Vildirect: IncomeTax-caselaws-2010-VIL-413-ITAT-MUM

2010-VIL-413-ITAT-MUM

Income Tax Appellate Tribunal MUMBAI

ITA No.602/Mum/2009

Date: 09.09.2010

M/s . BIRLA SUN LIFE INSURANCE CO. LTD.

DY. COMMISSIONER OF INCOME TAX

For the Petitioner : Shri Yogesh A. Thar
For the Respondent : Shri Naresh Kumar Balodia

BENCH

SHRI D.K. AGARWAL, (JM) AND SHRI R.K. PANDA,(AM)

JUDGMENT

PER D.K. AGARWAL (JM).

This appeal preferred by the assessee is directed against the order dated 17.11.2008 passed by the ld. CIT(A) for the Assessment Year 2004- 05.

2. Briefly stated facts of the case are that the assessee company is engaged in the business of Life Insurance business, filed return declaring total loss of Rs. 76,82,86,610/-. However, the assessment was completed after disallowing expenses incurred on dividend income Rs. 30,18,496/-, expenses for increase of share capital Rs. 11.00 lacs and software expenses Rs. 2,65,112/- on a total loss of Rs. 76,39,03,002/-, vide order dated 8.12.2006 passed u/s. 143(3)(ii) of the Income tax Act, 1961 (the Act). On appeal ld. CIT(A) while upholding the order passed by the Assessing Officer dismissed the assessee's appeal.

3. Being aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us.

4. Ground No.1 is against sustenance of disallowance of expenses Rs. 30,18,496/- u/s. 14A, incurred for dividend income.

5. The brief facts of the above issue are that during the course of assessment proceeding it was observed by the Assessing Officer that the assessee has shown dividend income of Rs. 1,12,87,020/-. This income has been claimed as exempt u/s.10 (33). However, the expense relating to the earning of exempt income was not disallowed by the assessee company. On being asked, the assessee relied on some case laws. However, the Assessing Officer from the reading of the provisions of sec. 44, was of the view that the provisions of sec. I4A are not to be ignored while computing the profit of a company engaged in the business of Life Insurance. Provisions of sec. 14A do not over-ride the other provisions of Chapter IV. The Assessing Officer further observed that the assessee has given the details of expenses related to exemption income of dividend of Rs. 53,000/-. This has been worked out by the assessee on the ratio of total investment to total expenses of investment department. The Assessing Officer did not accept the said working for the reason that the total expenses incurred during the year by the assessee as operating expenses is Rs. 145.12 crores. The Assessing Officer following the assessment orders for the Assessment Years 2001-02 and 2002-03 worked out the disallowance u/s. 14A on the basis of total receipts shown by the assessee. Since the assessee has incurred total expense of Rs. 145.12 crores and the total receipt shown by the assessee is Rs. 537.50 crores and the dividend income shown by the assessee is Rs. 1,12,87,020/-, therefore, the Assessing Officer worked out the ratio of dividend income at 0.208% of total income and at this rate, he worked out the expenses incurred by the assessee for earning dividend income at Rs. 30,18,496/- which he added to the total income of the assessee . On appeal, the ld. CIT(A) while relying on the decision of the Special Bench of the Tribunal in ITO vs. Daga Capital Management(P) Ltd. in ITA No.8057/Mum/2003 dated 20.10.2008 upheld the addition made by the Assessing Officer.

6. At the time of hearing the ld. Counsel for the assessee at the outset submits, that this issue is directly covered in favour of the assessee by the following orders of the Tribunal :

1) M/s. Oriental Insurance Co. Ltd. vs. ACIT 2009-TIOL-172-ITATDel (ITA No.5462 & 5463/del/03 for Assessment Year 2000-01 and 2001- 02) order dated 27.2.2009.

2) Bajaj Allianz General Insurance Company Limited vs. Addl.CIT and vice versa in ITA No.1447/PN/07 and CO. No.52/PN/2007 order dated 31.8.2009 for the Assessment Year 2003-04.

3) JCIT vs. M/s. Reliance General Insurance Co. and vice versa in ITA Nos.3083, 2950,2951, 3084, 3085 & 3126/M/08 order dated 26.2.2010 for the Assessment Years 2001-02, 2002-03 and 2005-06.

4) M/s. Reliance General Insurance Co. vs. DCIT and vice versa in ITA No.781/M/07 for Assessment Year 2003-04 and ITA Nos.1520 & 6262 and 2144 & 6554/M/2008 order dated 30.4.2010 for Assessment Years 2004-05 and 2006-07.

He also placed on record copy of the said orders of the Tribunal. He therefore, submits that in view of the consistent view of the Tribunal, the disallowance of expenses made by the Assessing Officer and sustained by the ld. CIT(A) be deleted.

7. On the other hand the ld. DR while relying on the order of the Assessing Officer further submits that the assessee is claiming exemption u/s.10(33) in respect of dividend income and further claiming expenses related to the said exempted income which is not allowable under the Act. He further submits that since the assessee has not filed the details of such expenses, therefore, in the interest of justice the issue may be set aside to the file of the Assessing Officer.

