Commissioner Of Income Tax,Chennai v. M/S United India Insurance Company24, Whites Road,Chennai - 600 014

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM: THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE Mrs.JUSTICE V.BHAVANI SUBBAROYAN Tax Case Appeal Nos.339 and 342 of 2019 Commissioner of Income Tax,Chennai ..Appellant in both appeals Vs. M/s United India Insurance Company24, Whites Road,Chennai - 600 014 ..Respondent in both the appeals Tax Case Appeals filed under Section 260A of the Income TaxAct, 1961, against the common order made in ITA Nos.1571 and1085/Chny/2017 dated 28.08.2018 passed by the Income TaxAppellate Tribunal, 'A' Bench, Chennai for the Assessment Year2013-2014 against the order dated 28/03/2017 and made in ITANo.10/16-17/CIT(A)-11 on the file of the Commissioner of IncomeTax (Appeals)-11, Chennai and against the order dated 27/03/2016and made in GIT No/PAN on the file of the AssistantCommissioner of Income Tax, Corporate Circle-3(2) respectively(in both appeals). These appeals, at the instance of the revenue filed underSection 260A of the Income Tax Act, 1961 (the 'Act' for brevity)challenging the common order passed by the Income Tax AppellateTribunal, 'A' Bench, Chennai in ITA Nos.1571 and 1085/Chny/2017dated 28.08.2018 for the Assessment Year 2013-2014 respectively. https://hcservices.ecourts.gov.in/hcservices/ 2. The Revenue had raised Five Substantial Questions of Lawfor consideration. When the appeals came up for admissionbefore us, on 21.06.2019, we had admitted the appeals only withregard to Substantial Question of Law No.3 and decided theother questions on the following lines: “3. We have heard Mr.M.Swaminathan, learnedSenior Standing Counsel for the Revenue andMr.M.V.Swaroop, learned counsel accepting notice forthe respondent – assessee. 4. The Revenue does not dispute the positionthat substantial questions of law Nos.2 and 4 namelythe issues pertaining to the tax at source on thepayment made to surveyors and the tax at sourcetowards the commission paid were decided by usagainst the Revenue in the assessee's own case inTCA.No.341 of 2019 by judgment dated 14.6.2019.Following the same, substantial question of law Nos.2and 4 are decided against the Revenue. 5. Though in the substantial questions of lawraised for consideration, the Revenue raised questionNo.1 for the assessment year 2013-14, oninstructions, the learned Senior Standing Counsel forthe Revenue submits that this issue does not arisefor the assessment year under consideration (2013-14). Hence, substantial question of law No.1 is leftundecided and open. 6. This leaves us with substantial question oflaw No.5, which pertains to deletion of addition forthe infra payments made by the assessee to the cardealers. After going through the assessment orders,we find that the disallowance was based upon aninformation received by the Assessing Officer fromthe Service Tax Authorities. The Assessing Officerstated that the Service Tax Authorities concludedafter detailed investigation that no services wererendered by the car dealers to the assessee andtherefore disallowed infra payments made by theassessee to the car dealers. It is not disputed bythe Revenue that the investigation conducted by theService Tax Authorities is yet to attain finality andcontinues to remain in the show cause stage even ason date. Therefore, the Assessing Officer was notright in holding that the Service Tax Authoritiesconcluded that no services were rendered by the cardealers to the assessee. At best, the findingrecorded in the show cause notice by the Service Tax Authorities can be only a prima facie finding andunless and until an adjudication takes place andfinal orders are passed, there can be no conclusionarrived at against the assessee holding that noservices were rendered by the car dealers to theassessee. Authorities can be only a prima facie finding andunless and until an adjudication takes place andfinal orders are passed, there can be no conclusionarrived at against the assessee holding that noservices were rendered by the car dealers to theassessee. 7. This issue was considered by the Commissionerof Income Tax (Appeals)-11 [for brevity, the CIT(A)]and in our considered view, the CIT(A) rightly heldthat there is no conclusive evidence, which has beenbrought out either by the Service Tax Department orby the Income Tax Department. At this juncture, werefer to the findings recorded by the CIT(A) inparagraph 12.7.7 of his order, which read asfollows : “I have considered both the points ofview briefly mentioned above. After goingthrough all the points of contention andperusing the relevant documents, I have cometo the following conclusion :a) The Assessing Officer has merelybased his conclusion on the content of theshow cause notice issued by the Service TaxDepartment. Till date, the Service TaxDepartment has not passed any order findingfault with the appellant. There is noevidence whatsoever pointing out that theaforesaid payment was not genuine or themotor dealers did not render the services. b) The appellant has submitted all thenecessary supporting documents to prove thatthe aforesaid payment was genuine and theservices were actually rendered by the motordealers. c) The C&AG and IRDAI have notfound fault with the aforesaid payment.d) As per the guidelines of theappellant company and the IRDAI, theoutsourcing of services to the motor dealerswas