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TMI Blog2017 (9) TMI 1981X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act read with Rule 8D - HELD THAT:- Tribunal after considering the issue held the same to be identical to the issue before the Tribunal in assessment year 2003-04 and following the same parity of reasoning deleted the disallowance made by the Assessing Officer and the DRP but confirmed the disallowance made by the assessee under section 14A of the Act at 49,42,631/-. Following the same parity of reasoning, we direct the Assessing Officer to delete the addition worked out under section 14A of the Act except to the extent of 2,43,836/-, which has been suo motu disallowed by the assessee in the computation of income. Disallowance u/s 14A of the Act in respect of profits and gains on sale/redemption of investments claimed as non taxable - HELD THAT:- In view of our order holding that the provisions of section 14A are not applicable, then the same even applied for income claimed as exempt under section 10 of the Act. Hence, the grounds of appeal No.1 to 3 raised by the Revenue are dismissed. Disallowance made u/s 40(a)(i) in respect of re-insurance premium paid to Allianz SE, Germany - HELD THAT:- We find that the Tribunal in assessment year 2008-09 [ 2020 (1) TMI 1566 - ITAT PUNE] h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Authorized Representative for the assessee pointed out that the facts and issues in both the appeals are identical. However, in order to adjudicate the issue, we refer to the facts and issues raised in assessment year 2009-10. 4. The assessee in ITA No. 1071/PUN/2015, relating to assessment year 2009-10 has raised following grounds of appeal:- Ground No. 1 1.1 Erred in upholding the action of the Assessing Officer ("AO") in treating profits on sale/ redemption of investments of ₹ 22,30,24,779/- as taxable. 1.2 Erred in not following the binding decision of the Hon'ble Pune Tribunal in appellant's own case for AY 2002-03 to AY 2006-07. Ground No. 2 2.1 Erred in upholding the action of the AO in invoking disallowance under section 14A of the Act read with rule 8D of the Income-tax Rules, 1962 ("Rules") of ₹ 26,90,338/- in respect of exempt dividend/ interest income. 2.2 Erred in not following the binding decision of the Hon'ble Pune Tribunal in Appellant's own case for AY 2002-03 to AY 2006-07. Ground No.3 [Without prejudice to Ground No. 2] 3.1 Erred in concluding that AO has recorded objective satisfaction for invoking section 14A disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in not considering that section 44 of the Income Tax Act, 1961 nowhere restricts the applicability of section 14A of the Income tax Act, 1961? 4. For these and such other grounds as may be urged at the time of hearing, the order of the learned CIT (A) may be vacated and that of Assessing Officer be restored. 5. The appellant craves to add, alter or amend any or all the grounds of appeal during the course of appellate proceedings before ITAT, Pune Bench, Pune. 6. The assessee in CO. No.31/ PUN/2017 has raised following grounds of objections:- 1. Cross objection No. 1 : Challenging the disallowance under section 14A in respect of profits on sale/redemption of investments: 1.1 The action of the learned CIT(A) in concluding that the provisions of section 14A is not applicable in respect of profits on sale/redemption of investments is justifiable under the law and in accordance with the Hon'ble Tribunal's ruling for earlier years in the Respondent's own case. 2. Cross objection No. 2: Without prejudice to Cross Objection No. 1 above, challenging the computation of disallowance under section 14A : 2.1 Without prejudice to above, in case if section 14A is held to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral insurance business. As per Rule 5 of first Schedule of the Act, the profits and gains of insurance business, other than life insurance, shall be taken to be the balance of profits disclosed by annual accounts under the Insurance Act, 1938. The plea of assessee in this regard was that profit shown in the annual accounts / financial statements prepared as per the Insurance Act, 1938 should be taken for computation of total income for income tax purpose subject to clause (a) and clause (c) of Rule 5 of the Act. The Assessing Officer noted that the Insurance Regulatory Development Authority prescribed that non-life insurance company had to include profit or loss on realization / sale of investments in the Profit and Loss Account or Revenue account. Thus, as per the Assessing Officer it was mandatory for the assessee to include profits on sale / redemption of investments in computation of total income unless the Rule 5 of the Act excludes it. The Assessing Officer noted that there was no provision in the Rule to exclude such profit or loss on realization / sale of investments from total income. Further, the said profit or loss was also not exempt under any provisions of the Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further pointed out that similar issue also arose in assessment year 2008-09 and the Tribunal following earlier year order, has decided the issue in favour of the assessee. The learned Authorized Representative for the assessee further pointed out that reliance placed upon by the CIT(A) on the ratio laid down by the Hon'ble Bombay High Court in Oriental Fire & General Insurance Co. Ltd. Vs. CIT (supra) is misplaced since the said decision relates to assessment year 1967-68 when Rule 5(b) existed in the Statute. It was further pointed out that the said Rule 5(b) was further deleted and the Tribunal had accepted the claim of assessee relying on Legislative intent w.e.f. omitting Rule 5(b). It was further pointed out by him that the issue is squarely covered by the ratio laid down by the Hon'ble High Court of Calcutta in Pr. CIT Vs. National Insurance Co. Ltd. (2017) 393 ITR 52 (Calcutta), which relates to assessment year 2005-06, wherein it has been held that in view of deletion of Rule 5(b) and having regarding to the Legislative intent specified in CBDT Circular No.528/1998, profits on sale of investments should not be taxed. 