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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI AMARJIT SINGH & MS. KAVITHA RAJAGOPAL
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “E”, MUMBAI BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER AND MS. KAVITHA RAJAGOPAL, JUDICIAL MEMBER ITA No.3551/M/2023 Assessment Year: 2016-17 ITA No.3542/M/2023 Assessment Year: 2020-21 ITA No.3543/M/2023 Assessment Year: 2018-19 ITA No.3544/M/2023 Assessment Year: 2017-18 M/s. ECGC Limited, ACIT, New Marine Lines, CTS No.393, 393/1 to 45, Aayakar Bhavan, MV Road, Vs. Maharishi Karve Road, Andheri East, New Marine Lines, Maharashtra- 400 069 Mumbai - 400020 PAN: AAACE0296K (Appellant) (Respondent)
ITA No.3813/M/2023 Assessment Year: 2016-17 & ITA No.3812/M/2023 Assessment Year: 2017-18 DCIT-3(1)(1), M/s. ECGC Limited, Room No.607, 6th Floor, CTS No.393, 393/1 to 45, Aayakar Bhavan, Vs. MV Road, Mumbai - 400020 Andheri East, Maharashtra- 400 069 PAN: AAACE0296K (Appellant) (Respondent) Present for: Assessee by : Shri Vijay Mehta, A.R. a/w
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Shri S. Venkatraman, A.R. Revenue by : Shri Biswanath Das, D.R. Date of Hearing : 14 . 02 . 2024 Date of Pronouncement : 27 . 02 . 2024 O R D E R Per Bench: These four appeals filed by the assessee and two cross appeals by the Revenue are directed against the different orders of the Ld. CIT(A) for assessment year 2016-17 to 2018-19 and A.Y.2020-21. Since common issue on identical facts are involved in these cross appeals, therefore for the sake of convenience all these appeals are adjudicated together by taking the ITA No.3551/M/2023 for A.Y. 2016-17 filed by the assessee and ITA No.3813/M/2023 filed by the Revenue as lead case and the findings of these appeals shall be mutatis mutandis applied to the other appeals filed by the assessee wherever these findings are applicable. The assessee has raised the following grounds before us:
ITA No.3551/M/2023 for A.Y. 2016-17 (Assessee’s appeal) “1) The Ld. CIT(A) has erred in upholding the disallowance of Rs.4,32,65,607/-u/s. 14A of the Act. The Ld. CIT(A) has erred in confirming the disallowance merely on the ground that the orders of the Hon'ble Tribunal in the case of the assessee for earlier assessment years has not been accepted by the Department. 2) The Ld. CIT(A) has erred in upholding the disallowance of Rs.587,65,76,190/-being provision for insurance claim. The Ld. CTT(A) has erred in confirming the disallowance merely on the ground that the orders of the Hon'ble Tribunal in the case of the assessee for earlier assessment years has not been accepted by the Department.
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3) The Ld. CIT(A) has erred in confirming the levy of interest u/s. 234B and 234C of the Act. 4) The Ld. CIT(A) ought to have held that the assessment order passed by the Assessing Officer is invalid and bad in law. 5) The appellant craves to add, modify or amend the above grounds anytime during the course of the appeal.” ITA No.3544/M/2023 for A.Y. 2017-18 (Assessee’s appeal) “1. The Ld. CIT(A) has erred in upholding the disallowance of Rs. 13,95,52,499/-u/s. 14A of the Act. The Ld. CIT(A) has erred in confirming the disallowance merely on the ground that the orders of the Hon'ble Tribunal in the case of the assessee for earlier assessment years has not been accepted by the Department. 2. The Ld. CT(A) has erred in upholding the disallowance of Rs. 486,83,68,870/- being provision for insurance claim. The Ld. CT(A) has erred in confirming the disallowance merely on the ground that the orders of the Hon'ble Tribunal in the case of the assessee for earlier assessment years has not been accepted by the Department. 3. The Ld. CT(A) has erred in upholding the denial of claim of exemption u s 10(38) of the Act of Rs.15,81,69,685/- on account of profit and sale of investment. 4. The Ld. CIT(A) has erred in confirming the levy of interest u/s 234B and 234C of the Act. 5) The Ld. CIT(A) ought to have held that the assessment order passed by the Assessing Officer is invalid and bad in law. 6) The appellant craves to add, modify or amend the above grounds anytime during the course of the appeal.” ITA No.3543/M/2023 for A.Y. 2018-19 (Assessee’s appeal) “1) The Ld. CIT(A) has erred in upholding the disallowance of Rs.18,61,73,570/- u/s 14A of the Act. The Ld. CIT (A) has erred in confirming the disallowance merely on the ground that the orders of the Hon'ble Tribunal in the case of the assessee for earlier assessment years has not been accepted by the Department. 2) The Ld. CIT(A) has erred in upholding the disallowance of Rs.466,74,04,080/- being provision for insurance claim. The Ld. CIT(A) has erred in confirming the disallowance merely on the ground that the orders of the Hon'ble Tribunal in the case of the assessee for earlier assessment years has not been accepted by the Department.
