Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S. Sahara India Life Insurance ... on 31 October, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'A' NEW DELHI
BEFORE SHRI G.D.AGRAWAL, HON'BLE VICE PRESIDENT
&
SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
ITA No. 3509/Del/2013, A.Y. 2004-05
ITA no. 6243/Del/2013, A.Y. 2005-06
ITA NO. 6244/Del/2013, A.Y. 2006-07
ITA No. 5624/Del/2011, A.Y. 2007-08
ITA No. 1347/Del/2013, A.Y. 2008-09
ITA No. 6245/Del/2013, A.Y. 2009-10
ITA no. 6246/Del/2013, A.Y. 2010-11
DCIT Vs. Sahara India Life Insurance Co.
Cent. Circle 6 Ltd.
New Delhi 1, Kapoorthala Complex, Aliganj
Lucknow
PAN : AAHCS1334B
Appellant Respondent
ITA NO. 3480/Del/2012, A.Y. 2007-08
Sahara India Life Insurance Vs. DCIT
Co. Ltd. Cent. Circle 6
1, Kapoorthala Complex, New Delhi
Aliganj
Lucknow
PAN : AAHCS1334B
Appellant Respondent
Assessee by : Shri Ajay Vohra, Sr. Adv., Shri Aditya Vohra, Adv.
Arpit Goyal, CA
Revenue by : Shri B.S.Anant, Sr. DR
Date of Hearing 04.10.2018
Date of Pronouncement 31.10.2018
2 ITA no. 5624.Del.2011, 3480.Del.2012
ITA NO. 3509, 1347, 6243-46/Del/2013,
ORDER
PER BENCH :
1.0 The assessee is engaged in Life Insurance business. ITA No. 3509/Del/2013 is department's appeal which is preferred against order dated 15.03.2013 passed by the Ld. CIT (Appeals)-I, New Delhi for assessment year 2004-05. In this year the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter called 'the Act') was completed by the Assessing Officer on 30.11.2006. Subsequently, notice dated 28.03.2011 was issued u/s 148 of the Act for initiating reassessment proceedings and thereafter order u/s 147 read with Section 143(3) of the Act was passed on 09.12.2011. In the reassessment order, the difference between the interest accrued as per the balance sheet (which included interest paid at the time of purchase of securities) and the interest as per the profit and loss account was added to the income of the assessee. The original assessment was completed at a taxable income of Rs. 2,89,55,200/- whereas the reassessment was completed at a total income of Rs. 5,00,21,010/- after making an addition of Rs. 2,10,65,809/- which was in respect of the amount of interest alleged to have escaped taxation as per the 3 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, revenue audit objection. In the appeal before the Ld. CIT (A), the reopening of the assessment by the Assessing Officer was annulled. On merits also, the Ld. CIT (A) held in favour of the assessee considering the fact that the assessee had followed Accounting Standard 13 issued by the Institute of Chartered Accountants of India which dealt with pre-acquisition interest paid and post acquisition interest income. The revenue is in appeal against the order of the Ld. CIT (A) and the ground raised by the department challenges the action of the Ld. CIT(A) in deleting the addition of Rs. 2,10,65,809/- made by the AO on account of accrued income from investments. 1.1 ITA No. 6243/Del/2013 is the department's appeal preferred against the order dated 20.09.2013 passed by the Ld. CIT (A)-I, New Delhi for assessment year 2005-06. The assessee had filed the return of income declaring a loss of Rs.9,67,15,218/-. This was computed as per provisions of Sections 28 to 43B of the Act. The AO made various disallowances under different sections. The assessee approached the Ld. CIT (A) and took the ground that as the assessee was engaged in the business of life insurance, provisions of Section 28 to 43B were not applicable and the 4 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, same were overridden by Section 44 of the Act. The assessee also filed revised computation of income wherein the total income was computed as per Section 44 of the Act read with the First Schedule to the Act. The Ld. CIT (A) held that the provisions of Section 44 of the Act read with the First Schedule of the Act were to be applied in the assessee's case and deleted the various disallowances made by the AO and directed the Assessing Officer to assess the income of the assessee in terms of provisions of Section 44 of the Act. The department is in appeal against this direction of the Ld. CIT (A). 1.2 ITA No. 6244/Del/2013 is department's appeal preferred against the order dated 20.09.2013 passed by the Ld. CIT (A)-I, New Delhi for assessment year 2006-07 and the facts in this year are identical to the facts in assessment year 2005-06 wherein the assessee had earlier filed the return of income computing total income as per Sections 28 to 43 of the Act but had later filed a revised computation u/s 44 of the Act before the Ld. CIT (A). In this year also the AO had made disallowances which on appeal were deleted by the Ld. CIT (A) and direction was given to the AO to assess income of the assessee as per provisions of Section 44. In this year also the 5 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, department has challenged the action of the Ld. CIT (A) in issuing such direction.
