D.C.I.T.CIRCLE-3(3), MUMBAI v. M/S. RELIANCE GENERAL INSURANCE CO.LTD., MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI BEFORE SHRI R.S.SYAL AM AND SMT.ASHA VIJAYARAGHAVAN JM ITA NO.781/MUM/2007 : ASST.YEAR 2003-2004 ITA NOS.1520 & 6262/MUM/2008 ASST.YEARS 2004-2005 & 2006-2007 M/S.RELIANCE GENERAL INSURANCE CO. LTD. 570 RECTIFIER HOUSE 1 ST FLOOR NAIGAUM CROSS NEXT TO ROYAL INDL.ESTATE WADALA (WEST) MUMBAI 400 031. PA NO.AABCR6747B. VS. THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 3(3) MUMBAI (APPELLANT) (RESPONDENT) ITA NOS.2144 & 6554/MUM/2008 ASST.YEARS 2004-2005 & 2006-2007 THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 3(3) MUMBAI VS. M/S.RELIANCE GENERAL INSURANCE CO. LTD. 570 RECTIFIER HOUSE 1 ST FLOOR NAIGAUM CROSS NEXT TO ROYAL INDL.ESTATE WADALA (WEST) MUMBAI 400 031. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI R.N.JHA [CIT-DR] ASSESSEE BY : S/SHRI PERCY J.PARDIWALLA & MADHUR AG RAWAL O R D E R PER R.S.SYAL AM : THIS BATCH OF FIVE APPEALS COMPRISING OF THREE BY THE ASSESSEE AND TWO BY THE REVENUE RELATE TO THE ASSESSMENT YEARS 2003-200 4 2004-2005 AND 2006-2007. SINCE THE ISSUES RAISED IN THESE APPEALS ARE COMMON WE ARE THEREFORE PROCEEDING TO DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ASSESSMENT YEAR 2003-2004 2. FIRST GROUND IS AGAINST THE TAXING OF PROFIT ON SALE OF INVESTMENTS AMOUNTING TO RS.8 24 73 523. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF GENERAL INSURANCE PREPA RING THE ACCOUNTS AS PER THE ITA NO.781/MUM/2007 ITA NOS.1520 2144 6262 & 6554/MUM/2008 M/S.RELIANCE GENERAL INSURANCE CO. LTD. 2 REQUIREMENTS OF IRDA. ON THE PERUSAL OF THE DETAIL FILED BY THE ASSESSEE IT WAS NOTICED BY THE A.O. THAT EXEMPTION WAS CLAIMED IN T HE COMPUTATION OF INCOME FOR A SUM OF RS.8.24 CRORE AS PROFIT ON SALE OF INVESTME NTS AS PER RULE 5(B) OF THE FIRST SCHEDULE. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION AS IN HIS OPINION THERE WAS NO PROVISION IN RULE 5(B) OF FIRS T SCHEDULE FOR REDUCING THE PROFIT FROM SALE OF INVESTMENTS DISCLOSED IN THE AN NUAL ACCOUNTS. **THE LEARNED CIT(A) DID NOT ACCEPT THE ASSESSEES CONTENTION AND APPROVED THE VIEW OF THE ASSESSING OFFICER IN NOT EXCLUDING THE PROFIT FROM SALE OF INVESTMENTS WHILE COMPUTING THE INCOME. 3. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE C ONTENDED THAT IT IS A RECURRING ISSUE. HE INVITED OUR ATTENTION TOWARDS T HE COPY OF THE ORDER PASSED BY THE TRIBUNAL IN ASSESSMENT YEARS 2001-2002 AND 2002 -2003 ETC. IN ITA NO.3083/ MUM/2008 ETC. IN WHICH THE TRIBUNAL ACCEPTED THE AS SESSEES CONTENTION FOLLOWING THE VIEW TAKEN BY IT IN ASSESSMENT YEAR 2003-2004. THE LEARNED DEPARTMENTAL REPRESENTATIVE CANDIDLY ACCEPTED THE POSITION BROUG HT ON RECORD BY THE LEARNED A.R. IN VIEW OF THE RIVAL BUT COMMON SUBMISSIONS W E FIND THAT THE ISSUE RAISED IN THIS GROUND NOW STANDS SETTLED BY THE TRIBUNAL IN ASSESSEES FAVOUR BY WAY OF THE AFORE-NOTED ORDER DATED 26.2.2010. RELEVANT DISCUSS ION HAS BEEN MADE IN PARA NO.3 ONWARDS AND THE CONCLUSION HAS BEEN RECORDED IN PAR A 8.5 BY WHICH IT HAS BEEN HELD THAT THE TAXABILITY OF INCOME OF INSURANCE COM PANIES DOES NOT EXTEND TO TAXABILITY OF PROFITS ON SALE OF INVESTMENTS FOR TH E PERIOD ASSESSMENT YEARS 1989-90 TO 2010-2011. RESPECTFULLY FOLLOWING THE PRECEDENT WE ALLOW THIS GROUND OF APPEAL. 