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3) The Ld. CIT(A) has erred in upholding the denial of claim of exemption u/s 10(38) of the Act of Rs.55,57,00,921/-on account of profit and sale of investment. 4) The Ld. CIT(A) has erred in confirming the levy of interest u/s. 2348 and 234C of the Act. 5) The Ld. CIT(A) ought to have held that the assessment order passed by the Assessing Officer is invalid and bad in law. 6) The appellant craves to add, modify or amend the above grounds anytime during the course of the appeal.” ITA No.3542/M/2023 for A.Y. 2020-21 (Assessee’s appeal) “1) The Ld. CIT(A) has erred in upholding the disallowance of Rs.17,73,31,233/- u/s. 14A of the Act. The Ld. CIT(A) has erred in confirming the disallowance merely on the ground that the orders of the Hon'ble Tribunal in the case of the assessee for earlier assessment years has not been accepted by the Department. 2) The Ld. CIT(A) has erred in upholding the disallowance of Rs. 796,44,07,670/- being provision for insurance claim. The Ld. CIT(A) has erred in confirming the disallowance merely on the ground that the orders of the Hon'ble Tribunal in the case of the assessee for earlier assessment years has not been accepted by the Department. 3) The Ld. CIT(A) has erred in confirming the disallowance of Rs.3,16,91,008/- u/s. 40(a)(ii) of the Act in respect of health and education cess. 4) The Ld. CIT(A) has erred in confirming the levy of interest u/s 234A of the Act. 5) The Ld. CIT(A) ought to have held that the assessment order passed by the Assessing Officer is invalid and bad in law. Since the substituted second proviso to Section 153 (1) of the Act, extending the time limit to pass the assessment order for A.Y 2020-21, came into force only from 01.04.2022 and not 31.03.2022, the assessment proceedings for A Y 2020-21 became time barred on 31.03.2022 in terms of the existing second proviso to Section 153(1) of the Act and, hence, the impugned assessment order dated 21.09.2022 is barred by limitation. 6) The appellant craves to add, modify or amend the above grounds anytime during the course of the appeal.”
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The Revenue has raised the following grounds before us: ITA No.3812/M/2023 for A.Y. 2017-18 (Revenue’s appeal) “1. (i) Whether on the facts and circumstances of the case and in law, Hon'ble ITAT was correct in allowing assessee the expenses related to investments yielding exempt income u/s 115JB r.w.s. 14Ar.w. r 8D to section 115JB, ignoring the provision of explanation 1(f) of section 115JB of the Act? (ii) Whether on the facts and circumstances of the case and in law, Hon'ble Tribunal failed to appreciate that perusal of section 115JB of the Act reveals that the tinkering with the P & L a/c as prepared in accordance with the provision of the company's Act is permissible to the extent provided in explanation 1 to section 115JB (2) of the Income Tax Act 1961 and clause (f) to explanation 1 to section 115JB (2) of the Income Tax Act 1961 permits the book profit to be increased with the expenditure relatable to any income to which section 10 (other than section 10(38) of the Act, Section 11 or 12 of the Act applies)?" ITA No.3813/M/2023 for A.Y. 2017-18 (Revenue’s appeal) “1 (i) Whether on the facts and circumstances of the case and in law, Hon'ble ITAT was correct in allowing assessee the expenses related to investments yielding exempt income u/s 115JB r.w.s. 14Ar.w. r 8D to section 115JB, ignoring the provision of explanation 1(f) of section 115JB of the Act? (ii) Whether on the facts and circumstances of the case and in law, Hon'ble Tribunal failed to appreciate that perusal of section 115JB of the Act reveals that the tinkering with the P & L a/c as prepared in accordance with the provision of the company's Act is permissible to the extent provided in explanation 1 to section 115JB (2) of the Income Tax Act 1961 and clause (f) to explanation 1 to section 115JB (2) of the Income Tax Act 1961 permits the book profit to be increased with the expenditure relatable to any income to which section 10 (other than section 10(38) of the Act, Section 11 or 12 of the Act applies)?" ITA No.3551/M/2023 for A.Y. 2016-17 (Assessee’s appeal) 3. Fact in brief is that return of income declaring total income of Rs.4,57,69,00,560/- was filed on 05.10.2016. The case was subjected to scrutiny assessment and notice under section 143(2) of the Act was issued on 05.07.2017. The assessee company is engaged in the business of export credit insurance for exporters and
