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2016 (8) TMI 1571 - AT - Income TaxDeduction u/s.10(38) for gains/loss on sale of investment - assessee company is engaged in the insurance business and that Computation of its Income from insurance business is to be governed as per special section 44 of the Income Tax Act r.w.Rule 5 contained in the First Schedule - HELD THAT - It is pointed out that in Assessment Year 2004-05 the Tribunal 2013 (10) TMI 1130 - ITAT MUMBAI followed its earlier decision 2012 (11) TMI 587 - ITAT MUMBAI and allowed the claim of the assessee. Similarly, in Assessment Years 2005-06 and 2006- 07, the Tribunal has upheld its earlier decisions vide order. It has also been pointed out that in Assessment Year 2007-08 also, the Tribunal 2015 (2) TMI 1372 - ITAT MUMBAI has decided the issue in favour of the assessee. Apart therefrom, the learned representative for the assessee pointed out that the view of the Tribunal is also in consonance with the clarification issued by CBDT vide Circular dated 21.02.2006, which has indeed been referred by the CIT(A) in the impugned order. - Decided in favour of assessee. Exemption u/s 10(15) and 10(34/35) - CIT(A) allowed the plea of assessee by referring to the clarification issued by CBDT dated 21.02.2006 whereby it is clarified that exemption available to any other assessee under any of the clauses of Sec. 10 of the Act shall also be made available to a person carrying on non-life insurance business - HELD THAT - As decision of Tribunal in the case of assessee for Assessment Year 2007-08 2015 (2) TMI 1372 - ITAT MUMBAI wherein similar issue has been decided in favour of the assessee following precedents in the case of ICICI Prudential Insurance Co. Ltd. 2012 (11) TMI 13 - ITAT MUMBAI and New India Assurance Co. Ltd. 1967 (10) TMI 16 - BOMBAY HIGH COURT Disallowance of expenses incurred on performance linked incentive for employees, operating expenses like advertisement, legal and professional fees, courier charges, repairs and maintenance, etc. - According to the Assessing Officer, assessee was following mercantile system of accounting and since the impugned claim was merely a provision for expenses, the same was not allowable - AO also noticed that out of the aforesaid total expenditure, tax has not been deducted at source with respect to expenditure and, therefore, the said amount was also hit by Sec. 40(a)(ia) - HELD THAT - We find that before the CIT(A), assessee pointed out that expenses representing items of communication expenses, employees remuneration welfare benefits, interest and bank charges, printing stationery and travel conveyance expenses are not liable for deduction of tax at source except employee s remuneration welfare benefits, which have been duly subjected to deduction of tax at source. Additionally, it was pointed out that on the balance of expenditure assessee had deducted tax at source and paid by the due date, i.e., 31.5.2008. In this manner, assessee sought to point out that there was no justification for invoking Sec. 40(a)(ia) of the Act with respect to the entirety of expenditure of ₹ 39,71,60,000/-. In this context, we find that the CIT(A) has confirmed the disallowance with respect to Miscellaneous expenses and Rent, Rates Taxes amounting to ₹ 6,27,01,000/-. We find that the said finding of CIT(A) is quite contrary to the plea of assessee that the requisite tax has been deducted and paid by 31.5.2008. At the time of hearing, the learned representative pointed out that the expenses which were required to be subjected to tax at source, the aforesaid plea of the assessee holds good and that even if the dates of deposit of TDS are required to be verified by the Assessing Officer, it may be so directed. We find no reason to interfere with the decision of CIT(A) so far as it involves the deletion of the addition to the extent of ₹ 33,45,59,000/-. Insofar as the sustenance of disallowance of ₹ 6,27,01,000/- is concerned, we deem it fit and proper to direct the Assessing Officer to verify the plea of assessee that the corresponding tax deductible on such expenses have been deducted and paid by 31.5.2008, as contended by the assessee. For the limited purpose of verifying the aforesaid aspect, the matter is being remanded back to the file of Assessing Officer. The Assessing Officer shall examine the details put forth by assessee in this regard and thereafter re-determine the disallowance u/s 40(a)(ia) of the Act, if any, in the context of claim of expenses of ₹ 6,27,01,000/- as per law. Disallowance u/s 14A - As per assessee, the disallowance envisaged u/s 14A of the Act is not applicable in the case of an assessee carrying on insurance business - HELD THAT - It is also brought on record that the decision of Tribunal of Assessment Year 2004-05 2013 (10) TMI 1130 - ITAT MUMBAI has been further followed by the Tribunal in the case of assessee for Assessment Years 2005-06 and 2006-07 vide order dated .Subsequently, in Assessment Year 2007-08 also 2015 (2) TMI 1372 - ITAT MUMBAI similar view has been affirmed by the Tribunal. Following the aforesaid precedents, we approve stand of the assessee that provisions of Sec. 14A of the Act are not applicable to an assessment made in terms of Sec. 44 of the Act read with First Schedule of the Act in relation to income of non-life insurance business. Thus, on this aspect, assessee succeeds.
