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Income Tax Appellate Tribunal, “B” Bench, Mumbai
O R D E R Per B.R. Baskaran, AM :-
These cross appeals relate to the assessment year 2005-06 and are directed against the order dated 22.01.2009 passed by Ld CIT(A)-21, Mumbai.
The assessee herein is a public sector undertaking engaged in the business of general insurance. The income of the assessee is computed as per the 2 The New India Assurance Co. Ltd.
provisions of sec. 44 of the Act read with Rule 5 of First schedule of the Income tax Act.
The first issue relates to the taxability of profits arising on sale of investment. It was brought to our notice that the co-ordinate bench of Tribunal has considered an identical issue in the assessee’s own case relating to AY 2004- 05 and 2006-07 in and ITA No.3180/Mum/2009 in its order dated 27-02-2015. The Tribunal considered the amendments brought in Rule 5 by Finance Act, 1988 w.e.f. 1.4.1989 and also subsequent amendment brought w.e.f. 1.4.2011 by Finance Act 2009. The Tribunal noticed that the Finance Act 1988 omitted the provision relating to exemption of the profits earned on sale of investments by general insurance companies and the same was brought to tax again w.e.f. 1.4.2011. Accordingly the Tribunal held that the gain on sale of investments cannot be assessed to tax in AY 2004-05. Since the facts prevailing in the year under consideration are identical, by following the order passed by the Tribunal for AY 2004-05, we hold that the profit on sale of investment cannot be taxed. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition.
The next issue urged by the assessee relates to the disallowance computed u/s 14A of the Act. It was brought to our notice that the co-ordinate bench of Tribunal has considered an identical issue in the assessee’s own case relating to AY 2004-05 and 2006-07 in and ITA No.3180/Mum/2009 (supra) and held that no disallowance u/s 14A can be made in the hands of the assessee, since it is covered by the special provision of computation of income u/s 44 of the Act. Consistent with the view taken in the above said years, we also hold that no disallowance u/s 14A can be made in this year also. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete this addition.
3 The New India Assurance Co. Ltd.
The next issue contested by the assessee relates to the amortisation of premium paid on purchase of investments. The co-ordinate bench of Tribunal has considered an identical issue in the assessee’s own case relating to AY 2004- 05 and 2006-07 in and ITA No.3180/Mum/2009 (supra) and has decided the same in favour of the assessee by following the decision rendered by the co-ordinate bench of Tribunal in the case of Tata AIG General Insurance Company Ltd (ITA No.2597/Mum/2009 dated 22.10.2010). Following the said order, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition.
The next issue relates to the addition made u/s 69B of the Act. The AO noticed that the actual value of shares held by the Custodian of the Assessee has exceeded the book value by Rs.5.20 lakhs. Hence the AO assessed the same u/s 69B of the Act and Ld CIT(A) also confirmed the same. The explanation of the assessee was that it had sold the shares, but the buyer has failed to take delivery of the same and hence the difference between the book quantity and the physical quantity has arisen. The same was not acceptable to both the tax authorities. The Tribunal has considered an identical issue in AY 2006-07 and held that the provisions of sec. 69B shall not apply to such kind of situations. Following the same, we set aside the order of Ld CIT(A) passed on this issue and direct the AO to delete this addition.
The next issue relates to the rejection of claim for deduction of Rs.5.67 crores u/s 35DDA of the Act. Since the F.Y 2002-03, the assessee was making provision for payment of ex-gratia. However, in the books of account, the said provision was reversed on the first day of next year and a fresh provision was made again on the last date of the year. The assessee provided for a sum of Rs.5.95 crores as on 31.3.2003 and the same was reversed on 1.4.2003. In the 4 The New India Assurance Co. Ltd.
income tax proceedings relating to AY 2003-04, the assessee has disallowed the provision of Rs.5.95 crores. Thus, for income tax purposes, the claim of Rs.5.95 crores was not made in AY 2003-04.
As stated earlier, in the succeeding AY, i.e., AY 2004-05, the assessee reversed the provision of Rs.5.95 crores on 1.4.2003 and created a fresh provision of Rs.5.67 crores on 31.3.2004.
In the year relevant to AY 2005-06, the assessee reversed the provision of Rs.5.67 crores on 1.4.2004. However, it forgot to make fresh provision on 31.3.2005 in its books of account. Hence the assessee claimed deduction of Rs.5.67 crores while computing total income and the same was rejected by the tax authorities. In effect, the claim of the assessee is that the provision reversal made on 1.4.2004 should be excluded while computing the total income.
We heard the parties on this issue. The assessee has furnished the copies of income tax computation filed for AY 2003-04 and also the assessment order passed for that year. A perusal of the same shows that the assessee has itself disallowed the provision of Rs.5.95 crores while computing the total income. Thus, it is seen that the assessee has not claimed the provision made for Ex-gratia payment in AY 2003-04. However, the assessee has not furnished the details of assessment pertaining to AY 2004-05.
The contention of the assessee is that the provision created on 31.3.2004 has been reversed on 1.4.2004, but corresponding provision at the year end was not made. The assessee has sought to claim deduction of the same in the computation of income.
