018.
The assessee in the present case is a company which is engaged in insurance business. The return of income for the year under consideration was filed by it on 30.09.2015 declaring a loss of Rs. 236,55,28,074/-. In the assessment completed u/s 143(3) vide an order dated 31.10.2017, the total income of the assessee was determined by the AO at Rs. 1091,24,39,870/- after making additions inter alia on account of disallowance of written off depreciated investment amounting to Rs. 1,33,58,000/-, disallowance of amortisation of premium paid on investment amounting to Rs. 5,89,11,000/- and disallowance u/s 14A read with Rule 8D amounting to Rs. 62,43,05,014/-. The book profit of the assessee company u/s 115JB of the Act was also computed by the AO at Rs. 2 Assessment Year: 2015-16 M/s. National Insurance Co. Ltd. 1571,51,21,928/- after making additions inter alia on account of reserve created for unexpired risk amounting to Rs. 488,59,39,000/- and disallowance u/s 14A amounting to Rs. 70,70,62,845/-.
Against the order passed by the AO u/s 143(3), an appeal was preferred by the Ld. CIT(A) and after considering the submissions made by the assessee as well as material available on record, the Ld. CIT(A) deleted some of the additions made by the AO while computing the total income of the assessee under the normal provisions of the Act as well as book profit u/s 115JB of the Act. Aggrieved by this relief given by the Ld. CIT(A) to the assessee, the Revenue has preferred this appeal before the Tribunal on the following grounds: “
1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in directing that a sum of Rs. 1,33,58,000/-, being disallowance of written off depreciated investments, be deleted following the decision of CIT(A) A.Y.(s) 2007-08 & 2008-09.
2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in directing that a sum of Rs. 5,89,11,000/-, being amortization of premium paid on investments, should be allowed.
3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that a sum of Rs. 488,59,39,000/-, being the reserve created for unexpired risk should not be considered while computing the book profit u/s 115JB of the I.T. Act.
4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that disallowance u/s 14A should not be added to the total income while computing book profit of the assessee.”
We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the 3 Assessment Year: 2015-16 M/s. National Insurance Co. Ltd. learned representatives of both the sides, the issue involved in Ground No. 1 is squarely covered in favour of the assessee by the decision rendered by this Tribunal in assessee’s own case for A.Ys. 2005-06, 2007-08 and 2008-09 vide its common order dated 05.08.2016 passed in ITA Nos. 674, 982 & 983/Kol/2012, wherein a similar issue was decided by the Tribunal vide paragraph no. 9 of its order as under: “9. Disallowance of Investments written off The brief facts of this issue is that the assessee wrote off Rs.4,22,26,000/- out of Investments by charging the said sum to its Profit & Loss Account. The ld AO held that the above-mentioned write off could allegedly not be allowed as admissible deduction and he ITA Nos. 674-982-983/Kol/2012 National Insurance Co. Ltd., AYs 2005-06,2007-08 &2008-09 disallowed Rs.4,22,26,000/-. The assessee submitted that the sum of Rs.4,22,26,000/- which had been debited to the Profit & Loss Account had represented the amount of investment written off and the sum was neither an expenditure nor an allowance. Since the aforesaid sum had not been of the nature of any expenditure or allowance, the same could not be added back as per the provisions of section 44 read with Rule 5 of the First Schedule to the Income- tax Act, 1961. The assessee also submits that the ld AO had the power to add back only that expenditure or allowance or a provision which was not admissible under the provisions of sections 30 to 43B. The appellant had brought to the attention of the ld AO of the facts and the decision of the Hon'ble Supreme Court reported in 240 ITR 139 (SC). However, while making the assessment the ld AO had not considered the assessee's reference made to the decision of the Hon'ble Supreme Court as reported in 240 ITR 139 (SC) and he disallowed the sum of Rs.4,22,26,000/-. The assessee further submitted that as per the facts and the decision of the Hon'ble Supreme Court in the case of CIT v. Oriental Fire & General Insurance Co. Ltd. [2007] 291 ITR 371(SC), any amount having been written off, cannot be considered as an expenditure or allowance which could be added back as per the provisions of section 44 read with Rule 5 of the First Schedule. Without prejudice to the submission made hereinabove, the assessee