2019 (12) TMI 770 - AT - Income Tax

Disallowance of written off depreciated investments - HELD THAT - Because of the restrictions contained in section 44 read with Rule 5 of the First Schedule, there could not be any disallowance of the amount written off out of investments and, accordingly, the disallowance is deleted Disallowance of Amortisation of Premium paid on Purchase of Investments - HELD THAT - As relying on assessee's own case 2019 (6) TMI 84 - ITAT KOLKATA CIT(A) has not erred on the facts of the case and in law in holding that a sum being amortization of premium paid on purchase of investments is an allowable deduction while computing the income. Addition towards Reserve created for Unexpired risk u/s 115JB - HELD THAT - As relying on assessee's own case 2019 (6) TMI 84 - ITAT KOLKATA Reserve created for unexpired risk need not be added back for the purpose of computation of book profits u/s 115JB Disallowance u/s 14A while computing the book profit of the assessee company u/s 115JB - HELD THAT - Rule 8D could be invoked only for making a disallowance u/s 14A while computing the income of the assessee under the normal provisions of the Act and not for computation of book profit u/s 115JB of the Act. It was further held that unless an item is debited in the profit and loss account, the same could not be the subject matter of addition to book profits under clause (f) of Explanation to section 115JB of the Act and it is only the actual expenditure incurred by the assessee in relation to the exempt income, which is debited to the profit and loss account, can be added. In the present case, the assessee company had already disallowed expenses incurred in relation to the exempt income suo moto and keeping in view the same, we do not find any infirmity in the impugned order of the Ld. CIT(A) deleting the further disallowance made by the A.O. u/s 14A by applying Rule 8D while computing the book profit of the assessee company u/s 115JB of the Act. Ground of the Revenue s appeal is accordingly dismissed.

Issues Involved:
1. Disallowance of written-off depreciated investments.
2. Disallowance of amortization of premium paid on investments.
3. Addition of reserve created for unexpired risk while computing book profit under Section 115JB.
4. Disallowance under Section 14A while computing book profit under Section 115JB.

Detailed Analysis:

1. Disallowance of Written-Off Depreciated Investments:
The Revenue challenged the deletion of the disallowance of ?1,33,58,000/- for written-off depreciated investments by the CIT(A). This issue was previously addressed in the Tribunal's decisions for A.Ys. 2005-06, 2007-08, 2008-09, and 2014-15, where it was held that such write-offs could not be considered as "expenditure" or "allowance" under Section 44 read with Rule 5 of the First Schedule of the Income-tax Act, 1961. The Tribunal reiterated that the write-off of investments should be treated as bad debts, which are allowable under Section 36(1)(vii). Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.

2. Disallowance of Amortization of Premium Paid on Investments:
The CIT(A) deleted the disallowance of ?5,89,11,000/- made by the AO for the amortization of premium paid on investments. This issue was similarly covered in previous Tribunal decisions, where it was established that under Section 44 read with Rule 5 of the First Schedule, the AO does not have the general power to make adjustments in the accounts of a general insurance company. The Tribunal confirmed that the amortization of premium paid on investments is not an "expenditure" or "allowance" that can be disallowed under the relevant provisions. Thus, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.

3. Addition of Reserve Created for Unexpired Risk While Computing Book Profit Under Section 115JB:
The CIT(A) deleted the addition of ?488,59,39,000/- made by the AO towards the reserve created for unexpired risk while computing the book profit under Section 115JB. The Tribunal, referring to its earlier decisions, held that the reserve for unexpired risk is not an "amount carried to any reserve" as per the explanation to Section 115JB(2). This reserve is a statutory requirement under the Insurance Act, 1938, and does not fall under the reserves specified in the explanation to Section 115JB(2). Therefore, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.

4. Disallowance Under Section 14A While Computing Book Profit Under Section 115JB:
The CIT(A) deleted the disallowance made by the AO under Section 14A amounting to ?70,70,62,845/- while computing the book profit under Section 115JB. The Tribunal noted that Rule 8D could only be invoked for disallowance under Section 14A while computing income under normal provisions, not for book profit under Section 115JB. It was further clarified that only the actual expenditure debited to the profit and loss account could be added back to the book profits. Since the assessee had already disallowed ?8,27,57,831/- suo moto, the Tribunal found no infirmity in the CIT(A)'s decision and dismissed the Revenue's appeal on this ground.

Conclusion:
The Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s deletions of the disallowances and additions made by the AO. The decision was pronounced in the open court on 11th December 2019.

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