Issues Involved:
1. Eligibility for exemption under Section 10(38) of the Income Tax Act. 2. Eligibility for exemption under Sections 10(15) and 10(34/35) of the Income Tax Act. 3. Disallowance of expenses under Section 40(a)(ia) of the Income Tax Act. 4. Applicability of Section 14A of the Income Tax Act. Issue-wise Detailed Analysis: 1. Eligibility for exemption under Section 10(38) for gains/loss on sale of investments: The Tribunal upheld the CIT(A)'s decision allowing the assessee's claim for exemption under Section 10(38) of the Act for gains/loss on sale of investments amounting to ?54,18,03,880/-. The Tribunal noted that this issue had been consistently decided in favor of the assessee in previous years, including Assessment Years 2003-04, 2004-05, 2005-06, 2006-07, and 2007-08. The Tribunal reiterated that once the profit on sale of investments is included in the Profit and Loss Account as per the provisions of the Insurance Act, 1938, no adjustment is required under Rule 5 of the First Schedule of the Income Tax Act. The Tribunal also referenced the CBDT Circular dated 21.02.2006, which supported the assessee's claim. Therefore, the Tribunal affirmed the CIT(A)'s decision, dismissing the Revenue's appeal on this ground. 2. Eligibility for exemption under Sections 10(15) and 10(34/35): The Tribunal upheld the CIT(A)'s decision allowing the assessee's claim for exemption under Sections 10(15) and 10(34/35) of the Act for amounts of ?14,11,04,910/- and ?5,87,77,006/- respectively. The CIT(A) had referred to the CBDT clarification dated 21.02.2006, which stated that exemptions available to any other assessee under Section 10 would also be available to a person carrying on non-life insurance business. The Tribunal also noted that similar issues had been decided in favor of the assessee in previous years, including Assessment Year 2007-08. Consequently, the Tribunal found no reason to interfere with the CIT(A)'s decision and dismissed the Revenue's appeal on this ground. 3. Disallowance of expenses under Section 40(a)(ia): The Tribunal addressed the disallowance of ?39,71,60,000/- made by the Assessing Officer on two grounds: (i) the expenses were merely provisions and not actual accrued expenses, and (ii) tax was not deducted at source on certain expenses. The CIT(A) had allowed partial relief by confirming the disallowance of ?6,27,01,000/- for Miscellaneous expenses and Rent, Rates & Taxes, where TDS was not deducted, and deleting the disallowance of ?33,45,59,000/-. The Tribunal upheld the CIT(A)'s decision to delete the disallowance of ?33,45,59,000/-, finding no reason to interfere. However, for the disallowance of ?6,27,01,000/-, the Tribunal remanded the matter back to the Assessing Officer to verify if the corresponding tax deductible on such expenses was deducted and paid by 31.5.2008. The Tribunal directed the Assessing Officer to re-determine the disallowance under Section 40(a)(ia) based on this verification. 4. Applicability of Section 14A: The Tribunal decided in favor of the assessee, holding that the disallowance under Section 14A is not applicable to an assessee carrying on insurance business. The Tribunal referenced its earlier decision for Assessment Year 2004-05, which followed the precedent set in the case of ICICI Prudential Insurance Co. Ltd. The Tribunal reiterated that Section 44 of the Act, which governs the computation of income for insurance businesses, overrides other provisions, including Section 14A. Consequently, the Tribunal allowed the assessee's appeal on this ground. Conclusion: The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, affirming the CIT(A)'s decisions on the exemption claims under Sections 10(15), 10(34/35), and 10(38), and the partial relief granted for disallowance under Section 40(a)(ia). The Tribunal also held that Section 14A is not applicable to the assessee's insurance business income. The matter of disallowance of ?6,27,01,000/- was remanded to the Assessing Officer for verification.
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