submitted that as per the provisions of section 44 read with Rule 5 of the First Schedule all the incomes of the assessee were to be considered as assessable under the head "Profits and gains of business or profession ". As per the relevant provisions of the Act, there is no provision for assessment of 4 Assessment Year: 2015-16 M/s. National Insurance Co. Ltd. any income of the assessee under any head other than under the head "Profits and gains of business or profession ". Hence, all the assets of the assessee were to be considered as assets utilised for the assessee's business. Though in the Balance Sheet some of the assets are being shown under the head "Investments ", still those are also to be considered as business or trading assets of the assessee. Any writing off of Investments which have been considered as bad, should be treated as writing off of Bad Debts. Hence, the assessee submitted that writing off of Investments should have been considered by the ld AO as writing off of Bad Debts which were allowable u/s. 36(1)(vii). The ld AO should have appreciated that income from those investments had always been shown under the head "Business income" and, therefore, the requirement of section 36(2) should have been considered as having been fulfilled by the assessee. The assessee further submitted that in respect of the Assessment Year 2002-03 (Ground No. 1) the ld CIT(A) vide his Appellate ITA Nos. 674-982-983/Kol/2012 National Insurance Co. Ltd., AYs 2005-06,2007-08 &2008-09 order dated 24-01-2007 (Paragraph No. 7) deleted the disallowance in respect of the Bad Debts being Investment Written Off. On the basis of the above facts, the above-referred two decisions of the Hon'ble Supreme Court as well as the Appellate decision in the assessee's own assessment for the Assessment Year 2002-03, as referred to above, the assessee submitted that the disallowance of Rs. 4,22,26,000/- in respect of Investments Written off, may kindly be deleted. It was also submitted that the ld CITA had deleted the disallowances on Investments written off for the Asst Years 2000-01 , 2002-03 and 2004-05 vide orders dated 30.1.2009 , 24.1.2007 and 15.6.2009 respectively. The ld CITA deleted the disallowance made by the ld AO. Aggrieved, the revenue is in appeal before us on the following ground:- "
3. The CIT(A) erred on the facts of the case and in law in holding that a sum of Rs. 4,22,26,000/- being the investments written off is an allowable deduction." 9.1. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA. 9.2. We have heard the rival submissions and perused the materials available on record. We find that the ld CITA had deleted the disallowance by observing as under:-
23. I have carefully considered the observations of the Assessing Officer in the assessment order and submissions of the appellant and both the decisions referred to above of Hon'ble Supreme Court and the 5 Assessment Year: 2015-16 M/s. National Insurance Co. Ltd. copies of the Appellate Orders for the Assessment Years 2000-01, 2002- 03 and 2004-05 of the CIT(A)-VI, Kolkata. The Authorised Representative further submitted that the transactions in investments being a part of business of the assessee, the writing off of investments should be considered as deductible for the purpose of computing the business income of assessee. Since the assessee has been carrying on the General Insurance business and consequently its assessment is required to be made in accordance with the provisions of section 44 read with the Rule 5 of the First Schedule to the Income-tax Act, 1961, the Assessing Officer is empowered to make additions/disallowances only in accordance with the above-mentioned Rule 5. Any sum which has been written off cannot be considered as either "expense" or "allowance" or "provision".
24. It is observed that in the above-referred Rule 5 of the First Schedule it has been mentioned that certain expenditure or allowance or provision can be added back only if the same is not admissible under sections 30 to 438 of the Act and there is no specific mentioning of adding back of any amount written off out of investments. From the above-referred Supreme Court decisions it is clear that if the particular item of dispute (debit entry made in the Profit & Loss Account) falls under the category of "expenditure" or "allowance" or "provision", and the same is not admissible under the Act, only then the concerned item can be added back in computing the income from general insurance business. From the above facts it appears that the disallowance of the writing off of investments, made by the Assessing Officer is not in accordance with the prescribed specific procedure in the appellant's case.
