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2016 (2) TMI 157 - AT - Income TaxAddition being recoveries from abroad - CIT(A) deleted the addition - Held that - In this case, the amount of ₹ 5.04 crores was received by the assessee from the foreign Central Banks and was classified in the Balance sheet as a liability which was as in accordance with the accepted accounting practice followed by the assessee right from the earlier years. The assessee has held the amount as a trust that is in fiduciary capacity on behalf of the exporters. Consequently, such amount had not been routed through profit and loss account by the assessee, as per the accounting system followed by the assessee. Hence, in accordance with the provisions contained in section 44 read with first schedule, such an adjustment by the AO for taxing the income in this year is wholly untenable. Apart from that, the Ld. CIT(A) has categorically noted the fact that during the previous year relevant to the assessment year 2009-10, the assessee after identifying the exporters has paid back the substantial amount which were collected on their behalf and whatever amount could not be identified, the same has been offered as an income in that year. Thus, the whole of the amount has now been accounted for and income has also been offered by the assessee in the assessment year 2009-10. On these facts, we do not find any reasons to deviate from the finding and the direction given by the CIT(A). - Decided against revenue Disallowance of deduction on account of estimated expenses to be reimbursed to General Body of Insurance Council - CIT(A) deleted the addition - Held that - The assessee being Member of GBIC was required to make a payment towards fees / subscription. Such a levy of fees and subscription by the GBIC has been authorized by the Insurance Act itself and regulations thereof. Thus, such a payment definitely falls within the realm of revenue expenditure incurred by the assessee. Since this expenditure is an ascertained liability which is required to be paid every year, therefore, the same is allowable as a deduction while computing the income of the assessee in this year, even if the said payment has been made in the subsequent year, because the said expenditure has definitely accrued to the assessee in the year under consideration. Thus, the finding given by the CIT(A) on this score is upheld.- Decided against revenue Expenditure incurred on Antivirus software and switches treated as capital expenditure eligible for depreciation @ 60% - CIT(A) deleted the addition - Held that - We agree with the finding given by the CIT(A), because here in this case, the expenditure has been incurred on antivirus software which is used in the operating system of the computer which in turn is for running of the business more efficiently. No capital asset of any enduring benefit has been acquired by the assessee. In the case of switches also, there is no acquisition of any capital asset giving any advantage of enduring nature to the assessee, as these required periodical updation and constant improvement from time to time. In the decisions cited by Ld. Counsel it has been consistently held that such an expenditure on softwares is nothing but revenue in nature.- Decided against revenue Disallowance u/s 40A(9) being amount paid to Employees Recreation Club - CIT(A) deleted the addition - Held that - This issue had come up for consideration before the Tribunal in AY 2006-07, wherein the Tribunal has directed the AO to examine the facts and if the expenditure is found to be in the nature of reimbursement then same should be allowed following the decision of Hon ble High Court in the case of CIT vs Bharat Petroleum Corporation of India 2001 (3) TMI 20 - BOMBAY High Court . He further informed that, the AO after examining the facts has deleted the addition. Accordingly we also direct the AO to decide the issue in the light of the directions given by the Tribunal in the AY 2006-07 - Decided in favour of assessee by way of remand Disallowance u/s 14A r.w. Rule 8D(2)(iii) - overriding effect - Held that - The assessee company is engaged in the business of General Insurance and under the specific provisions given in the Income-tax Act, its income has to be computed strongly in accordance with section 44 r.w. First Schedule. It is a non obstante clause having overriding effect over the other provisions contained in the Act. For making a disallowance of any expenditure or allowance, which falls under the provisions of sections 30 to 43B. It should be firstly, be an expenditure or allowance and secondly, it should not be admissible under sections 