8. In the rejoinder, the ld. Counsel for the assessee submits that the assessee has filed details of such expenses as appearing at page 50- 51 of the assessee's paper book and the same has also been considered by the Assessing Officer in para 5.16 of the assessment order. By placing reliance on the judgment in Mcorp Global P. Ltd. Vs. CIT (2009) 309 ITR 434(SC) he submits that the Appellate Tribunal has no power to take back the benefit conferred by the Assessing Officer or enhance the assessment . He therefore, submits that the disallowance made by the Assessing Officer and sustained by the ld. CIT(A) be deleted.

9. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the ld. Counsel for the assessee that the Assessing Officer after examining the relevant details as discussed in para 5.16 and 5.17 of the assessment order has disallowed the expenses of Rs. 30,18,496/- for earning dividend income, therefore, the plea taken by the ld. DR that the issue may be set aside to the file of the Assessing Officer is devoid of any merit. This being so, and keeping in view that the Tribunal in Oriental Insurance Co. Ltd. vs. ACIT (2009) TIOL -172-ITAT-DEL after discussing the identical issue at length has held that sec.44 provides for application of special provisions for computation of profits and gains of insurance business in accordance with Rule 5 of Schedule I and, therefore, it is not permissible to the Assessing Officer to travel beyond sec.44 and Schedule-I and make disallowance by applying sec.14A of the Act. The above order has consistently been followed by the Tribunal in the above three cases relied on by the ld. Counsel for the assessee. In the absence of any distinguishing feature brought on record by the ld. DR we respectfully, following the consistent view of the Tribunal hold that it is not permissible to the Assessing Officer to travel beyond sec.44 and Schedule-I and make disallowance by applying sec.14A of the Act and accordingly the disallowance of Rs. 30,18,496/- made by the Assessing Officer and sustained by the ld. CIT(A) is deleted. The ground taken by the assessee is therefore, allowed.

10. Ground No.2 and 3 are against the sustenance of disallowance of expenses of Rs. 11.00 lacs for increase of share capital and Rs. 2,65,112/- on account of soft ware expenses.

11. The brief facts of the above issues are that during the course of assessment proceeding on examination of balance sheet it was found by the Assessing Officer that the assessee has increased its authorised capital. The assessee was asked to submit the expenses related to increase of share capital and was also asked to explain as to why these expenses should not be disallowed being capital expenses. The Assessing Officer after considering the material available on record and in relying on decisions in Brooke Bond India Ltd. 225 ITR 798(SC), PSIDCL vs. CIT 225 ITR 792(SC) and CIT vs. Hindustan Insecticides Ltd. 250 ITR 338(Del.) disallowed the expenses of Rs. 11.00 lacs on account of increase in authorised capital and added to the total income of the assessee . On appeal, the ld. CIT(A) while rejecting the claim of the assessee that the assessee’s case is covered u/s.44 of the Act upheld the disallowance made by the Assessing Officer .

12. With regard to the software expenses Rs. 2,65,112/- it was disallowed by the Assessing Officer by treating the same as capital expenditure for bringing in an “intangible asset”. On appeal, the ld. CIT(A) following the decision of Hon’ble Rajasthan High Court in the case of CIT vs. Arawali Constructions Co . (P.) Ltd. 259 ITR 30 confirmed the disallowance made by the Assessing Officer.

13. At the time of hearing the ld. Counsel for the assessee submits that since the assessee is a Life Insurance Co., therefore, the income has to be computed under the provisions of sec.44 of the Act read with Schedule-I to the Act. By placing reliance in the case of Life Insurance Corporation of India vs. CIT (1964) 51 ITR 773 (SC) wherein it has been held :

“The assessment of the profits of an insurance business is completely governed by the rules in the Schedule to the Income-tax Act and the Income-tax Officer has no power to do anything not contained in it; there is no general right to correct the errors in the accounts of an insurance business.” The ld. Counsel for the assessee submits that both the disallowances viz. disallowance of expense for increase in share capital Rs. 11.00 lass and sot ware expense Rs. 2,65,112/- be deleted.

14. On the other hand the ld. DR supports the order of the Assessing Officer and the ld. CIT(A).

15. After carefully hearing the submissions of the rival parties and perusing the material available on record and keeping in view the ratio of the judgment of Hon’ble Supreme Court in Life Insurance Corporation of India supra, we find that there is no dispute that assessee company is engaged in the business of Life Insurance and the assessee has filed auditors report supported by actuarial valuation appearing at 1-44 of assessee's paper book, therefore, the provisions of sec. 44 read with rules in the first Schedule to the Income tax Act shall apply and the Assessing Officer has no power to do anything not contained u/s.44 of the Act. The income of the business of insurance is essentially to be at the amount of the balance of profit disclosed by the annual accounts as furnished in the Controller of Insurance. The actual computation of profits and gains of insurance business shall have to be computed in accordance with Rule-5 of the First Schedule. In the light of these special provisions having non obstante clause, the Assessing Officer is not permitted to travel beyond these provisions and accordingly the disallowance of Rs. 11.00 lacs on account of expenses for increase of share capital and Rs. 2,65,112/- of software expenses made by the Assessing Officer and sustained by the ld. CIT(A) is deleted. The grounds taken by the assessee are, therefore, allowed.

16. In the result, assessee's appeal stands allowed.

Order pronounced in the open court on 9.9.2010.

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