14. The learned Departmental Representative for the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the hands of assessee. The assessee thus, did not include/reduce the profit on sale / redemption of investment of about ₹ 50 crores and net loss on amortization of ₹ 3.10 crores in the computation of income filed for the year under consideration. The said Rule 5(b) of First Schedule has been re-inserted by the Finance (No.2) Act, 2009 w.e.f. 01.04.2011, which was further substituted by the Finance Act, 2010 w.e.f. 01.04.2011. Prior to its substitution, clause (b) was omitted by the Finance Act, 1988 w.e.f. 01.04.1989. The year under appeal before us is assessment year 2008-09 i.e. the year in which the said provisions of Rule 5 of First Schedule were not on Statute. Similar claim was made by the assessee that the profit / loss arising on sale / redemption of securities, investment was not taxable and even the loss on account of amortization of securities was to be reduced from the taxable income of the year, arose before the Tribunal in assessee's own case in assessment year 2003-04. The Tribunal in ITA No.1447/PN/2007 relating to assessment year 2003-04 along with CO No.52/PN/2007, reported in 130 TTJ (Pune) 398 had considered the aforesaid issue and had held as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allow the ground of appeal No.1 raised by the assessee." 16. The issue arising in the present ground of appeal similar to the issue in earlier years and the Assessing Officer had also disallowed the claim of assessee, following the deletion made in earlier years. However, following the same parity of reasoning, we hold that while computing income from business in the hands of assessee under section 44 of the Act and First Schedule of the Act, profit / loss on sale / redemption of securities or investments including the amortization of securities is to be reduced from taxable income of assessee. The grounds of appeal No.1.1 and 1.2 raised by the assessee are thus, allowed. 17. The issue raised vide grounds of appeal No.2.1 and 2.2 is against the order of Assessing Officer in making disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (in short "the Rules"). 18. The Assessing Officer during the assessment proceedings on verification of Profit and Loss Account and computation of income noted that the assessee had claimed certain income as non-taxable i.e. profit on sale / redemption of investments claimed as non-taxable amounting to ₹ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the sake of brevity. Following the same parity of reasoning, we direct the Assessing Officer to delete the addition worked out under section 14A of the Act except to the extent of ₹ 2,43,836/-, which has been suo motu disallowed by the assessee in the computation of income. The ground of appeal No.2 raised by the assessee is thus, allowed. 23. The issue raised vide ground of appeal No.3 is without prejudice to computation of disallowance under section 14A of the Act read with Rule 8D of the Rules is dismissed as ground of appeal No.2 is allowed in the hands of assessee. 24. The Revenue is in appeal against the order of CIT(A) in restricting the disallowance under section 14A of the Act in respect of profits and gains on sale/redemption of investments claimed as non taxable. In view of our order holding that the provisions of section 14A of the Act are not applicable, then the same even applied for income claimed as exempt under section 10 of the Act. Hence, the grounds of appeal No.1 to 3 raised by the Revenue are dismissed. 25. Similarly, cross objection No.1 raised by the assessee in this regard is dismissed. The cross objection No.2 raised by the assessee on wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependent agent permanent establishment of Singapore branch. Accordingly, the assessee for the year under consideration was show caused as to why disallowance under section 40(a)(i) of the Act should not be made on reinsurance premium paid to Allianz SE, Singapore branch of ₹ 69,86,05,662/- for not withholding tax on such payments under section 195 of the Act. After considering the submissions of assessee but in view of issue being similar to assessment year 2008-09, the Assessing Officer disallowed the claim in the hands of assessee. The CIT(A) upheld the same, against which the assessee is in appeal. 