Pr. Commissioner Of Income Tax v. M/S Sahara India Life Insurance Company, Ltd

$-1,7, 8 &9*IN THE HIGH COURT OF DELHI AT NEW DELHI+ITA 475/2019 PR. COMMISSIONER OF INCOME TAX, Appellant Through Mr. Sagar Suri, Standing counsel andMs. Lakshmi Gurung, Advocates versus M/S SAHARA INDIA LIFE INSURANCE COMPANY, LTD Respondent Through Mr. Aniket D. Agrawal, Advocate + ITA 426/2019 PR. COMMISSIONER OF INCOME TAX, (CENTRAL-1) Appellant Through Mr. Sagar Suri, Standing counsel andMs. Lakshmi Gurung, Advocates versus M/S SAHARA INDIA LIFE INSURANCE COMPANY, LTD Respondent Through Mr. Aniket D. Agrawal, Advocate + ITA 427/2019 PR. COMMISSIONER OF INCOME TAX Appellant Through Mr. Sagar Suri, Standing counsel andMs. Lakshmi Gurung, Advocates versus M/S SAHARA INDIA LIFE INSURANCE COMPANY, LTD Respondent Through Mr. Aniket D. Agrawal, Advocate + ITA 429/2019 PR. COMMISSIONER OF INCOME TAX, (CENTRAL-1) Appellant Through Mr. Sagar Suri, Standing counsel and ITA 475/2019 & other connected matters Page I of 8 r Ms. Lakshmi Gurung, Advocates versus M/S SAHARA INDIA LIFE INSURANCE COMPANY, LTD RespondentThrough Mr. Aniket D. Agrawal, Advocate CORAM:JUSTICE S. MURALIDHARJUSTICE TALWANT SINGH ORDER%02.08.2019CM Appl. No. I9863/20I9 (Exemption) in ITA No. 426/2019CM AppI. No. 19865/2019 (Exemption! in ITA No. 427/2019CM Appl. No. 19869/2019 (Exemption) in ITA No. 429/2019 1. Exemption allowed, subject to all just exceptions. CM Appl. No. 19862/2019 (delay) in ITA No. 426/2019CM Appl. No. 19864/2019 (delay) in ITA No. 427/2019CM Appl. No. 19868/2019 (delay) in ITA No. 429/2019 2. For the reasons stated in the applications, the delay of 30 days in re-filingthe 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 orderdated 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 inITA 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/20I3 for AY 2008-2009, ITA No. 427/2019 is directed against anorder passed by the ITAT in ITA No. 6246/Del/20I3 for AY 2010-2011 andITA 475/2019 & other connected matters Page 2 of 8 ITA No. 429/2019 is directed against an order passed by the ITAT in ITANo. 3509/Del/2013 for AY 2004-2005 respectively. 5. One common issue sought to be urged by the Revenue in all these appealsis whether the ITAT was justified in upholding the order of theCommissioner of Income Tax (Appeals) ['GIT (A)'] accepting theRespondent/Assessee's revised computation of income in terms of Section44 read with First Schedule to the Act? There are certain other incidentalquestions 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 of income whichwas picked up for scrutiny. Initially the assessment was completed by theAssessing Officer (AO) under Section 143 (3) of the Act on 30'^ November,2006. Subsequently, after the expiry of four years thereafter, a notice dated28 thMarch, 2012 was issued under Section 148 of the Act for initiating reassessment proceedings. 7. In response to the notice under Section 147, the Respondent filed a returnof income, this time computing the income in terms of Section 44 of the Act.However, the AO in the re-assessment order added the difference betweenthe interest as per the balance sheet (which included interest paid at the timeof purchase of securities) and the interest as per the Profit and Loss Accountto the income of the Respondent whereas the original assessment wascomputed at a taxable income of Rs.2,89,55,200/-, the re-assessment, after ITA 475/2019 & other connected matters making an addition of Rs.2,10,65,809/- led to the computation of a totalincome ofRs. 5,00,21,010/-. 7. In response to the notice under Section 147, the Respondent filed a returnof income, this time computing the income in terms of Section 44 of the Act.However, the AO in the re-assessment order added the difference betweenthe interest as per the balance sheet (which included interest paid at the timeof purchase of securities) and the interest as per the Profit and Loss Accountto the income of the Respondent whereas the original assessment wascomputed at a taxable income of Rs.2,89,55,200/-, the re-assessment, after ITA 475/2019 & other connected matters making an addition of Rs.2,10,65,809/- led to the computation of a totalincome ofRs. 5,00,21,010/-. 8. In the appeal before the CIT (A), the re-opening of the assessment by theAO was annulled. On merits also, the CIT (A) held in favour of theRespondent observing that it had followed Accounting Standard 13 issuedby the Institute of Chartered Accountants of India (ICAI) with pre-acquisition interest paid and post acquisition interest income. The additionof Rs.2,10,65,809/- made by the AO was deleted. 9. The facts relevant to AY 2005-2006 are that the Respondent filed itsreturn of income on 24"^ December, 2007 declaring a loss ofRs.9,67,15,2I8/-. The return was picked up for scrutiny and statutory noticeswere issued by the AO to the Respondent. After making some additions anddisallowances under Sections 28 and 43B of the Income Tax Act, 1961(hereafter 'Act'), the AO computed the income under the head 'Business' atan assessed loss of Rs.5,48,20,431/-. 10. Subsequently, the AO claimed to have noted that the Respondent hadclaimed excessive deductions/allowances. In its appeal against thisassessment order before the CIT (A), the Respondent raised an additionalground that its income from the insurance business had to be computed interms of Section 44 of the Act which was applicable exclusively to incomederived from such insurance business. Accordingly, it also furnished arevised computation of loss at Rs.7,47,31,918/-. This was accepted by the ITA 475/2019 & other connected matters CIT (A) and a direction was issued to the AO to compute the incomeaccordingly. 