permitted.e) The Assessing Officer has not evenproved any violation of procedure let aloneprohibition by law so as to invokeExplanation to Section 37(1) of the Act todisallow the aforesaid payment. f) A mere reference by the Directorateof Service Tax Department to the DirectorGeneral of Income Tax (Inv.) does notwarrant disallowance of the aforesaidpayment. g) The Assessing Officer's observationthat the TDS certificates were not given isnot convincing when no specific opportunitywas given to the appellant for furnishingthe TDS certificates. When the AssessingOfficer has Form 26AS, there is nojustification for making such observation.h) With regard to the preliminaryfinding by the Service Tax Department, thereis no material at this juncture to justifythe Assessing Officer's disallowance on theground that the payment was not genuine andthe service was not rendered. If anyconclusiveevidencecomesoutofinvestigation by the Investigation Wing ofthe Income Tax Department or by the ServiceTax Department, the Assessing Officer hasample power under Section 147 of the IT Actto reopen the assessment based on freshevidence if it is received in future.” 8. The above findings rendered by theCIT(A) were affirmed by the Tribunal in theimpugned order. On going through thefindings of the CIT(A), we find that theinterest of the Revenue has been fullyprotected, as the CIT(A) made an observationthat the Assessing Officer has ample powerunder Section 147 of the Act to reopen theassessment based on fresh evidence, if it isreceived in future. We may add that ifultimately the Service Tax Department holdsagainst the assessee, it is well open to theAssessing Officer to exercise his powerunder the Act. Thus, for the above reasons,we find that the decision rendered by theCIT(A) as confirmed by the Tribunal isperfectly valid and substantial question oflaw No.5 is decided against the Revenue. 9. In the light of the abovediscussions, we hold that (i) Substantial question of law No.1does not arise for consideration in theseappeals. (ii) Substantial question of law Nos.2and 4 are decided against the Revenue inview of the decision rendered by us inTCA.No.341 of 2019 dated 14.6.2019 and(iii) Substantial question of law No.5 is 9. In the light of the abovediscussions, we hold that (i) Substantial question of law No.1does not arise for consideration in theseappeals. (ii) Substantial question of law Nos.2and 4 are decided against the Revenue inview of the decision rendered by us inTCA.No.341 of 2019 dated 14.6.2019 and(iii) Substantial question of law No.5 is decided against the Revenue for the reasonsset out above subject to the liberty grantedby the CIT(A). 10. Hence, the appeals are admitted onsubstantial question of law No.3 namely “Whether,onthefactsandcircumstances of the case and in law, theTribunal was justified and correct inholding that the provisions of Section 115JBof the Act, which enables the companies tocompute book profit may not be applicable toinsurance companies ?”The Revenue is at liberty to re-frame thissubstantial question of law at the time ofhearing the appeal since the respondent -assessee raised a dispute that they neverclaimed benefit under Section 115JB of theAct for the assessment year underconsideration. List on 25.7.2019" 3. We have heard Mr.M.Swaminathan, learned Senior StandingCounsel for the appellant / revenue and Mr.M.V.Swaroop, learnedcounsel for the respondent / assessee. 4. It may not be necessary for us to dwell deep into thefactual matrix, as we find that the error crept in the orderpassed by the Tribunal while deciding the issue with regard to'addition of reserve for unexpired risk' while computing bookprofit under Section 115 JB of the Act. The Tribunal inParagraph No.55 of the Impugned Order has noted that this issuearises for consideration in the Revenue's appeal for theassessment years 2003-2004, 2004-2005, 2007-2008 to 2013-2014and in the assessee's appeals for the assessment years 2003-2004, 2007-2008 and 2012-2013. 5. It is not disputed by the learned counsel for theassessee that the issue does not arise for consideration for theassessment year 2013-2014. Both in the assessee's appeal aswell as in the revenue's appeal, the issue arises only up tothe year 2012-2013 and this is owing to the fact that there wasan amendment to the Section 115 JB by substitution of Sub-Section 2 by Finance Act, 2012 with effect from 01.04.2013. Theamended / Substituted Provision reads as follows:- "(1) Notwithstanding anything contained in anyother provision of the Act, where in the case of anassessee, being a company, the income-tax, payable onthe total income as computed under this Act in respectof any previous year relevant to the assessment yearcommencing on or after the 1st day of April, "(1) Notwithstanding anything contained in anyother provision of the Act, where in the case of anassessee, being a company, the income-tax, payable onthe total income as computed under this Act in respectof any previous year relevant to the assessment yearcommencing on or after the 1st day of April, [Substituted for "2011" by the Finance Act, 2011,w.e.f.01.04.2012. Earlier, "2011" was substituted for"2010" by the Finance Act, 2010, w.e.f. 01.04.2011,"2010" was substituted for "2007" by the Finance (No.2)Act, 2009, w.e.f. 01.04.2010 and "2007" was substitutedfor "2001" by the Finance Act, 2006, w.e.f. 01.04.2007][2012] is less than [Substituted for "eighteen