30. We find that the Tribunal in assessment year 2008-09 has elaborately discussed the issue in para 26 onwards and had decided the same vide paras 32 to 43 at pages 25 to 35 of the order dated 03.02.2016. The Tribunal vide para 43 reversed the findings of DRP and held that the assessee was entitled to claim the deduction on account of reinsurance premium of ₹ 62.7 crores paid to the Germany company. We find that the issue raised in the ground of appeal No.4 is identical to the issue before the Tribunal and following the same parity of reasoning as in paras 32 to 43 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoices, website screenshots, risk inspection charges, etc. to justify the genuineness of risk inspection expenses of ₹ 7,54,23,407/- but could produced purchase orders of ₹ 2,51,25,372/-. The Assessing Officer following the order of DRP for assessment year 2008-09, wherein it was observed that purchase order constitute the basic document for insurance policy finalization and was essential to substantiate the genuineness of said expenditure and since the assessee could produce the purchase orders of only ₹ 2.51 crores, the risk inspection charges of ₹ 5,02,98,035/- were disallowed and added to the income of assessee. 34. The CIT(A) upheld the order of Assessing Officer. 35. The assessee is in appeal against the order of CIT(A)." 36. The learned Authorized Representative for the assessee in this regard pointed out that similar issue had arisen before the Tribunal and the issue has been decided in favour of assessee. He also pointed out that while deciding the issue in assessment year 2008-09, the Tribunal had sustained adhoc disallowance of 25% of expenses after giving credit of the amount covered by purchase orders. The reason for the said disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of assessee. The relevant findings vide para 49 are as under:- "49. We have heard the rival contentions and perused the record. In the facts relating to the issue, during the course of search on one Shri Sandeep Sitani, CA carried out on 22.06.2008 and survey under section 133A of the Act carried out on his official premises, various documents including bills, etc. were found from his premises. When he was considered the said documents, he explained the modus operandi of the transactions, under which he admitted that he was controlling the transactions of more than 25 companies for the purpose of issuing bogus bills on commission. From the details given in the statement and the accounts of the assessee and bank account with Corporation Bank, Bhayander Branch, Mumbai, of the said companies reflected various payments received from assessee, on different dates as tabulated at page 14 of the draft assessment order, totalling ₹ 1,08,31,179/-. The assessee was given an opportunity to produce the documents to establish its claim of risk inspection charges of ₹ 14,62,61,001/-. Before the Assessing Officer, the assessee furnished evidence of payment of ₹ 2,71,49,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of the said information of ₹ 1.08 crores, balance claim was disallowed in the hands of assessee on the premise that the assessee has not produced the purchase orders. After considering the explanation of the assessee, we are of the view that there is merit in the plea of the assessee to the extent that each of the risk inspection reports received by the assessee may not have resulted in the business being allotted to the assessee or after considering the profile of the companies against whom the assessee has received risk inspection reports, the assessee itself takes a view that it was not worthwhile to offer insurance services to such companies whose risk inspection reports were received by it. Admittedly, the onus was higher upon the assessee to establish its claim in view of the information received by the Assessing Officer pursuant to the search conducted upon Shri Sandeep Sitani, CA. However, the information received by the Assessing Officer was limited to the extent of part of the risk inspection charges paid by the assessee. No further information was collected by the authorities below to disprove the claim of the assessee. In the totality of the above said facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present appeal before us is identical to the issue before the Tribunal in assessment year 2008-09. Mere absence of purchase orders would not disentitles the assessee from the claim of risk inspection charges. However, we find merit in the plea of assessee that in the absence of any adverse evidences collected during the year, no disallowance is to be made in the hands of assessee in the instant assessment year. The assessee has further filed purchase orders by way of additional evidence before us. However, in the entirety of the ratio laid down in assessee's own case in assessment year 2008-09, absence of purchase orders would not disentitles the assessee to claim the said expenditure. Accordingly, we allow the claim of assessee in entirety. The ground of appeal No.5 raised by the assessee is thus, allowed. 40. The facts and issues in assessment year 2010-11 are identical to the facts and issues in assessment year 2009-10 and our decision shall apply mutatis mutandis to assessment year 2010-11. 41. In the result, appeals of assessee are partly allowed and the appeals of Revenue and Cross Objections of assessee are dismissed. Order pronounced on 29th day of September, 2017. X X X X Extracts X X X X X X X X Extracts X X X X
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