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bankers. Further facts of the case are discussed while adjudicating the different grounds of appeal filed by the assessee. Ground No.1 : Disallowance under section 14A 4. During the course of assessment the AO noticed that the assessee has earned exempt income to the amount of Rs.46,39,84,619/- and claimed the same as exempt under section 10 of the Act. On query the assessee submitted that being an insurance company its income is to be computed only under section 44 of the Act read with first schedule to the said Act. The assessee submitted that any expenditure or allowance which are not admissible under the provision of section 30 to 43B of the Act in computing the profits and gains of a business shall be added back. Since only section 30 to 43B are to be applied therefore no disallowance u/s 14A of the Act to be made. During the course of appellate proceedings before the AO the assessee has also referred the decision of ITAT, Mumbai in the case of the assessee for assessment year 2007-08 wherein identical issue on similar facts has been adjudicated in favour of the assessee. After following the decision of ITAT for assessment year 2007-08 the other cases of the assessee pertaining to assessment year 2009-10 to 2015-16 were also decided in favour of the assessee by the ITAT. However, the AO has not agreed with the submission of the assessee and stated that the assessee has not established that no part of expenses claimed has found its way to the investment in shares/mutual funds. After referring the CBDT circular No.14 of 2001 dated 22.11.2001 stated that no expenditure relatable to an income exempt from tax would be allowed as a deduction. Therefore, the AO has computed the disallowance under section 14A(2) read with rule 8D to the amount of Rs.4,32,65,607/-.
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The assessee filed appeal before the Ld. CIT(A) and the Ld. CIT(A) has dismissed the appeal of the assessee holding that department has filed further appeal to the Hon’ble High Court against the decision of ITAT, therefore to keep the issue alive this ground of the appeal of the assessee was dismissed.
During the course of appellate proceedings before us the Ld. Counsel vehemently submitted that the assessee company is an insurance company and its income is computed under section 44 of the Act. He further submitted that rule 5 of the first schedule is applicable to the assessee company. He further submitted that provision of section 10 is not applicable to the case of the assessee. He submitted that similar issue on identical fact has been adjudicated by the ITAT in favour of the assessee in the earlier years from assessment year 2007-08 to 2015-16. With the assistance of the Ld. Representatives, we have perused all the orders of the ITAT as referred by the Ld. Counsel on the issue of disallowance made under section 14A of the Act which was decided in favour of the assessee. In this regard the relevant extract of the decision of the ITAT for the assessment year 2007-08 is reproduced as under: “20. We have heard the rival contentions and also the relevant finding given in the impugned orders. As stated earlier, the assessee company is engaged in the business of General Insurance and under the specific provisions given in the Income-tax Act, its income has to be computed strongly in accordance with section 44 r.w. First Schedule. It is a non obstante clause having overriding effect over the other provisions contained in the Act. For making a disallowance of any expenditure or allowance, which falls under the provisions of sections 30 to 43B. It should be firstly, be an expenditure or allowance and secondly, it should not be admissible under sections 30 to 43B. Otherwise no other disallowance can be made. For the purpose of the Income-tax, first of all the figures of the income of the assessee is to be drawn-up in
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accordance with the provisions of First Schedule to the Income-tax Act and satisfying the requirement of Insurance Act and such a determination of income is binding on the AO and there is no power to tinker with such an account. This proposition has been upheld by the Hon’ble Supreme Court in the case of General Insurance Corp. of India vs CIT, reported in [1990] 240 ITR 139. Thus, when the income of the assessee as well as the expenditure are governed by specific provision which have an overriding effect, then it is not open for the AO to invoke the other provisions of the Act for carrying out the disallowance or adjustment in the income. Thus, we hold that, no disallowance u/s 14A can be made in the case of the assessee and hence grounds raised in the Cross Objections are allowed. 21. In the result, revenue’s appeal is partly allowed for statistical purposes whereas the CO of the assessee stands allowed” 7. After perusal of the decision of the ITAT as referred above it is clear that issue of disallowance under section 14A decided in the appeal of the assessee is squarely covered in favour of the assessee by the above referred decision. There is nothing before us on hand to differs from the issues raised in the cases cited (supra) so as to take a different view of this issue. Therefore, following the decision of ITAT of earlier years as referred above this ground of appeal of the assessee is allowed.
