This document provides a detailed analysis of the Income Tax Appellate Tribunal’s final decision on the case between DCIT, Circle-1(1), New Delhi and Agriculture Insurance Company of India Ltd, Delhi, concerning the assessment year 2016-17. The case number is ITA 2562/DEL/2022, presided over by President Shri G.S. Pannu and Judicial Member Shri Saktijit Dey.
The appeals by the Revenue challenge the deletions of various additions made by the Assessing Officer related to corpus funds and disallowances under Section 14A. The case touches on critical aspects of income diversion and tax exemption statutes relevant to the insurance sector, particularly in agriculture.
The appeal by the Revenue arises out of two separate orders, both dated 06.09.2022, passed by the National Faceless Appeal Centre (NFAC) for the assessment years 2016-17 and 2017-18. The grounds raised in both appeals are common, except for the variance in figures. The effective grounds raised in ITA No. 2562/Del/2022 are as follows:
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.5,65,41,062/- on account of corpus fund without routing the income through the profit and loss account. The Ld. CIT(A) was not justified in not treating the same as diversion of income.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.1,98,98,976/- made by the A.O. on account of disallowance u/s. 14A r.w.r. 8D of the Income-tax Rules.”
The first issue relates to the deletion of the addition made on account of the corpus fund without routing the income through the profit and loss account. Briefly, the facts are that the assessee is a public limited company set up to provide security to persons engaged in agriculture and allied activities through insurance products and other support services as per the declared policy of the Government of India. The assessee is engaged in the business of agricultural crop insurance.
In the course of assessment proceedings, the Assessing Officer noticed that the corpus fund received from Central and State Governments had been directly credited to the balance sheet without routing through the profit and loss account. After issuing a show-cause notice to the assessee and rejecting its explanation, the Assessing Officer proceeded to add the amount of the corpus fund to the income of the assessee. The addition was subsequently deleted by the Commissioner (Appeals).
Before the Tribunal, it was a common point between the parties that this issue was covered by the decision of the coordinate Bench in the assessee’s own case for assessment years 2008-09 and 2012-13. The learned counsel placed before the Bench respective orders of the Tribunal.
Upon considering rival submissions and perusing the material on record, the Tribunal found that while deciding an identical issue in the assessee’s own case for the assessment year 2012-13, the Tribunal in order dated 06.11.2019 in ITA No. 1279/Del/2016 had upheld the decision of the first appellate authority, observing that it was a case of diversion of income by overriding titles. The facts of the case, read with the letter of the Government of India, clearly demonstrated this, and reliance by the Commissioner (Appeals) on the ratio laid down by the Hon’ble Supreme Court in the case of Associated Power was well taken.
The ratio laid down by the Hon’ble Supreme Court has been followed in various judgments, such as CIT Vs. New Horizon Sugar Mill Pvt Ltd (244 ITR 738), Bijli Cotton Mills (P) Ltd (116 ITR 60), and Dalmia Cement Ltd (237 ITR 617). All these judicial decisions were discussed elaborately by the Commissioner (Appeals) in their order.
Consequently, the Tribunal did not find any error or infirmity in the order of the Commissioner (Appeals) and dismissed Ground No. 1 of the Revenue.
The second issue relates to the deletion of disallowance made under Section 14A read with Rule 8D, which pertains to expenditure incurred for earning exempt income.
Again, before the Tribunal, it was a common point between the parties that this issue was covered by the decision of the coordinate Bench in the assessee’s own case for the assessment year 2012-13. The Tribunal had observed that the provisions of Section 44 applied notwithstanding anything to the contrary contained within the provisions of the Income-tax Act relating to the computation of income chargeable under different heads.
The income of the business of insurance was essentially to be at the amount of the balance of profits disclosed by the annual accounts as furnished to the Controller of Insurance. The actual computation of profits and gains of insurance business had to be computed in accordance with Rule 5 of the First Schedule. Given these special provisions coupled with the non-obstante clause, the Assessing Officer was not permitted to travel beyond these provisions.
The Tribunal found that Section 14A contemplated an exception for deductions as allowable under the Act and that Section 44 created special application of these provisions in the cases of insurance companies. Consequently, the Tribunal agreed with the assessee and deleted the disallowance made by the Assessing Officer, holding that the provisions of Section 14A were not applicable to the case of the assessee.
Respectfully following the order in ITA 3115/Del/2013, the Tribunal allowed the appeal of the assessee. Therefore, Ground No. 2 was also dismissed.
Based on the above findings, the Tribunal upheld the decision of the Commissioner (Appeals) and dismissed the grounds raised by the Revenue. The appeals were dismissed in the final order pronounced on 29/05/2023 by President G.S. Pannu and Judicial Member Saktijit Dey.
This document serves as a comprehensive record of the Tribunal’s decision, reflecting the judicial reasoning and final judgment in the case between DCIT, Circle-1(1), New Delhi, and Agriculture Insurance Company of India Ltd, Delhi, for the assessment year 2016-17.
Manage the increasing number of hearings effortlessly by leveraging the legal AI revolution We are India's Leading revolutionary AI-powered legal platform where you can get enough insights into top cases and judgements.
Research Platform