THE NEW INDIA ASSURANCE COMPANY LTD., MUMBAI v. DY.CIT.CIR.-1(1)OSD, MUMBAI

ITA 3397/MUM/2011 | 2004-2005
Pronouncement Date: 29-03-2012 | Result: Allowed

Appeal Details

RSA Number 339719914 RSA 2011
Assessee PAN AAACN4165C
Bench Mumbai
Appeal Number ITA 3397/MUM/2011
Duration Of Justice 11 month(s) 1 day(s)
Appellant THE NEW INDIA ASSURANCE COMPANY LTD., MUMBAI
Respondent DY.CIT.CIR.-1(1)OSD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-03-2012
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 29-03-2012
Assessment Year 2004-2005
Appeal Filed On 28-04-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI BEFORE HONBLE PRESIDENT SHRI G.E.VEERABHADRAPPA AND SHRI D.K.AGARWAL (JM) ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) THE NEW INDIA ASSURANCE COMPANY LIMITED CENTRAL ACCOUNTS TAXATION DEPARTMENT THE NEW INDIA ASSURANCE CO.LTD NEW INDIA ASSURANCE BUILDING 87 MAHATMA GANDHI R OAD FORT MUMBAI-400001 PAN:AAACN4165C DY. COMMISSIONER OF INCOME TAX CIRCLE-1(1) OSD AAYAKAR BHAVAN M K ROAD MUMBAI-400020. APPELLANT V/S RESPONDENT APPELLANT BY : S/SHRI FARROKH V.IRANI RESPONDENT BY : SMT.KUSUM INGLE ORDER PER D.K.AGARWAL (JM) ALL THESE FOUR APPEALS PREFERRED BY THE ASSESSEE A RE DIRECTED AGAINST THE SEPARATE ORDERS DATED 22.3.201 1 PASSED BY THE LD.CIT(A) FOR THE ASSESSMENT YEARS 2000-01 T O 2003-04. SINCE FACTS ARE IDENTICAL AND ISSUES INVOLVED ARE COMMON ALL DATE OF HEARING : 23.2.2012 DATE OF PRONOUNCEMENT : 3.2012 ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 2 THESE FOUR APPEALS ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVEYANCE. 2. BRIEFLY STATED FACTS OF THE CASE EXTRACTED FR OM ITA NO.3397/MUM/2011(AY-2000-01) ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF GENERAL INS URANCE AND INVESTMENT. THE RETURN OF INCOME DECLARING TOTAL IN COME AT RS.3 43 13 72 540/- WAS FILED. HOWEVER THE ASSE SSMENT WAS COMPLETED AT AN INCOME OF RS.4 87 50 76 330/- INCL UDING DISALLOWANCE OF RS.7 76 85 000/- U/S 14A VIDE ORD ER DATED 31.1.2003 PASSED U/S 143(3) OF THE INCOME TAX ACT 1961 (THE ACT). ON APPEAL THE LD. CIT(A) CONFIRMED THE DI SALLOWANCE MADE BY THE AO. ON FURTHER APPEAL BEFORE THE TRIBU NAL THE TRIBUNAL VIDE ORDER DATED 26.8.2008 HAS SET ASIDE T HE ISSUE WITH REGARD TO THE DISALLOWANCE U/S 14A FOR RE-EXA MINATION WITH THE FOLLOWING REMARKS : I) THE EFFECT OF SECTION 14A IS TO BE GIVEN WHILE COMPUTING THE INSURANCE BUSINESS INCOME II) COMPUTATION OF DISALLOWANCE IS TO BE DONE IN VI EW OF DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. ACCORDINGLY THE ASSESSEE WAS PROVIDED AFRESH OPPO RTUNITY OF BEING HEARD BY THE AO AS TO WHY THE PROVISIONS OF SECTION 14A READ WITH RULE 8D BE NOT APPLIED AND FURNISH THE CO MPUTATION ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 3 OF THE SAME IN VIEW OF THE HUGE INVESTMENT HELD WH ICH RESULTED IN BOTH EXEMPT AND NOT EXEMPT INCOME. IN RESPONSE THE ASSESSEE VIDE LETTER DATED 18.8.2009 HAS FURNIS HED ITS EXPLANATION. HOWEVER THE AO AFTER CONSIDERING TH E ASSESSEES EXPLANATION AS PER WORKING APPEARING AT PAGE 2 AND 3 OF THE IMPUGNED ASSESSMENT ORDER MADE DISALLOWANCE U/S 14A AMOUNTING TO RS.8.08 CRORES AS AGAINST ORIGINAL DI SALLOWANCE U/S 14A RS.7 76 85 000/- AND ACCORDINGLY PASSED TH E ORDER AT A TOTAL INCOME OF RS.4 26 94 86 330/- VIDE ORDER DATED 28.10.2009 PASSED U/S 143(3) R.W.S. 254 OF THE AC T. 3. ON APPEAL BEFORE THE LD. CIT(A) THE LD. CIT(A) OBSERVED THAT SINCE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INSURANCE IT IS NOT ENTITLED TO ANY EXEMPTION U/S 10 OF THE INCOME TAX ACT. CONSEQUENTLY IF INCOME IS NOT EX EMPT U/S 10 AT ALL THERE IS NO SCOPE OF MAKING ANY DISALLOWAN CE U/S 14A OF THE ACT. ACCORDINGLY THE LD.CIT(A) ISSUED SHOW C AUSE NOTICE FOR ENHANCEMENT PROPOSING TO DISALLOW THE CLAIM O F EXEMPTION U/S 10 AS BEING NOT APPLICABLE TO AN ASSESSEE ENGAG ED IN THE BUSINESS OF INSURANCE. IN RESPONSE THE ASSESSEE FILED A DETAILED REPLY INTERALIA STATING THAT THE REPLY GIV EN IN THE PROCEEDINGS OF APPEAL FOR THE ASSESSMENT YEAR 2007- 08 MAY BE CONSIDERED IN THE PROCEEDINGS FOR THE CURRENT ASS ESSMENT YEAR ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 4 AS WELL. THE. LD. CIT(A) AFTER CONSIDERING THE SA ME HELD THAT THE ASSESSEE IS NOT ENTITLED TO EXEMPTION U/S 10 OF THE ACT. CONSEQUENTLY THE LD. CIT(A) HAS NOT ALLOWED THE FOLLOWING RE-DEDUCTIONS CLAIMED IN COMPUTATION OF INCOME. 1. INTEREST ON TAX FREE SECURITIES AND SPECIAL DEPOSIT WITH GOVERNMENT OF INDIA UNDER SPECIAL DEPOSIT SCHEME EXEMPT U/S 10(15) RS.64 06 28 514/- 2. GROSS DIVIDEND EXEMPT U/S 10(33) RS.91 31 45 412/- TOTAL RS.155 37 73 926/- THEREFORE THE LD. CIT(A) ENHANCED THE INCOME OF TH E ASSESSEE TO THE ABOVE EXTENT OF RS.1 55 37 73 926/-. 