Full Text
ITA 475/2019
PR.COMMISSIONER OFINCOME TAX, Appellant
Through Mr. Sagar Suri, Standing counsel and Ms.Lakshmi Gurung,Advocates
Through Mr.Aniket D.Agrawal,Advocate
PR.COMMISSIONER OFINCOME TAX, (CENTRAL-1)
Appellant
PR.COMMISSIONER OFINCOME TAX Appellant
PR.COMMISSIONER OFINCOME TAX, (CENTRAL-1)
Appellant
2019:DHC:7413-DB
02.08.2019 CM Appl. No.I9863/20I9(Exemption)in ITA No.426/2019
CM AppI.No.19865/2019(Exemption!in ITA No.427/2019 r CM Appl.No.19869/2019(Exemption)in ITA No.429/2019
ORDER
1. Exemption allowed,subject to alljust exceptions. CM Appl.No.19862/2019(delay)in ITA No.426/2019 CM Appl.No.19864/2019(delay)in ITA No.427/2019 CM Appl.No.19868/2019(delay)in ITA No.429/2019
2. For the reasons stated in the applications,the delay of30 days in re-filing the appeal is condoned and the application is disposed of. ITA Nos.475/2019.426/2019,427/2019 and 429/2019
3. These are four appeals by the Revenue against a common impugned order ~ dated 3L' October, 2018 passed by the Income Tax Appellate Tribunal (TTAT').
4. ITA No. 475/2019 is directed against the order passed by the ITAT in ITA No. 6243/Del/2013 for Assessment Year(AY)2005-2006; ITA NO. 426/2019 is directed against an order passed by the ITAT in ITA NO. 1347/Del/20I[3] for AY 2008-2009,ITA No.427/2019 is directed against an order passed by the ITAT in ITA No.6246/Del/20I[3] for AY 2010-2011 and ITA 475/2019& other connected matters Page2of[8] ITA No. 429/2019 is directed against an order passed by the ITAT in ITA No.3509/Del/2013 for AY 2004-2005 respectively.
5. One common issue sought to be urged by the Revenue in all these appeals is whether the ITAT was justified in upholding the order of the Commissioner of Income Tax (Appeals) ['GIT (A)'] accepting the Respondent/Assessee's revised computation of income in terms of Section 44 read with First Schedule to the Act? There are certain other incidental questions urged which will be discussed hereafter.
6. The facts as far as AY 2004-2005 is concerned, are that the Respondent, which is carrying on life insurance business,filed its return ofincome which was picked up for scrutiny. Initially the assessment was completed by the Assessing Officer(AO)under Section 143(3)ofthe Act on 30'^ November,
2006. Subsequently, after the expiry offour years thereafter, a notice dated th 28 March,2012 was issued under Section 148 ofthe Act for initiating re assessment proceedings.
7. In response to the notice under Section 147,the Respondent filed a return ofincome,this time computing the income in terms ofSection 44 ofthe Act. However, the AO in the re-assessment order added the difference between the interest as per the balance sheet(which included interest paid at the time ofpurchase ofsecurities)and the interest as per the Profit and Loss Account to the income of the Respondent whereas the original assessment was computed at a taxable income of Rs.2,89,55,200/-, the re-assessment, after ITA 475/2019& other connected matters Page3of[8] making an addition of Rs.2,10,65,809/- led to the computation of a total income ofRs.5,00,21,010/-.
8. In the appeal before the CIT(A),the re-opening ofthe assessment by the AO was annulled. On merits also, the CIT (A) held in favour of the Respondent observing that it had followed Accounting Standard 13 issued by the Institute of Chartered Accountants of India (ICAI) with preacquisition interest paid and post acquisition interest income. The addition ofRs.2,10,65,809/- made by the AO was deleted.
9. The facts relevant to AY 2005-2006 are that the Respondent filed its return of income on 24"^ December, 2007 declaring a loss of Rs.9,67,15,2I8/-. The return was picked up for scrutiny and statutory notices were issued by the AO to the Respondent. After making some additions and disallowances under Sections 28 and 43B of the Income Tax Act, 1961 (hereafter 'Act'),the AO computed the income under the head 'Business' at an assessed loss ofRs.5,48,20,431/-.
10. Subsequently, the AO claimed to have noted that the Respondent had claimed excessive deductions/allowances. In its appeal against this assessment order before the CIT (A), the Respondent raised an additional ground that its income from the insurance business had to be computed in terms of Section 44 ofthe Act which was applicable exclusively to income derived from such insurance business. Accordingly, it also furnished a revised computation of loss at Rs.7,47,31,918/-. This was accepted by the ITA 475/2019& other connected matters Page4of[8] CIT (A) and a direction was issued to the AO to compute the income accordingly.
