Hdfc Ergo General Insurance Company ... vs Assessee

आयकर अपीलीय अिधकरण, अिधकरण मुंबई Ûयायपीठ मुंबई ।

IN THE INCOME TAX APPELLATE TRIBUNAL "H " BENCH, MUMBAI सव[ौी आई.पी.बंसल, Ûयाियक सदःय. एवं ौी राजेÛि, लेखा सदःय के सम¢ BEFORE SHRI I.P. BANSAL, JM AND RAJENDRA, AM

आयकर अपील सं./I.T.A. No.5357/MUM/2013 ( िनधा[रण वष[ / Assessment Year : 2007-08 The DCI T 1(1), बनाम M/s. HDFC Ergo General बनाम/ Room No.579, Aaykar Bhavan, Insurance Co. Ltd.

Vs. MK Road, Mumba i 400020 Ramon House, HT Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai 400020 .

ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACH 8775L (अपीलाथȸ /Appellant) .. (ू×यथȸ / Respondent) आयकर अपील सं./I.T.A. No.5420/MUM/2013 ( िनधा[रण वष[ / Assessment Year : 2007-08 M/s. HDFC Ergo General बनाम The DCIT 1(1), बनाम/ Insurance Co. Ltd. Room No.579, Aaykar Bhavan, Vs. Ramon House, HT Parekh Marg, MK Road, Mumba i 400020 169, Backbay Reclamation, Churchgate, Mumbai 400020 .

ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACH 8775L (अपीलाथȸ /Appellant) .. (ू×यथȸ / Respondent)

Revenue by Shri Jeetendra Kumar Assessee by Shri Madhur Agarwal

सुनवाई कȧ तारȣख / Date of Hearing : 13/01/2015

घोषणा कȧ तारȣख /Date of Pronouncement : 13/01/2015

आदे श / O R D E R

PER I.P.BANSAL,J.M:

These are cross appeals and they are directed against order of Ld. CIT(A)-4, Mumbai dated 29/5/2013 for assessment year 2007-08. Grounds of appeal raised by the Revenue as well as the assessee read as under:

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Grounds of Revenue's Appeal:

"1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in holding that the profit on sale of investment is not taxable in the hands of assessee in the year under appeal."

2. "On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting deduction disallowed on account of amortization of debts securities of Rs.3,27,69,854/- without appreciating the facts"

Grounds of Assessee's Appeal:

1. The Commissioner of Income-tax (Appeals)-4, Mumbai (hereinafter referred to as the CIT(A) ] erred in not admitting the additional grounds of appeal claiming deduction for pre-operative expenses of Rs.6,422,568/-.

2. Without prejudice to (1) above, the CIT(A) ought to have directed the Assessing Officer ('AO') to allow deduction for pre-operative expenses of Rs.6,422,568/- amortised during the year.

3. The CIT(A) erred in not directing the AO to record the earlier years unabsorbed depreciation and brought forward business loss to be carried forward for set off against the income in the subsequent years."

Revenue's Appeal:

2. Apropos Ground No.1 of Departmental appeal, the same was stated to be covered by the decision of the Tribunal in assessee's own case and reference was made to the order dated 17/09/2010 in ITA No.338/Mum/2009 for assessment year 2004-05, wherein similar issue was raised by the assessee regarding taxability of profit on sale of investment and Tribunal has held that profit on sale of investment in the case of the assessee cannot be brought to tax. It was pleaded that facts and circumstances of the present year are same as were for assessment year 2004-05. Copy of the said order was also placed on our record and was also given to Ld. DR. Ld. DR after going through the decision of the Tribunal stated that facts and circumstances are same. However, he relied upon the order passed by AO.

2.1 We have heard both the parties and their contentions have carefully been considered. After careful consideration we find that the issue is covered by the aforementioned decision of the Tribunal and while giving 3आयकर अपील सं./I . T . A . N o.5357& 5420/MUM/2013 ( िनधा[रण वष[ / A s s e s s m e n t Y e a r : 2 0 0 7 - 0 8

relief Ld. CIT(A) has referred to the aforementioned order, relevant portion of which has already been reproduced in the order of Ld. CIT(A) and it is also reproduced below for the sake of convenience.

