2021 (7) TMI 92 - AT - Income Tax

Profit on Sale/Redemption of Investments - whether profit derived by the assessee from sale/ redemption of investments is exempt from tax? - HELD THAT - In earlier years too similar additions were made by the lower authorities and the matter now stands settled by the decision of the Hon ble Jurisdictional High Court in case of assessee for AY 2005-06 2017 (9) TMI 172 - DELHI HIGH COURT .The question framed is accordingly answered in the negative in favour of the assessee and against the revenue, by holding that the itat erred in holding that the income earned on sale/redemption of investment was chargeable to tax. Disallowance of depreciation - assessee has not given the basic details, therefore, the question of allowing any depreciation on such assets cannot be accepted - HELD THAT - As relying on assessee's own case 2018 (1) TMI 802 - ITAT DELHI in the year under consideration also, the relevant details for addition made to fixed assets in Financial Year 2009-10 have been placed on record by the assessee. The AO has, however, failed to take the same into consideration. We are, therefore, inclined to set aside this issue to the records of the AO for a de novo verification of the relevant facts. In the result, Grounds 3 and 3.1 are partly allowed for statistical purposes. Disallowance on account of Provision made for Standard Assets - whether Rule 5 prescribes for an adjustment by adding back the provision made for standard assets? - HELD THAT - There is no enabling mechanism in Rule 5(a) mandating an adjustment to disclosed profits by making an addition on account of provision made for Standard Assets. CIT (DR) has relied upon decision of the coordinate bench of this Tribunal in case of Chaitanya Godavari Grameena Bank 2018 (5) TMI 511 - ITAT VISAKHAPATNAM . However, in that case the assessee was a bank and had claimed deduction on account of Provision for Standard Assets u/s 36(1)(viia). This was not a case of an Insurance Company to which provisions of Rule 5 was applicable. As already held above, under Rule 5 the Statute makes profit disclosed in Profit and Loss account sacrosanct subject only to adjustments prescribed in Rules 5(a) to 5(c). The case law relied is, therefore, distinguishable. CIT (A), in AY 2011-12, has also not properly addressed the issue. Relevant statutory provisions have been inadvertently misread and hence not properly understood.We therefore delete the disallowance Determination and carry forward of business loss and unabsorbed depreciation - assessee is aggrieved by the fact that the Ld. CIT (A) has erred in not adjudicating on ground numbers 7 and 8 raised by the assessee - HELD THAT - A perusal of the impugned order passed by the Ld. CIT (A) depicts that inadvertently there is no adjudication by the Ld. first appellate authority on the above issues. Since the issues raised pertain to determination and carry forward of business loss and unabsorbed depreciation, we direct the AO to consider these issues on merits in accordance with law while giving effect to our order.

Issues Involved:
1. Addition on account of profit on sale/redemption of investments.
2. Denial of exemption under section 10(38) and concessional rate of tax under sections 111A/112.
3. Disallowance of depreciation.
4. Disallowance of provision for standard assets.
5. Non-adjudication of certain grounds by CIT (A).
6. Levy of interest under sections 234B and 234D.
7. Legality of the assessment order under section 143(3).

Detailed Analysis:

1. Addition on Account of Profit on Sale/Redemption of Investments:
The assessee claimed exemption on profit from the sale/redemption of investments based on CBDT Circular No. 528 dated 16th December 1988. The AO added ?561.92 crores to the total income, which was upheld by CIT (A). The Tribunal referred to a prior decision by the Hon'ble Jurisdictional High Court for AY 2005-06, which concluded that profits on the sale of investments were not taxable during the period when Rule 5(b) was not operational. Consequently, the Tribunal allowed the assessee's ground, stating that the legislative intention was clear and the profits on the sale of investments were not taxable for the period in question (AY 2010-11).

2. Denial of Exemption under Section 10(38) and Concessional Rate of Tax under Sections 111A/112:
These grounds were raised as alternative claims by the assessee. Since the primary ground regarding the non-taxability of profits on the sale of investments was allowed, the Tribunal dismissed these grounds as infructuous.

3. Disallowance of Depreciation:
The AO disallowed ?1,47,75,105/- of depreciation based on a precedent of disallowance at a rate of 29% from previous years, which was confirmed by the Tribunal for AY 2000-01 due to lack of details. The assessee argued that all relevant details were provided for AY 2010-11. The Tribunal noted that similar issues were set aside for verification in prior years and directed the AO to verify the details for the current year. Hence, the issue was remanded to the AO for de novo verification, and the ground was partly allowed for statistical purposes.

4. Disallowance of Provision for Standard Assets:
The AO disallowed ?56,59,609/- for provision made for standard assets, upheld by CIT (A) based on an amendment effective from AY 2011-12. The Tribunal examined the nature of the provision and concluded that it was a reserve for contingent loss, not an expenditure or allowance. The Tribunal found no enabling provision in Rule 5(a) mandating such an adjustment. Therefore, the disallowance was deleted, and the ground was allowed.

5. Non-Adjudication of Certain Grounds by CIT (A):
The assessee contended that CIT (A) did not adjudicate on grounds related to the carry forward and set-off of business loss and unabsorbed depreciation. The Tribunal directed the AO to consider these issues on merits while giving effect to its order. This ground was partly allowed for statistical purposes.

6. Levy of Interest under Sections 234B and 234D:
The Tribunal noted that the levy of interest under sections 234B and 234D would be consequential. Since no specific relief was claimed, this ground was dismissed.

7. Legality of the Assessment Order under Section 143(3):
The Tribunal did not find merit in this ground, and it was dismissed along with the general grounds.

Conclusion:
The appeal was partly allowed for statistical purposes. The Tribunal provided relief on the addition of profit on sale/redemption of investments and disallowance of provision for standard assets, while remanding the issue of depreciation disallowance for further verification. The Tribunal also directed the AO to address the non-adjudicated grounds related to business loss and unabsorbed depreciation.

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