Income Tax Appellate Tribunal - Mumbai
Kotak Mahindra Old Mutual Life ... vs Ito on 10 May, 2007
ORDER
V.K. Gupta, Accountant Member
1. These appeals are directed at the instance of assessee against the order dated 23-6-2004 and 19-12-2006 passed by the Commissioner (Appeals)-I, Mumbai, arises out of the assessment completed under Sections 143(3) and 271(l)(c) of the Income Tax Act, 1961 for assessment year 2001-02. These were heard together and are being disposed of through this consolidated order for the sake of convenience.
2. We have heard the parties and have also perused the materials placed on record and applicable legal position.
3. First we shall deal with the quantum appeal filed by the assessee i.e., in ITA No. 8165/Mum./04 for assessment year 2001-02.
4. Ground No. 1 reads as under :
The Commissioner (Appeals)-I, Mumbai (hereinafter referred to as 'the Commissioner (Appeals)') erred in confirming the order of the Income- j-. tax Officer 3(2)(4), Mumbai (hereinafter referred to as 'assessing officer') thereby assessing income at Rs. 2,40,41,710 as against NIL returned income, on the ground that appellant had not commenced the business of Life Insurance, since no life insurance policies were issued.
5. Ground No. 2 is in the nature of arguments, hence, the same would be considered while deciding ground No. 1 and no separate decision shall be given thereon.
6. In Ground No. 3, the assessee is disputing the head of assessability of interest income earned by the assessee.
7. In Ground No. 4, the assessee is aggrieved by the decision of learned Commissioner (Appeals) in allowing only 5% of interest income as expenditure incurred for earning such interest income against the claim of Rs. 166.92 lakhs made by the assessee.
8. The facts, relating to Ground No. 1, are that the assessee-company was p formed on 31-8-2000 to carry on the Life Insurance business. The share, capital stood at Rs. 101 crores contributed by M/s. Kotak Mahindra Finance Ltd. which held 74% of the share capital and Old Mutual Pic. UK The assessee-company, though earned interest of Rs. 3,31,42,000 (net), however, declared income at 'Nil' in the return of income on the basis of valuation by actuaries by applying provisions of Section 44 and First Schedule to the Income Tax Act. The assessing officer, during the course of assessment proceedings, required the assessee to submit its explanation both in regard to applicability of Section 44 read with First Schedule and assessment of interest income under the head "Income from other sources". The assessee submitted its reply wherein it relied on the following decisions:
(i) Western India Vegetable Products Ltd. v. CIT
(ii) CIT v. Sarabhai Management Ltd
(iii) Prem Conductors (P.) Ltd. v. CIT .
The assessing officer, however, held that assessee was engaged in life insurance business which was strictly different from other businesses, hence, these decisions relied on by the assessee were squarely distinguishable on facts. The assessing officer also held that in the present case, the only activity which was required to be done by the assessee to prove the set up and commencement of business was the issuance of Life Insurance Policies. Thereafter, the assessing officer referred to provisions of Section 44 read with rule I of Part A of First Schedule to conclude that in the absence of even a single policy being issued in this year, being the first year of operation, the assessee could not be said to have carried on business on life insurance, hence, these provisions were not applicable. The assessing officer also held that, as the consequence of this, the interest income earned by the assessee was to be taxed in the normal manner. The assessing officer, thereafter, held that interest which had become due and payable by 31st March was to be considered as income liable to be taxed under the head "Income from other sources". The assessing officer, however, rejected the claim of the assessee for allowance of expenses incurred at Rs. 166.92 lakhs against interest income because these expenses had been incurred for set up of its life insurance business and not for earning of this income. However, the assessing officer gave reduction @ 5% of interest income on ad hoc basis and completed the assessment. Aggrieved by this, assessee carried the matter into appeal before the learned Commissioner (Appeals) wherein the submissions made before the assessing officer were reiterated. The assessee also referred to provisions of Section 27 of the Insurance Act, 1938 to contend that it had invested controlled funds comprising of shareholder funds in approved securities, hence, it had commenced the business although no policies were issued during the year. The assessee also contended that it had been granted registration by Insurance Regulatory and Development Authority on 10-1-2000 after compliance of statutory requirements. The assessee also relied on the decision of the Tribunal in the case of HSBC Securities India Holdings (P.) Ltd. v. Dy. CIT (IT Appeal No. 3181 (Mum.) of 1999, dated 28-11-2001) wherein it was hold that it was a question of fact as to when the business was set up and this question had to be decided on consideration of all facts and circumstances of the case because each step taken by the assessee before the commencement of business was important having regard to the nature of business. The learned Commissioner (Appeals), after considering the submissions of the assessee, held that in the case of assessee, the business of life insurance could said to have been established but not commenced A because the establishment/set up of business was the stage prior to commencement of the business and commencement was related with the term "carried on" and since the assessee had neither issued any policy nor appointed any Insurance Agents, it could not be held that business had been started in this case. The: learned Commissioner (Appeals) in holding so relied on the decision of Hon'ble Bombay High Court in the case of CIT v. Ralliwolf Ltd. and in the case of CIT v. Industrial Solvents & Chemicals (P.) Ltd . The learned Commissioner (Appeals), thereafter, analysed the B head of taxability of interest income earned by the assessee and held that since appellant had not commenced the business and the investments had been made before that, therefore, interest accrued thereon was 'income from other sources' and not the income from insurance business. The learned Commissioner (Appeals) also relied on various judicial decisions in this regard and confirmed the action of assessing officer. The learned Commissioner (Appeals) also confirmed the action of assessing officer in giving a rebate of 5% of the interest income while computing the interest income. Aggrieved by this, the at assessee is in appeal before us.