1.3 ITA No. 5624/Del/2011 is department's appeal preferred against order dated 05.09.2011 passed by the Ld. CIT (A)-I, New Delhi for assessment year 2007-08 and the facts and issues are identical to the facts and issues in assessment year 2005-06 and 2006-07. In this year also the department is challenging the action of the Ld. CIT (A) in directing the AO to compute the income of the assessee in terms of provisions of Section 44 of the Act.
1.4 ITA No. 1347/Del/2013 is the department's appeal for assessment year 2008-09 wherein the department is challenging the order dated 05.12.2012 passed by the Ld. CIT (A)-I, New Delhi wherein the Ld. CIT(A) has issued directions to the AO to compute the income of the assessee u/s 44 of the Act. Thus, this year is also identical in facts and issues to assessment years 2005-06, 2006-07 and 2007-08.
1.5 ITA No. 6245/Del/2013 is department's appeal for assessment year 2009-10 and the department is challenging the order dated 20.09.2013 passed by the Ld. CIT (A)-I, New Delhi wherein, as in earlier assessment years 2005-06, 2006- 6 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, 07, 2007-08 and 2008-09, the Ld. CIT (A) has directed the AO to compute the income of the assessee in terms of provisions of Section 44 of the Act.
1.6 ITA No. 6246/Del/2013 is the department's appeal for assessment year 2010-11 and the order under challenge has been passed by the Ld. CIT (A)-I, New Delhi wherein vide order dated 25.09.2013, the Ld. CIT (A) has directed the AO to determine the income of the assessee in terms of provisions of Section 44 of the Act. The facts and issues are identical in this year also.
1.7 ITA No. 3480/Del/2012 is the assessee's appeal for assessment year 2007-08 wherein the assessee has challenged order dated 05.09.2011 passed by the Ld. CIT (A)-I, New Delhi wherein the Ld. CIT (A)-I, New Delhi has upheld the imposition of penalty of Rs. 6,13,947/- imposed u/s 271(1)(c) of the Act. 1.8 All these appeals were head together and for the sake of convenience they are being disposed of by this common order. 2.0 The Ld. Sr. Departmental Representative, arguing for the six identical appeals preferred by the Revenue, submitted that the Ld. CIT (A) had erred in law as well on facts in directing the Assessing Officer to determine the income of the Assessee in 7 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, terms of provisions of Section 44 of the Act as the assessee, in the original returns of the captioned years under appeal, had itself not filed the returns of income under provision of Section 44 of the Act but had filed the returns of income by treating the life insurance business as normal business. It was also vehemently argued by the Ld. Sr. Departmental Representative that the Ld. CIT (A) had also not appreciated the fact that apart from Insurance business, the assessee had also substantial investment activity and, therefore, the case of the assessee was not covered by provisions of Section 44 of the Act. The Ld. Sr. Departmental Representative submitted that the orders of the Ld. CIT (A) in all the captioned years under appeal by the department deserved to be set aside and the orders of the Assessing Officer were to be restored. 2.1 With respect to the department's appeal bearing caption No. 3509/Del/2013 for assessment year 2004-05, it was submitted that the Ld. CIT (A) had erred in deleting the various additions made by the AO on merits and the order of the Ld. CIT (A) deserved to be set aside in this case also. It was submitted that the Ld. CIT (A) had ignored the factual findings of the AO and had given relief to the assessee.