Ground No.2 : Disallowance of provision for insurance claim 8. During the course of assessment the AO noticed that the assessee has debited in the profit & loss account the following amounts: Claims outstanding at the end of the year 43982718210 (net of reinsurance) Less: Provision for recovery (net of reinsurance) 138112170 Net (A) 4384,46,06,040 Claims outstanding at the beginning of the year 38079877360 (net of reinsurance) Less: Provision for recovery 111847510
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(net of reinsurance) Net (B) 3796,80,29,850 587,65,76,190 Difference [A-B] 9. The AO was of the view that the net effect of the aforesaid entries in respect of outstanding claims at the beginning and at the end of the previous year was that the profit of business had got reduced by Rs.5,87,65,76,190/- which was nothing but provisions for the claim received by the assessee during the financial year under consideration. On query the assessee claimed that it being an insurance company is required to prepare its accounts in accordance with the accrual system of accounting and based on the IRDA (Preparation of Financial Statements and Audited Report of Insurance Companies) Regulations, 2002. Under the said regulation the assessee company is required to estimate anticipated losses on account of claims incurred but not reported (IBNR) as well as claims incurred but not enough reported (IBNER). The assessee also submitted that account of the assessee company was audited by the Statutory Auditors appointed by the office of the Controller and Audit General of India and in the audit report they have not made any adverse observation in respect of the amount of insurance claim. He further submitted that audited accounts have also been furnished to the Insurance Regulatory Development Authority (IRDA). The assessee also submitted that similar issue on identical facts has been adjudicated by the ITAT, Mumbai in the case of the assessee itself for assessment year 2010-11 vide ITA No.7657/M/2014 vide order dated 11.10.2017 in favour of the assessee. However, the AO has not agreed with the submissions of the assessee and stated that provisions made for claims received
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during the years were nothing but unascertained liability which was not admissible under section 30 to section 43B of the Act. Therefore, the amount of Rs.5,87,65,76,190/- was disallowed and added to the total income of the assessee. 10. The assessee filed appeal before the Ld. CIT(A) and the Ld. CIT(A) has dismissed the appeal of the assessee holding that department has filed further appeal against the decision of the ITAT before the Hon’ble High Court.
During the course of appellate proceedings before us the Ld. Counsel submitted that the assessee has prepared its account as per the IRDA guidelines and it has followed mercantile system of accounting and the provisions for outstanding claims are admissible deduction as per the Income Tax Act. The Ld. Counsel further submitted that similar issue on identical facts has been adjudicated in favour of the assessee vide various decisions of the ITAT Mumbai in the cases of the assessee itself in the earlier years for the A.Ys. 2010-11 to 2013-14. The Ld. Counsel also furnished the copy of the decisions of the ITAT. With the assistance of the Ld. Representatives we have perused the decision of ITAT for A.Y 2010-11 vide ITA No.7657/M/2014 dated 11.10.2017 wherein the identical issue on similar facts has been adjudicated in favor of the assessee. The relevant extract of the ITAT is reproduced as under: “33. We have heard the rival submissions and perused the material before us. We find that the assessee is wholly owned by government of India, that it is required to draw its accounts as per the rules and regulations issued by IRDA, that C&AG appointed auditors audit its accounts, that in note 8 of Schedule 16 of the accounts gives details of liability on account of claims and accounting of estimated recoveries, that it would accept claims made during the year by the policy holders, that it has included IBNR and IBNER under the head claims received,
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that IBNR and INBER were based on actuarial valuation, that the AO had held that the provisions made for insurance claim received during the year represented unascertained liability. 3.3.1.As an Insurance company, the assessee has to follow rules and guidance issued by IRDA, that in pursuance of the directions of IRDA the assessee had prepared its books of accounts, that Statutory Auditors had not raised any objections about IBNR and IBNER that C & AG had not expressed any doubts about the accounts maintained by it that it was following the notification issued by IRDA with regard to general insurance business, that Para 5 of Part 1 of the schedule, as prescribed by IRDA, deals with claim made by the assessee under the heads IBNR and IBNER(Pg. 172-73 of the PB.), that both the items were based on actuary valuation report. In our opinion, provisions made on the basis of an actuarial valuation cannot be considered a contingent liability. The basic thing to be remembered is that unlike other businesses, life insurance business is being regulated by IRDA.Regulatory body issues instructions time to time. One of the instructions was about follow actuarial valuation while preparing the accounts. The actuarial method of valuation has been recoginsed an approved method for valuing liabilities by various courts. So, we hold that method followed by the assessee for valuing its liabilities cannot be rejected. Besides Rule 5(a)of the First Schedule deals with provisions pertaining to expenditure or allowance or other prescribed liabilities and not in respect of income. In short the AO is not authorised to disturb any income reflected in the P&L account. Here, we would like to reproduce the relevant portion of the judgment in the case of General insurance Corporation of India (supra)and it reads as under: "Section 44 of the Income-tax Act, 1961, is a special provision governing computation of taxable income earned from business of insurance. It opens with a non-obstante clause and thus has an overriding effect over other provisions contained in the Act. It mandates the assessing authorities to compute the taxable income for business of insurance in accordance with the provisions of the First Schedule. A plain reading of rule 5(a) of the First Schedule makes it clear that in order to attract the applicability of the said proviston the amount should firstly be an expenditure or allowance. Secondly, it should be one not admissible under the provisions of sections 30 to 434. If the amount is not an expenditure or allowance, the question of testing its eligibility for adjustment by reference to rule 5(a) of the First Schedule would not arise at all. There is another approach to the same issue. Section 44 of the Income-tax Actread with the Rules contained in the First Schedule to the Act lays down an artificial mode of computing the profits and gains of insurance business. For the purpose of income-tax, the figures in the accounts of the assessee drawn up in accordance with the provisions of the First Schedule to the
