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TMI Blog2012 (11) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Act shall not be treated non-disclosure of a true and fair view of the state of affairs of the company as the said condition has been relaxed by sub sec 5 of sec 211 of the Companies Act. Thus when the insurance companies, banking companies and electricity generation and distributions companies are treated in the same class as per the provisions of sec. 211 of the Companies Act in preparing their final accounts, then these companies cannot be treated differently for the purpose of sec. 115JB and accordingly, the provisions of sec. 115JB are not applicable in the case of the assessee - in favour of assessee. - ITA No.2398/Mum/2009 - - - Dated:- 10-10-2012 - Rajendra Singh and Vijay Pal Rao, JJ. Appellant Rep by: Ms Arati Vissanji Respondent Rep by: Shri Pritam Singh ORDER Per: Vijay Pal Rao: This appeal by the assessee is directed against the order dated 12.1.2009 of the Commissioner of Income Tax (Appeals) for the Assessment Year 2003-04. 2. The only ground raised by the assessee in this appeal is as under: On the facts and circumstances of the case and the law, the Commissioner of Income Tax(Appeals) erred in confirming the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule. 3.2 On appeal, the Commissioner of Income Tax (Appeals) has confirmed the disallowance made by the Assessing Officer on this account. 4. Before us, the ld AR of the assessee has submitted that this issue has been considered and decided by this Tribunal in a series of decisions wherein it has been held that profit on sale of investments prior to Assessment Year 2011 is not taxable in the hands of the general insurance companies. The ld AR has pointed out that the Tribunal has repeatedly taken note that the deletion of Sub. Rule (b) of Rule 5 of first schedule was with specific purpose of granting exemption on the profit on sale of investments and that is why the legislature has now bought in a prospective amendment from Assessment Year 2011-12, whereby inserted Rule 5(b)(i) of first schedule of the I T Act. By virtue of this amendment, the profit on sale of investments in the case of the insurance companies will be taxable w.e.f AY2011-12. The ld AR has relied upon the following decisions: Name of the Case Assessment Year Bajaj Allianz General Insurance v. ACIT Pune ITAT Shri Pramod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which are required under the Insurance Act 1938 to be furnished to the Controller of Insurance, then no adjustment can be made in the said profits as shown by the assessee in the P L account. 4.3 The ld DR has further contended that the amendment in the Act has been made in consonance with the amendment in the Insurance Act whereby General Insurance Companies are required to include certain income in the P L account prepared as per the regulations framed by IRDA and as per the provisions of Insurance Act, copies of the accounts are required to be furnished to the Controller of Insurance. 4.4 The ld DR has further contended that the amendment by the Finance Act 1988 was made whereby sub. rule (b) of Rule 5 of First Schedule has been deleted due to the reasons because corresponding amendment was also made in the Insurance Act whereby the Insurance Companies has to decide to include the income on sale of investments in the P L account prepared in compliance with the Insurance Act and therefore, once the profit on sale of investment is included in the P L account prepared as per the Insurance Act and copy of which is required to be furnished to the Controller of Insurance, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n computing the profits and gains of a business shall be added back; b. (i) any gain or loss on realisation of investments shall be added or deducted, as the case may be, if such gain or loss is not credited or debited to the profit and loss account; (ii) any provision for diminution in the value of investment debited to the profit and loss account, shall be added back; c. such amount carried over to a reserve for unexpired risks as may be prescribed in this behalf shall be allowed as a deduction. 5.1 The bare reading of the amended provisions of Rule 5 of First Schedule makes it clear that the profits and gains shall be taken to be the profit before the tax and appropriately disclosed in the P L Account prepared in accordance with the Insurance Act, 1938 or the Rule made thereunder or the provisions of IRDA Act. There is no dispute that the assessee before us has included the profit on sale of investments in the profit and gain as declared in the accounts prepared in accordance with the provisions of Insurance Act 1938. It is also not the case of the assessee that the profits/gains on sale of investments is not required to be included in the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or gains on the realization of investments shall be treated as part of the profits and gains; Provided that the Assessing Officer is satisfied about the reasonableness of the amount written off or reserved in the accounts, as the case may be, to meet depredation of or loss on the realization of investment. The argument on behalf of the assessee primarily is that when the rules for preparation of the final accounts provide that the profit on sale of investments, should be shown in the credit side of the Profit and Loss Account, then there was no question of rule 5(b) being applicable and that was the reason why the said rule was omitted with effect from 01.04.1989 and the effect of the omission is that where the Profit and Loss Account already includes the profit on sale of investments, the same shall stand excluded. The effect of the omission of the rule was considered by the Puns Bench of the Tribunal in its order dated 31 August 2009, in the case of Bajaj Allianz General Insurance Company, in ITA No: 1447/PN12007 and CO No:521PN12007 (assessment year 2003-04). A copy of the said order has been filed before us. The Tribunal has also considered the Circular No.528 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e direct the Assessing Officer to exclude the profit of Z47,45,699/- on the sale of investments from the assessment. 