25. Respectfully following the above-referred two Supreme Court decisions, submissions of the appellant and the Appellate Orders for the Assessment Years 2000-01, 2002-03 and 2004-05 ITA Nos. 674-982- 983/Kol/2012 National Insurance Co. Ltd., AYs 2005-06,2007-08 &2008-09 of the CIT(A)-VI, Kolkata and in the facts and circumstances of the case as mentioned hereinabove, it is held that because of the restrictions contained in section 44 read with Rule 5 of the First Schedule, there could not be any disallowance of the amount written off out of investments and, accordingly, the disallowance of Rs.4,22,26,000/- is deleted. Hence, Ground No.5 is allowed." We find that the revenue was not able to controvert the detailed findings of the ld CITA before us. Hence we find no infirmity in the order of the ld CITA in this regard. Accordingly, the Ground No. 3 raised by the revenue for the Asst Years 2007-08 and 2008- 09 are dismissed. The decision taken in Asst Year 6 Assessment Year: 2015-16 M/s. National Insurance Co. Ltd. 2007-08 with regard to this ground would apply with equal force to Asst Year 2008-09 as similar disallowance was made in Asst Year 2008-09 except with variance in figures.” The aforesaid decision rendered by the Tribunal for A.Ys. 2005-06, 2007-08 and 2008-09 vide a common order dated 05.08.2016 has been subsequently followed by the Tribunal to decide a similar issue involved in assessee’s own case for A.Y. 2014-15 vide its order dated May 29, 2019 in ITA No. 1876/Kol/2017. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to that of A.Ys. 2005-06, 2007-08 & 2008-09 and 2014-15, we respectfully follow the orders of the Tribunal for the said years and uphold the impugned order of the Ld. CIT(A) giving relief to the assessee on this issue. Ground No. 1 of the Revenue’s appeal is accordingly dismissed.
5. As regards the issue involved in Ground No. 2 relating to the deletion by the Ld. CIT(A) of the disallowance of Rs. 5,89,11,000/- made by the Assessing Officer on account of amortization of premium paid on investments, the learned representatives of both the sides have agreed that this issue is also squarely covered in favour of the assessee by the order of the Tribunal dated 05.08.2016 (supra), wherein a similar issue was decided by the Tribunal vide its paragraph no. 8 of its order as under: “8. Disallowance of Amortisation of Premium paid on Purchase of Investments The brief facts of this issue is that the assessee claimed Rs. 6,02,18,000/- towards amortization of premium paid on investments. Without assigning any reason, the ld AO stated in his order that the said claim of amortization could allegedly not be allowed as admissible deduction and accordingly disallowed the same. The assessee submitted that it has been carrying on the business of insurance other than life insurance and accordingly its income 7 Assessment Year: 2015-16 M/s. National Insurance Co. Ltd. tax assessments were required to be made in accordance with the provisions of section 44 read with Rule 5 of the First Schedule to the Income Tax Act. According to the aforesaid provisions, the profits and gains of the insurance business other than life insurance shall be taken to be the balance of profits disclosed by the Profit & Loss Account copy of which are required under the Insurance Act, 1938 to be furnished to the Comptroller of Insurance subject to the following adjustments :- a) Any expenditure or allowance which is not admissible under the provisions of section 30 to 43B shall be added back. b) Amount carried over to a reserve for any unexpired risks as prescribed in this behalf shall be allowed as a deduction.
The assessee also submitted that the Hon'ble Supreme Court in the case of General Insurance Corporation of India vs CIT reported in (1999) 240 ITR 139 (SC) had held that the Assessing Officer had no general power to make any adjustment in the accounts of a general insurance company. The assessee also submitted that the Hon'ble Supreme Court in the case of CIT vs Oriental Fire & General Insurance Co Ltd reported in (2007) 291 ITR National Insurance Co. Ltd., AYs 2005-06,2007- 08 &2008-09 370 (SC) had held that provisions made towards income tax and bad and doubtful debts , not being of the nature of expenditure, could not be added back by the Assessing Officer while computing the business income of an assessee carrying on general insurance business covered u/s 44 of the Income Tax Act. The assessee further submitted that as per the above referred section 44 of the Income Tax Act , all classes of income of the assessee are required to be assessed under the head 'Profits and Gains of Business or Profession' . Hence the Assessing Officer should have appreciated that all expenses and / or adjustments made in the assessee's accounts were to be considered as having direct nexus to the assessee's business of insurance. The assessee further submitted that since there does not exist any specific provision in the Act for disallowance of premium paid on investments, the ld AO should not have made the disallowance of Rs. 6,02,18,000/- as per Rule 5 of the 1st Schedule to the Income Tax Act, 1961. Accordingly, the assessee submitted that the ld AO should have held that premium paid on investments by the assessee could not be disallowed and his action in making the disallowance should be considered as unjustified. It was also submitted that the transactions in investments being a part of the business of the assessee, the amortization of premium paid on investments should be considered as deductible for the purpose of computing the business income of the assessee. It was submitted further that this was the first year in 8 I.T.A. No. 1030/Kol/2019 Assessment Year: 2015-16 M/s. National Insurance Co. Ltd. which such disallowance has been made. The assessee buys the Government Securities on Premium. The premium amount is amortised and is being charged to profit & loss account on pro rata basis depending on the number of years when the securities will be paid back. The purchasing of the securities at premium is compulsory as per the guidelines of the Government of India and there is no choice with assessee for not to buy the same. The assessee distributes the premium paid over a period of holding rather than debiting the same in the year of purchase which will give a distorted look to the Profit & Loss Account and will not be reflecting the true and fair view of the company as per the assessee.
It was further submitted that since the assessee has been carrying on the General Insurance business and consequently its assessment is required to be made in accordance with the provisions of section 44 read with Rule 5 of First Schedule to the Income Tax Act, 1961, the ld AO is empowered to make additions / disallowances only in accordance with the above mentioned Rule 5. Any sum which has been amortised cannot be considered as either 'expense' or 'allowance' or 'provision'. It was submitted that in the above referred Rule 5 National Insurance Co. Ltd., AYs 2005-06,2007-08 &2008-09 of the First Schedule, it has been mentioned that certain expenditure or allowance or provision can be added back only if the same is not admissible u/s 30 to 43B of the Act and there is no specific mentioning of adding back of any amount amortised in relation to premium paid on investments. From the above referred Supreme Court decisions, it is clear that if the particular item of dispute (debit entry made in the profit and loss account) falls under the category of 'expenditure' or 'allowance' or 'provision' and the same is not admissible under the Act, only then the concerned item can be added back in computing the income from general insurance business. From the above facts, it is clear that the disallowance of amortised premium paid on investments made by the ld AO is not in accordance with the prescribed specific procedure in the assessee's case. The ld CITA duly appreciated the contentions of the assessee and by following the ratio decidendi of the two Supreme Court decisions supra, deleted the disallowance of Rs. 6,02,18,000/- made by the ld AO. Aggrieved, the revenue is in appeal before us on the following ground:-
2. The CIT(A) erred on the facts of the case and in law in holding that a sum of Rs.6,02,18,000/- being amortization of premium paid on purchase of investments is an allowable deduction while computing the income.
9 Assessment Year: 2015-16 M/s. National Insurance Co. Ltd. 8.1. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA. 8.2. We have heard the rival submissions and perused the materials available on record. We find that the revenue was not able to controvert the detailed findings of the ld CITA before us. We also find that the ld CITA had granted relief to the assessee after elaborately discussing the facts of the case and by placing reliance on the two supreme court judgments supra. Respectfully following the same, we find no infirmity in the order of the ld CITA in this regard. Accordingly, the Ground No. 2 raised by the revenue for the Asst Years 2007- 08 and 2008-09 are dismissed. The decision taken in Asst Year 2007-08 with regard to this ground would apply with equal force to Asst Year 2008-09 as similar disallowance was made in Asst Year 2008-09 except with variance in figures. The aforesaid decision rendered by the Tribunal for A.Ys. 2005-06, 2007-08 and 2008-09 vide a common order dated 05.08.2016 has been subsequently followed by the Tribunal to decide a similar issue involved in assessee’s case for A.Y. 2014-15 vide its order dated May 29, 2019 in ITA No. 1876/Kol/2017. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to that of A.Ys. 2005-06, 2007-08 & 2008-09 and 2014-15, we respectfully follow the orders of the Tribunal for the said years and uphold the impugned orders of the Ld. CIT(A) giving relief to the assessee on this issue. Ground No. 2 of the Revenue’s appeal is accordingly dismissed.
As regards the issue involved in Ground No. 3 relating to the deletion by the Ld. CIT(A) of the addition of Rs. 488,59,39,000/- made by the Assessing Officer towards reserve created for unexpired risk while computing the book profit of the assessee company u/s 115JB of the Act, the learned representatives of both the sides agreed that this issue is also squarely covered in favour of the assessee by the 10 Assessment Year: 2015-16 M/s. National Insurance Co. Ltd. order of the Tribunal dated 05.08.2016, wherein a similar issue as involved for A.Ys. 2005-06, 2007-08 and 2008-09 was decided by the Tribunal vide paragraph no. 11 of its order as under:
11. Addition towards Reserve created for Unexpired risk u/s 115JB of the Act The brief facts of this issue is that while computing the Book Profit u/s. 115JB of the Act for the purpose of MAT, the ld AO considered a sum of Rs.169,45,00,000/- being the Reserve for Unexpired Risk created as per the requirement of law, as allegedly required to be added back. The ld AO added back the aforesaid sum of Rs.169,45,00,000/- in computing the Book profit. The assessee submitted that as per the Insurance Act, 1938, in case of an Insurance Company carrying on General Insurance business, Premium is recognised as income over the contract period or the period of risk, whichever is appropriate. Premium received in advance which represents Premium Income not relating to that particular accounting period in which the said Premium has been received, is separately National Insurance Co. Ltd., AYs 2005-06,2007-08 &2008-09 disclosed in the Financial Statements of an Insurance Company. That part of income which is attributable to the succeeding accounting period or periods is reduced from the total Premiums received during an accounting period by way of creation of a Reserve for Unexpired Risk in accordance with Section 64V(l)(ii)(b) of the Insurance Act, 1938. The aforesaid Reserve is to be created for a minimum amount as prescribed under the above mentioned section. Appreciating the special nature of the Insurance Business, the Law makers prescribed special procedure for Computation of Total Income of an Insurance Company carrying on Business of Insurance other than Life Insurance which are to be found in Rule 5 of the First Schedule to the Income-tax Act, 1961 read with Rule 6E of the Income-tax Rules, 1962. This particular procedure has to be mandatorily complied with in making the assessment for Income-tax purposes. Every year adjustments are made to the existing Reserve for Unexpired Risk by way of crediting or debiting by the amount of difference between the Reserve created in the immediate preceding year and the Reserve required to be credited during the current accounting year. This cannot be considered as any alleged Amount carried to any Reserve" debited to the Profit & Loss Account, but it should be appreciated that this Reserve represents that part of Premium Income which does not relate to the current accounting period. It must be appreciated that as per the Mercantile System of accounting, it is only that Income/Expenditure which relate to the current accounting period, should find places in 'the Revenue/Profit & Loss Account of the year. Hence it was 11 Assessment Year: 2015-16 M/s. National Insurance Co. Ltd. submitted that in case of an Insurance Company (carrying on General Insurance Business), the creation of "Reserve for Unexpired Risk" cannot be considered to be similar to those "Reserves" which have been referred to in Clause (b) of Explanation (1) to Section 115JB(2). It may also be appreciated that the "Reserve for Unexpired Risk" can, in any case, not be considered as any provision made for meeting liabilities, other than ascertained liabilities as referred to in Clause(c) of Explanation (1) to Section 115JB(2). On the basis of the above facts it may kindly be appreciated that there has not been any requirement to add back any sum in relation to the "Reserve for Unexpired Risk" while computing "Book Profit" u/s.115JB(2) for the Assessment Year 2008-09. Accordingly, the assessee submitted that the "Reserve for Unexpired Risks" not being of the nature as specified in clause (b) of Explanation 1 to section 115JB(2), the action of the ld AO in making an addition of such Reserve should be held as unjustified. Hence, the assessee ITA Nos. 674-982-983/Kol/2012 National Insurance Co. Ltd., AYs 2005-06,2007- 08 &2008-09 submitted that the ld AO may kindly be directed to delete the addition of Rs.169,45,00,000/- made by him in computing the Book profit u/s 115JB of the Act. 11.1. The ld CITA observed that the provisions contained in Rule 6E of the Income-tax Rules, 1962 has also been considered. Section 115JB(2)- Explanation (1)(b) requires increasing "the amounts carried to any reserve, by whatever name called, other than a reserve specified u/s 33AC" if such amount is debited to the Profit & Loss Account. It is held that the Reserve for Unexpired Risk has not been debited in the Profit & Loss account at any point of time, therefore explanation 1 to sub-section 2 of section115JB is not applicable in the peculiar facts of the general insurance business carried out by the assessee. In the assessee's case, firstly the concerned reserve for Unexpired Risk has not been created through any debit entry made in the Profit & Loss Account. The reserve has been created in accordance with the relevant provisions of the Insurance Act, 1938, by way of debiting the premium received for adjusting the amount of premium that may be related to future year or years. It is noted that Rule 5 of the First Schedule of the Income-tax Act, 1961, which specifies the procedure to be followed for computing the business income of a General Insurance business, specifically allows deduction for reserve carried over for Unexpired Risk and Rule 6E of the Income-tax Rules, 1962 provides that such deduction will be allowed to the maximum extent of 50% of the net premium received during the relevant year. Hence, this creation of reserve out of the premium received during the year, is a statutory requirement and the same is duly recognised by the Income-tax Act/Rules. As already mentioned hereinabove, this particular reserve does not fall in the category of those reserves which have been specified in Explanation 1 (b)
12 Assessment Year: 2015-16 M/s. National Insurance Co. Ltd. to section 115JB(2). Therefore, this reserve viz., the reserve for Unexpired Risk in the case of a General Insurance business, should not be added back for the purpose of computation of Book Profit u/s. 115JB(2) for MAT purposes. On the basis of this observation, it was held that the ld AO's action in adding back a sum of Rs.169,45,00,000/- being reserve created for Unexpired Risk, was not in accordance with the relevant provisions of the Income-tax Act, 1961 and accordingly deleted the addition. 11.2. Aggrieved, the revenue is in appeal before us on the following ground:- "4. The CIT(A) erred on the facts of the case and in law in holding the sum of Rs.1694500000 being the reserve created for unexpired risk should be considered as reserve for computing the Book Profit under section 115JB of the Income-tax Act." 11.3. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA. 11.4. We have heard the rival submissions. We find that the ld CITA had dealt this issue very elaborately and had given proper finding that the reserve created for unexpired risk need not be added back for the purpose of computation of book profits u/s 115JB of the Act. The revenue was not able to controvert the findings of the ld CITA before us. Hence we find no infirmity in the order passed by the ld CITA in this regard. Accordingly, the Ground No. 4 raised by the revenue for Asst Year 2008-09 is dismissed. The aforesaid decision rendered by the Tribunal for A.Ys. 2005-06, 2007-08 and 2008-09 vide a common order dated 05.08.2016 has been subsequently followed by the Tribunal to decide a similar issue involved in assessee’s case for A.Y. 2014-15 vide its order dated May 29, 2019 in ITA No. 1876/Kol/2017. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to that of A.Ys. 2005-06, 2007-08 & 2008-09 and 2014-15, we respectfully follow the orders of the Tribunal for the said years and uphold the impugned orders of the Ld. CIT(A) giving relief to the
7. As regards the issue involved in Ground No. 4 relating to the deletion by the Ld. CIT(A) of the disallowance made by the AO u/s 14A while computing the book profit of the assessee company u/s 115JB of the Act, it is observed that Rule 8D was applied by the AO to work out the expenses incurred by the assessee company in relation to the earning to exempt income at Rs. 70,70,62,845/- and addition to that extent was made by him on account of disallowance u/s 14A while computing the book profit of the assessee company u/s 115JB of the Act. On appeal, the Ld. CIT(A) deleted the said addition made by the AO by relying on the various decisions of the Tribunal and after taking note of the fact that a sum of Rs. 8,27,57,831/- was duly disallowed by the assessee company suo moto as expenses incurred in relation to the exempt income.
We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that a similar issue was involved in assessee’s own case for A.Y. 2014-15 and vide its order dated 29, 2019 (supra) it was held by the Tribunal that Rule 8D could be invoked only for making a disallowance u/s 14A while computing the income of the assessee under the normal provisions of the Act and not for computation of book profit u/s 115JB of the Act. It was further held that unless an item is debited in the profit and loss account, the same could not be the subject matter of addition to book profits under clause (f) of Explanation to section 115JB of the Act and it is only the actual expenditure incurred by the 14 Assessment Year: 2015-16 M/s. National Insurance Co. Ltd. assessee in relation to the exempt income, which is debited to the profit and loss account, can be added. In the present case, the assessee company had already disallowed expenses of Rs. 8,27,57,831/- incurred in relation to the exempt income suo moto and keeping in view the same, we do not find any infirmity in the impugned order of the Ld. CIT(A) deleting the further disallowance made by the A.O. u/s 14A by applying Rule 8D while computing the book profit of the assessee company u/s 115JB of the Act. Ground No. 4 of the Revenue’s appeal is accordingly dismissed.
In the result, the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 11th December, 2019.