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Income-tax Actand satisfying the requirements of the Insurance Actare binding on the Assessing Officer under the income-tax Actand he has no general power to correct the errors in the accounts of an insurance business and undo the entries made therein." xxxxx In Life Insurance Corporation of India v. CIT [1964] 51 (TR 773 (SC), their Lordships were dealing with the pari materia provisions contained in the Indian Income-tax Act, 1922. The court analysed the scheme underlying the relevant provisions of the Insurance Act, 1938, and the Indian Income-tax Act, 1922, and held that where the accounts of an insurance company engaged in insurance business are required to be submitted and approved by the Controller of Insurance, the Income-tax Officer has no power to change the figures in the accounts of the assessec. A. K. Sarkar J., recorded in his opinion (page 778): "The assessment of the profits of an insurance business is completely governed by the rules in the Schedule and there is no power to do anything not contained in it. The reason may be that the accounts of an insurance business are fully controlled by the Controller of Insurance under the provisions of the Insurance Act. They are checked by him. He has power to see that various provisions of the Insurance Act are complied with by an insurer so that the persons who have insured with it are not made to suffer by mismanagement. A tampering with the accounts of an insurer by an Income- tax Officer may seriously affect the working of insurance companies. But apart from this consideration, we feel no doubt that the language of section 10(7) and the Schedule to the Income-tax Act makes it perfectly certain that the Income-tax Officer could not make the adjustment that he did in these cases." M. Hidayatullah J., (as His Lordship then was), observed (page 788): “...Income-tax Act contemplates that the assessment of insurance companies should be carried out not according to the ordinary principles applicable to business concerns as laid down in section 10, but in quite a different manner." The view so token has been followed by this court in Pandyan Insurance Company Ltd. v. CIT [1965] 55 [TR 716 and CIT v. Calcutta Hospital and Nursing Home Benefits Association Lid. [1965] 57 ITR 313 (SC). In the later case, their Lordships have also observed (page 320).
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“….the balance of profits as disclosed by the accounts submitted to the superintendent of insurance and necepted by him would be binding on the Income-tax Officer, except that the Income-tax Officer would be entitled to exclude expenditure other than expenditure permissible under the provisions of section 10 of the Act. It is common ground in this case that the reserves which were added to the balance of profits were not expenditure." 3.3.2 One more aspect,to be considered here, is the rule of consistency. As per the taxation jurisprudence, if basic facts remain same, orders for the earlier year should followe. It is said that principles of res judicata do not apply to tax proceedings, but principles of consistency are very much applicable. The Hon'ble jurisdictional high court has, in the matter of Gopal Purohit (336 ITR 287), held as under: "......the Tribunal has observed in paragraph 8.1 of its judgment that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year, in all the years. The Revenue submitted that a different view should be taken for the year under consideration, since the principle of res judicata is not applicable to assessment proceedings. The Tribunal correctly accepted the position, that the principle of res judicata is not attracted since each assessment year is separate in itself. The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The Revenue did not furnish any justification for adopting a divergent approach for the assessment year in question. Question (b), therefore, does not also raise any substantial question of law.” The assessee was following the method of creating provisions based on actuarial valuation and the AO had accepted it while passing orders u/s.143 (3) of the Act. Without bringing changed circumstances, the AO should not have held that liabilities were contingent. 3.3.3. It was brought to our notice that the AO had observed that reinsurance ceded and recoveries were not considered while calculating the liabilities and that the observation were factually incorrect. We find that if the details of provisions for claim are analysed it becomes clear that the working of the assessee is based on net of reinsurance(Pg.63 of the PB)and thus the observation made by the AO is contrary to the facts. 3.3.4. We find that the AO had not raised any objection about non filing of bifurcation of data which was made available to the Actuary,
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therefore, in our opinion the DR cannot make a totally fresh case before us at this stage about non filing of bifurcation, Neither the AO nor the FAA had dealt with the issue. The DR has a definite role in helping the bench to decide the matters. But, there are limitation of representation.In any case the assessee had followed Rule 5 in respect of IBNR and IBNER, as mentioned earlier. Therefore, we do not find any force in the argument advanced by the DR in that regard. Considering the above, we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity.So upholding the same, we decide ground no.2 against the AO.”