"6. We have perused the records and considered the rival contentions carefully. The dispute is regarding taxability of gain on sale of investment in case of the assessee which is in the business of general insurance. The profit of a general insurance company is required to be computed under the provisions of section 44 read with rule 5 of part B of 1st Schedule. The rule 5(b) which was applicable till assessment year 1988-89 specifically provided for taxability of gain on sale of investment. The said rule 5(b) was however deleted w.e.f assessment year 1989-90. The CBDT in circular No.528 dated 16.12.88 which has been reproduced in para 3 earlier has clarified that the amendment of rule 5(b) from assessment year 1989-90 was with a view to provide exemption of the profit earned on sale of in yes tin en ts. We find that impact of amendment of rule 5(b) from assessment year 1989-90 on the taxability of gain on sale of in vestment has been specifically considered by the Pune Bench of the Tribunal in case of Bajaj Allianz Vs. Addl. CIT in ITA No.1447/PN/2007 for assessment year 2003-04. The Tribunal in the said order observed that till assessment year 1988-89 rule 5(b) provided for taxation of profit on sale of investment which was deleted from assessment year 1989-90 and after deletion no clause was introduced to provide for taxation of such gain. The tribunal therefore concluded that after the deletion of rule 5(b) of the first schedule, profit on sale of in vestment in case of general insurance companies cannot be taxed under section 44 of the I. T Act. The said decision of the Tribunal has been followed by the Mumbai Benches of the Tribunal in case of M/s. Reliance General Insurance Co. Ltd. (supra). The case of the assessee is identical and therefore respectfully following the decision of Tribunal (supra), we hold that profit on sale of investment in case of the assessee cannot be brought to tax in assessment year 2004-05. Accordingly we set aside the order of CIT(A) and allow the appeal of the assessee.

In view of the above, we dismiss Ground No.1 of the Revenue's appeal.

3. Apropos Ground No.2, it was submitted that the issue is covered by the decision of Tribunal in the case of TATA AIG General Insurance Vs. ACIT, order dated 22/10/2010 in ITA No.2597/Mum/2009. (copy of order placed on our record and also given to Ld. DR.

3.1 According to facts of the present case, the assessee has amortized debit securities for Rs.3,27,69,854/- involving bonds/investments and debit securities and claimed as deduction in the return of income claiming that premium/discount relating to the securities is amortized over a period till the maturity. The AO did not agree and reject the claim of the assessee.

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Ld.CIT(A) has accepted the claim of the assessee on the basis of aforementioned decision of ITAT in the case of TATA AIG General Insurance vs. ACIT(supra) and referred to the following observations of the Tribunal:

"7. On a careful consideration of the facts and the rival contentions, we are of the view that the amortization claim cannot be considered as an expenditure or allowance within the meaning of rule 5(a) of the First Schedule. As held by the Supreme Court in the case of Indian Molasses Co. (Private) Ltd. vs. CIT, West Bengal (1959) 37 ITR 66 (SC), spending in the sense paying out or away of money is the primary meaning of expenditure. Expenditure is what is paid out or away and is something which is gone irretrievably. Expenditure, which is deductible for income tax purposes, is one which is towards a liability actually existing at the time, but the putting aside of money which may become expenditure on the happening of an event is not expenditure. If this meaning is to be given to the word "expenditure" occurring in rule 5(a), the amortization claim cannot be considered as expenditure and, therefore, cannot be added back to the balance of the profits. In General Insurance Corporation of India vs. CIT (1999) 240 1TR 139 (SC), the Supreme Court held that even if an item of debit is considered as an expenditure, it should further be such an expenditure contemplated in sections 30 to 43A and, therefore, unless there was a specific prohibition for such an allowance, the departmental authorities would not be justified in adding back the amount under rule 5(a). Therefore, even if the debit for amortization is considered as an expenditure, there is no specific prohibition against allowing such an expenditure under the provisions of sections 30 to 43B. The words "expenditure or allowance Which is not admissible under the provisions of sections 30 to 43B" appearing in the sub- rule has been explained by the Supreme Court to mean that there should be a specific prohibition against the expenditure or allowance in which case alone the Assessing Officer can add back the same to the balance of profits. it is common ground that there is no such specific prohibition against the allowance of the expenditure in the above sections of the Act. it may be noted that though rule 5(a) of the First Schedule considered by the Supreme Court in the above judgment was slightly different, but the words "any expenditure or allowance which is not admissible under the provisions of sections 30 to 43A"

were present and the same words being present in the amended sub-rule, they have to be given the same meaning as was given by the Supreme Court. Therefore, even if the debit for amortization is considered as an expenditure or allowance, there being no specific prohibition against the expenditure or allowance in sections 30 to 43B, the departmental authorities were not justified in adding back the amount to the balance of the profits. The judgment of the Supreme Court in the case of General insurance Corporation of India (supra) takes care of all the arguments advanced on behalf of the Revenue. We, therefore, delete the addition of Rs.1,91,33,945/- and allow the first ground."