4. WITH REGARD TO THE DISALLOWANCE U/S 14A THE LD. CIT(A) AFTER CONSIDERING THE ISSUE IN DETAIL HELD (PARA 9 .4): BOTH THE WISDOM THAT OF THE JUDICIARY AS PRONOUNC ED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE AND THAT OF THE LEGISLATURE AS CONTAINED IN RULE 8D CONVEY THAT IN THE PRESENT SCENARIO THE BEST WI SDOM IS TO APPLY PRINCIPLES CONTAINED IN RULE 8D FOR DET ERMINING DISALLOWANCE U/S. 14A SUBJECT OF COURSE TO SECTION I4A(1) OF THE I.T. AC THEREFORE I HOLD THAT THE DISALLOWA NCE TO BE MADE U/S. 14A FOR EXPENSE INCURRED IN RELATION T O INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME-TAX ACT HAS TO BE THE BASIS OF PRINCIPLES AS SPELT OUT IN THE RULES AS CONTAINED I N THE NOTIFICATION DATED 24TH MARCH 2008. AND ACCORDINGLY UPHELD THE VIEWS OF THE AO. ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 5 5. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 6. GROUNDS NOS.1.1 TO 1.3 TAKEN BY THE ASSESSEE REA D AS UNDER : 1.1 THE CIT(APPEALS) ERRED AND CITED ILLEGALLY AN D WITHOUT JURISDICTION IN DISALLOWING THE APPELLANT T HE BENEFIT OF THE EXEMPTION PROVISIONS OF SECTION 10 O F THE INCOME TAX ACT 1961 (THE ACT). 1.2 THE CIT(APPEALS) HAD NO JURISDICTION TO GO BEY OND THE ORDER OF THE HONBLE TRIBUNAL (THE ITAT) PURS UANT TO WHICH THE ORDER UNDER APPEAL BEFORE THE CIT(A) WAS PASSED. 1.3 THE CIT(APPEALS) IN ANY EVENT ERRED ON THE M ERITS IN HOLDING THAT THE EXEMPTION PROVISIONS IN SECTION 10 OF THE ACT DID NOT APPLY TO THE APPELLANT. 7. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ORDER PASSED BY THE LD.CIT(A) IS I LLEGAL AND WITHOUT JURISDICTION IN DISALLOWING THE ASSESSEES CLAIM OF BENEFIT OF EXEMPTION U/S 10 OF THE ACT. HE FURTH ER SUBMITS THAT THE LD. CIT(A) HAD NO JURISDICTION TO GO BEYO ND THE ORDER OF THE TRIBUNAL PURSUANT TO WHICH THE ORDER UNDER APPEAL BEFORE THE LD. CIT(A) WAS PASSED. HE FURTHER SUBM ITS THAT EVEN ON MERITS THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE RECENT DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 6 IN THE CASE OF GENERAL INSURANCE CORPORATION OF IN DIA V/S DCIT IN WRIT PETITION (L) NO.2560 OF 2011 DATED 1. 12.2011. 8. ON THE OTHER HAND THE LD.DR WHILE RELYING ON T HE ORDER OF THE LD. CIT(A) ALSO FILED WRITTEN SUBMISSIONS R UNNING INTO 16 PAGES WHEREIN SHE HAS CONCLUDED HER ARGUMENT AT P AGE 16 OF THE WRITTEN SUBMISSIONS AS UNDER : (XVI) TO CONCLUDE THE EXEMPTION CONTAINED IN SE CTION 10 OF THE ACT IS NOT AVAILABLE TO ASSESSEE ENGAGED IN BUSINESS OF INSURANCE BE IT LIFE INSURANCE OR NON-LIFE INS URANCE. THIS IS SO BECAUSE OF THE SPECIFIC PROVISIONS CONTAINED IN SECTION 44 READ WITH SCHEDULE I FOR ASSESSMENT OF INCOME OF ASSESSEE ENGAGED IN THE BUSINESS OF INSURANCE WHICH HAS AN OVERRIDING EFFECT ON THE OTHER PROVISIONS. CONSEQUENTLY ONCE INCOME IS COMPUTED UNDER SCHEDULE I IT CANNOT BE REDUCED FURTHER BY THE ITEMS WHICH ARE OTHERWISE EXEMPT UNDER SECTION 10 OF THE ACT. THE RELIANCE WAS ALSO PLACED IN (A) GENERAL INSURAN CE CORPORATION OF INDIA V/S CIT (1999) 240 ITR 139 (S C) (B) CIT V/S HERO CYCLES PVT. LTD. AND OTHERS (1997) 228 IT R 463(SC) AND (C) ORIENTAL INSURANCE CO.LTD. V/S ACIT (2010) 130 TTJ (DEL) 388. 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D INCLUDING THE WRITTEN SUBMISSIONS FILED BY BOTH THE PARTIES. WE FIND THAT THE TRIBUNAL IN THE CASE OF THE ASSESSEE IN NEW I NDIA ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 7 ASSURANCE CO.LTD. V/S ACIT IN ITA NO.4479/MUM/200 4 (AY- 2000-01) VIDE PARAGRAPH 8.2 ORDER DATED 26.8.2008 HAS SET ASIDE THE ISSUE BY HOLDING AS UNDER : 8.2 ..... THUS WE ARE OF THE VIEW THAT SECTION 14 A OVERRIDES THE SECTION 44 AND EFFECT OF SECTION 14A IS REQUIRE D TO BE GIVEN EVEN THOUGH THE INCOME OF INSURANCE BUSINESS COMPUT ED U/S 44 OF THE ACT. THUS IN PRINCIPLE WE AGREE WITH THE REVENUE AUTHORITIES THAT EFFECT OF SECTION 14A IS TO BE GIV EN WHILE COMPUTING THE INSURANCE BUSINESS INCOME. HOWEVER FOR COMPUTATION OF DISALLOWANCE WE LEARNT THAT THIS PAR T OF THE ISSUE IS BEFORE THE SPECIAL BENCH IN THE CASE OF D AGA CAPITAL MANAGEMENT PVT.LTD. IN ITA NO.8057/ MUM/2008 FOR ASSESSMENT YEAR 2001-02 THE ORDER OF WHICH IS AWA ITED. IN THE LIGHT OF THE ABOVE FACT WE SEND THIS MATTER B ACK TO THE FILE OF THE AO WITH A DIRECTION TO COMPUTE THE DISA LLOWANCE OF AMOUNT U/S 14A IN ACCORDANCE WITH THE DECISION OF I TAT SPECIAL BENCH SUPRA AND AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE FURTHER FIND THAT PURSUANT TO THE DIRECTION OF THE TRIBUNAL THE AO HAS CONSIDERED THE MATTER AND MADE DISALLOW ANCE AMOUNTING TO RS.8.08 CRORES. WE FURTHER FIND THAT THE LD. CIT(A) WHILE HEARING THE APPEAL HAS RAISED THE NEW ISSUE THAT THE ASSESSEE IS NOT ENTITLED TO THE EXEMPTION U/S 1 0 OF THE ACT. HE ACCORDINGLY ISSUED A NOTICE FOR ENHANCEMENT PROPOSING TO DISALLOW THE CLAIM OF EXEMPTION U/S 10 OF THE ACT AND AFTER HEARING THE ASSESSEE HE ENHANCED THE INCOME OF T HE ASSESSEE TO THE EXTENT OF RS. 1 55 37 73 926/-. 