30 to 43B. Otherwise no other disallowance can be made. For the purpose of the Income-tax, first of all the figures of the income of the assessee is to be drawn-up in accordance with the provisions of First Schedule to the Income-tax Act and satisfying the requirement of Insurance Act and such a determination of income is binding on the AO and there is no power to tinker with such an account.Thus, when the income of the assessee as well as the expenditure are governed by specific provision which have an overriding effect, then it is not open for the AO to invoke the other provisions of the Act for carrying out the disallowance or adjustment in the income. Thus, we hold that, no disallowance u/s 14A can be made in the case of the assessee - Decided in favour of assessee
Issues Involved:
1. Deletion of addition of Rs. 5,04,24,000/- as recoveries from abroad. 2. Deletion of disallowance of Rs. 12,00,000/- claimed as deduction for estimated expenses to be reimbursed to General Body of Insurance Council. 3. Deletion of Rs. 5,28,788/- treating expenditure on antivirus software and switches as capital expenditure. 4. Deletion of disallowance of Rs. 10,00,000/- under section 40A(9) paid to Employees Recreation Club. 5. Disallowance of Rs. 23,35,815/- under Section 14A of the Income Tax Act, 1961. Detailed Analysis: 1. Deletion of Addition of Rs. 5,04,24,000/- as Recoveries from Abroad: The assessee, a public sector undertaking engaged in insurance of export credit risk, received Rs. 504.24 lakhs from foreign banks as recovery against claims paid. The AO treated this amount as income, arguing it should be credited to the profit & loss account under the mercantile system of accounting. The CIT(A) deleted the addition, noting that the amount was held in trust and classified as a liability in the balance sheet. The CIT(A) also observed that the amount was either paid to exporters or treated as income in the subsequent year. The Tribunal upheld the CIT(A)'s decision, stating that the computation of income for insurance companies is governed by Section 44 and the First Schedule, which mandates acceptance of profits shown in audited accounts, subject to disallowances under sections 32 to 43B. 2. Deletion of Disallowance of Rs. 12,00,000/- for Estimated Expenses to General Body of Insurance Council: The assessee made a provision for fees payable to the General Body of Insurance Council (GBIC). The AO disallowed this as a provision. The CIT(A) allowed it, stating the expense accrued during the year and was payable under the mercantile system. The Tribunal upheld this, noting that the payment was a statutory requirement under the Insurance Act, 1938, and thus, an ascertained liability, allowable as a deduction even if paid in the subsequent year. 3. Deletion of Rs. 5,28,788/- Treating Expenditure on Antivirus Software and Switches as Capital Expenditure: The AO treated expenditure on antivirus software and switches as capital expenditure, allowing depreciation. The CIT(A) deleted this addition, treating it as revenue expenditure. The Tribunal agreed, citing that the software and switches did not provide any enduring benefit or capital asset, and were used for efficient business operations, thus qualifying as revenue expenditure. 4. Deletion of Disallowance of Rs. 10,00,000/- under Section 40A(9) Paid to Employees Recreation Club: The AO disallowed Rs. 10 lakhs paid to the Employees Recreation Club under section 40A(9). The Tribunal noted that in a previous year, the Tribunal had directed the AO to examine if the expenditure was a reimbursement. Following the decision in CIT vs Bharat Petroleum Corporation of India, the AO had deleted the addition. The Tribunal directed the AO to re-examine the issue under the same guidelines. 5. Disallowance of Rs. 23,35,815/- under Section 14A of the Income Tax Act, 1961: The AO made a disallowance under section 14A for expenses related to earning tax-free income. The CIT(A) reduced this, but upheld a 0.5% disallowance of average investment. The Tribunal held that section 14A does not apply to insurance companies governed by section 44, which has an overriding effect and mandates income computation as per the First Schedule. Thus, no disallowance under section 14A could be made, and the assessee's cross-objection was allowed. Conclusion: The revenue's appeal was partly allowed for statistical purposes, and the assessee's cross-objection was allowed. The Tribunal's decision emphasized the specific provisions governing insurance companies' income computation, overriding general provisions of the Income Tax Act.
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