Since the issue on hand being squarely covered, following the decision of the ITAT as referred above on similar issue and identical facts this ground of appeal of the assessee is allowed.
Ground No.3 : Levy of interest under section 234B & 234C of the Act 13. This ground is consequential in nature which is not required any adjudication, therefore, the same is dismissed.
ITA No.3813/M/2023 for A.Y. 2016-17 (Revenues’ appeal) Ground No. I & II: Disallowance under section 14A for the purpose of calculation of book profit under section 115JB of the Act: 14. Both the grounds of appeal of the Revenue are pertained to the issue of disallowance u/s 14A for the purpose of calculating of book profit u/s 115JB of the Act. During the course of the appellate proceedings before us at the outset the Ld. Counsel submitted that identical issue on similar facts has been adjudicated by the ITAT, Mumbai for the A.Y. 2011-12 to 2015-16 in favour of the assessee after following the decision of the special Bench of the in the case of Vireet Investments Pvt. Ltd. (2017) 82 taxmann.com 415 wherein it is held that expenditure incurred to earn exempt income
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is not to be added for computing book profit under section 115JB of the Act.
The Ld. D.R. could not controvert this fact that issue is squarely covered by the decision of the Special Bench as referred above, therefore the appeal of the Revenue stands dismissed.
ITA No.3544/M/2023 for A.Y. 2017-18 (Assessee’s appeal) Ground No.1 : Disallowance under section 14A of the Act 16. We have adjudicated the identical issue on similar facts for the assessment year 2016-17 while adjudicating the ground No.1 in the case of the assessee vide ITA No.3551/M/2023 for A.Y. 2016- 17 as above in this order. Applying the findings of the same mutatis mutandis to this ground of appeal of the assessee, this ground No.1 is allowed.
Ground No.2 : Disallowance of provision for insurance claim 17. We have adjudicated the identical issue on similar facts for the assessment year 2016-17 while adjudicating the ground No.1 in the case of the assessee vide ITA No.3551/M/2023 for A.Y. 2016- 17 as above in this order. Applying the findings of the same mutatis mutandis to this ground of appeal of the assessee, this ground No.2 is allowed.
Ground No.3 : claim of exemption u/s 10(38) of the Act 18. During the assessment the AO noticed that the assessee claimed exemption under section 10(38) of the Act in respect of profit on sale of investment to the amount of Rs.15,81,69,685/-. The assessee was asked why such amount should not be added to its income as the income of the General Insurance Companies as
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governed by schedule 5 of the Income Tax Act wherein amendment w.e.f A.Y. 2011-12 does not allow claim of such exemption. On query the assessee explained that section 44 of the Act in the case of insurance business provision of section 44 have an overriding effect. The relevant submission of the assessee made before the AO is reproduced as under: "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 section 199 or in sections 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 co-operative society, shall be computed in accordance with the rules contained in the First Schedule.". 1. The opening words of the above section begin with the non-obstante phrase "Notwithstanding anything to the contrary contained in the provisions of this Act, ---". Consequently, these words indicate that the provisions of section 44 have an overriding effect. However, subsequent to the opening phrase, the section reads as "relating to the computation of income chargeable under the Heads "interest on securities", "income from house property", "capital gains", or "income from other sources", or in section 199 or in sections 28 to 43B, ". These words indicate that the section 44 of the Act only overrides the sections relating to computation of income chargeable to tax under various Heads of income. The Sections relating to computation of income are enshrined in Section 14 to Section 59 of the Act and appear in Chapter IV of the Act. Sections 10(35) and 10(38) (which are concerned with exemption of income received from units of mutual funds and long term capital gains on sale of listed shares. respectively) do not fall under the provisions relating to computation of income. These Sections fall under Chapter III that deal with "incomes which do not form part of the total income". There is also no mention in section 44 of the Act to the provisions of section 10 of the Act which deal with "incomes not included in total income", 19. However, the AO has not agreed with the submission of the assessee. He stated that the assessee was governed by section 44 and rule 5 of the First Schedule of the Income Tax Act. He stated that rule 5 of the first schedule was amended by Finance Act, 2009 whereby clause 5(b) was reinserted to provide that any increase in
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respect of any amount taken credit for in the accounts of appreciation of or gains on realization of investment in accordance with the regulations prescribed by IRDA shall be treated as income and included in the profit and gains of business of insurance. The AO further stated that as per the amendment to rule 5 of schedule 1 of the Act w.e.f. 2010-11 the gain on investment is taxable, therefore the exemption claimed by the assessee on such gains to the amount of Rs.15,81,69,685/- was disallowed and added to the total income of the assessee.
