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2022 (4) TMI 1018 - AT - Income TaxDisallowance of claim of exemption of profit on sale/redemption of investment - HELD THAT - This issue also stands squarely covered in favour of the assessee in the light of the Hon ble Calcutta High Court decision for A.Y. 2005-06 in the case of National Insurance Co. Ltd. 2017 (3) TMI 1054 - CALCUTTA HIGH COURT wherein it has been held that in view of the deletion of Rule 5(b) and having regard to the legislative intent specified in the CBDT circular No. 528/1988 (being binding on the Tax Department), the profits on sale of investments should not be taxed. The Pune Bench of the Tribunal has taken cognizance of the said decision while passing order for A.Y. 2009-10 and 2010-11 - Before us, the ld. D.R also fairly accepted that this issue has been consistently held in favour of the assessee by its own order and that the view stipulated in the judgment of the Hon ble Calcutta High court is also in support of the assessee. Respectfully following the aforesaid judicial pronouncements Ground No. 1 of the assessee s appeal is allowed while ground No. 2 of the Department s appeal is dismissed. Disallowance of contribution to environment relief fund u/s 43B - HELD THAT - The assessee is covered in favour of the assessee in view of the decision by the Coordinate Bench Pune in assessee s own case, the lead year being A.Y. 2006-07 2019 (1) TMI 1332 - ITAT PUNE The said appeal was filed by the assessee in the second round of proceedings before the Tribunal, wherein in earlier round the matter was set aside to the file of the A.O. In the second round of assessment proceedings, the ld. A.O continued with disallowance u/s 43B of the Act. The CIT(A) upheld the order of the A.O. However, the Tribunal decided this issue in favour of the assessee vide its order dated 21-1-2019 2019 (1) TMI 1332 - ITAT PUNE Disallowance of Risk Inspection Charges - Sr. Counsel submitted that on a conjoint reading of the orders of the Tribunal for A.Y. 2008-09, 2009-10, 2010-11 and 2011-12 there were no evidences of payments to Mr. S.K. Gupta and Mr. Sandeep Sitani and thus no disallowance was made and that further no disallowance can be made on an adhoc basis by the revenue authorities - HELD THAT - That in the Tribunal s order for A.Y. 2009-10 2017 (9) TMI 1981 - ITAT PUNE the Tribunal gives a categorical finding that there is merit in the plea of the assessee that in the absence of any adverse evidences collected during the year no disallowance can be made in the hands of the assessee in the instant assessment year. This signifies that there cannot be any disallowance on adhoc basis. Taking totality of the facts and circumstances and the rationale imbibed in the decision of the Tribunal in assessee s own case for other assessment years, we hold that no disallowance on adhoc basis is permissible in the realm of direct tax statutes. Hence, the disallowance of ₹ 5.00 crores made on adhoc basis by the A.O which was restricted by the ld. CIT(A) is hereby deleted. Hence, ground No. 3 of assessee s appeal is partly allowed and the ground No. 6 of the Department s appeal is dismissed. Disallowance made u/s 14A - Suo moto disallowance - HELD THAT - Even if the assessee had made a suo moto disallowance that itself should not preclude the said assessee to make a prayer before the judicial forum that no disallowance be made. Before us, the ld. D.R accepted that the issue is covered in favour of the assessee by its own order of the Tribunal in earlier assessment years.A.O could not have travelled beyond sec. 44A of the Act in the First Schedule of the Act. Respectfully following the principles laid down by the Hon ble Delhi High Court in the case of Principal CIT Vs. Oriental Insurance Co. Ltd 2020 (3) TMI 507 - DELHI HIGH COURT - Ground No. 3 to 5 of the Department s appeal are dismissed. Deduction in respect of Education Cess - HELD THAT - As per Finance Act 2022, Education Cess is included as a tax component and is chargeable to income-tax. Health and Education Cess is to be levied at the rate of four percent on the amount of income tax so computed, inclusive of surcharge wherever applicable, in all cases. Thus, the previous position of claiming deduction on education cess now no longer holds good. In fact, as per clause 13 of the Finance Bill 2022, an amendment to sec. 40 of the Act has taken place, as effected now, by inserting new Explanation (3) to sub-clause (ii) of clause (a) of the said section to clarify that for purposes of sub-clause (ii) the term tax shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax. This amendment shall take effect retrospectively from 1st April 2005 and will, accordingly apply in relation to the assessment years 2005- 06 and subsequent assessment years. In view thereof, we hold education cess is not allowed as deduction and it has to be charged to income-tax. The additional ground raised by the assessee is dismissed.
