Income Tax Appellate Tribunal - Delhi
Agriculture Insurance Company Of India ... vs Assessee on 1 March, 2016
\IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "A" NEW DELHI
BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
AND
SHRI SUDHANSHU SRIVASTAVA : JUDICIAL MEMBER
ITA no. 3115/Del/2013
Asstt. Yrs: 2008-09
M/s Agriculture Insurance Vs. DCIT, Circle 1(1),
Company of India Ltd., Delhi.
th
13 Floor, Amba Deep Bldg.,
14, K.G. Marg,
New Delhi. 110001.
PAN: AAECA 2874 P
( Appellant ) (Respondent)
Appellant by : Shri Aakash Singhal CA
Assessee by : Shri S.L. Anuragi DR
Date of hearing : 18/02/2016.
Date of order : 01/03/2016.
ORDER
PER S.V. MEHROTRA, A.M:
This is assessee's appeal against the order dated 20.02.2013, passed by the ld. CIT(A)-IV, New Delhi, relating to A.Y. 2008-09.
2. Brief facts of the case are that assessee company in the relevant assessment eyar was engaged in the business of agriculture crop insurance. It had filed its return declaring income of Rs. 247,79,13,474/-. The AO while completing the assessment made disallowance of Rs. 4,28,13,369/- u/s 14A and also made addition of Rs. 14,54,000/- on account of provision for stock holding and other charges.
23. Ld. CIT(A) in his order has noted that the AO reduced that amount and added only Rs. 58,11,413/- in the rectified order as against original disallowance of Rs. 4,28,13,369/-.
4. Before ld. CIT(A) it was submitted that section 44 provided for application of special provisions for computation of profits and gains of insurance business in accordance with Rule 5 of the first schedule and, therefore, it was not permissible for the AO to travel beyond sec. 44 and the First Schedule and make disallowance u/s 14A. The assessee placed reliance on the decision of ITAT Mumbai in the case of General Insurance Corpn. Of India vs. Addl. CIT in ITA no. 3554/Mum/2011 dated 15.02.2012, wherein the enhancement made by the CIT(A) was deleted in respect of sale of investment.
5. Ld. CIT(A) observed that the said decision was given in respect of assessment year 2007-08 while Rule 8D had been made applicable from AY 2008-09. Moreover, the said decision was in respect of sale of investment and not in respect of dividend income. He restricted the disallowance to Rs. 23,31,454/-.
6. Aggrieved, the assessee is in appeal before us and has taken following grounds of appeal:
"On the facts and in the circumstances of the case, the ld. CIT (Appeal) has erred in
1) In upholding the disallowance ofRs.58,11,413/- under section 14A of the Income tax Act as against the disallowable amount of Rs.23,31,454/- only.
2) Upholding the addition of Rs.14, 54,000/- under the head 'Provision for stock Holding charges" on account of the disallowance made by the ld. AO by not appreciating the appellant's claim that the impugned amount has actually been 3 'paid' during the year and was not a 'provision' though stated erroneously in the books of account.
Additional ground of appeal The appellant requests for admission of the following additional ground, being purely a legal ground not requiring any investigation of facts.
"On the facts and circumstances of the case, the provisions of Section 14A of the Income tax Act are not applicable to the appellant case in view of the special provisions of See 44 of the Income Tax Act and in accordance with the judgments in following cases GIC v. Addl. CIT Range 13, T. Bom, 2012(ID2) ITA no. 6260/MUM GIC Vs. ACIT.
Kotak Mahindra Old Mutual Life Insurance Ltd. v. ACIT dated 30.09.2011, ITA no. 2901/Mum/2010.
CIT v. Kribhco dated 18.07.2012 (Delhi HC) 2012-(349)-ITA- 0618-DEL.