The assessee filed appeal before the Ld. CIT(A) and the Ld. CIT(A) has dismissed the appeal of the assessee.
During the course of appellate proceedings before us the Ld. Counsel submitted that similar issue on identical facts has been adjudicated by the Hon’ble Jurisdictional High Court in the case of the assessee vide writ petition No.1631 of 2022. He also referred the decision of Hon’ble Bombay High Court and ITAT, Mumbai in the following cases: i. Decision of the Hon'ble Bombay High Court in assessee's own case for A.Υ. 2013-14 (W.P. No. 1631 of 2022), ii. Order of Tribunal in the case of M/s. General Insurance Corporation v. ACIT (ITA No.1080/Mum/2019), ii. Decision of the Hon'ble Bombay High Court in the case of PCIT v. New India Assurance Co. Ltd. (254 Taxman 238), iv. Decision of the Hon'ble Bombay High Court in the case of General Insurance Corporation of India v. DCIT and Anr. (342 ITR 27). 22. On the other hand, Ld. D.R. supported the order passed by the lower authorities.
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With the assistance of the Ld. Representatives we have perused the decision of Hon’ble Bombay High Court in the case of the assessee as cited by the Ld. Counsel vide writ petition No.1631 of 2022 the relevant extract of the decision is reproduced as under: “5. Moreover, during the assessment proceedings query regarding how the income from these bonus/dividend etc. was raised and petitioner gave detailed explanation as to the provisions of Section 44 of the Act and why those income are exempt even for petitioner. Thereafter, the assessment order dated 18th February, 2016 has been passed where this issue has been discussed but still no addition has been made. We have to note that in the assessment order dated 18 ^ \# February, 2016 it is recorded that petitioner has also referred to the judgment of this court in General Insurance Corporation of India vs. Deputy Commissioner of Income Tax and Another, in which this court had occasion to consider whether the exemption granted under Section 10 of the Act were available to insurance company engaged in the business of general insurance and the court had answered in the affirmative. In fact in the assessment order there is also reference to the portion of the judgment where the court has considered the circular issued by the CBDT to hold that the exemption granted under Section 10 of the Act were available to non life insurance business. 6. In the circumstances, we allow this petition in terms of prayer clause- (a) which reads as under: (a) this Hon'ble Court may be pleased to issue a Writ of Certiorari or a writ in the nature of Certiorari or any other appropriate writ, order or direction under Article 226 of the Constitution of India calling for the records of the Petitioner's case and after examining the legality and validity thereof quash and set aside the notice dated 31 March, 2021 (Exhibit-F) issued by Respondent No.1 under section 148 of the Act (together with the consequential notices and orders) seeking to reopen the assessment for the assessment year 2013-14 and the order dated 10th February, 2022 (Exhibit-1) passed by Respondent No.3, disposing of the objections raised by the Petitioner 24. We have also perused the decision of Hon’ble Bombay High Court in the case of PCIT v. New India Assurance Co. Ltd. referred above wherein it is held that the assessee engaged in insurance business was entitled to benefit of exemption under section 10(38) in respect of sale of its investment and being long term capital gain.