20. The learned CIT DR, however, argued that the effect of the omission of rule 5(b) is just the opposite of what the assessee has contended. According to him, after 01.04.1989 the exemption was taken away. He submitted further that the profit on sale of the investment has already been included in the Profit and Loss Account and there is no authority to take it out even under rule 5(b) as it existed before 01.04.1989. According to him, there was no scope for applying the rules of interpretation when the statutory provisions are clear. Since the matter is concluded by the orders of the Tribunal cited supra, where all these aspects have been considered, we are unable to take a different view of the matter. Thus Ground No.4 is allowed. 5.4 Since the Tribunal has been taking a consistent view on this issue in a series of decisions as relied upon by the ld AR of the assessee; therefore, to maintain the rule of consistency and uniformity on this aspect, we deicide this issue in favour of the assessee and against the revenue. 6. The assessee has also raised an ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surance or Banking or any companies engaged in the generation or supply of electricity or to any other class of company for which a form of profit and loss account has been specified in or under the Act governing such class of company. 8.2 The ld AR has pointed out that the Insurance Companies require to prepare their accounts as per the Insurance Act and not as per the Companies Act. She has referred sub. sec. 5 of Sec. 211 of the Companies Act and submitted that in the case of Insurance Company Balance Sheet and P L Account shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose any matter, which are not required to be disclosed by the Insurance Act 1938. 8.3 The ld AR has relied upon the decision of the Hyderbad Bench of the Tribunal in the case of State Bank of Hyderabad vs DCIT in ITA 578/Hyd/2010 vide order dated 7th Sept 2012 and submitted an identical issue has been considered and decided by the Tribunal by holding that the provisions of section 115JB will not be applicable to the cases of the Banking Companies. 8.4 Similarly, in the case of Reliance Energy Ltd vs ACIT, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that even as per the pre-amend provisions of sec. 115JB, the accounts prepared in accordance with the Regulatory Act can be taken for the purpose of computation of book profit u/s 115JB. 9. We have considered the rival submissions as well as the relevant material on record. There is no quarrel on the point that the assessee, being an Insurance Company is not required to prepare its accounts as per Part II III of Schedule VI of the Companies Act 1956. Sub. Section (2) of sec 211 are required every P L accounts of the Companies shall be prepared as per the requirement of Part II of Schedule VI. However, the proviso to sub. Sec (2) of sec. 211 of the Companies Act creates an exemption of applicability of sub. Sec. (2) inter-alia in respect of Insurance companies or banking companies or any other companies engaged in generation and supply of electricity for which a form of profit and loss account has been specified in or under the Act governing such class of company. Even if an Insurance Company does not disclose any matter in the Balance Sheet and P L account because the same is not required to be disclosed by the Insurance Act shall not be treated non-disclosure of a true and fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Krung Thai Bank Vs. JCIT (133 TTJ 435), to which one of us is a party has held that provisions of sec 115JB cannot be applied to the banking company. 9.3 Similarly, in the case of Reliance Energy (supra), the coordinate Bench of this Tribunal has held in paras 28 29 as under: 28 As discussed above when it is not possible to prepare the accounts under the Companies Act for the purpose of computation u/s 115JB, therefore, the assessee cannot be forced to prepare the accounts when it is not possible. Therefore, we are in agreement with the contentions of the assessee in as much as the accounting policies followed in the electricity accounts if followed for the preparation of Companies Act account will not disclose true and fair view and will not be in accordance with part II and III of Schedule VI of the Companies Act. The ratio of the decisions of the Hon ble Supreme Court and the ratio of the decision of the Tribunal discussed above are in support of the contentions of the assessee. We further found that the issue of applicability of sec. 115J came before the Tribunal for AY 88-89. Taking into consideration the preparation of accounts under the Electricity Act and other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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