percent" by the Finance Act, w.e.f 01.04.2012. Earlier,"eighteen per cent" was substituted for "fifteen percent" by the Finance Act, 2010, w.e.f. 01.04.2011,"fifteen per cent " was substituted for "ten per cent"by the Finance (No.2) Act, 2009, w.e.f. 01.04.2010 and"ten per cent" was substituted for "seven and one-halfper cent" by the Finance Act, 2006, w.e.f. 01.04.2007](eighteen and one-half per cent) of its book profit,[Substituted for "the tax payable for the relevantprevious year shall be deemed to be seven and one-halfper cent of such book profit" by Finance Act, 2002,w.r.e.f.01.04.2001 [such book profit shall be deemed tobe the total income of the assessee and the tax payableby the assessee on such total income shall be theamount of income tax at the rate of [Substituted for"eighteen per cent" by the Finance Act, w.e.f01.04.2012. Earlier, "eighteen per cent" wassubstituted for "fifteen per cent" by the Finance Act,2010, w.e.f. 01.04.2011, "fifteen per cent " wassubstituted for "ten per cent" by the Finance (No.2)Act, 2009, w.e.f. 01.04.2010 and "ten per cent" wassubstituted for "seven and one-half per cent" by theFinance Act, 2006, w.e.f. 01.04.2007] [eighteen andone-half per cent]: Inserted by the Taxation Laws (Amendment) Act,2019, w.e.f.01.04.2020 [provided that for the previousyear relevant to the assessment year commencing on orafter the 1st day of April, 2020, the provisions ofthis sub-section shall have effect as if for the words"eighteen and one-half percent" occurring at both theplaces, the words "fifteen percent" had beensubstituted](2) Substituted for the portion beginning with thewords"Every assessee", and ending with the words andfigures "the Companies Act, 1956 (1 of 1956): "by theFinance Act, 2012, w.e.f. 01.04.2013. Prior to itssubstitution, the relevant portion read as under:"(2) Every assessee, being a company, shall, forthe purposes of this section, prepare its profit andloss account for the relevant previous year inaccordance with the provisions of Parts II and III ofSchedule VI to the Companies Act, 1956 (1 of 1956):" (a) being a company, other than a company referredto in clause (b), shall for the purposes of thissection, prepare its substituted for "Profit and Lossaccount" by the Finance Act, 2017, w.e.f. 01.04.2017[statement of profit and loss] for the relevantprevious year in accordance with the provisions of(Substituted for "Part II of Schedule VI", ibid)[Schedule III] to the (Substituted for "Companies Act,1956 (1 of 1956)", ibid [Companies Act, 2013 (18 of2013)]; or (b)being a company, to which the Substituted for"Proviso to sub-section(2) of Section 211", ibid[second proviso to sub-section (1) of Section 129) ofthe Substituted for "Companies Act, 1956 (1 of 1956)"ibid [Companies Act, 2013 (18 of 2013) is applicable,shall, for the purposes of this section, prepare itsSubstituted for "profit and loss account" by theFinance Act, 2017 w.e.f. 01.04.2017 [statement ofprofit and loss] for the relevant previous year inaccordance with the provisions of the Act governingsuch company :]" (b)being a company, to which the Substituted for"Proviso to sub-section(2) of Section 211", ibid[second proviso to sub-section (1) of Section 129) ofthe Substituted for "Companies Act, 1956 (1 of 1956)"ibid [Companies Act, 2013 (18 of 2013) is applicable,shall, for the purposes of this section, prepare itsSubstituted for "profit and loss account" by theFinance Act, 2017 w.e.f. 01.04.2017 [statement ofprofit and loss] for the relevant previous year inaccordance with the provisions of the Act governingsuch company :]" 6. In the light of the above, as per the amendment culledabove in the Act, the issue has to be decided by the Tribunal,however, due to inadvertence, the Tribunal has observed inParagraph No.56 of the Order that Section 115JB is notapplicable to the insurance companies and therefore, held thatthere is no infirmity in the order passed by the CIT (Appeals). 7. Since the provision has been made applicable to theInsurance companies as well with effect from 01.04.2003, theTribunal has to decide the issue on merits for the assessmentyear 2013-2014 and decide as to whether the assessing officerwas right in computing dis-allowance reserved for unexpired riskprovision towards IBNR / IBNER claim and dis-allowance underSection 14(A) read with Rule 18 and the Tribunal to take adecision on merits and in accordance with law, therefore, thematter has to be remanded to the Tribunal for freshconsideration, accordingly, the observations made by theTribunal in the impugned order in Paragraph Nos.55 and 56 areset aside, insofar as it relates to assessment year 2013-2014and the matter is remanded to the Tribunal to decide the issuewith regard to the computation under book profit and whether theassessing officer was right in his computation. In the result, the appeals are partly allowed to the extentindicated above and the matter stands remanded to the Tribunal,consequently, the Substantial Question of Law No.3 is left open.No costs. Sd/- Assistant Registrar(CS VI) //True Copy// Sub Assistant Registrar To1.The Income Tax Appellate Tribunal, 'A' Bench, Chennai2.The Commissioner of Income Tax,Chennai.3.The Commissioner of Income Tax(Appeals)-11,Chennai.4.The Assistant Commissioner of Income Tax,Corporate Circle 3(2),Chennai.+1cc to Mr.M.V.Swaroop, Advocate, S.R.No.39519Tax Case Appeal Nos.339 and 342 of 2019VD(CO)KKV/07/01/2021