4. IN VIEW OF OUR DECISION ON GROUND NO.1 GROUND N O.2 RAISED BY THE ASSESSEE ALTERNATIVELY FOR TAXING THE PROFIT ON SALE OF INVE STMENTS UNDER THE HEAD `BUSINESS INCOME OR `CAPITAL GAINS BECOMES ACADEMIC. IT IS THEREFORE DISMISSED. ITA NO.781/MUM/2007 ITA NOS.1520 2144 6262 & 6554/MUM/2008 M/S.RELIANCE GENERAL INSURANCE CO. LTD. 3 5. THE ONLY OTHER ISSUE RAISED IN THIS APPEAL IS AG AINST THE CONFIRMATION OF DISALLOWANCE OF EXPENSES U/S.14A AMOUNTING TO RS.75 82 000. THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE EARNED INTEREST INCOME OF RS.3.85 CRORE FROM INVESTMENT MADE IN DEBENTURES / BONDS. THE SAID INT EREST WAS EXEMPT FROM INCOME- TAX U/S.10(23G). THE ASSESSEE CLAIMED DEDUCTION FOR TOTAL EXPENSES OF RS.2 668.48 LAKHS. THE ASSESSING OFFICER APPLYING THE PROVISIO NS OF SECTION 14A MADE DISALLOWANCE OF EXPENSES AMOUNTING TO RS.89.28 LAK HS. THE LEARNED CIT(A) REDUCED THE DISALLOWANCE TO RS.75.82 LAKHS AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. 6. BEFORE US THE LEARNED COUNSEL FOR THE AS SESSEE CONTENDED THAT SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL IN THE AFORE-NOTED ORDE R BY WHICH IT HAS BEEN HELD THAT THE PROVISIONS OF SECTION 14 ARE NOT APPLICABLE TO THE ASSESSEE AS SECTION 44 APPLIES TO THE INSURANCE COMPANIES NOTWITHSTANDING ANYTHING CONTRARY CONTAINED WITHIN THE PROVISIONS OF THE INCOME-TAX ACT RELATING TO THE CO MPUTATION OF INCOME CHARGEABLE UNDER DIFFERENT HEADS. IT WAS THEREFORE SUBMITTED THAT THE ISSUE RAISED IN THIS GROUND IS ALSO COVERED IN ASSESSEES FAVOUR. THE LE ARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE IMPUGNED ORDER. 7. HAVING HEARD THE RIVAL CONTENTIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD WE FIND THAT THE TRIBUNAL HAS DISPOSED OFF T HIS ISSUE IN THE AFORE-NOTED ORDER BY HOLDING THAT SECTION 14A CONTEMPLATES AN EXCEPTI ON FOR DEDUCTIONS AS ALLOWABLE UNDER THE ACT U/SS.28 TO 43B OF THE ACT. IT HAS FUR THER BEEN HELD THAT SINCE SECTION 44 IS A SPECIAL PROVISION APPLICABLE TO INSURANCE COMPANIES IT IS NOT PERMISSIBLE FOR THE A.O. TO TRAVEL BEYOND SECTION 44 AND FIRST SCHEDULE OF THE INCOME-TAX ACT. THE RESULTANT DISALLOWANCE SUSTAINED BY THE LEARNED CIT(A) WAS DELETED BY THE TRIBUNAL. IN THE ABSENCE OF ANY DISTINGUISHING FEAT URE HAVING BEEN BROUGHT TO OUR ITA NO.781/MUM/2007 ITA NOS.1520 2144 6262 & 6554/MUM/2008 M/S.RELIANCE GENERAL INSURANCE CO. LTD. 4 NOTICE BY THE LD. DR RESPECTFULLY FOLLOWING THE P RECEDENT WE OVERTURN THE IMPUGNED ORDER ON THIS ISSUE AND ORDER FOR THE DELE TION OF ADDITION OF RS.75.82 LAKHS. THIS GROUND IS ALLOWED. 8. IN THE RESULT THE APPEAL IS DISPOSED OF IN ABO VE TERMS. ASSESSMENT YEAR 2004-2005 9. FIRST GROUND OF THE ASSESSEES APPEAL IS AGAINST THE DIRECTION OF THE LEARNED CIT(A) TO TAX PROFIT ON SALE OF INVESTMENTS AMOUNTI NG TO RS.2 81 64 661. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTA NCES OF THIS GROUND ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF IMMEDIATELY PRECEDING ASSESSMEN T YEAR. FOLLOWING THE VIEW TAKEN BY US IN ASSESSMENT YEAR 2003-2004 (SUPR A) WE ORDER FOR THE DELETION OF THE ENTIRE ADDITION. THIS GROUND IS ALLOWED. 10. SECOND GROUND ABOUT THE HEAD UNDER WHICH SUCH P ROFIT ON SALE OF INVESTMENTS SHOULD BE TAXED BECOMES ACADEMIC IN VI EW OF OUR DECISION ON GROUND NO.1. THIS GROUND IS DISMISSED. 11. GROUND NO.3 OF THE ASSESSEES APPEAL AND THE ON LY ISSUE OF REVENUES APPEAL IS AGAINST THE DISALLOWANCE U/S.14A. THE ASSESSING OFFICER MADE ADDITION OF RS.1 48 18 000 U/S.14A OF THE ACT WHICH WAS REDUCE D IN THE FIRST APPEAL TO RS.6 18 500. BOTH THE SIDES ARE IN APPEAL AGAINST T HEIR RESPECTIVE STANDS. 12. HERE ALSO WE FIND THAT THE FACTS AND CIRCUMSTAN CES OF THESE GROUNDS ARE SIMILAR TO THOSE OF ASSESSMENT YEAR 2003-2004 WHICH HAS BEEN DISPOSED OFF ABOVE. FOLLOWING THE VIEW TAKEN BY US IN THE EARLIER YEAR WE ORDER FOR THE DELETION OF THE ENTIRE ADDITION. ITA NO.781/MUM/2007 ITA NOS.1520 2144 6262 & 6554/MUM/2008 M/S.RELIANCE GENERAL INSURANCE CO. LTD. 5 13. IN RESULT THE REVENUES APPEAL IS DISMISSED AN D THAT OF THE ASSESSEE IS PARTLY ALLOWED. ASSESSMENT YEAR 2006-2007 14. THE FIRST GROUND OF THE ASSESSEES APPEAL IS AG AINST THE DIRECTION OF THE LEARNED CIT(A) TO TAX PROFIT ON SALE OF INVESTMENTS AMOUNTING TO RS.1 71 39 003. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THIS GROUND ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF EARLIER ASSESSMENT YEAR. FOLLOW ING THE VIEW TAKEN BY US IN ASSESSMENT YEAR 2003-2004 (SUPRA) WE ORDER FOR THE DELETION OF THE ENTIRE ADDITION. THIS GROUND IS ALLOWED. 15. THE FIRST GROUND TAKEN BY THE REVENUE ABOUT THE HEAD UNDER WHICH SUCH PROFIT ON SALE OF INVESTMENTS SHOULD BE TAXED BECOM ES ACADEMIC IN VIEW OF OUR DECISION ON GROUND NO.1 OF ASSESSEES APPEAL. ACCO RDINGLY THIS GROUND IS DISMISSED. 16. GROUND NO.3 OF THE ASSESSEES APPEAL AND GROUND NO. 2 OF THE REVENUES APPEAL IS AGAINST THE DISALLOWANCE U/S.14A. THE ASS ESSING OFFICER MADE ADDITION OF RS.39 84 000 U/S.14A OF THE ACT WHICH WAS REDUCED IN THE FIRST APPEAL TO RS.18 36 234. BOTH THE SIDES ARE IN APPEAL AGAINST THEIR RESPECTIVE STANDS. 17. HERE ALSO WE FIND THAT THE FACTS AND CIRCUMSTAN CES OF THESE GROUNDS ARE SIMILAR TO THOSE OF ASSESSMENT YEAR 2003-2004 WHICH HAS BEEN DISPOSED OFF ABOVE. FOLLOWING THE VIEW TAKEN BY US IN THE EARLIER YEAR WE ORDER FOR THE DELETION OF THE ENTIRE ADDITION. ITA NO.781/MUM/2007 ITA NOS.1520 2144 6262 & 6554/MUM/2008 M/S.RELIANCE GENERAL INSURANCE CO. LTD. 6 18. IN RESULT THE REVENUES APPEAL IS DISMISSED AN D THAT OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF APRIL 2010. SD/- SD/- ( ASHA VIJAYARAGHAVAN ) ( R.S.SYAL ) JUDICIAL MEMBER ACCOUNTANT M EMBER MUMBAI : 30 TH APRIL 2010 . DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENTS. 3. THE CIT CONCERNED 4. THE CIT(A) - III MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR ITAT MUMBAI. ITA NO.781/MUM/2007 ITA NOS.1520 2144 6262 & 6554/MUM/2008 M/S.RELIANCE GENERAL INSURANCE CO. LTD. 7 DATE INITIAL 1. DRAFT DICTATED ON 26.04.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 26.04.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER. *