10. FROM THE READING OF THE ABOVE DIRECTIONS OF TH E TRIBUNAL AND THE ASSESSMENT ORDER WE FIND THAT THERE IS NO DISPUTE THAT ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 8 THE ISSUE RAISED BY THE LD. CIT(A) FOR DISALLOWING THE CLAIM OF EXEMPTION U/S 10 IS A NEW ISSUE WHICH NEITHER EMANA TES FROM THE ASSESSMENT ORDER NOR FROM THE ORDER OF THE TRIB UNAL THEREFORE THE LD. CIT(A) HAS NOT ONLY CROSSED HI S JURISDICTION BUT HAS ALSO PASSED THE ORDER AGAINST THE PROVISION S OF SECTION 251 OF THE ACT AS HE CANNOT GO BEYOND THE DIRECTI ON OF THE TRIBUNAL TO FIND OUT A NEW ISSUE I.E. NEW SOURCE O F INCOME WHICH HAD NOT BEEN CONSIDERED BY THE AO AT ALL. 11. THE ABOVE VIEW ALSO FINDS SUPPORT FROM THE JUD GMENT OF THE HONBLE DELHI HIGH COURT IN CIT V/S SARDARI L AL AND CO. (2001) 251 ITR 864(DEL) (FB) WHEREIN IT HAS BEEN HELD (PAGE 871): LOOKING FROM THE AFORESAID ANGLES THE INEVITABLE CONCLUSION IS THAT WHENEVER THE QUESTION OF TAXABILITY OF INCOME FROM A NEW SOURCE OF INCOME IS CONCERNED WHICH HAD NOT BEEN CONSIDERED BY THE ASSESSING OFFICER THE JURISDICTION TO DEAL WITH THE SAME IN APPROPRIATE CASES MAY BE DEALT WITH UNDER SECTI ON 147/148 OF THE ACT AND SECTION 263 OF THE ACT IF REQUISIT E CONDITIONS ARE FULFILLED. IT IS INCONCEIVABLE THAT IN THE PRES ENCE OF SUCH SPECIFIC PROVISIONS A SIMILAR POWER IS AVAILABLE T O THE FIRST APPELLATE AUTHORITY. THAT BEING THE POSITION THE DECISION IN UNION TYRES CASE [1999] 240 ITR 556 OF THIS COURT EXPRESSES THE CORRECT VIEW AND DOES NOT NEED RECONSIDERATION ... 12. THE ABOVE VIEW ALSO FINDS SUPPORT FROM THE REC ENT JUDGMENT OF THE HONBLE DELHI HIGH COURT IN GADODIA ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 9 ELECTRONICS P.LTD V/S CIT (2012) 341 ITR 380 (DELHI ) WHEREIN IT HAS BEEN HELD (PAGE 384): WE HAVE REPRODUCED AND PERUSED THE OPERATIVE PORTI ON OF THE ORDER DATED FEBRUARY 24 2006 PASSED BY THE TRIBUN AL I.E. PARAGRAPH 3.2. ON READING OF THE SAID OPERATIVE PO RTION IT IS APPARENT THAT THE QUESTION OF BIFURCATION AND APPOR TIONMENT OF THE SALE CONSIDERATION OF RS.17.5 LAKHS BETWEEN TH E LAND AND FACTORY BUILDING WAS REFERRED BACK. TO THIS EXTENT THE REPORT OF THE DEPARTMENTAL VALUATION OFFICER WAS REQUIRED. TH E DEPARTMENTAL VALUATION OFFICER AND THE ASSESSING OF FICER WAS NOT REQUIRED AND PERMITTED BY THE SAID ORDER TO GO INTO THE QUESTION AND EXAMINE THE TOTAL SALE CONSIDERATION A S THE APPELLANT IN THE PRESENT CASE HAD APPLIED UNDER CHA PTER XX-C AND THE APPROPRIATE AUTHORITY HAD ACCEPTED THE SALE CONSIDERATION MENTIONED BY THE APPELLANT. THE SALE CONSIDERATION AND THE QUANTUM THEREOF WAS NEVER IN QUESTION OR DOUBT. THIS WAS NOT THE ASPECT WHICH WAS TO BE R E- EXAMINED. THUS THE ENHANCEMENT MADE BY THE ASSESSI NG OFFICER BY INCREASING THE SALE CONSIDERATION FROM R S.17.5 LAKHS TO RS. 21 42 502/- WAS NOT JUSTIFIED AND AS PER LAW . 13. THUS IT IS CLEAR THAT WHEN THE TRIBUNAL HAS SET ASIDE THE ASSESSMENT AND REMAND THE CASE FOR MAKING A FRE SH ASSESSMENT THE POWER OF THE AO IS CONFINED TO THE SUBJECT MATTER OF APPEAL BEFORE THE TRIBUNAL. HE CANNOT TAKE UP THE QUESTIONS WHICH WERE NOT THE SUBJECT MATTER OF TH E APPEAL BEFORE THE TRIBUNAL. LIKE WISE THE LD. CIT(A) HAS ALSO NO POWER TO ENHANCE THE ASSESSMENT BY DISCOVERY OF A NEW SOURCE OF INCOME NOT CONSIDERED BY THE AO IN THE O RDER APPEALED AGAINST. IN THIS VIEW OF THE MATTER WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN ENH ANCING THE ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 10 INCOME BY DISCOVERING A NEW SOURCE OF INCOME NOT CONSIDERED BY THE AO. 14. IN GENERAL INSURANCE CORPORATION OF INDIA (SUPR A) RELIED ON BY THE LD. DR IT HAS BEEN OBSERVED AND HELD (P AGE 139 TO 141): SECTION 44 OF THE INCOME-TAX ACT 1961 IS A SPECI AL 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 C OMPUTE THE TAXABLE INCOME FOR BUSINESS OF INSURANCE IN ACCORDA NCE WITH THE PROVISIONS OF THE FIRST SCHEDULE. A PLAIN READI NG OF RULE 5(A) OF THE FIRST SCHEDULE MAKES IT CLEAR THAT IN O RDER TO ATTRACT THE APPLICABILITY OF THE SAID PROVISION THE AMOUNT SHOULD FIRSTLY BE AN EXPENDITURE OR ALLOWANCE. SECO NDLY IT SHOULD BE ONE NOT ADMISSIBLE UNDER THE PROVISIONS O F SECTIONS 30 TO 43A. IF THE AMOUNT IS NOT AN EXPENDITURE OR A LLOWANCE THE QUESTION OF TESTING ITS ELIGIBILITY FOR ADJUSTM ENT BY REFERENCE TO RULE 5(A) OF THE FIRST SCHEDULE WOULD NOT ARISE AT ALL. 'SPENDING' IN THE SENSE OF 'PAYING OUT OR AWAY' OF MONEY IS THE PRIMARY MEANING OF 'EXPENDITURE'. 