3.2 We have heard both the parties and their contentions have carefully been considered. Ld. DR did not dispute the contention of Ld.AR that the 5आयकर अपील सं./I . T . A . N o.5357& 5420/MUM/2013 ( िनधा[रण वष[ / A s s e s s m e n t Y e a r : 2 0 0 7 - 0 8

issue is covered by the aforementioned decision of Tribunal in the case of TATA AIG General Insurance vs. ACIT (supra). In this view of the situation , respectfully following the said decision, we hold that Ld. CIT(A) did not commit any error in accepting the claim of the assessee and this ground of the Revenue is dismissed.

Assessee's Appeal:

4. Apropos ground No.1 & 2, it was submitted by Ld. AR that the issue was raised by the assessee before Ld. CIT(A) as additional ground and Ld. CIT(A) had forwarded the matter to the AO. It was the contention of assessee that this issue is also covered by the aforementioned decision in the case of TATA AIG General Insurance vs. ACIT (supra). The AO did not agree and in the remand report he submitted that the said decision of the Tribunal has not been accepted by the Revenue and Revenue's appeal is pending in the High Court. After considering all these submissions Ld. CIT(A) has dismissed this ground for the reason that assessee did not make this claim in the return and also did not file revised return. Such claim has also not been examined by AO either on facts, on merits or about the allowability or otherwise of the said claim as per law. Ld. AR submitted that in the interest of justice the said issue should be restored back to the file of AO as neither making the claim in the return nor filing the revised return is necessary to submit a claim which is legally admissible to the assessee as Appellate Authorities have power to entertain such claim in view of the decision of Hon'ble Bombay High Court in the case of CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd , 349 ITR 336 (Bom).

4.1 On the other hand, Ld. DR relied upon the order passed by Ld. CIT(A).

4.2 We have heard both the parties and their contentions have carefully been considered. If assessee is making a claim it will be within the power of Appellate Authorities to entertain such claim without making such claim in the return of income or without filing revised return. The case law relied 6आयकर अपील सं./I . T . A . N o.5357& 5420/MUM/2013 ( िनधा[रण वष[ / A s s e s s m e n t Y e a r : 2 0 0 7 - 0 8

upon by the assessee is applicable to the facts of the case, therefore, in the interest of justice we restore this matter back to the file of AO to examine the claim of the assessee and decide the same as per law after giving the assessee a reasonable opportunity of hearing. Ground No.1 & 2 is allowed for statistical purposes in the manner aforesaid.

5. Apropos Ground No.3, it was submitted by Ld. AR that this issue was raised by the assessee before Ld. CIT(A), who has rejected the said ground as per following observations:

"11. I have considered the facts of the case and submissions of the assessee. The earlier year's brought forward losses or depreciation are allowed as per law by verifying the same from records of earlier years and, therefore, there is no need to separately determine them every year. Hence, the ground of appeal is rejected."

5.1 It was submitted that instead of rejecting the ground Ld. CIT(A) should have directed the AO to record the earlier years unabsorbed depreciation and brought forward business loss to be carried forward for set off against the income in the subsequent years.

5.2 On the other hand, Ld. DR relied upon the order passed by Ld. CIT(A).

5.3 We have heard both the parties and their contentions have carefully been considered. The due benefit of set off of brought forward depreciation and business loss has to be granted to the assessee and recording of such unabsorbed depreciation and business loss which is entitled to be carried forward is also necessary for getting such benefit in the subsequent year. Therefore, we restore this issue to the file of AO with a direction to determine such brought forward and carried forward unabsorbed depreciation and business loss as per law after giving the assessee a reasonable opportunity of hearing. This ground is allowed for statistical purposes.

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6. In the result, appeal filed by the Revenue is dismissed and appeal filed by the assessee is allowed for statistical purposes in the manner aforesaid.

Order pronounced in the open court on 13/01/2015 .

आदे श कȧ घोषणा खुले Ûयायालय मɅ Ǒदनांकः 13/01/2015 को कȧ गई ।

Sd/- Sd/-

राजेÛि (RAJENDRA) आई.पी.बंसल (I.P.BANSAL) लेखा सदःय /ACCOUNTANT MEMBER Ûयाियक सदःय /JUDICIAL MEMBER मुंबई Mumbai; Ǒदनांक Dated 13/01/2015

आदे श कȧ ूितिलǒप अमेǒषत/Copy षत of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. ू×यथȸ / The Respondent. 3. आयकर आयुƠ(अपील) / The CIT(A)- 4. आयकर आयुƠ / CIT

5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai

6. गाड[ फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai

व.िन.स.Vm , Sr. PS