Income Tax Appellate Tribunal - Mumbai
Kotak Mahindra Old Mutual Life Ins. Ltd, ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "A"
Before Shri D. Manmohan (VP) & Shri R.K. Panda (AM)
I.T.A.No. 4179/Mum/2010 (Assessment year : 2004-05)
DCIT 1(2) Vs. M/s. Kotak Mahindra Old
Room No. 535, 5th Floor Mutual Life Insurance Ltd.
Aayakar Bhavan Godrej Coliseum
M.K. Road 9th Floor, Behind Everard
Mumbai-400 020. Nagar, Sion (East)
Mumbai-400 022.
APPLICANT RESPONDENT
C.O.No. 64/Mum/2011 (Assessment year : 2004-05)
M/s. Kotak Mahindra Old Vs. DCIT 1(2)
Mutual Life Insurance Ltd. Room No. 535, 5th Floor
Godrej Coliseum Aayakar Bhavan
9th Floor, Behind Everard M.K. Road
Nagar, Sion (East) Mumbai-400 020.
Mumbai-400 022.
PAN/GIR No. : AAACO3983B
Assessee by : Shri F.V. Irani
Department by : Smt. Usha Nair
ORDER
Per D. Manmohan (VP):-
These cross appeals are directed against the order dated 30.3.2010 of learned CIT(A)-2 Mumbai and they pertain to A.Y. 2004-05.
2. Facts necessary for disposal of the appeals are stated in brief. Assessee-company is engaged in the business of life insurance and annuity. In respect of the previous year relevant to A.Y. 2004-05 assessee-company declared a loss of ` 48,76,31,000/-. Matter was taken up for scrutiny. During the course of assessment proceedings it was noticed that the assessee-company had a gross deficit of ` 54.28 crores in the policyholders account whereas in the shareholders account it had surplus of ` 5.15 crores. In his opinion surplus generated on investor's funds should not be adjusted against loss reflected in the policyholders 2 M/s. Kotak Mahindra Old Mutual Life Insurance Ltd.
account and accordingly he issued show-cause notice calling upon the assessee to explain as to why the same should not be brought to tax. In reply thereto the assessee filed detailed explanation on 20.11.2006 wherein it was submitted as under :-
"7. Surplus generated from investment activity of shareholders fund is nothing but part of life insurance business and is also governed by the provisions of section 44 and Schedule I of the Income Tax Act, 1961. Having regard to the nature of the activity of the company, the surplus from the investment activity of shareholders funds will form part of life insurance business and shall be governed by section 44 read with Schedule I of the Income Tax Act, 1961. ('the Act').
The surplus of ` 5,15,99,000/- from the investment activity of shareholders' funds form part and parcel of life insurance business and shall be governed by section 44 read with Schedule I of the Income Tax Act, 1961 ('the Act').
Therefore, surplus of ` 5,15,99,000/- in the shareholders account is required to be deducted from the deficit of ` 54,28,16,000/- in the Policyholders account (Technical Account) to arrive at the net deficit for the year for life insurance business.
8. Without prejudice to the above, even if it is assumed/held that surplus of ` 5,15,99,000/- generated from investment activity of shareholders fund is not integral part of life insurance business but a separate activity, nonetheless is business activity of the company and any current deficit (loss) or carried forward deficit (loss) in policyholders account, which is business loss is allowed to be set off u/s. 70 or u/s. 72 respectively, against the surplus in the shareholders account.
Both the businesses are inter-connected and interlinked with each other and losses and expenses of one business are allowable as deduction from the profits of any other business. Therefore, the net result of the current year's computation even by this argument will be a deficit of ` 48,76,31,000/- which is declared in the return of income and claimed as business loss, eligible for carry forward."
3. Vide order dated 19.12.2006 the Assessing Officer accepted the net loss as declared by the assessee. In other words, though prima-facie he entertained a view that set off of is not permissible, having regard to the circumstances of the case he did not choose to make any addition. As is the usual practice, since plea of the assessee was accepted, the Assessing Officer completed the assessment without mentioning reasons for acceptance of claim of the assessee.
3M/s. Kotak Mahindra Old Mutual Life Insurance Ltd.
3.1 Thereafter the Assessing Officer sought to reopen the assessment on the ground that though the assessee is only one single entity, total income of the entity has to be divided into profit from the business of insurance and income from investment pertaining to shareholders account and from the total profits income from shareholders account has to be segregated and taxed as per the normal provisions. Page No. 81 of the paper book contains the reason for reassessment proceedings. In response thereto the assessee objected to reopening on the ground that on the same issue the assessee-company had furnished detailed explanation which was accepted in the original assessment proceedings and hence reopening of assessment on the same issue would amount to "change of opinion" which is not permissible in law. As could be noticed from page No. 61 onwards of the paper book, the Assessing Officer admitted that the assessee was called upon to explain the same issue during the course of original assessment proceedings but proceeded to uphold the reassessment proceedings on the ground that non- consideration of the said issue in the original assessment proceedings can be a good reason for reassessment proceedings. Assessee thereafter strongly objected to the addition on merits but the Assessing Officer vide his order dated 30.10.2009 proceeded to compute the assessment on total income of ` 5,15,99,000/.
4. Aggrieved the assessee challenged the order passed by the Assessing Officer by contending before learned CIT(A) that in the light of the decision of Hon'ble Apex Court in the case of Kelvinator of India Ltd., 320 ITR 561 reassessment proceedings are bad in law. Without prejudice to the issue concerning jurisdiction of the reassessment proceedings, it was also contended that even on merits there is no case for making the impugned addition.