'EXPENDITURE' IS WHAT IS PAID OUT OR AWAY AND IS SOMETHING WHICH IS GONE IRR ETRIEVABLY. RULE 2(2)(A) OF THE GENERAL INSURANCE BUSINESS (NATIONALISATION) RULES 1973 UNDOUBTEDLY SPEAKS OF THE AMOUNT SET APART FOR REDEMPTION OF PREFERENCE SHARE S BEING TREATED AS AN ITEM OF EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. HOWEVER THE PURPOSE AND EXTENT OF THE PRO VISION HAS TO BE KEPT IN VIEW. THE OBJECT OF RULE 2(2)(A) IS T O REDUCE THE AMOUNT OF PROFIT OF THE CORPORATION BY THE AMOUNT S ET APART AS RESERVE BY ARTIFICIALLY TREATING THE AMOUNT OF RESE RVE AS AN ITEM IN THE EXPENDITURE COLUMN. THIS RULE ITSELF IS SUGGESTIVE OF THE FACT THAT THE AMOUNT SET APART IN A RESERVE IS NOT AN EXPENDITURE IN ITS COMMERCIAL SENSE. THE EXTENT OF THE GENERAL INSURANCE BUSINESS (NATIONALISATION) RULES DOES NOT GO BEYOND PROVIDING AN ACCOUNTING METHOD. THESE RULES CANNOT BE PRESSED INTO SERVICE FOR ALTERING THE BASIC CHARACT ER OF THE AMOUNT WHICH IS NOT AN EXPENDITURE. MERELY BECAUSE RULE 2(2)(A) OF THE GENERAL INSURANCE BUSINESS (NATIONAL ISATION) RULES PERMITS THE AMOUNT SET APART FOR REDEMPTION O F PREFERENCE SHARES TO BE DEBITED TO THE PROFIT AND L OSS ACCOUNT THE AMOUNT SO SET APART DOES NOT BECOME AN AMOUNT O F ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 11 EXPENDITURE FOR ALL INTENTS AND PURPOSES SO AS TO FALL WITHIN THE MEANING OF THE TERM 'EXPENDITURE' AS EMPLOYED I N RULE 5(A) OF THE FIRST SCHEDULE TO THE INCOME-TAX ACT 1 961. IT IS TO BE NOTED THAT SECTION 44 DOES NOT SAY-'NOTWITHSTAND ING ANYTHING TO THE CONTRARY CONTAINED IN THE PROVISION S OF THIS ACT OR ANY OTHER LAW FOR THE TIME BEING IN FORCE'. NOR DOES RULE 2(2)(A) OF THE GENERAL INSURANCE BUSINESS (NATIONAL ISATION) RULES HAVE AN OVERRIDING EFFECT ON THE PROVISIONS O F THE INCOME-TAX ACT. THE TWO PROVISIONS CONTAINED IN THE TWO ENACTMENTS HAVE THUS DIFFERENT PURPOSES TO ACHIEVE. THE RULE OF HARMONIOUS CONSTRUCTION HAS TO BE APPLIED. THERE IS ANOTHER APPROACH TO THE SAME ISSUE. SECTIO N 44 OF THE INCOME-TAX ACT READ 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 TH E PURPOSE OF INCOME-TAX THE FIGURES IN THE ACCOUNTS OF THE ASSE SSEE DRAWN UP IN ACCORDANCE WITH THE PROVISIONS OF THE FIRST S CHEDULE TO THE INCOME-TAX ACT AND SATISFYING THE REQUIREMENTS OF THE INSURANCE ACT ARE BINDING ON THE ASSESSING OFFICER UNDER THE INCOME-TAX ACT AND HE HAS NO GENERAL POWER TO CORRE CT THE ERRORS IN THE ACCOUNTS OF AN INSURANCE BUSINESS AND UNDO THE ENTRIES MADE THEREIN. THE AMOUNT SET APART BY THE GENERAL INSURANCE CORPO RATION FOR REDEMPTION OF PREFERENCE SHARES AND TREATED AS EXPENDITURE UNDER RULE 2(2)(A) OF THE GENERAL INSUR ANCE BUSINESS (NATIONALISATION) RULES IS SO TREATED FOR THE PURPOSE OF THE INSURANCE ACT 1938. THE RESERVE IS NOT AN E XPENDITURE IN THE ORDINARY COMMERCIAL SENSE OF THE TERM. IT CA NNOT BE ADDED BACK FOR COMPUTING THE PROFITS AND GAINS OF B USINESS BY INCLUDING IT IN 'EXPENDITURE NOT ADMISSIBLE UNDER T HE PROVISIONS OF SECTIONS 30 TO 43A OF THE INCOME-TAX ACT' BY REF ERENCE TO RULE 5(A) OF THE FIRST SCHEDULE TO THE INCOME-TAX A CT. 15. IN HERO CYCLES PVT. LTD. AND OTHERS (SUPRA) REL IED ON BY THE LD.DR IT HAS BEEN HELD (HEADNOTE): HELD ALLOWING THE APPEAL THAT THERE WAS NO POINT IN SENDING THE MATTER TO THE HIGH COURT TO DEAL WITH THE QUEST ION RAISED AT THIS STAGE. THE QUESTION WOULD BE TREATED AS REF ERRED TO THE SUPREME COURT. THE DISPUTE RAISED A MIXED QUESTION OF FACT AND LAW. THE TRIBUNAL WAS IN ERROR IN UPHOLDING THE ASSESSEE'S CLAIM FOR WEIGHTED DEDUCTIONS. RECTIFICATION UNDER SECTION 154 CAN ONLY BE MADE WHEN A GLARING MISTAKE OF FACT OR LAW ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 12 COMMITTED BY THE OFFICER PASSING THE ORDER BECOMES APPARENT FROM THE RECORD. RECTIFICATION IS NOT POSSIBLE IF T HE QUESTION IS DEBATABLE. MOREOVER A POINT WHICH WAS NOT EXAMINED ON FACTS OR IN LAW CANNOT BE DEALT WITH AS A MISTAKE APPAREN T FROM THE RECORD. HELD ALSO (I) THAT IN C.A. NO. 7965 OF 1996 THE A MOUNT INVOLVED WAS RS. 10 000 ONLY AND THE CASE BEING 23 YEARS OLD THE COURT WOULD NOT CONSIDER THE QUESTION RAISED. T HE SUPREME COURT DISMISSED THE APPEAL WITHOUT EXPRESSING ANY OPINION ON THE CORRECTNESS OF THE DECISION RENDERED BY THE TRI BUNAL. (II) THAT THE CONTRIBUTION TO THE INDIAN COTTON MIL LS FEDERATION DID NOT FALL WITHIN ANY OF THE SUB-CLAUSES OF SECTI ON 35B(1)(B). THE CONTRIBUTION MIGHT BE FOR THE PROMOTION OF EXPO RT GENERALLY BUT THIS SORT OF CONTRIBUTION TO A GENER AL BODY OR CHAMBER OF COMMERCE COULD NOT QUALIFY FOR WEIGHTED DEDUCTION. (III) THAT THE PAYMENT TO THE HOSIERY EXPORTERS ASS OCIATION THE CONTRIBUTION TO HOSIERY EXPORTERS ASSOCIATION AND E XPENDITURE ON ESTABLISHMENT BONUS LEAVE WITH WAGES SALARY T O DIRECTORS POSTAGE