9. The learned counsel, appearing on behalf of the assessee, narrated the factual matrix of the case and ref erred to provisions of Section 44 and First Schedule to contend that assessee was engaged in the life insurance business as it had invested the funds in the approved securities as required as per the provisions of Insurance Act, 1938, although no policy was issued up to 31st March. The learned counsel, thereafter, emphasized on the fact that the learned Commissioner (Appeals) had given a categorical finding that the assessee's business had been set up during the previous year after the grant of certificate of registration by the Insurance Regulatory and Development Authority on 10-1 -2001 and the department had not contested this finding of the learned Commissioner (Appeals), therefore, expenditure incurred by the assessee was allowable. It was also contended that interest earned on approved securities was to be treated as business income of the assessee as it was earned E on securities wherein the investment was made to meet the statutory requirements of the: business. The learned counsel also contended that if the interest income was to be treated as 'income from other sources', then business expenses incurred by the assessee would result in to business loss, being eligible for set off as per the provisions of the Act. The learned counsel also contended that even if it was assumed that First Schedule did not apply to the assessee, but that would not mean that assessee was not in the business. Thereafter, the learned counsel referred to the F judicial decisions in support of his various contentions which are briefly stated as under. The learned counsel contended that assessee's business had already commenced as it: completed various essential steps of its business and for this proposition, the learned counsel relied on following decisions :
(1) CIT v. Saurashtra Cement & Chemical Industries Ltd .
(2) Sarabhai Management Corpn. Ltd v. CIT .
(3) CIT v. Sarabhai Management Corpn. Ltd. .
(ii) As regards the head of interest income being profits and gains of business or profession, the learned counsel relied on the following judicial decisions and Board Circular No. 22R. BIS 51(14) IT-47, dated 23-9-1947.
(i) CIT v. Karnataka State Co-operative Apex Bank
(ii) CIT v. Ramanathapuram District Co-op. Central Bank Ltd (2002) 255 ITR 4232 (SC).
(iii) CIT v. Nawanshahar Central Co-op. Bank Ltd (2007) 289 ITR 63 (SC).
(iv) General Family Pension Fund v. CIT (1946) 14 ITR 488 (Cal.).
The learned counsel further pointed out that the decision in the case of Saurashtra Cement & Chemical Industries Ltd. (supra) was followed by the Gujarat High Court in the case of Sarabhai Management Corpn. Ltd. (supra) which was approved by the Hon'ble Supreme Court, on an appeal, in the case of Sarabhai Management Corpn. Ltd (supra), hence, the proposition of law was that where multiple stages were required for commencement of business and if essential stages had been completed by the assessee, then, the business of the assessee would stand commenced and in the present case on granting of the licence by IRDA, business stood commenced. The learned counsel controverted the findings of the learned Commissioner (Appeals) regarding non-appointment of agents as a factor to hold that the assessee's business had not commenced by stating that assessee had envisaged and planned a direct marketing of policies and the agents were not required mandatorily to carry on the life insurance business. The learned counsel also referred to the compliance report given to IRDA as required and contended that assessee was actually engaged in the business of Life Insurance. On a query from the Bench as to why not even single policy was issued before 31st March, even though the assessee had got the licence to act as insurer in January, 2001, the learned counsel replied that there was no regulatory restraint in this regard.
