2021 (2) TMI 630 - AT - Income Tax

Addition on account of Investments written off - HELD THAT - In the earlier years the matter further travelled to Hon ble High Court of Delhi wherein the Hon ble Court concurred with the view taken by the revenue. The ld. CIT DR explained in detail about the issue and the order of the Hon ble Jurisdictional High Court as held contention of the Revenue is that contradictory pleas have been taken by the Assessee before the ITAT in the appeal for the AY 1990-91 where on the issue of write off of investments it was contended that since Rule 5(b) had been omitted no exemption has been provided in respect of the profits earned and that since they were chargeable to tax the losses if any were required to be allowed as a deduction. In the written note of submissions filed on behalf of the Assessee it is stated that When the petitioner is availing the non-taxation of its profits from sale of investments it is also not claiming the loss suffered on these investments. The AO has not only taxed the profits on sale of investment but has also disallowed the losses. (emphasis supplied) Therefore even the Assessee acknowledges that if it succeeds as it has in its plea that the profit from sale/redemption of investments must be exempt from tax then it cannot seek deduction as a result of losses on the write off of such investments. Decided n favour of the Revenue. Addition on account of accrued interest on loans bonds and debentures - assessee is a public sector undertaking of Government of India conducting the business of non-life insurance for large projects motor car health medi-claim and for other products and establishments - HELD THAT - As decided in own case assessee company had rightly not recognised an amount as income for the years as per its accounting policy and as per policy issued by the Insurance Regulatory Development Authority (IRDA). So finding no illegality or perversity in the findings returned by the ld. CIT (A) ground no.1 is determined against the Revenue. Addition on account Guest House - HELD THAT - Following the decision rendered by the coordinate Bench of the Tribunal we are of the considered view that when the expenditure incurred by the assessee company for maintenance of company s own guest houses the same is covered u/s 30(a) of the Act and hence we decline to interfere with the order of the ld. CIT (A).

Summary

Issues Involved:
1. Deletion of disallowance on account of investment written off.
2. Deletion of addition on account of accrued interest on loans, bonds, and debentures.
3. Deletion of disallowance of expenses incurred on guest house repairing.

Detailed Analysis:

1. Deletion of Disallowance on Account of Investment Written Off:

The revenue contested the deletion of ?2,31,07,000/- made by the Assessing Officer (AO) on account of investment written off. The CIT (A) referenced Section 44 of the Income Tax Act, which mandates that profits and gains from insurance business be computed according to the rules in the First Schedule. Rule 5 of the First Schedule specifies adjustments to be made to profit before tax and appropriation, including adding back non-admissible expenditures or allowances under Sections 30 to 43B. The CIT (A) cited the Apex Court's decision in Oriental Fire and General Insurance Co. Ltd., which differentiated between provisions and reserves, stating that not all provisions are expenditures. The CIT (A) concluded that the amendment effective from 01-04-1989 included specific provisions within the definition of expenditure or allowance, nullifying the Apex Court's earlier decision regarding provisions for income tax, dividend, and reserve.

The CIT (A) further explained that from 01-04-1989 to 01-04-2011, deductions for diminution in the value of investments were not allowed, and this was reinstated post-01.04.2011. Despite this, the CIT (A) allowed the ground based on the jurisdictional ITAT's decision in favor of the appellant, noting that any contestation by the revenue should be at an appropriate forum.

The ITAT upheld the CIT (A)'s decision, referencing the Hon'ble High Court's judgment in the assessee's case, which confirmed that losses on investments written off could be booked in accounts rather than waiting for actual loss on sale, as per GIC guidelines. The High Court concluded that the assessee could not claim deductions for losses if profits from sales were exempt from tax, ruling in favor of the revenue.

2. Deletion of Addition on Account of Accrued Interest on Loans, Bonds, and Debentures:

The AO added ?15,55,75,000/- as accrued interest on loans, bonds, and debentures to the assessee's income. The CIT (A) deleted this addition, referencing ITAT decisions from earlier years (2002 onwards) consistently favoring the assessee. The ITAT noted that Section 44 of the Income Tax Act, a special provision for insurance business, mandates income computation per the First Schedule. The Hon'ble Delhi High Court in assessee's cases for AYs 1986-87 and 1988-89 upheld that Section 44 overrides other provisions, and the income must be computed as per the First Schedule.

The ITAT, finding no material change in facts or law interpretation, upheld the CIT (A)'s decision, ruling against the revenue.

3. Deletion of Disallowance of Expenses Incurred on Guest House Repairing:

The AO disallowed 50% of ?9,90,688/- incurred on guest house repairs. The CIT (A) deleted this disallowance, referencing ITAT decisions from AYs 2001-02 to 2005-06, which consistently favored the assessee. The ITAT noted that expenses for maintaining the company's guest houses are covered under Section 30(a)(ii) of the Act, and this includes repairs for leased guest houses.

The ITAT, following the coordinate Bench's decisions, upheld the CIT (A)'s ruling, declining to interfere with the deletion of the disallowance.

Conclusion:

The ITAT partly allowed the revenue's appeal, specifically on the issue of investment written off, while ruling in favor of the assessee on accrued interest and guest house repair expenses. The judgment was pronounced in open court on 13/01/2021.