11. During this second computation, the AO took note of the fact that the Respondent, which had got the license to commence business on 6^*^ February, 2004, had commenced its insurance business activity on 30'*^ October, 2004. The AO held that a sum of Rs.2,62,04,000/- had been claimed by the Respondent as 'amortization charges of investment'. This was held to be capital expenditure and therefore was disallowed and added to the Respondent's total income.The AO also initiated penalty proceedings under Section 271 (1)(c)ofthe Act. This was done by an order dated 24"^ December,2007 under Section 143(3)ofthe Act.
12. For the second time around, the Respondent filed an appeal before the CIT (A) where one of the main grounds taken was that the AO was not justified in refusing to compute the total income ofthe Respondent in terms of Section 44 ofthe Act read with the First Schedule. The CIT(A)by the order dated lO"^ June,2014 accepted this plea and deleted the disallowances.
13. The facts for AY 2006-2007 were identical to AY 2005-2006 in so far as the Respondent had initially filed return ofincome as per Sections 28 to 43 ofthe Act but later filed revised computation under Section 44 ofthe Act before the CIT(A). Likewise, for AY 2010-2011 also, where the CIT(A) directed the AO to determine income in terms ofSection 44 ofthe Act. ITA 475/2019& other connected matters Page5of[8] r ■'
14. The Revenue filed appeals for the above AYs before the ITAT. One appeal of the Respondent pertaining to AY 2007-2008 was dismissed by the CIT (A) who upheld the imposition of penalty upon the Assessee under Section 271 (1) (c) of the Act. Against this, the Respondent filed an appeal before the ITAT.
15. The ITAT has in the impugned order noted that for AY 2004-2005 there was no material in possession of the AO other than the observation of the Revenue audit to proceed against the Assessee under Section 147 of the Act. The CIT (A) noted that the case fell squarely within the realm of 'change of opinion' which was impermissible as a basis for re-opening of assessments after a lapse of four years. The CIT (A) expressly annulled the re-assessment proceedings. The ITAT noted that this was not challenged by the Revenue. It only challenged the deletion of the addition on merits. In the absence of any challenge to the quashing of the re-assessment proceedings by the Revenue, the ITAT found no ground to interfere.
16. Learned counsel for the Revenue sought to contend that the ITAT adopted the technical view in precluding the Revenue from urging the merits of the issue only because it had not challenged the order of the CIT (A) annulling the re-assessment proceedings. In the considered view of the Court, this is not a mere 'technical approach'. The fact of the matter is that there was no basis for the re-opening of the assessment except the presumptive observation of the Revenue audit which itself was not based on any tangible material. ITA 475/2019 & other connected matters Page 6 of[8] r
17. Consequently, as far as AY 2004-2005 in is concemed,the Court finds no reason to interfere with the order ofthe ITAT and no substantial question oflaw arises.
18. As far as the other appeals are concemed,the central issue is whether the income of the Respondent ought to have been permitted to be computed under Section 44 ofthe Act? Further, for some AYs, whether it could have been permitted at the stage ofthe appeal before the CIT(A)?
19. As rightly observed by the ITAT,it is not in dispute that the Respondent carried on the business of life insurance. It is obliged to maintain its books of accounts and prepare its financial statements under the Insurance Act,
1938. Section 44 of the Act read with First Schedule thereof deals exclusively with the computation of Profit and Gains from life insurance business. These provisions, which begin with non-obstante clauses, override other provisions ofthe Act. There was no option but to compute income for insurance business in terms thereof. Therefore,the Respondent wasjustified in filing the revised computation under Section 44 ofthe Act and claiming this as an additional ground before the CIT (A). In the circumstances, the direction given by the CIT(A)to the AO to compute income in terms of Section 44 ofthe Act wasjustified.
20. The Court is unable to find any error having been committed in the ITAT in this regard. No substantial question of law arises on this issue as well. ITA 475/2019& other connected matters Page 7of[8]
21. The Respondent had challenged the upholding of the penalty imposed under Section 271(1)(c)of the Act, which was accepted by the ITAT. It followed the decision ofthe Kamataka High Court in CIT v. Manjunatha Cotton & Ginning Factory 359ITR 565(Kar)and observed that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(1)(c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Kamataka High Court had followed the above judgment in the subsequent order in Commissioner ofIncome Tax V. SSA's Emerald Meadows (2016) 73 Taxman.com 241 (Kar), the appeal against which was dismissed by the Supreme Court ofIndia in SLP No.11485 of2016 by order dated 5^*^ August,2016.
22. On this issue again this Court is unable to find any error having been committed by the ITAT.No substantial question oflaw arises.
23. The appeals are accordingly dismissed.
S.MURALIDHAR,J. AUGUST 02,2019 mw TALWANT SINGH,J. ITA 475/2019& other connected matters Page8of[8]