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TMI Blog2012 (10) TMI 882X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance made by the AO. On further appeal before the Tribunal, the Tribunal vide order dated 26.8.2008 has set aside the issue with regard to the disallowance u/s 14A for re-examination with the following remarks : "i) The effect of section 14A is to be given while computing the insurance business income, ii) Computation of disallowance is to be done in view of decision of Special Bench of the Tribunal in the case of Daga Capital Management (P) Ltd." Accordingly, the assessee was provided afresh opportunity of being heard by the AO as to why the provisions of section 14A read with Rule 8D be not applied and furnish the computation of the same in view of the huge investment held which resulted in both exempt and not exempt income. In response the assessee vide letter dated 18.8.2009 has furnished its explanation. However, the AO after considering the assessee's explanation as per working appearing at page 2 and 3 of the impugned assessment order made disallowance u/s 14A amounting to Rs.8.08 crores as against original disallowance u/s 14A Rs.7,76,85,000/- and accordingly passed the order at a total income of Rs.4,26,94,86,330/- vide order dated 28.10.2009 passed u/s 143(3) r.w.s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of section 10 of the Income Tax Act, 1961 ("The Act"). 1.2 The CIT(Appeals) had no jurisdiction to go beyond the order of the Hon'ble Tribunal ("the ITAT") pursuant to which the order under appeal before the CIT(A) was passed. 1.3 The CIT(Appeals) ,in any event, erred on the merits in holding that the exemption provisions in section 10 of the Act did not apply to the Appellant." 7. At the time of hearing, the ld. Counsel for the assessee submits that the order passed by the ld.CIT(A) is illegal and without jurisdiction in disallowing the assessee's claim of benefit of exemption u/s 10 of the Act. He further submits that the ld. CIT(A) had no jurisdiction to go beyond the order of the Tribunal pursuant to which the order under appeal before the ld. CIT(A) was passed. He further submits that even on merits the issue is covered in favour of the assessee by the recent decision of the Hon'ble Jurisdictional High Court in the case of General Insurance Corporation of India V/s DCIT in Writ Petition (L) No.2560 of 2011 dated 1.12.2011. 8. On the other hand, the ld.DR while relying on the order of the ld. CIT(A) also filed written submissions running into 16 pages wherein she ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itled to the exemption u/s 10 of the Act. He accordingly issued a notice for enhancement proposing to disallow the claim of exemption u/s 10 of the Act and after hearing the assessee, he enhanced the income of the assessee to the extent of Rs. 1,55,37,73,926/-. 10. From the reading of the above directions of the Tribunal and the assessment order, we find 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. 11. The above view also finds support from the judgment of the Hon'ble Delhi High Court in CIT V/s Sardari Lal and Co. (2001) 251 ITR 864(Del) (FB), wherein it has been held (page 871): "Looking from the aforesaid angles, the inevitable conclusion is that whenever the question of taxability of income from a new source of income is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income not considered by the AO. 14. In General Insurance Corporation of India (supra) relied on by the ld. DR, it has been observed and held (page 139 to 141): "Section 44 of the Income-tax Act, 1961, is a special provision governing computation of taxable income earned from business of insurance. It opens with a non-obstante clause and thus has an overriding effect over other provisions contained in the Act. It mandates the assessing authorities to compute the taxable income for business of insurance in accordance with the provisions of the First Schedule. A plain reading of rule 5(a) of the First Schedule makes it clear that in order to attract the applicability of the said provision the amount should firstly be an expenditure or allowance. Secondly, it should be one not admissible under the provisions of sections 30 to 43A. If the amount is not an expenditure or allowance, the question of testing its eligibility for adjustment by reference to rule 5(a) of the First Schedule would not arise at all. "Spending" in the sense of "paying out or away" of money is the primary meaning of "expenditure". "Expenditure" is what is paid out or away and is something which is gone irretrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein. The amount set apart by the General Insurance Corporation for redemption of preference shares and treated as expenditure under rule 2(2)(a) of the General Insurance Business (Nationalisation) Rules is so treated for the purpose of the Insurance Act, 1938. The reserve is not an expenditure in the ordinary commercial sense of the term. It cannot be added back for computing the profits and gains of business by including it in "expenditure not admissible under the provisions of sections 30 to 43A of the Income-tax Act" by reference to rule 5(a) of the First Schedule to the Income-tax Act." 15. In Hero Cycles Pvt. Ltd. and others (supra) relied on by the ld.DR, it has been held (headnote): "Held allowing the appeal, that there was no point in sending the matter to the High Court to deal with the question raised at this stage. The question would be treated as referred to the Supreme Court. The dispute raised a mixed question of fact and law. The Tribunal was in error in upholding the assessee's claim for weighted deductions. Rectification under section 154 can only be made when a glaring mistake of fact or law committed by the officer passing the order becomes apparent from the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case afresh after examining the nature of the expenditure and the purposes for which it was spent having regard to the various sub-clauses of section 35B(1)(b). [Matter in C.A. No. 7763 of 1995 remanded.]" 