10. The learned D.R. contended that Section 44 and First Schedule were not at all applicable to the present case as the assessee had not issued any policy of insurance during the period under consideration. The learned D.R. also referred to rule 6 of Schedule I, though applicable to non-resident, to contend that it was the premium income which was a pre-F requisite to apply First Schedule. The learned D.R. also referred to rule II of First Schedule to contend that reference to acturial valuation and inter valuation period to compute the profits and gains of life insurance business also imbibed therein, the same principle. With regard to various case laws relied on by the assessee, the learned D.R. contended that those were related to manufacturing/trading companies, whereas the assessee-company was engaged in life insurance business, hence, those were not applicable. It was further contended that these decisions were of the period before the period of insertion of Section 35D of the Act, hence, were not relevant as on date. The learned D.R. also contended that the Licence given by IRDA was a step enabling the assessee to carry on the life insurance business but this by itself was not sufficient to hold that the assessee's business commenced thereafter because assessee by its own act of not effecting any insurance policy refrained itself from doing business of life insurance. In this regard, the learned D.R. referred to the press release dated 16-3-2001 of Old Mutual Pic, being a constituent of the assessee, wherein it was mentioned that first product for the Indian Market was launched on 16-5-2001 and this date was chosen to coincide with the 156th anniversary of the founding in Cape Town South Africa of Old Mutual Pic, one of its two shareholders. The learned D.R. also q referred to other press release of the assessee dated 9-1 -2002 wherein 1st year of operation was mentioned as ended on December, 2001, hence, even by own admission of the assessee, this period could not be treated as the period of commencement of insurance business by the assessee. The learned D.R. placed strong reliance on the decision of Hon'ble jurisdictional High Court in the case of Addl CIT v. Jupiter General Insurance Co. Ltd wherein the expression "business of effecting contracts of insurance upon human life" was explained as to mean issuance of new life insurance policies and, since in the present case, assessee had not issued any policy, assessee could not be said to be engaged in life insurance business. The learned D.R. also referred to the provisions of Section 2(11) of the Insurance Act, 1938 in this regard. The learned D.R. also relied on the following judicial decisions to contend that assessee's business had not commenced :
CWT v. Ramaraju Surgical Cotton Mills Ltd. .
CIT v. Sponge Iron India Ltd. (1993) 201 ITR 7702 (AP).
Goindwall Indl & Investment Corpn. of Punjab Ltd v. ITO (1994) 49 ITD 149 (Chd).
The learned D.R., in respect of head of interest income earned, contended that this was to be treated as income from other sources and placed reliance on the following decisions :
(i) CIT v. Autokast Ltd (2001) 248 ITR 1103 (SC).
11. The learned counsel, in the rejoinder, contended that rule 6 of First Schedule was not applicable to the assessee-company, hence, no inference could be drawn against the assessee on the basis of this Rule. The learned counsel also contended that provisions of Section 35D were applicable only to specific categories of expenses, therefore, old cases were still relevant. The learned counsel also placed strong reliance on the decision of the Tribunal in the case of Goindwallndl & Investment Corpn. of Punjab Ltd. (supra) and referred to internal para 10 of the order wherein, based upon completion of certain activities, being part of total activities, assessee was held to have commenced the business. The learned counsel also referred to the portion of the judgment in the case of Sponge Iron India Ltd. (supra) which had a reference to the decision of Hon'ble Delhi High Court in the case of Snam Pregetti S.P.A. v. Asstt. CIT (1981) 132 ITR 701 and contended that in the present case, assessee had made deposits to carry on the life insurance business and not merely to get a registration from IRDA, therefore, the interest income was liable to be taxed as business income. The learned counsel also referred to para 18 of the decision of the Tribunal in the case of HSBC Securities India Holdings (P.) Ltd. v. Dy. CIT (IT Appeal No. 3181 (Mum.) of 1999 for assessment year 1995-96, order dated 28-11-2001) and contended that all the activities undertaken by the assessee till the grant of registration by IRDA were similar to the activities undertaken by the share broker in the aforesaid case, hence, the ratio of this decision was squarely applicable and accordingly expenses incurred by the assessee after 10-1-2001 were allowable as deduction and if a loss was computed, the same was eligible to be set off and/or carry forward to the subsequent years. The learned counsel also distinguished the case of Jt. CIT v. Sardar Sarovar Narmada Nigam Ltd (2005) 93 ITD 321 (Ahd.) by stating that in that case even a brick was not laid whereas in the present case substantial activities had been undertaken which resulted in the commencement of business.