Since the assessee has failed to furnish the details of computation of income pertaining to AY 2004-05 and 2005-06, we are unable to decide this 5 The New India Assurance Co. Ltd.
issue. However, we have noticed that the assessee itself has disallowed the provision amount of Rs.5.94 crores in AY 2003-04, meaning thereby, the assessee has intended to omit the entries passed in this regard. Accordingly, the assessee must have excluded the amount of Rs.5.94 crores credited to Profit and Loss account and also disallowed the provision of Rs.5.67 crores made on 31.3.2004, while computing the income for AY 2004-05. If the assessee has so disallowed the provision of Rs.5.67 crores made on 31.3.2004, then the reversal of the above said amount made on 1.4.2004 should not be taxed in AY 2005-06. However, this fact requires verification. Upon verification, if it is found that the provision of Rs.5.67 crores reversed on 1.4.2004 was not excluded while computing the income for AY 2005-06, then we direct the AO to exclude the same. Since all these facts require verification, we set the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine this issue in the light of discussions made supra.
The next issue contested by the assessee relates to the computation of Book profit u/s 115JB of the Act. The co-ordinate bench of Tribunal has considered an identical issue in the assessee’s own case relating to AY 2004-05 and 2006-07 in and ITA No.3180/Mum/2009 and has held that the provisions of sec. 115JB shall not be applicable to the assessee. Following the same, we also hold so and accordingly set aside the orders passed by the tax authorities on this issue.
The next issue urged by the assessee relates to the non-granting of credit for foreign taxes paid by it. The Ld A.R placed reliance on the decision rendered by Hon’ble Bombay High Court reported in 351 ITR 295 and submitted that the year of payment of foreign tax is irrelevant. He further submitted that the income offered by the assessee and the relevant TDS is matching. Accordingly,
6 The New India Assurance Co. Ltd. by placing reliance on sec. 91 of the Act, he submitted that the AO should be directed to give credit for TDS.
We heard Ld D.R on this issue and perused the record. A careful perusal of the provisions of sec. 91 would show that the said section does not provide that the tax should have been paid in the foreign country only in the year the credit was claimed. Further, the income tax is computed on the total income and hence there is merit in the contentions of the assessee that the credit should be given in the year in which the concerned income is offered to tax in India. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to match the tax paid in the foreign country with the income offered by the assessee and accordingly give credit of the same in accordance with the provisions of the Act.
The assessee has also raised grounds relating to rejection of claim u/s 10(23G) of the Act and sec. 35DDA of the Act in ground no.7. However, no argument was advanced in respect of the above said issues. Accordingly, we do not adjudicate them.
Now we shall take up the appeal filed by the revenue. It was submitted that the Ground No.3, 4, 8 and 10 was not given approval by the Committee on Disputes (COD) when the revenue filed application with them seeking approval as per the decision rendered by the Hon’ble Supreme Court in the case of ONGC Vs. Collector of Central Excise (Supplment 2) SCC 432. Accordingly, these grounds are dismissed.
The ground no.1 and 2 relate to the profit on sale of investments. Since we have held that the profit on sale of investments is not taxable in the hands of 7 The New India Assurance Co. Ltd.
the assessee in its entirety while adjudicating the grounds of the assessee, these two grounds urged by the revenue becomes infructuous.
Ground No.5 relates to the addition of Rs.44.66 lakhs relating to interest charged u/s 234C of the Act. Ld A.R fairly admitted that this issue is decided against the assessee in the earlier years. Accordingly we confirm the order passed by Ld CIT(A) on this issue.
Ground no.6 relates to the claim relating to reversal of Provision for impairment loss on investments. Since the gain on sale of investments has been held to be not taxable, the corrolary is that the loss or the provision made for loss shall also not be deductible. Similar view has been taken in the assessee’s own case in dated 20-02-2015, wherein the decision rendered in ITA No.3846/Mum/2008 dated 29.7.2011 was followed. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition.
Ground No.7 relates to the disallowance of exgratia payment of Rs.6,98,075/-. The AO disallowed this amount on the reasoning that the assessee has not furnished evidences relating to the same and further the same is not required to be allowed under Rule 5. Before Ld CIT(A), the assessee took the plea that the provisions of sec. 43B shall govern this claim and accordingly he restored this matter to the file of the AO. We have noticed that this issue has already been restored to the file of the AO by Ld CIT(A) to examine the claim for deduction u/s 43B of the Act, i.e., the original reasons for making this disallowance appears to have been accepted by the assessee, since it has not raised any ground thereon. Hence, we do not find any infirmity in his order.
8 The New India Assurance Co. Ltd.
Ground No.9 relates to the deduction allowed by Ld CIT(A) while computing book profit u/s 115JB of the Act. Since we have held that the provisions of sec. 115JB shall not be applicable to the assessee, this ground shall become infructuous.
In the result, both the appeals of the assessee and revenue are treated as partly allowed. Order has been pronounced in the Open Court on 25.5.2016.