8 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, 3.0 In response, the Ld. Sr. Advocate, Shri Ajay Vohra, appearing on behalf of the assessee, submitted that as far as department's appeal bearing No. 3509/Del/2013 for assessment year 2004-05 was concerned, the appeal deserved to be dismissed outright as the department has challenged the deletion of additions only on merits and has not challenged the quashing of the re-assessment proceedings. It was submitted that the effect of this was that since the reassessment proceedings itself had been quashed by the Ld. CIT (A) and were not under challenge before the ITAT, the order of the Ld. CIT (A) to that extent remained unchallenged and, therefore, the quashing of reassessment proceedings stands accepted by the department and, accordingly, the appeal of the department only on merits becomes mere academic in nature. 3.1 For the other six appeals preferred by the department for assessment years 2005-06 to 2010-11 on identical issue, the Ld. Sr. Advocate placed reliance on the order of the ITAT Delhi Bench the case of Max New York Life Insurance Company vs. DCIT reported in (2018) 91 taxman.com 477 (Delhi Trib.) wherein vide order dated 5th January, 2018 it has been indicated that Section 44 debars the Revenue to apply 9 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, provisions of Section 28 to 43 B of the Act while computing profit and gains for an Insurance Company. It was also submitted that the Ld. CIT (A) had rightly allowed the assessee's additional ground raised before him because it is the mandate of the Income Tax Law that correct income has to be computed under the correct provisions of the Act and although initially the assessee company had filed its return/s of income under incorrect provisions, the assessee company did file the revised computation/s in all the years under appeal as soon as the mistake was realized. The Ld. Sr. Advocate submitted that there was no factual infirmity in the order of the Ld. CIT (A) in directing the AO to compute the income of the assessee as per the provisions of Section 44 of the Act. 3.2 With respect to the assessee's appeal pertaining to assessment year 2007-08 bearing caption No. 3480/Del/2012 with challenged the confirmation of imposition of penalty, the Ld. Sr. Advocate submitted that the assessee had filed the return computing total income under provisions of Sections 28 to 43B of the Act but during the appellate proceedings had filed the revised computation, computing the total income as per Section 44 of the Act and the penalty proceedings were 10 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, initiated by the Ld. CIT (A) for furnishing inaccurate particulars of income or concealment of income. It was submitted that the penalty levied by the Ld. CIT (A) deserved to be deleted because the notice issued u/s 274 of the Act in this regard did not specify the exact charge on which the penalty was proposed to be levied on the assessee. The Ld. Sr. Advocate drew our attention to the notice dated 05.09.2011 placed in the paper book and submitted that the irrelevant portions had not been crossed out. The Ld. Sr. Advocate also placed reliance on the judgment of the Hon'ble Karnataka High Court in the case of CIT vs. S.S.A.'S Emerald Meadows which was later upheld by the Hon'ble Apex Court for the proposition that no penalty was leviable if the charge was not specific. 4.0 In response, the Ld. Sr. Departmental Representative submitted that the impugned penalty was levied u/s 271(1)(c) of the Act on the difference between the original computed loss and the revised loss computed as per provisions of Section 44 of the Act and, therefore, the penalty had been levied correctly. The Ld. Sr. Departmental Representative submitted that the non-specification of the charge was a mere technical infringement and it did not alter the fact that there was 11 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, difference between the originally computed loss and the revised computed loss.
5.0 We have heard the rival submissions and have also perused the material available on record. We now take up the appeals one by one:
5.1 ITA no. 3509/Del/2013 - A perusal of the order of the Ld. CIT(A) shows that the Ld. CIT(A) has observed in Para 4.3 of the impugned order that even if it was to be assumed that the impugned amount of interest had not been taxed, the revenue audit objection as well as the consequent reassessment proceeding was not on sound legal footing in the absence of finding that the income computed by the assessee was not in accordance with the provisions of First Schedule or that the said amount of interest was to be included as per the computation provided in parts A or B of the said Schedule and was not so included. The Ld. CIT (A) has further observed that there is no such finding by the C & AG or the Revenue in this regard and therefore the reassessment order was liable to be annulled. Further, a perusal of Para 5.5 of the impugned order again shows that the facts clearly indicate that there was no material in possession of the AO other than the observation 12 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, of revenue audit to proceed against the assessee. The Ld. CIT (A) has observed that the change of opinion was not even based on any fact observed by the AO but on a presumptive observation of revenue audit and, therefore, the case squarely fell within the realm of 'change of opinion' which could not have been the basis for reopening of settled assessments, particularly after the lapse of 4 years. The Ld. CIT (A) held that on this ground also the said proceedings are not legally tenable. In Para 8, the Ld. CIT (A) has expressly held that the reassessment order passed u/s 147 of the Act is annulled.
Thus, it is obvious that the Ld. CIT (A) has quashed the reassessment proceedings but the department has not challenged such annulment before us. The department has only challenged the deletion of addition on merits which is obvious from the grounds of appeal and, therefore, we are afraid that the department has no case in this regard. Accordingly, in absence of a ground challenging the quashing of reassessment proceedings by the Ld. CIT (A), we find no reason to interfere and we dismiss the appeal of the department bearing caption No. 3509/Del/2013 as in fructuous.