12. We have considered the submissions made by both sides, material on record and orders of authorities below. Admittedly, the assessee-company has been incorporated to carry on life insurance business. It is not in dispute that it has got registration from IRDA on 10-1-2001 to act as insurer. It is also not in dispute that assessee-company had raised the requisite capital and established management structure and also invested funds raised by it in the bank deposits and approved securities as per Insurance Act, 1938 whereon the interest has been earned by the assessee-company. In this factual background, the first question which is required to be adjudicated by us is regarding whether provisions of Section 44 and First Schedule is applicable to the assessee-company or not. Section 44 of the Act is an overriding provision whereby the profits of life insurance business have to be computed in accordance with the provisions of First Schedule to the Income Tax Act, 1961. As per the provisions of Section 44, Sections 28 to 43B of Part D relating to the profits and gains of business or profession are not applicable. Rule 1 of First Schedule states that in the case of a person who carries on or at any time in the previous year carried on life insurance business, the profits and gains of such person from that business shall be computed separately from its profits and gains from any other business. Rule 7(iv) states that the life insurance business would mean "life insurance business is defined in Section 2(11) of the Insurance Act, 1938". As per Section 2(11) of the Insurance Act, 1938, "life insurance business" means "the business of effective contracts of insurance upon the human life, including any contract whereby the payment of money is assured on them" Thus, for our purpose, the decision of the Hon'ble jurisdictional High Court in the case of Jupiter General Insurance Co. Ltd.(supra) is most relevant because in this case, the meaning of word "effecting" has been explained. In this case, the assessee-company had been barred by the Government to issue policies and it was serving only already issued policies. In that context, the Tribunal had held that rule2(l)(b) of First Schedule was not applicable since the assessee was not in the business of life insurance for the reason that it was not issuing any new policies. The relevant findings of the decision of Hon'ble High Court are reproduced as under:
A plain reading of Clause (11) shows that by the expression life insurance business' is meant the business of effecting contracts of insurance upon human life. The only question which we have to consider in this regard is what is meant by 'effecting contracts of Insurance'. According to Mr. Mehta this only means issuing new policies of insurance, whereas, according to Mr. Joshi, even the servicing of old policies would amount to carrying on insurance business. We find that the Dictionary meaning of the verb 'effect' which is appropriate to the present case, is 'to take or D to take out' (see Concise Oxford Dictionary of current English, Fifth Edition, page 389). What we have to consider is whether the said expression in Section 2(11) of the Income Tax Act should be given more extensive meaning than the aforesaid dictionary meaning. We see no reason to do any such thing. It is clear from the order of the Tribunal that the result of giving a wider meaning to the expression 'effecting contract of insurance upon human life' would be to limit the permissible management expenses in the manner laid down in Sub-rule (2) of the said Schedule, E which would obviously be unfair in a case like this. It is not disputed that this method would result in an artificially high figure of income being arrived at in respect of the business of servicing previously issued life insurance policies carried on by an assessee in a case like the one before us and a part this no reason is shown as to why it would be more reasonable to give a more extensive meaning to the said expression. We are, therefore, of the view that the expression 'the business of effecting contracts of insurance upon human life' as used in Clause (11) of Section F 2 of the Insurance Act should be interpreted as meaning the business of taking out or issuing new policies for that purpose. We may point out that the normal rule of construction is that where words or expressions in a statute have a literal or plain grammatical meaning attributable to them, and no particular reason is shown as to why that literal or grammatical meaning should be departed from, it is that meaning, which must be given to such words or expressions.
