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2012 (10) TMI 882 - AT - Income TaxDisallowance u/s 14A new issue in remand proceedings - held that - there is no dispute that the issue raised by the ld. CIT(A) for disallowing the claim of exemption u/s 10 is a new issue which neither emanates from the assessment order nor from the order of the Tribunal, therefore, the ld. CIT(A) has not only crossed his jurisdiction but has also passed the order against the provisions of section 251 of the Act as he cannot go beyond the direction of the Tribunal to find out a new issue i.e. new source of income which had not been considered by the AO at all. - CIT(A) was not justified in enhancing the income by discovering a new source of income not considered by the AO. - Decided in favor of assessee. Section 14A versus Section 44 - overriding effect - Insurance business - Held that - Sec. 44 creates a specific exception 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. - in favour of the assessee
Issues Involved:
1. Jurisdiction of CIT(A) in disallowing exemptions under Section 10. 2. Applicability of Section 14A to the assessee engaged in the insurance business. Detailed Analysis: 1. Jurisdiction of CIT(A) in disallowing exemptions under Section 10: The assessee, engaged in the business of General Insurance and investment, filed returns declaring a total income of Rs.3,43,13,72,540/-. The assessment was completed at a higher income, including a disallowance under Section 14A. On appeal, the CIT(A) confirmed the disallowance and issued a show cause notice for enhancement, proposing to disallow the claim of exemption under Section 10. The CIT(A) held that since the assessee is engaged in the insurance business, it is not entitled to any exemption under Section 10. Consequently, the CIT(A) enhanced the income of the assessee by Rs.1,55,37,73,926/-. The Tribunal found that the CIT(A) raised a new issue not emanating from the assessment order or the Tribunal's order, thus crossing his jurisdiction. The Tribunal cited the Delhi High Court judgment in CIT V/s Sardari Lal and Co., which held that the first appellate authority cannot deal with new sources of income not considered by the AO. The Tribunal also referenced the Delhi High Court's decision in Gadodia Electronics P.Ltd V/s CIT, emphasizing that the enhancement by the CIT(A) was not justified as it went beyond the Tribunal's directions. Furthermore, the Tribunal noted that the issue of exemption under Section 10 for insurance companies is covered by the Jurisdictional High Court's decision in General Insurance Corporation of India V/s DCIT, which held that exemptions under Section 10 are available to insurance companies. Consequently, the Tribunal reversed the CIT(A)'s order and allowed the assessee's grounds. 2. Applicability of Section 14A to the assessee engaged in the insurance business: The AO disallowed expenses under Section 14A, which the CIT(A) upheld. The Tribunal found that the issue is covered in favor of the assessee by multiple Tribunal decisions, including General Insurance Corporation of India V/s Addl.CIT, Bajaj Allianz General Insurance Company V/s Addl.CIT, and M/s Reliance General Insurance Co.Ltd. V/s DCIT. These decisions held that Section 44 of the Income Tax Act, which governs the computation of insurance business income, has an overriding effect over other provisions, including Section 14A. The Tribunal noted that Section 44 creates a specific exception to the applicability of Sections 28 to 43B, and therefore, Section 14A does not apply to insurance businesses. The Tribunal referenced the decision in Oriental Insurance Co. Ltd., which held that the AO cannot travel beyond Section 44 and the First Schedule of the IT Act to make disallowances under Section 14A. The Tribunal concluded that the disallowance under Section 14A was not justified and allowed the assessee's grounds. Conclusion: The Tribunal allowed the assessee's appeals for all assessment years involved, holding that: - The CIT(A) exceeded his jurisdiction by disallowing exemptions under Section 10, which were not part of the original assessment or the Tribunal's directions. - Section 14A does not apply to the assessee engaged in the insurance business, as per the overriding provisions of Section 44.
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