11. During this second computation, the AO took note of the fact that theRespondent, 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 beenclaimed by the Respondent as 'amortization charges of investment'. Thiswas held to be capital expenditure and therefore was disallowed and addedto the Respondent's total income. The AO also initiated penalty proceedingsunder Section 271 (1) (c) of the Act. This was done by an order dated 24"^December, 2007 under Section 143(3) of the Act. 12. For the second time around, the Respondent filed an appeal before theCIT (A) where one of the main grounds taken was that the AO was notjustified in refusing to compute the total income of the Respondent in termsof Section 44 of the Act read with the First Schedule. The CIT (A) by theorder 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 asthe Respondent had initially filed return of income as per Sections 28 to 43of the Act but later filed revised computation under Section 44 of the Actbefore the CIT (A). Likewise, for AY 2010-2011 also, where the CIT (A)directed the AO to determine income in terms of Section 44 of the Act. ITA 475/2019 & other connected matters 14. The Revenue filed appeals for the above AYs before the ITAT. Oneappeal of the Respondent pertaining to AY 2007-2008 was dismissed by theCIT (A) who upheld the imposition of penalty upon the Assessee underSection 271 (1) (c) of the Act. Against this, the Respondent filed an appealbefore the ITAT. 13. The facts for AY 2006-2007 were identical to AY 2005-2006 in so far asthe Respondent had initially filed return of income as per Sections 28 to 43of the Act but later filed revised computation under Section 44 of the Actbefore the CIT (A). Likewise, for AY 2010-2011 also, where the CIT (A)directed the AO to determine income in terms of Section 44 of the Act. ITA 475/2019 & other connected matters 14. The Revenue filed appeals for the above AYs before the ITAT. Oneappeal of the Respondent pertaining to AY 2007-2008 was dismissed by theCIT (A) who upheld the imposition of penalty upon the Assessee underSection 271 (1) (c) of the Act. Against this, the Respondent filed an appealbefore the ITAT. 15. The ITAT has in the impugned order noted that for AY 2004-2005 therewas no material in possession of the AO other than the observation of theRevenue 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 ofopinion' which was impermissible as a basis for re-opening of assessmentsafter a lapse of four years. The CIT (A) expressly annulled the re-assessmentproceedings. The ITAT noted that this was not challenged by the Revenue.It only challenged the deletion of the addition on merits. In the absence ofany challenge to the quashing of the re-assessment proceedings by theRevenue, the ITAT found no ground to interfere. 16. Learned counsel for the Revenue sought to contend that the ITATadopted the technical view in precluding the Revenue from urging the meritsof the issue only because it had not challenged the order of the CIT (A)annulling the re-assessment proceedings. In the considered view of theCourt, this is not a mere 'technical approach'. The fact of the matter is thatthere was no basis for the re-opening of the assessment except thepresumptive observation of the Revenue audit which itself was not based onany tangible material. 17. Consequently, as far as AY 2004-2005 in is concemed, the Court findsno reason to interfere with the order of the ITAT and no substantial questionof law arises. 18. As far as the other appeals are concemed, the central issue is whether theincome of the Respondent ought to have been permitted to be computedunder Section 44 of the Act? Further, for some AYs, whether it could havebeen permitted at the stage of the appeal before the CIT (A)? 19. As rightly observed by the ITAT, it is not in dispute that the Respondentcarried on the business of life insurance. It is obliged to maintain its booksof accounts and prepare its financial statements under the Insurance Act,1938. Section 44 of the Act read with First Schedule thereof dealsexclusively with the computation of Profit and Gains from life insurancebusiness. These provisions, which begin with non-obstante clauses, overrideother provisions of the Act. There was no option but to compute income forinsurance business in terms thereof. Therefore, the Respondent was justifiedin filing the revised computation under Section 44 of the Act and claimingthis as an additional ground before the CIT (A). In the circumstances, thedirection given by the CIT (A) to the AO to compute income in terms ofSection 44 of the Act was justified. 20. The Court is unable to find any error having been committed in theITAT in this regard. No substantial question of law arises on this issue aswell. ITA 475/2019 & other connected matters Page 7 of 8 20. The Court is unable to find any error having been committed in theITAT in this regard. No substantial question of law arises on this issue aswell. ITA 475/2019 & other connected matters Page 7 of 8 21. The Respondent had challenged the upholding of the penalty imposedunder Section 271(1) (c) of the Act, which was accepted by the ITAT. Itfollowed the decision of the Kamataka High Court in CIT v. ManjunathaCotton & Ginning Factory 359ITR 565 (Kar) and observed that the noticeissued by the AO would be bad in law if it did not specify which limb ofSection 271(1) (c) the penalty proceedings had been initiated under i.e.whether for concealment of particulars of income or for furnishing ofinaccurate particulars of income. The Kamataka High Court had followedthe above judgment in the subsequent order in Commissioner of IncomeTax V. SSA's Emerald Meadows (2016) 73 Taxman.com 241 (Kar), theappeal against which was dismissed by the Supreme Court of India in SLPNo. 11485 of 2016 by order dated 5^*^ August, 2016. 22. On this issue again this Court is unable to find any error having beencommitted by the ITAT. No substantial question of law arises. 23. The appeals are accordingly dismissed. S. MURALIDHAR, J. AUGUST 02, 2019 mw TALWANT SINGH, J. ITA 475/2019 & other connected matters