Though the learned counsel has tried to distinguish this decision on facts but in our considered opinion, assessee's case is placed in more worse position than that case because in that case assessee had already issued policies in the past and serving those policies even then assessee was held as not engaged in life insurance business whereas in the present case, the assessee has not issued a single policy during the period under consideration. In this view of the matter, we hold that Section 44 and First Schedule of the Act are not applicable in the case of the assessee. Before parting with the issue, we consider it pertinent to mention that the terms "set up" and "commencement" are two different terms and convey different meaning. The term 'set up' can be defined as a situation where infrastructure is placed in advance with a view to do something whereas the term "commencement" means the actual beginning of something. In the present case even though the assessee had set up the business but it took a conscious decision to launch its first project on 16th May, 2001 coinciding with some historical event, even though there were no regulatory restriction or constraints, hence, in these circumstances, it can be concluded that the assessee has rather chosen not to commence the business in commercial manner, therefore, it cannot be allowed to take a plea that it has commenced business for the purpose of taxation based upon various judicial decisions which are also distinguishable on facts. We are further of the opinion that the word "set up" used in Section 3 is for different purposes and is not relevant for the purpose of considering the allowance or disallowance of expenses because the deduction are to be allowed under specific heads subject to satisfaction of the conditions specified therein. Section 44 and rule I of First Schedule, both refer to business carried on by an assessee and the words "carry on" means to continue ie. remain in existence/operation or to keep happening without stopping or to start again in the present case, the assessee cannot be said to have stated operation for merely the reason that it has deposited the funds raised in Bank/approved securities because every prudent person would do so and would not keep the funds idle even if it is not required to make investments in a specified securities by law. What is relevant in the present case is issuance of life insurance policy which the assessee has not done, hence, it has not commenced the business. Further, the assessee has stated that agents are not required but from the reply to the IRDA vide letter dated 16-10-2000, the assessee has made a categorical submission that it was doing direct marketing only for the purpose of generating the leads which would be given to the tied up agents to complete the sales ultimately, hence, an obvious inference can be drawn that agents are required to carry on the life insurance business. Thus, this contention of the assessee is also rejected. Further, the profits and gains of life insurance, business have to be computed in accordance with the profits determined as per the provisions of Insurance Act, 1938 and rule 2 of First Schedule also refer to acturial valuation and situation for acturial valuation would arise only when the assessee has issued insurance policies. Therefore, the profits for the period cannot be computed as per the prescribed rule, hence, due to failure of machinery provisions as provided in First Schedule of Section 44 is substantive provision also not applicable.
13. Now, we shall deal with the second proposition of the assessee i.e. whether expenditure incurred since beginning till 31st March is allowable under the head "Profits and gains of business or profession" or whether expenditure incurred after 10-1-2001, being the date of registration to act as an insurer, till 31st March is allowable as an expenditure under the head "Profit and gains of business or profession". Admittedly, the expenses which has been incurred by the assessee during this period are of revenue as well as of recurring nature except a few cases where the expenses could be of non-recurring nature. As stated earlier, the assessee has been formed with the object of carrying on life insurance business and its calendar year if December. In the first calendar year, the assessee-company has effected different types of life insurance policies, hence, the profits of the succeeding financial year would necessarily be computed in accordance with the provisions of Section 44 read with First Schedule of the Income Tax Act In this year, the assessee has been held to have not carried on the business of life insurance hereinbefore, hence, the expenses cannot be allowed as revenue expenses in the year under consideration. Further, provisions of Section 35D also enumerative for the amortization of pre-commencement expenses after the commencement of business, however, in the case of the assessee, provisions of Section 35D would not be applicable in subsequent year because of overriding effect n of provisions of Section 44 of the Act. Therefore, assessee would be deprived of amortization of expenses under Section 35D as well. Be it so, the allowability of an expenditure is dependent upon the express provisions of law, hence, if the assessee does not meet the requirements of law, the expenses cannot be allowed. Having stated so, the position is that Section 44 is overriding provision only with respect of computation of profits and gains of life insurance business, hence, the charging section remains Section 28 which also mandates carrying on of business in the E previous year as a pre-requisite for allowability of the expenses. Since it has already been held that assessee has not carried on the business in the year under consideration, the assessee cannot get any deduction of expenses incurred by it either before or after 10-1-2001, being the date of registration granted by IRDA, till 31-3-2001. Thus, the contention of the assessee for allowances of expenses as business expenses is rejected.
14. As regards the head of assessability of interest income earned by the assessee, it is an admitted fact that the assessee has invested funds raised by way of capital into bank deposits and approved securities during the period under consideration. Had the assessee been held as engaged in the business of life insurance, the interest could have been treated as part of assessee's business operations. But this is not so, hence, the interest earned has to be treated as income from other sources only as settled by several judicial decisions. Thus, this ground of the assessee is also rejected.
15. Now, the only question remains to be adjudicated is regarding allocation of expenses towards earning of the interest. Since the interest is to be treated as income from other sources, the assessee can only claim expenditure which falls within the ambit of provisions of Section 57(iii) of the Act. The assessee has engaged people to carry on the business as a life insurer, hence, salary and other connected expenses cannot be held as incurred for earning of the interest. Having regard to nature of expenses incurred, we are of the view that revenue authorities have rightly allowed 5% of the interest income as expenses incurred to earn the same. Accordingly, we decline to interfere in the matter. Thus, this ground of the assessee is also rejected.