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We have also perused the decision of Hon’ble Bombay High Court in the case of General Insurance Corporation of India (2012) 342 ITR 27 (Bom) as referred above. The relevant extract of the decision is reproduced as under: “The question whether an assessee who carries on general insurance business would be entitled to avail of an exemption under section 10 did not arise. The issue as to whether the assessee which carries on the busi- ness of general insurance would be entitled to the benefit of an exemption under clauses (15), (23G) and (33) of section 10 is directly governed by the decision rendered by the Division Bench in Life Insurance Corporation of India v. CIT [1978] 115 ITR 45 (Bom) following the earlier decision in CIT v. New India Assurance Co. Ltd. [1969] 71 ITR 761 (Bom). The Assessing Officer could not have ignored the binding precedent contained in the two Division Bench decisions of this court. Moreover, the Assessing Officer in allowing the benefit of the exemption, in the order of assessment under section 143(3) specifically relied upon the view taken by the Central Board of Direct Taxes in its communication dated February 21, 2006, to the Chair- man of the IRDA. The communication, clarifies that the exemption avail- able to any other assessee under any clauses of section 10 is also available to a person carrying on non-life insurance business subject to the fulfil- ment of the conditions, if any, under a particular clause of section 10 under which exemption is sought. It needs to be emphasised that it is not the case of the Assessing Officer that the assessee had failed to fulfil the condition which attached to the provisions of the relevant clauses of section 10 in respect of which the exemption was allowed. This of course is apart from clause (38) of section 10 where the Assessing Officer had rejected the claim for exemption in the original order of assessment under section 143(3). The Assessing Officer above all was bound by the communication of the Cen- tral Board of Direct Taxes. Having followed that in the order under section 143(3) he could not have taken a different view while purporting to reopen the assessment. Having applied his mind specifically to the issue and having taken a view on the basis of the communication noted earlier, the act of reopening the assessment would have to be regarded as a mere change of opinion which has also not been based on any tangible material. Consequently, we hold that the reopening of the assessment is contrary to -law. The petition would have, therefore, to be allowed.” 26. Since the issue on hand being squarely covered by the various decisions of the Hon’ble Bombay High Court on the proposition of availability of exemption under section 10(38) to the insurance company as discussed supra in this order therefore the
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AO is directed to allow the claim of exemption. Therefore, this ground of appeal of the assessee is allowed. Ground No.4 : Levy of interest under section 234B & 234C 27. This ground of the assessee is consequential in nature which does not require any adjudication, hence the same stands dismissed. ITA No.3812/M/2023 for A.Y. 2017-18 (Revenue’s appeal) 28. Disallowance under Section 14A for the purpose of calculation of book profit under Section 115JB of the Act. We have adjudicated the identical issue on similar facts for the assessment year 2016-17 while adjudicating the appeal of the Revenue vide ITA No.3813/M/2023 for A.Y. 2016-17 as above in this order. Applying the findings of the same mutatis mutandis to this appeal of the Revenue, the Revenue’s appeal is dismissed. ITA No.3543/M/2023 for A.Y. 2018-19 (Assessee’s appeal) Ground No.1 : Disallowance under section 14A of the Act 29. We have adjudicated the identical issue on similar facts for the assessment year 2016-17 while adjudicating the ground No.1 in the case of the assessee vide ITA No.3551/M/2023 for A.Y. 2016- 17 as above in this order. Applying the findings of the same mutatis mutandis to this ground of appeal of the assessee, this ground No.1 is allowed. Ground No.2 : Disallowance of provision for insurance claim 30. We have adjudicated the identical issue on similar facts for the assessment year 2016-17 while adjudicating the ground No.2 in the case of the assessee vide ITA No.3551/M/2023 for A.Y. 2016- 17 as above in this order. Applying the findings of the same mutatis mutandis to this ground of appeal of the assessee, this ground No.2 is allowed.
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Ground No.3 : Claim of exemption under section 10(38) 31. We have adjudicated the identical issue on similar facts for the assessment year 2017-18 while adjudicating the ground No.3 in the case of the assessee vide ITA No.3544/M/2023 for A.Y. 2017- 18 as above in this order. Applying the findings of the same mutatis mutandis to this ground of appeal of the assessee, this ground No.1 is allowed.
Ground No.4 : Levy of interest under section 234B & 234C of the Act 32. This ground of the assessee is consequential in nature which does not require any adjudication, hence the same is dismissed.
ITA No.3542/M/2023 for A.Y. 2020-21 (Assessee’s appeal) Ground No.1 : Disallowance u/s.14A 33. We have adjudicated the identical issue on similar facts for the assessment year 2016-17 while adjudicating the ground No.1 in the case of the assessee vide ITA No.3551/M/2023 for A.Y. 2016- 17 as above in this order. Applying the findings of the same mutatis mutandis to this ground of appeal of the assessee, this ground No.1 is allowed. Ground No.2 : Disallowance of provision for insurance claim 34. We have adjudicated the identical issue on similar facts for the assessment year 2016-17 while adjudicating the ground No.2 in the case of the assessee vide ITA No.3551/M/2023 for A.Y. 2016- 17 as above in this order. Applying the findings of the same mutatis mutandis to this ground of appeal of the assessee, this ground No.2 is allowed.
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Ground No.3 : Disallowance u/s 40(a)(ii) 35. This ground of the assessee is consequential in nature which does not require any adjudication, hence the same stands dismissed.
Ground No.4 : Levy of interest under section 234A of the Act 36. This ground of the assessee is consequential in nature which does not require any adjudication, hence the same stands dismissed.
Ground No.5 : assessment order is time barred by limitation 37. This ground of appeal is not pressed, therefore the same stands dismissed.
In the result, all the appeals of the assessee are partly allowed and the Revenue’s appeals are dismissed.
Order pronounced in the open court on 27.02.2024.
Sd/- Sd/- (MS. KAVITHA RAJAGOPAL) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 27.02.2024. * Rohit, P.S. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench //True Copy//
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.