TELEPHONE AND TELEGRAM AND PRINTING AND ST ATIONERY WERE NOT ENTITLED TO WEIGHTED DEDUCTION UNDER SECTI ON 35B. EXPENDITURE IN REGARD TO SALARY DIRECTOR'S REMUNER ATION RENT PRINTING AND STATIONERY POSTAGE AND TELEGRAMS ETC . WHICH HAD NOT BEEN PROVED TO BE WHOLLY OR EXCLUSIVELY INC URRED FOR THE PURPOSES OF ANY OF THE SUB-CLAUSES MENTIONED IN CLAUSE (B) OF SECTION 35B(1) WAS NOT ENTITLED TO WEIGHTED DEDU CTION UNDER SECTION 35B. (IV) THAT THERE WAS NOTHING IN THE CIRCULAR WHICH S UPPORTED THE CONTENTION OF THE ASSESSEE. THE CIRCULAR MERELY SAY S THAT EACH CASE HAS TO BE EXAMINED AND THE ISSUE WOULD BE BASI CALLY A FINDING OF FACT. THE ASSESSEE HAD NOT MADE ITS CLAI M BEFORE THE INCOME-TAX OFFICER BY RELYING ON THIS CIRCULAR. THE TRIBUNAL MUST EXAMINE THE QUESTION OF SECTION 35B WITH REFER ENCE TO THE VARIOUS SUB-CLAUSES OF CLAUSE (B) OF THAT SECTI ON. [MATTER IN SLP (C) NO. 10982 OF 1987 AND C.A. NO. 12419 OF 199 6 REMANDED.] (V) THAT THE TRIBUNAL HAD TO CONSIDER WHETHER PAYME NT TO THE HHEC ECGC AND STC AND IN RESPECT OF FOREIGN SALES COMMISSION AND EXPENDITURE ON ARTICLES OF PRESENTAT ION QUALIFIED FOR WEIGHTED DEDUCTION. [MATTERS IN C.A. NO. 6942 7847 3120 OF 1995 AND C.A. NOS. 7666-7667 OF 1996 AND SLP(C) NOS. 7485/86 AND 4588-89/89 REMANDED TO TRIB UNAL.] ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 13 (VI) THAT WITH REGARD TO EXPENDITURE ON MAINTENANCE OF CAR AND MOTOR CYCLE AND GENERATOR EXPENSES THE TRIBUNAL HA D TO DECIDE THE CASE AFRESH AFTER EXAMINING THE NATURE O F THE EXPENDITURE AND THE PURPOSES FOR WHICH IT WAS SPENT HAVING REGARD TO THE VARIOUS SUB-CLAUSES OF SECTION 35B(1) (B). [MATTER IN C.A. NO. 7763 OF 1995 REMANDED.] 16. IN ORIENTAL INSURANCE CO.LTD.(SUPRA) RELIED ON BY THE LD.DR IT HAS BEEN HELD (PAGE 2): SECTION 44 PROVIDES FOR APPLICATION OF SPECIAL PRO VISIONS FOR COMPUTATION OF PROFITS AND GAINS OF INSURANCE BUSI NESS IN ACCORDANCE WITH R.5 OF SCH.I AND THEREFORE IT IS NOT PERMISSIBLE TO THE AO TO TRAVEL BEYOND S.44 AND SCH.I AND MAKE DISALLOWANCE BY APPLYING S.14A. 17. ALL THE ABOVE THREE DECISIONS RELIED ON BY TH E LD. DR ARE MISPLACED BECAUSE THEY DO NOT IN ANY WAY DEAL WIT H THE ISSUE OF EXEMPTION U/S 10 OF THE ACT THEREFORE THE SA ME ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS O F THE PRESENT CASE. 18. EVEN ON MERITS AS RIGHTLY SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE RECENT DECISION OF THE HONBLE J URISDICTIONAL HIGH COURT IN GENERAL INSURANCE CORPORATION OF INDIA V/S DCIT SINCE REPORTED IN (2012) 204 TAXMAN 587 (BOM) WHEREIN IT HAS BEEN HELD (PAGES 596-597): 12THE QUESTION WHETHER AN ASSESSEE WHO CARRIES ON GENERAL INSURANCE BUSINESS WOULD BE ENTITLED TO AVA IL OF AN EXEMPTION UNDER SECTION 10 DID NOT ARISE. THE ISSUE AS TO WHETHER THE ASSESSEE WHICH CARRIES ON THE BUSINESS OF GENERAL ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 14 INSURANCE WOULD BE ENTITLED TO THE BENEFIT OF AN EX EMPTION UNDER CLAUSES (15) (23G) AND (33) OF SECTION 10 IS DIRECTLY GOVERNED BY THE DECISION RENDERED BY THE DIVISION B ENCH IN LIFE INSURANCE CORPORATION VS. COMMISSIONER OF INCO ME-TAX (SUPRA) FOLLOWING THE EARLIER DECISION IN COMMISSIO NER OF INCOME-TAX VS. NEW INDIA ASSURANCE CO. LTD. (SUPRA) . THE ASSESSING OFFICER COULD NOT HAVE IGNORED THE BINDIN G PRECEDENT CONTAINED IN THE TWO DIVISION BENCH DECISIONS OF TH IS COURT. MOREOVER THE ASSESSING OFFICER IN ALLOWING THE BEN EFIT OF THE EXEMPTION IN THE ORDER OF ASSESSMENT UNDER SECTION 143(3) SPECIFICALLY RELIED UPON THE VIEW TAKEN BY THE CBDT IN ITS COMMUNICATION DATED 21 FEBRUARY 2006 TO THE CHAIRMA N OF IRDA. THE COMMUNICATION CLARIFIES THAT THE EXEMPTIO N AVAILABLE TO ANY OTHER ASSESSEE UNDER ANY CLAUSES O F SECTION 10 IS ALSO AVAILABLE TO A PERSON CARRYING ON NON-LI FE INSURANCE BUSINESS SUBJECT TO THE FULFILMENT OF THE CONDITION S 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 R ELEVANT CLAUSES OF SECTION 10 IN RESPECT OF WHICH THE EXEMP TION WAS ALLOWED. THIS OF COURSE IS APART FROM CLAUSE (38) O F 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 CBDT. HAVING FOLLOWED THAT IN THE ORDER UNDER SECTION 143 (3) HE COULD NOT HAVE TAKEN A DIF FERENT VIEW WHILE PURPORTING TO REOPEN THE ASSESSMENT. HAVING A PPLIED HIS MIND SPECIFICALLY TO THE ISSUE AND HAVING TAKEN A V IEW ON THE BASIS OF THE COMMUNICATION NOTED EARLIER THE ACT O F REOPENING THE ASSESSMENT WOULD HAVE TO BE REGARDED AS A MERE CHANGE OF OPINION WHICH HAS ALSO NOT BEEN BASED ON ANY TAN GIBLE MATERIAL. CONSEQUENTLY WE HOLD THAT THE REOPENING OF THE ASSESSMENT IS CONTRARY TO LAW. THE PETITION WOULD H AVE THEREFORE TO BE ALLOWED. 19. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS WE WHILE REVERSING THE ORDER PASSED BY THE LD. CIT(A) ON TH IS ACCOUNT ALLOW THE GROUNDS TAKEN BY THE ASSESSEE. ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 15 20. GROUND NOS. 2.1 TO 2.4 TAKEN BY THE ASSESSEE R EAD AS UNDER : 2.1 THE CIT(APPEALS) ERRED IN ALTERNATIVELY HOLDI NG THAT A DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS CAL LED FOR IN THE APPELLANTS CASE. 2.2 THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE DISALLOWING PROVISIONS OF SECTION 14A OF THE ACT WE RE NOT APPLICABLE TO THE APPELLANT IN LAW. 2.3 THE CIT(APPEALS) IN ANY EVENT ERRED IN HOLDI NG THAT A DISALLOWANCE WAS CALLED FOR IN THE FACTS O F THE APPELLANTS CASE UNDER SECTION 14A OF THE ACT. 2.4 THE CIT(APPEALS) IN ANY EVENT ERRED IN HOLDIN G THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS TO BE COMPUTED AS PER THE FORMULA IN RULE 8D OF THE IN COME TAX RULES 1962 (THE RULES) AS CONTAINED IN THE NOTIFICATION DATED 24 MARCH 2008. 21. AT THE TIME OF HEARING THE LD. COUNSEL FOR TH E ASSESSEE SUBMITS THAT THIS ISSUE IS FULLY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISIONS OF THE TRIBUNAL IN (A) GENERAL INSURANCE CORPORATION OF INDIA V/S ADDL.CIT IN ITA NO.3554/MUM/2011 (AY-2007-08) ORDER DATED 25.2.2012 VIDE PARAGRAPHS 9 APPEARING AT PAGES 15 TO 20 OF THE ORDER (B) BAJAJ ALLIANZ GENERAL INSURANCE COMP ANY V/S ADDL.CIT AND VICE-VERSA IN ITA NO.1447/PN/2007 AND C.O. NO.52/PN/2007 (AY-2003-04) ORDER DATED 31.8.2009 (C) M/S RELIANCE GENERAL INSURANCE CO.LTD. V/S DCIT AND VIC E-VERSA REPORTED IN (2010) TIOL-363-ITAT-MUM AND (D) GENERA L ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 16 INSURANCE CORPORATION OF INDIA V/S ACIT IN ITA NO.6260/MUM/2008 (AY-2006-07) ORDER DATED 10.12.201 0. HE ALSO PLACED ON RECORD COPIES OF THE ABOVE ORDERS. 22. ON THE OTHER HAND THE LD DR VIDE WRITTEN SUBMI SSIONS (SUPRA) SUBMITS THAT THE ISSUE OF APPLICATION OF SECTION 14A HAS BEEN DEALT WITH BY THE LD. CIT(A) IN HIS ORDER FOR RESPECTIVE YEARS IN DETAIL. 23. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND MERIT IN THE PLEA OF THE LD. COUNSEL FOR THE A SSESSEE THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASS ESSEE BY THE DECISION OF THE TRIBUNAL IN GENERAL INSURANCE CORP ORATION OF INDIA CITED SUPRA WHEREIN THE TRIBUNAL WHILE FO LLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL H AS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE FINDINGS RECORDED IN PARAGRAPH 9 OF ITS ORDER WHICH IS REPRODUCED AS UND ER : 9. ISSUE NO.6 NON APPLICABILITY OF PROVISIONS OF S ECTION 14A. (MODIFIED GROUND OF APPEAL NO.3.1 TO 3.4 ORI GINAL GROUND OF APPEAL NO.3.1 TO 3.5). THE ISSUE IS WITH REFERENCE TO THE APPLICABILITY OF SECTION 14A AND DISALLOWANCE OF EXPENDITURE IN RESPECT OF SALE OF INVESTMENT WHICH ARE NOT TAXED. WE HAVE HEARD THE R IVAL CONTENTIONS. WE ALSO NOTE THAT THIS ISSUE IS ALSO C ONSIDERED BY THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR 2006- 07 VIDE PARA 7 TO 9: ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 17 7. GROUNDS OF APPEAL NO.4 REGARDING THE EXPENDITURE UNDER SECTION 14A. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT RECORD. WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE PUNE BENCH OF THIS TRIBUNAL IN THE CASE OF BAJAJ ALLIANZ GENERAL INSUR ANCE COMPANY LIMITED V/S ADD. CIT IN ITA NO.1447/PN/2007 FOR THE ASSESSMENT YEAR 2003-04 ORDER DATED 31.08.2009. THIS TRIBUNAL IN THE CASE OF JCITV/S M/ S RELIANCE GENERAL INSURANCE CO. IN ITA NO.3085/MUM/2008 FOR THE ASSESSMENT YEAR 2005-06 VIDE ORDER DATED 26.2.2010 HAS CONSIDERED THIS ISSU E AND DECIDED IN FAVOUR OF THE ASSESSEE. THIS ORDER W AS FOLLOWED BY THIS TRIBUNAL WHILE DECIDING THE ISSUE IN ITA NO.781/MUM/2007 VIDE ORDER DATED 30.4.2010. THUS THIS ISSUE HAS BEEN CONSISTENTLY DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THIS TRIBUNAL. THE PUNE BENCH OF THIS TRIBUNAL IN THE CASE OF BAJAJ AL LIANZ GENERAL INSURANCE COMPANY LIMITED V/S ADD. CIT (SUPRA) HAS DECIDED THIS ISSUE IN PARAGRAPHS 17 TO 20 AS UNDER: 17. FINALLY THE QUEST ION TO BE ANSWERED IS ABOUT THE APPLICABILITY OF S. 14A IN RESPECT OF SALE OF INVESTMENT WHICH IS NOT TAXED UNDER THE SPECIAL CIRCUMSTANCES OF DELETION OF A SUB-RULE FROM THE STATUTE. IT IS NOT QUESTIONED THAT THE IMPUGNED PROFIT WAS NON-TAXABLE PER SE RATHER THE ACCEPTED LEGAL POSITION IS THAT THE IMPUGNED PROFIT WAS VERY MUCH TAXABLE IN THE PAST .NOW IT HAS BEEN INFORMED THAT THIS CONTROVERSY IN RESPECT OF INSURANCE COMPANY SET AT REST BY A DECISION OF TRIBUNAL DELHI BENCH VERDICT IN THE CASE OF ORIENTAL INSURANCE CO. LTD. (ITA NOS. 5462 & 5463/DEL /2003) ASST. YRS. 2000-01 AND 2001-02 ORDER DT. 27TH FEB. 2009 [REPORTED AS ORIENTAL INSURANCE CO. LTD. V. ASST T . CIT [2010] 130 TTJ (DELHI)388 : [2010] 38 DTR (DELHI ) 225ED. ] . THEREFORE CONSIDERING THE VEHEMENT RELIANCE OF LEARNED AUTHORIZED REPRESENTATIVE IT IS WORTH TO MENTION AT THE OUTSET ITSELF THAT THE ISSUE NOW STOOD RESOLVED BY THIS LATEST DECISION OF DELHI TRIBUNAL IN THE C ASE ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 18 OF ORIENTAL INSURANCE CO. LTD. (SUPRA) THE RELEVAN T PORTION REPRODUCED BELOW: '17. WE HAVE HEARD RIVAL SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IDENTICAL ISSUE AROSE IN ASSESSEE'S OWN CASE FOR ASST. YR. 1985-86. THE TRIBUNAL ACCEPTED THE PLEA OF THE ASSESSEE AND IN FACT THE ISSUE WENT UP TO THE HON'BLE DELHI HIGH COURT IN ASST . YRS. 1986- 87 TO 1988-89 WHICH IS REPORTED AS CIT V. ORIENTAL INSURANCE CO. LTD. [2003] 179 CTR (DELHI ) 85 : [2002] 125 TAXMAN 1094 (DELHI ) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT S. 44 OF THE ACT IS A SPECIAL PROVISION DEALING WITH THE COMPUTATION OF PROFITS AND GIFTS OF BUSINESS OF INSURANCE. IT BEING A NON OBSTINATE PROVISION HAS TO PREVAIL OVER OTHER PROVISIONS IN THE ACT. IT CLEARLY PROVIDES THAT INCOME FROM INSURANCE BUSINESS HAS TO BE COMPUTED IN ACCORDANCE WITH THE RULE CONTAINED IN THE FIRST SCHEDULE. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT COMPUTED THE PROFITS AND GAINS OF ITS INSURANCE BUSINESS IN ACCORDANCE WITH THE SAID RULES. RELIANCE WAS PLACED ON THE SCOPE OF S. 144 AS HELD IN THE CASE OF GENERAL INSURANCE CORPORATION OF INDIA V. CIT [1999] 156 CTR (SC) 425 : [1999] 240 ITR 139 (SC) WHEREIN THEIR LORDSHIPS OF THE APEX COURT HAVE CATEGORICALLY HELD THAT THE PROVISIONS OF S. 44 BEING A SPECIAL PROVISION GOVERN COMPUTATION OF TAXABLE INCOME EARNED FROM BUSINESS OF INSURANCE. IT MANDATES THE TAX AUTHORITIES TO COMPUTE THE TAXABLE INCOME IN RESPECT OF INSURANCE BUSINESS IN ACCORDANCE WITH THE PROVISIONS OF THE FIRST SCHEDULE TO THE ACT. IN THE LIGHT OF THESE THEIR LORDSHIPS OF DELHI HIGH COURT HAVE HELD THAT NO QUEST ION OF LAW MUCH LESS A SUBSTANTIAL QUEST ION OF LAW SURVIVES FOR THEIR CONSIDERATION. IN OTHER WORDS ORDER OF THE TRIBUNAL HAS BEEN AFFIRMED. FOLLOWING THE ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 19 SAME REASONING ADDITION MADE BY THE AO IS DELETED. 22. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORDS. THE PROVISIONS OF S. 44 READ AS UNDER: 44. INSURANCE BUSINESS.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 S. 199 OR IN SS. 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. 23. THE ABOVE PROVISION MAKES IT VERY CLEAR THAT S. 44 APPLIES NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED WITHIN THE PROVISIONS OF THE IT ACT RELATING TO COMPUTATION OF INCOME CHARGEABLE UNDER DIFFERENT HEADS. WE AGREE WITH THE LEARNED COUNSEL THAT THERE IS NO REQUIREMENT OF HEAD-WISE BIFURCATION CALLED FOR WHILE COMPUTING THE INCOME UNDER S. 44 OF THE ACT IN THE CASE OF AN INSURANCE COMPANY. THE INCOME OF THE BUSINESS OF INSURANCE IS ESSENTIALLY TO BE AT THE AMOUNT OF THE BALANCE O F PROFITS DISCLOSED BY THE ANNUAL ACCOUNTS AS FURNISHED IN THE CONTROLLER OF INSURANCE. THE ACTUA L COMPUTATION OF PROFITS AND GAINS OF INSURANCE BUSINESS WILL HAVE TO BE COMPUTED IN ACCORDANCE WITH R. 5 OF THE FIRST SCHEDULE. IN THE LIGHT OF TH ESE SPECIAL PROVISIONS COUPLED WITH NON OBSTANTE CLAUSE THE AO IS NOT PERMITTED TO TRAVEL BEYOND THESE PROVISIONS. 24. SEC. 14A CONTEMPLATES AN EXCEPTION FOR DEDUCTIONS AS ALLOWABLE UNDER THE ACT ARE THOSE CONTAINED UNDER SS. 28 TO 43B OF THE ACT. SEC. 44 CREATES SPECIAL APPLICATION OF THESE PROVISIONS IN THE ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 20 CASES OF INSURANCE COMPANIES. WE THEREFORE AGREE WITH THE ASSESSEE AND DELETE THE ACT AS ACCORDING TO US IT IS NOT PERMISSIBLE TO THE AO TO TRAVEL BEYOND S. 44 AND FIRST SCHEDULE OF THE IT ACT .' 18. IT MAY NOT BE OUT OF PLACE TO MENTION THAT THE RESPECTED CO-ORDINATE BENCH HAS DULY TAKEN THE NOTE OF AN EARLIER DECISION OF THAT VERY BENCH DECIDED IN THE CASE OF THAT VERY ASSESSEE VIDE ORDER DT . 29TH SEPT . 2004 BEARING ITA NOS. 7815/DEL/1989 3607 TO 3609/DEL /1990; 5035/DEL / 1998 AND 3910/DEL /2000 NAMED AS DY. CIT V. ORIENTAL GENERAL INSURANCE CO. LTD. [2005] 92 TTJ (DELHI ) 300. AS SEEN FROM THE PARAS REPRODUCED ABOVE ON DUE CONSIDERATION OF THE RELEVANT PROVISIONS AS APPLICABLE TO RESOLVE THIS ISSUE A CONCLUSION WAS DRAWN THAT SINCE THE COURTS HAVE HELD S. 44 CREATES A SPECIAL PROVISION IN THE CASES OF ASSESSMENT OF INSURANCE COMPANIES THEREFORE IT WAS NOT PERMISSIBLE TO THE AO TO TRAVEL BEYOND S. 44 OF FIRST SCHEDULE OF IT ACT . 