16. In the result, appeal filed by the assessee stands dismissed.
17. Now, we shall take up assessee's appeal in ITA No. 397/M/2007 for assessment year 2001-02.
18. In this appeal, the assessee is aggrieved by the levy of penalty under Section 271(1)(c) by the assessing officer and confirmed by the learned Commissioner (Appeals) on account of the rejections of the claim of the assessee that it was liable to be taxed in accordance the provisions of Section 44 read with First Schedule of Income Tax Act, 1961. The assessee has also taken a preliminary ground that penalty was not leviable as the assessing officer did not record satisfaction while completing the assessment.
19. The facts of the case have already been narrated in detail while disposing ITA No. 8165/M/04 hereinbefore. The assessing officer levied a penalty of Rs. 1,50,00,000 after rejecting the submissions of the assessee. In the appellate proceedings, the assessee submitted detailed explanations regarding non-applicability of provisions of Section 271(l)(c)on the ground that appellant had made a claim on the basis of facts of the case and bona fide understanding of law and relying upon certain judicial pronouncements, therefore, it was merely a case of genuine difference of opinion on matters of law between the assessee and assessing officer and which was E clearly outside the scope of Explanation 1 to Section 271(l)(c) of the Act. The learned Commissioner (Appeals), however, held that the word 'deliberately' had been deleted from the Section 271(1 )(c) of the Act, therefore, it could be held that the assessee concealed the particulars of its income. The learned Commissioner (Appeals), accordingly, confirmed the penalty but reduced the quantum thereof to Rs. 83,21,997. Still aggrieved, the assessee is in appeal before us.
20. The learned counsel for the assessee, initiated his arguments by stating that levy of penalty was invalid as there was no satisfaction recorded by the assessing officer in the quantum assessment order and for this proposition, he relied on the following decisions:
Diwan Enterprises v. CIT .
CIT v. Globe Sales Corpn. (2005) 145 Taxman 530 (Delhi).
The learned counsel further pointed out that the appellant made a full disclosure and acted in a bona fide manner, therefore, no penalty was leviable.
21.The learned D.R., on the other hand, contended that the entire facts had been concealed or misleading, hence, penalty was rightly confirmed by the learned Commissioner (Appeals). The learned D.R. placed strong reliance on the decision of Hon'ble Supreme Court in the case of CIT v. S.V. Angidi Chettiar with regard to issue of satisfaction. The learned D.R. also contended that the issue was made debatable by the assessee without any genuine/basis, hence, penalty was leviable. For this proposition, the learned D.R. relied on the decision of Hon'ble Gujarat High Court in the case of Ganesh Chhababhai Vallabhai Patel v. CIT . The learned D.R. also placed reliance on the decision of Hon'ble Supreme Court in the case of Indian Banks' Association v. Devkala Consultancy Service (2004) 267 ITR 1792.
22. The learned counsel for the assessee, in the rejoinder, contended that the assessing officer decided against the assessee on the ground that business had not been set up whereas the learned Commissioner (Appeals) held that business had been set up, therefore, two views were possible, hence, by any stretch of imagination, penalty could not be levied.
23. We have considered the submissions made by both sides, material on record and orders of authorities below. Admittedly, the assessee has made ample disclosures in the financial statements attached along with the return regarding its claim. It is also not in dispute that the assessee has made investments in approved securities as required under the provisions of Insurance Act, 1958 after getting the approval from IRDA. The assessee has also relied on various judicial decisions in adopting its course of action.
There is also a difference in the approach by learned Commissioner (Appeals) with regard to the aspect of "set up". It is also a settled principle that disallowance or addition in the quantum assessment proceedings does not result into a levy of penalty under Section 271(l)(c) of the Act automatically and penalty under Section 271(l)(c) can be levied only when it is established that such addition/disallowance does represents assessee's real income.
In these circumstances, we are of the view that it is a case of difference of opinion between the assessee and revenue Authorities, hence, it is not a fit case for levy of penalty. Before parting with the issue, we may add if penalty for concealment is levied in such cases, then growth of law would be jeopardised. Thus, penalty for concealment is cancelled on merits and, therefore, we consider it fit to not give any opinion on the technical ground regarding recording of satisfaction by assessing officer in the assessment order.
24. In the result, appeals filed by the assessee stands allowed on merits.
25.To sum up, assessee's appeal in ITA No. 8165/Mum./2004 stands dismissed while assessee's appeal in ITA No. 397/Murn./2007 stands allowed.