13 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, 5.2 ITA Nos. 6244/Del/2013, 6243/Del/2013, 5624/Del/2011, 1347/Del/2013, 6245/Del/2013 and 6246/Del/2013 - All these six appeals raise challenge to the direction given by the Ld. CIT (A) that the assessee's income should be assessed by the AO under the provisions of Section 44 of the Act. The facts are undisputed that the assessee company is carrying on business of life insurance and is duly registered and governed by IRDA. Accordingly, it is also undisputed that the assessee company has to maintain its books of accounts and prepare its financial statements according to the Insurance Act and further as per the provisions of Section 44 of the Income Tax Act, 1961 read with the First Schedule and the profit and gains from the life insurance business are to be computed separately from any other business of the assessee. It is also settled position that these provisions are non obstante i.e. they override the other provisions of the Act and, therefore, the income chargeable of tax of an insurance company has to be computed in accordance with provisions thereof. It is also undisputed that initially the assessee had not filed its return/s of income under the correct provisions of the Act but later, during the course of 14 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, first appellate proceedings, had filed revised computation/s along with additional ground and the Ld. CIT (A) allowed the additional ground in all the years under appeal and restored the appeal to the file of the Assessing Officer with a direction to compute the income of the assessee as per the provisions of Section 44 of the Act. Since it is settled law that Section 44 of the Act over rides other provisions of the Act for the purpose of computation of profit and gains from the life insurance business, we find no reason to interfere with the directions of the Ld. CIT (A) in all the captioned years and we uphold his direction that the income of the assessee should be computed in accordance with the provisions of Section 44 of the Act. Accordingly we dismiss the grounds raised by the department in all the six appeals. Accordingly ITA Nos. 6243/Del/2013, 6244/Del/2013, 5624/Del/2011, 1347/Del/2013, 6245/Del/2013 and 6246/Del/2013 stand dismissed. 5.3 ITA No. 3480/Del/2012- In this appeal the assessee is challenging the upholding of penalty of Rs. 6,13,947/- imposed u/s 271(1)(c) of the Act. It is evident from the notice issued u/s.274 r.w.s. 271 of the Act dated 05.09.2011 for the impugned year that the Assessing 15 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, Officer has not specifically mentioned as to under which limb of Section 271(l)(c) of the Act the penalty proceedings had been initiated by him, i.e., whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Hon'ble High Court of Karnataka in the case of CIT vs. Manjunatha Cotton & Ginning Factor, reported in 359 ITR 565 (Kar) has, under identical facts, held as under:
"(p) Notice under section 274 of the Act should specifically state the grounds mentioned in Section 271(l)(c), i.e., whether it is for concealment of income or for furnishing of inaccurate particulars of income.
(q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law."
5.3.1 The said above-said judgment of the Hon'ble High Court of Karnataka in the case of CIT vs. Manjunatha Cotton & Ginning Factor (supra) has been followed by the Hon'ble High Court of Karnataka in the case of Commissioner of Income Tax vs. SSA's Emerald Meadows, reported in (2016) 73 taxmann.com 241 (Kar) 16 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, and the relevant paragraphs of the said judgment read as under-
"2. This appeal has been filed raising the following substantial questions of law, Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.s. 271(i)(c) is bad in law and invalid despite the amendment of Section 271 (1 B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same ?
(3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the 'assessee has concealed particulars of income?'
3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(l)(c) of the Income Tax Act. 1961 for short 'the Act') to be bad in law as it did not specify which limb of Section 271
(l)(c) of the Act: the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered, in the case of CIT v.
Manjunatha Cotton & Ginning Factory [2013] 359ITR 565/218 Taxman 423/35 taxmann.com 250 (Kar.).
17 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013,
4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.
5.3.2 Further, the SLP filed by the Revenue against the judgment of the Karnataka High Court in the case of Commissioner of Income Tax vs. SSA's Emerald Meadows (supra) was dismissed by the Hon'ble Supreme Court of India. Therefore, respectfully following the judgment of the Hon'ble Karnataka High Court as above-mentioned we are of the considered view that the Assessing Officer is required to specify which limb of Section 271 (1)(c) of the Act, the penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. From the perusal of the notice issued u/s 274 r.w.s. 271 of the Act, it is clear that the Assessing Officer has not specified as to under which limb of the section the penalty was imposable. The notice, in fact, is in the standard pro forma wherein the irrelevant clauses have not been struck off. This indicates non-application of 18 ITA no. 5624.Del.2011, 3480.Del.2012 ITA NO. 3509, 1347, 6243-46/Del/2013, mind on the part of the Assessing Officer while issuing the penalty notice. Thus, in the circumstances and facts of the case, the penalty proceedings initiated by the Assessing Officer are bad in law and deserve to be deleted. Accordingly, the impugned order is set aside and the AO is directed to delete the penalty in both the cases. Accordingly ITA no. 3480/Del/2012 stands allowed. 6.0 In the final result, all the seven appeals of the department stand dismissed whereas the sole appeal of the assessee stands allowed.
Order pronounced in the open court on 31.10.2018 Sd/- Sd/-
(G.D.AGRAWAL) (SUDHANSHU SRIVASTAVA)
VICE PRESIDENT JUDICIAL MEMBER
Dated: 31.10.2018
*BR*
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3. CIT
4. CIT(Appeals)
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ITAT NEW DELHI
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