16. In Oriental Insurance Co.Ltd.(supra) relied on by the ld.DR, it has been held (page 2): "Section 44 provides for application of special provisions for computation of profits and gains of insurance business in accordance with r.5 of Sch.I and, therefore, it is not permissible to the AO to travel beyond s.44 and Sch.I and make disallowance by applying s.14A." 17. All the above three decisions relied on by the ld. DR are misplaced because they do not in any way deal with the issue of exemption u/s 10 of the Act, therefore, the same are distinguishable and not applicable to the facts of the present case. 18. Even on merits as rightly submitted by the ld. Counsel for the assessee that the issue is squarely covered in favour of the assessee by the recent decision of the Hon'ble Jurisdictional High Court in General Insurance Corporation of India V/s DCIT since reported in (2012) 204 Taxman 587 (Bom) wherein it has been held (pages 596-597): "12.........The question whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the grounds taken by the assessee. 20. Ground Nos. 2.1 to 2.4 taken by the assessee read as under : "2.1 The CIT(Appeals) erred in alternatively holding that a disallowance under section 14A of the Act was called for in the Appellant's case. 2.2 The CIT(Appeals) failed to appreciate that the disallowing provisions of section 14A of the Act were not applicable to the Appellant in law. 2.3 The CIT(Appeals),in any event ,erred in holding that, a disallowance was called for, in the facts of the Appellant's case, under section 14A of the Act. 2.4 The CIT(Appeals),in any event, erred in holding that the disallowance under section 14A of the Act was to be computed as per the formula in Rule 8D of the Income Tax Rules 1962 ("the Rules") as contained in the notification dated 24 March 2008." 21. At the time of hearing, the ld. Counsel for the assessee submits that this issue is fully covered in favour of the assessee and against the Revenue by the decisions of the Tribunal in (a) General Insurance Corporation of India V/s Addl.CIT in ITA No.3554/Mum/2011 (AY-2007-08) order dated 25.2.2012 vide paragraphs 9 appearing at pages 15 to 20 of the order, (b) Bajaj Allianz General Insurance C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and against the revenue by this Tribunal. The Pune Bench of this Tribunal in the case of Bajaj Allianz General Insurance Company limited V/s Add. CIT (supra) has decided this issue in paragraphs 17 to 20 as under: "17. Finally the quest ion to be answered is about the applicability of s. 14A in respect of sale of investment which is not taxed under the special circumstances of deletion of a sub-rule from the statute. It is not questioned that the impugned profit was non-taxable per se rather the accepted legal position is that the impugned profit was very much taxable in the past .Now it has been informed that this controversy in respect of insurance company set at rest by a decision of Tribunal, Delhi Bench verdict in the case of Oriental Insurance Co. Ltd. (ITA Nos. 5462 & 5463/Del /2003) asst. yrs. 2000-01 and 2001-02 order dt. 27th Feb. 2009 [reported as Oriental Insurance Co. Ltd. v. Asstt. CIT [2010] 130 TTJ (Delhi)388 : [2010] 38 DTR (Delhi) 225-Ed.]. Therefore considering the vehement reliance of learned Authorized Representative it is worth to mention at the outset itself that the issue now stood resolved by this latest decision of Delhi, Tribunal in the case of Orie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance company or by a co operative society, shall be computed in accordance with the rules contained in the First Schedule". 23. The above provision makes it very clear that s. 44 applies notwithstanding anything to the contrary contained within the provisions of the IT Act relating to computation of income chargeable under different heads. We agree with the learned counsel that there is no requirement of head-wise bifurcation called for while computing the income under s. 44 of the Act in the case of an insurance company. The income of the business of insurance is essentially to be at the amount of the balance of profits disclosed by the annual accounts as furnished in the Controller of Insurance. The actual computation of profits and gains of insurance business will have to be computed in accordance with r. 5 of the First Schedule. In the light of these special provisions coupled with non obstante clause the AO is not permitted to travel beyond these provisions. 24. Sec. 14A contemplates an exception for deductions as allowable under the Act are those contained under ss. 28 to 43B of the Act. Sec. 44 creates special application of these provisions in the cases of insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not apply. No other provision pertaining to computation of income will become relevant. According to the learned counsel, two presumptions that follow on a combined reading of ss. 14, 14A, 44 and r. 5 of the First Schedule are: (a)That no head-wise bifurcation is called for. The income, inter alia, of the business of insurance is essentially to be at the amount of the balance of profits disclosed by the annual accounts as furnished to the Controller of Insurance under the Insurance Act, 1938. The said balance of profits is subject only to adjustments there under. The adjustments do not refer to disallowance under s. 14A of the Act. (b) Profits and gains of business as refer red to in (a) above have only to be computed in accordance with r. 5 of the First Schedule. 22. Sec. 44 creates a specific except ion 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. 21. The learned Departmental Representative strongly justified the action of the AO and that of the CIT(A) in the light of the clear provisions of s. 14A of the Act . Since the view has already been expressed by res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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