7. First we take up the additional ground. In this regard ld. counsel referred to the decision of ITAT Delhi Bench "C" in the case of Oriental Insurance Co. Ltd. vs. ACIT (ITA no. 5462 & 5463/Del/2003 dated 27.2.2009) 130 TTJ (Del) 388., wherein the Tribunal in paras 22 to 24 has observed as under:
"22. We have considered the rival contentions and gone through the records. The provisions of section 44 read as under:
"Insurance business, - 44. Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head "interest on securities", "Income from house property", "Capital gains" or "Income from other sources", or in section 199 or in sections 28 to 43B, the 4 profits and gains of any business of insurance, including any such business carried on by a mutual 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 section 44 applies notwithstanding anything to the contrary contained within the provisions of the Income-tax 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 u/s 44 of the Act in the case of a 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 to the Controller of Insurance. The actual computation of profits and gains of insurance business will have to be computed in accordance with Rule 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. Section 14A contemplates an exception for deductions as allowable under the Act are those contained u/s 28 to 43B of the Act. Section 44 creates Special application of these provisions in the cases of insurance companies. We, therefore, agree with the assessee and delete the disallowance made by the AO which is based on the application of sec. 14A of the act as according to us, it is not permissible to the AO to travel beyond section 44 and First Schedule of the Income-tax Act.
8. Respectfully following the decision of the ITAT in the case of Oriental Insurance Co. Ltd. (supra), the additional ground raised by assessee is allowed. Accordingly, it is held that the provisions of section 14A are not applicable in the case of assessee. Therefore, the addition of Rs. 23,31,454/- stands deleted.
59. Brief facts apropos ground no. 2 are that in the P&L A/c assessee had debited a sum of Rs. 14,54,000/- on account of provision for stock holding and other charges. The assessee explained that these charges were paid to the custodians of its shares, securities, bonds and debentures, which formed part of its investment portfolio. Income from its investment portfolio was offered for taxation and, thus, expenses were claimed. The AO rejected the assessee's claim for the following two reasons:
"It is clearly reflected as a provision in the Balance Sheet as part of annual report submitted by the assessee. The balance sheet is duly scrutinized & audited by the assessee company. Therefore, it is not paid expenses but merely a provision and this contingent liability which is not allowable as per the provisions of the 1.T. Act.
2. For the sake of argument, if it is accepted that it is not provision but inadvertently placed under the head provision. Even then this amount is not admissible as expenses to the assessee. As assessee is claiming RsA.7 Crores as exempted income comprising of dividend & long term capital gain which directly arises from investments in shares, securities, bonds & debentures. Therefore this amount is directly attributable to earning of exempted income and therefore not allowable u/s 14A of the LT. Act, 1961 r.w.r. 8D(i) of the I.T. Rules, 1962. As it is held by the under signed in paragraph 3 of this order that expenses related to exempted company earned by the assessee company is to be computed in accordance with rule 80 of the 1.T. Rules, 1962 and therefore to be disallowed."
10. Ld. CIT(A) confirmed the addition. Ld. counsel referred to page 106 of the PB, wherein P&L account for the year ending 31.3.2008 is contained.
11. Ld. counsel submitted that the expenditure on this head of account was actually paid by the assessee but inadvertently shown it as provision. Ld. counsel further submitted that this expenditure has been allowed in earlier years. Ld. counsel further submitted that this expenditure should be 6 allowed in terms of section 43B also. He further submitted that assessee did not get sufficient opportunity to explain the facts in this regard.
12. We have considered the submissions of both the parties. We are of the opinion that the facts in regard to this issue needs to be re-marshaled. We, therefore, restore this issue to the file of AO for deciding the issue de novo in accordance with law, after affording reasonable opportunity of being heard to the assessee.
13. In the result, assessee's appeal is partly allowed for statistical purposes.
Order pronouncement in open court on 01/03/2016.
Sd/- Sd/- (SUDHANSHU SRIVASTAVA) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 01/03/2016. *MP* Copy of order to: 1. Assessee 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, New Delhi.