Issues Involved:
1. Disallowance of profits on sale/redemption of investments. 2. Disallowance of contribution to Environmental Relief Fund. 3. Disallowance of Risk Inspection Charges. 4. Disallowance under section 14A of the Income Tax Act. 5. Deduction in respect of Education Cess. Detailed Analysis: 1. Disallowance of Profits on Sale/Redemption of Investments: The Tribunal addressed the issue of disallowance made on account of profits on sale/redemption of investments. The assessee had claimed these profits as non-taxable, citing the deletion of clause (b) to Rule 5 of the First Schedule to the Income-tax Act, 1961, effective from 1989-90, supported by CBDT Circular No. 528 dated 16-12-1988. The Assessing Officer (AO) did not accept this claim and treated the profits as taxable. The CIT(A) upheld the addition, relying on the Hon’ble Bombay High Court decision in the case of Oriental Fire and General Insurance Co. Ltd. However, the Tribunal noted that this issue had been consistently decided in favor of the assessee in previous years, including AY 2003-04, 2008-09, 2009-10, and 2010-11. The Tribunal followed its earlier decisions and the Hon’ble Calcutta High Court's ruling in National Insurance Co. Ltd., holding that the profits on sale of investments should not be taxed. Consequently, the Tribunal allowed the assessee's ground and dismissed the department's appeal on this issue. 2. Disallowance of Contribution to Environmental Relief Fund: The Tribunal examined the disallowance of the provision towards the Environmental Relief Fund under section 43B of the Act. The assessee argued that the contribution was mandated by the Public Liability Fund Act, 1999, and there was no mechanism prescribed for remittance until December 2008. The AO disallowed the contribution, considering it as income, and the CIT(A) upheld the disallowance. The Tribunal referred to its earlier decision for AY 2006-07, where it was held that the assessee acted as a conduit for collecting the contribution and was not liable for non-deposit in the absence of a prescribed mechanism. The Tribunal allowed the assessee's ground, holding that the contribution was not income and not disallowable under section 43B. 3. Disallowance of Risk Inspection Charges: The Tribunal addressed the disallowance of Risk Inspection Charges. The AO disallowed ?1,72,09,983 related to specified parties and made an adhoc disallowance of ?5 crores, which the CIT(A) reduced to ?1,63,70,017. The Tribunal noted that the issue had been adjudicated in favor of the assessee in previous years (AY 2006-07 to AY 2011-12). The Tribunal confirmed the disallowance of ?1,72,09,983 related to specified parties but deleted the adhoc disallowance of ?5 crores, holding that no disallowance on an adhoc basis was permissible. The Tribunal partly allowed the assessee's appeal and dismissed the department's appeal on this issue. 4. Disallowance under Section 14A of the Income Tax Act: The Tribunal discussed the disallowance under section 14A, which the AO made against profits on sale/redemption of investments and exempt dividend income. The CIT(A) allowed relief based on the Tribunal's decision in the assessee's case for AY 2003-04 and 2006-07. The Tribunal noted that the issue had been consistently decided in favor of the assessee in previous years (AY 2003-04, 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14, and 2014-15). The Tribunal also referred to the Hon’ble Delhi High Court's decision in Principal CIT vs. Oriental Insurance Co. Ltd., where it was held that section 44 of the Act, which overrides section 14A, applies to insurance companies. The Tribunal dismissed the department's grounds and the assessee's corresponding cross objections as infructuous. 5. Deduction in Respect of Education Cess: The Tribunal addressed the additional ground raised by the assessee regarding the deduction of Education Cess. The Tribunal noted the amendment proposed in the Finance Bill 2022, which included Education Cess as a tax component chargeable to income-tax. The Tribunal held that the previous position of claiming deduction on education cess no longer holds good due to the retrospective amendment. The Tribunal dismissed the additional ground raised by the assessee. Conclusion: The Tribunal allowed the assessee's grounds on the disallowance of profits on sale/redemption of investments and contribution to the Environmental Relief Fund. It partly allowed the assessee's appeal on Risk Inspection Charges and dismissed the department's appeal on the same issue. The Tribunal dismissed the department's grounds on disallowance under section 14A and the corresponding cross objections of the assessee. The Tribunal also dismissed the additional ground raised by the assessee regarding the deduction of Education Cess.
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