18. THE NEXT COMMON DISPUTE RELATES TO THE ORDER OF THE CIT (A) IN SUSTAINING THE ACT ION OF AO IN AL LOWING ONLY 50 PER CENT OF THE MANAGEMENT EXPENSES BY INVOKING THE PROVISIONS OF S. 14A OF THE ACT . THE ADDITION IS MADE BY THE AO ON THE PLEA THAT THE PROVISIONS OF S.14A WAS INSERTED BY FINANCE ACT 2001 W.E.F. 1ST APRIL 1962. IT IS STATED THAT THE INVESTMENTS MADE BY THE ASSESSEE ARE BOTH TAXABLE AS WELL AS TAX FREE. AN ESTIMATED DISALLOWANCE OF 50 PER CENT OUT OF THE MANAGEMENT EXPENSES INCURRED AND AS CLAIMED IN THE P&L A/C IS TREATED AS EXPENSES INCUR RED IN CONNECT ION WITH THE LOOKING AFTER TAX-FREE INVESTMENT. 19. THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE INCOME OF THE ASSESSEE IS TO BE COMPUTED UNDER S. 44 R/W R. 5 OF SCH. 1 OF THE IT ACT. SEC. 44 IS A NON ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 21 OBSTINATE CLAUSE AND APPLIES NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED WITHIN THE PROVISIONS OF THE IT ACT RELATING TO COMPUTATION OF INCOME CHARGEABLE UNDER DIFFERENT HEADS OTHER THAN THE INCOME TO BE COMPUTED UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSION' . FOR COMPUTATION OF PROFITS AND GAINS OF BUSINESS OR PROFESSION THE MANDATE TO THE AO IS TO COMPUTE THE SAID INCOME IN ACCORDANCE WITH THE PROVISIONS OF SS. 28 TO 43B OF THE ACT . IN THE CASE OF THE COMPUTATION OF PROFITS AND GAINS OF ANY BUSINESS OF INSURANCE THE SAME SHALL BE DONE IN ACCORDANCE WITH THE RULES PRESCRIBED IN FIRST SCHEDULE OF THE ACT MEANING THEREBY SS. 28 TO 43B SHALL NOT APPLY. NO OTHER PROVISION PERTAINING TO COMPUTATION OF INCOME WILL BECOME RELEVANT. ACCORDING TO THE LEARNED COUNSEL TWO PRESUMPTIONS THAT FOLLOW ON A COMBINED READING OF SS. 14 14A 44 AND R. 5 OF THE FIRST SCHEDULE ARE: (A)THAT NO HEAD-WISE BIFURCATION IS CAL LED FOR. THE INCOME INTER ALIA OF THE BUSINESS OF INSURANCE IS ESSENTIALLY TO BE AT THE AMOUNT OF THE BALANCE OF PROFITS DISCLOSED BY THE ANNUAL ACCOUNTS AS FURNISHED TO THE CONTROLLER OF INSURANCE UNDER THE INSURANCE ACT 1938. THE SAID BALANCE OF PROFITS IS SUBJECT ONLY TO ADJUSTMENTS THERE UNDER. THE ADJUSTMENTS DO NOT REFER TO DISALLOWANCE UNDER S. 14A OF THE ACT. (B) PROFITS AND GAINS OF BUSINESS AS REFER RED TO IN (A) ABOVE HAVE ONLY TO BE COMPUTED IN ACCORDANCE WITH R. 5 OF THE FIRST SCHEDULE. 22. SEC. 44 CREATES A SPECIFIC EXCEPT ION TO THE APPLICABILITY OF SS. 28 TO 43B. THEREFORE THE PURPOSE OBJECT AND PURVIEW OF S. 14A HAS NO APPLICABILITY TO THE PROFITS AND GAINS OF AN INSURANCE BUSINESS. 21. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY JUSTIFIED THE ACT ION OF THE AO AND ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 22 THAT OF THE CIT(A) IN THE LIGHT OF THE CLEAR PROVISIONS OF S. 14A OF THE ACT . SINCE THE VIEW HAS AL READY BEEN EXPRESSED BY RESPECTED CO-ORDINATE BENCH THEREFORE WE HAVE NO REASON TO TAKE ANY OTHER VIEW EXCEPT TO FOLLOW THE SAME. WITH THE RESULT WE HEREBY ACCEPT THE ARGUMENT OF LEARNED AUTHORIZED REPRESENTATIVE TO THE EXTENT THAT IN THE PRESENT SITUATION THE PROVISIONS OF S. 14A NEED NOT TO APPLY WHILE GRANTING EXEMPT ION TO AN INCOME EARNED ON SALE OF INVESTMENT PRIMARILY BECAUSE OF THE REASON OF THE WITHDRAWAL OR DELETION OF SUB- R. 5(B) TO FIRST SCHEDULE OF S. 44 OF IT ACT. ONCE WE HAVE TAKEN THIS VIEW THEREFORE THE ENHANCEMENT AS PROPOSED BY LEARNED CIT(A) IS REVERSED AND THE DIRECTIONS IN THIS REGARD ARE SET ASIDE. RESULTANTLY GROUND NO. 1 IS ALLOWED CONSEQUENT THEREUPON GROUND NO. 2 AUTOMATICALLY GOES IN FAVOUR OF THE ASSESSEE. ACCORDINGLY BY FOLLOWING THE ORDERS OF THIS TRIBUN AL WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THEREF ORE THE GROUND IS ALLOWED. 24. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING T HE CONSISTENT VIEW OF THE TRIBUNAL DECIDE THIS ISSU E IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE GROUNDS TAKEN BY THE ASSESSEE ARE THEREFORE ALLOWED. ITA NO.3398 3399 & 3401/MUM/2011 (AYS:2001-02 TO 20 03-04) 25. AT THE TIME OF HEARING BOTH THE PARTIES HAVE A GREED THAT THE FACTS OF THE ISSUES RAISED IN THESE APPEALS A RE SIMILAR TO THE FACTS OF THE CASE FOR THE ASSESSMENT YEAR 2000- 01 ITA NO.3397 TO 3399 & 3401/MUM/2011 (ASSESSMENT YEARS:2000-01 TO 2003-04) 23 THEREFORE THE PLEA TAKEN BY THEM IN THE APPEAL FOR THE SAID ASSESSMENT YEAR MAY BE CONSIDERED WHILE DECIDING TH E ABOVE APPEALS. 26. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. IN THE ABSENCE OF ANY CONTRARY MATERIAL PLACED ON RECORD BY THE REVENUE WE DIRECT THE AO TO FOLLOW OUR FINDINGS R ECORDED IN THE ABOVE APPEAL FOR THE ASSESSMENT YEAR 2000-01 (S UPRA). WE HOLD AND ORDER ACCORDINGLY. THE GROUNDS TAKEN B Y THE ASSESSEE ARE THEREFORE ALLOWED. 27. IN THE RESULT THE ASSESSEES APPEALS STAND AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH MARCH 2 012. (G.E.VEERABHADRAPPA) (D.K.AGARWAL) PRESIDENT JUDICIAL MEMBER MUMBAI DATED MARCH 2012. SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI