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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: JUSTICE (RETD.) C.V. BHADANG & SHRI B.R. BASKARAN
PER JUSTICE (RETD.) C.V. BHADANG, PRESIDENT :
Although the dispute in this appeal has a chequered history, the appeal can be disposed of on a short count. The appeal relates to assessment year 2008-09.
The appellant-assessee is carrying on business as a Third Party Administrator (TPA) of Insurance, which business is governed by the Insurance Regulatory and Development Authority of India (IRDA). The appellant obtained the necessary licence for conducting business as a TPA from IRDA and started approaching the Insurance companies for business. The appellant also deposited Rs.1,00,00,000/- in fixed deposit as a condition for obtaining licence as per IRDA regulations.
M/s. Rothshield Insurance TPA Ltd.
For the year under consideration, the appellant filed its Return of Income (RoI) claiming loss of Rs.7,76,645/-. There were twin issues involved before the Assessing Officer. The Assessing Officer found that the appellant-assessee had not commenced business and hence disallowed the expenses. The Assessing Officer also treated the interest income (received from fixed deposit of Rs.1,00,00,000/-) as ‘income from other sources’ although according to the assessee it ought to have been treated as ‘income from profits and gains from business or profession’ inasmuch as the deposit was required to be made as per the statutory regulations of IRDA for obtaining the licence to carry on TPA business.
The assessee carried the matter in appeal before the CIT(A). The learned CIT(A), inter alia, held that the expenses were allowable as ‘business expense’ as the learned CIT(A) found that the assessee had commenced its business. He, however, found that the interest income was not ‘business income’ and, therefore, part of the assessment order treating the interest income as ‘income from other sources’ was maintained.
The appellant did not carry the matter any further inasmuch as the loss assessed of Rs.7,76,645/- was same as the loss returned and in the absence of any tax liability arising out of the appellate order, the same was not challenged and has attained finality.
It is after this that the Assessing Officer took up the matter for imposition of penalty and after considering the submission of the appellant, the Assessing Officer vide order dated 29.11.2019 has levied minimum penalty of Rs.3,24,605/- in accordance with Explanation 4 to Section 271(1) of the Income Tax Act, 1961 (‘Act’ for short). The appellant challenged the same before the CIT(A). The learned CIT(A) has dismissed the appeal by order dated 16.08.2024. This order is the subject matter of challenge in the present appeal.
It is submitted by the learned AR that there was no occasion for levying of penalty in the absence of there being any case made out of concealment of income by the assessee. It is submitted that there was a bona fide dispute as to treatment of the interest income, viz. as to whether it should be treated as ‘income from profits and gains from business or profession’ or as ‘income from other sources’. The learned AR was at pains to point out that the interest income was earned on the fixed deposit which the appellant was required to make as a condition for obtaining licence as per IRDA regulations and, therefore, it ought to have been considered as ‘business income’. It is submitted that in the face of the finding by the learned CIT(A) in the earlier round of litigation that the income is to be treated as ‘income from other sources’, it is only a mere change of head of income without any consequent evasion or concealment by the assessee. He, therefore, submitted that the impugned order cannot be sustained.
The learned DR has supported the impugned order. It is submitted that the assessee had furnished inaccurate particulars of income in respect of interest income earned and, therefore, Explanation 4 to Section 271(1) of the Act has been rightly invoked.
We have considered the submissions made and we do not find that the impugned order can be sustained.
It is a matter of record and it is not even in dispute that net loss, which was returned, is the same as loss assessed by the Assessing Officer. The only concurrent finding by the Assessing Officer as well as the CIT(A) in the earlier round of litigation is about the treatment of interest income, which the authorities below found is to be treated as ‘income from other sources’ and not as ‘income from profits and gains from business or profession’ as claimed by the assessee. In our opinion, this cannot lead to
A perusal of the order passed by the learned CIT(A) indicates that after setting out in details the facts leading to filing of the appeal, the only discussion on merits is to be found in para 5 as under :-
“5. Decision : I have gone through the Penalty Order, Form 35, grounds of appeal and details available in the ITBA.
Accordingly, the levy of penalty u/s 271(1)(c) dated 29/11/2019 of Rs.3,24,605/- only by the Assessing Officer is being dealt ground wise as shown below-
Ground No. 1 – The AO has carefully taken the only ground (No. 4) confirmed by Ld. CIT(A)-3, Mumbai in his order u/s 250 dated 1/08/2018, in respect of interest earned by the assessee on fixed deposits. These are well quantified. This ground of the appellant is dismissed.
Ground No. 2 – The Assessing Officer has not erred in holding that even if it has no impact on income assessed or tax computed for the current year as well as for any other year. As such this ground of appeal is also dismissed.
Ground No. 3 – Ld. CIT(A) in his order u/s 250, dated 1/08/2018 has discussed this issue in the light of Hon’ble Apex Court’s decision in Tuticorn Alkali Chemical and Fertilizers Lt. V. CIT (1997) 227 ITR 172 (SC). As such the Assessing Officer need not consider it de novo, even if interest is earned on amount deposited as per requirement of IRDA to get the licence to operate T.P.A. business. This ground of appeal is also dismissed.
Ground No. 4 – The AO has discussed the issue in detail with various court judgments in his penalty order u/s 271(1)(c) dated 29/11/2019. As such this ground of appeal is also dismissed.
In the result, the appeal of the appellant is treated as “Dismissed”.
The reasons articulated cannot be subscribed to. In our considered view, the penalty imposed cannot be sustained.
Order pronounced in the open court on 08/01/2025