5. Having regard to the circumstances of the case, learned CIT(A) held that the reassessment proceedings are bad in law. In this regard he observed at para 7 as under :
4M/s. Kotak Mahindra Old Mutual Life Insurance Ltd.
"7. I have perused the facts of the case. I noticed that in the original assessment proceedings the issue of surplus in the shareholders account and its taxability had been raised by the Assessing Officer and appellant had filed its views on the issue. Yet, in the order of assessment this surplus was not added to the income by the Assessing Officer. Evidently the surplus was not added to total income of appellant because the Assessing Officer was satisfied with the submissions of assessee on the particular issue. That means the issue had already been considered in totality by the then Assessing Officer. Now, Assessing Officer is raising the same issue once again and has reopened the assessment accordingly. This is nothing but a change of opinion. The reopening of assessment has been considered by the Apex court in the case of Kelvinator of India Ltd. where the bench of Hon'ble Delhi High Court had considered the reopening of assessment and had held that a presumption can be raised that an order u/s. 143(3) has been passed after application of mind. Hon'ble court had held that if it is held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceedings without anything further, the same would amount to giving premium to an authority exercising quasi-judicial function to take benefits of its own wrong. It was held that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceedings upon mere change of opinion. The view of Hon'ble Delhi High Court has been confirmed by the Apex court in their decision in the Civil Appeal Nos. 2009-2011 of 2003 with 2520 of 2008 in order dated January 18th 2010 and they have held that Assessing Officer has the power to reopen assessment provided there is 'tangible material' to come to the conclusion that there is escapement of income. According to learned Representative of appellant, nothing has changed since the passing of the original order of assessment. There is no new material before Assessing Officer, at least nothing has been brought to the knowledge of the appellant, based on which Assessing Officer could formulate his reason to believe that income had escaped assessment. It is the same set of facts, same set of documents and same issue which has been raised again by Assessing Officer and assessment has been reopened. This action of Assessing Officer is contrary to the decision of Supreme Court in the case discussed herein above."
6. Since the order passed by the Assessing Officer is quashed on the jurisdictional ground, issues urged before him on merits are not taken up for consideration.
7. Aggrieved, the revenue preferred an appeal before the Appellate Tribunal contending, inter-alia, that the learned CIT(A) erred in holding that the reassessment proceedings are bad in law. By way of abundant 5 M/s. Kotak Mahindra Old Mutual Life Insurance Ltd.
precaution, the assessee filed cross objections wherein additions/ disallowances made by the Assessing Officer, on merits, were challenged.
8. Learned counsel for the assessee submitted that in the event of holding that the reassessment is bad in law there is no need for us to go into the issues urged in the cross objections, since it would be of academic importance.
9. We have heard learned Departmental Representative as well as learned counsel appearing on behalf of the assessee and carefully perused the record. Case of the revenue is that in the original assessment order the Assessing Officer having not specifically mentioned the issue, which was the subject matter for reopening assessment, notice issued by the Assessing Officer u/s. 148 of the Act, within 4 years from the date of completion of original assessment, is in accordance with law. On the other hand learned counsel appearing on behalf of the assessee submitted that the Assessing Officer having called upon the assessee to furnish explanation as to why surplus of ` 5.15 crores should not be brought to tax, merely because the Assessing Officer has not specifically mentioned, in the original assessment proceedings, the reasons for acceptance of the explanation or merely because the Assessing Officer has not applied his mind properly it would not enable the Assessing Officer to reopen the assessment proceedings on the same set of facts as it would amount to giving premium to an authority exercising quasi- judicial function to take benefit of it's own wrong. Apart from relying upon the decision in the case of Kelvinator of India Ltd. (supra) he had also relied upon the following decisions wherein on identical circumstances Jurisdictional High Court, Delhi High Court held that unless some fresh material is brought on record, notice u/s. 148 cannot be issued on same set of facts as it would amount to change of opinion which is not permissible in law.
• Asian Paints Ltd. Vs. DCIT, 308 ITR 195 (Bom) • CIT Vs. Kelvinator of India Ltd., 256 ITR 1 (Del)(FB) • ICICI Prudential Life Insurance Co. Ltd. Vs. SCIT, 325 ITR 471 (Bom) 6 M/s. Kotak Mahindra Old Mutual Life Insurance Ltd.
In support of his contention that reassessment proceedings were initiated on same set of facts which were existing during the course of initial assessment proceedings, the assessee referred to page No. 61, 62, 71, 81, 88 and 91 of the paper book.
10. Having regard to overall circumstances of the case we are of the view that it is not a fit case for initiating proceedings u/s. 148 of the Act. Hon'ble Bombay High Court, in the case of ICICI Prudential Life Insurance (supra), had an occasion to consider this issue wherein facts and circumstances are identical. Since view taken by learned CIT(A) is in consonance with the view taken by Hon'ble Jurisdictional High Court (supra), we do not find any merit in the appeal filed by the revenue and therefore the appeal of the revenue is dismissed.
11. Consequently grounds urged by the assessee in the cross objections are not taken up for adjudication since it is academic in nature.
12. In the result appeal filed by the revenue as well as cross objections filed by the assessee are dismissed.
Order has been pronounced on 24th Day of June, 2011.
Sd/- Sd/-
(R.K. PANDA) (D. MANMOHAN)
ACCOUNTANT MEMBER VICE-PRESIDENT
Dated : 24th June, 2011.
Copy to : 1. The Appellant
2. The Respondent
3. The CIT(A)-concerned.
4. The CIT, concerned.
5. The DR concerned, Mumbai
6. Guard File
BY ORDER
True copy
ASSTT. REGISTRAR, ITAT, MUMBAI
PS