ITAT has the power to entertain new grounds under Section 254 even if not raised earlier
Summary in Key Points:
- Issue: Whether the Tribunal can entertain additional grounds for exemption under Section 10(15)(iv) of the Income-tax Act, 1961, even if not raised before the Assessing Officer (AO) and Commissioner (Appeals), and whether the AO should examine the claim based on facts available in the records.
- Facts: The assessee, a life insurance company, earned interest income from investments in bonds/debentures issued by public sector companies. They inadvertently failed to claim exemption under Section 10(15)(iv) before the AO and Commissioner (Appeals) but raised it before the Tribunal.
- Decision: The ITAT held that the Tribunal can entertain new grounds if relevant facts are on record. The ITAT remanded the case to the AO to examine the exemption claim based on the available records.
Analysis:
The ITAT ruled in favor of the assessee, emphasizing the following:
- Power to Entertain New Grounds: The Tribunal has the power to entertain new grounds under Section 254 of the Income-tax Act, 1961, even if not raised earlier, provided the relevant facts are available on record.
- Duty to Examine Claim: Since the facts related to the investment in PSU bonds/debentures were available in the audited balance sheet, the AO should examine the assessee’s claim for exemption under Section 10(15)(iv)(h).
- Remand to AO: The ITAT remanded the case back to the AO to examine the claim and grant the exemption if the assessee fulfills the eligibility criteria.
Important Note: This case highlights the flexibility of the ITAT in considering new grounds for relief, even if not raised earlier in the assessment proceedings. This approach ensures that taxpayers are not denied legitimate exemptions due to oversights or procedural lapses, as long as the supporting facts are available in the records. This decision promotes fairness and ensures that the assessment process considers all relevant aspects of the case.
IN THE ITAT DELHI BENCH ‘E’
Dy. CIT
v.
Max Life Insurance Co. Ltd
Ms. Madhumita Roy , Judicial member
and Naveen Chandra, Accountant member
and Naveen Chandra, Accountant member
IT Appeal No. 2574, 9475 and 9425 (DEL) of 2019
[Assessment Year 2015-16 and 2016-17]
[Assessment Year 2015-16 and 2016-17]
DECEMBER 31, 2024
Himanshu Sinha, Prashant Meharchandani and Jainendar Singh Kataria, Advs for the Appellant. Ms. Baljeet Kaur, CIT-DR for the Respondent.
ORDER
Naveen Chandra, Accountant Member. – The above captioned two separate appeals by the Revenue are preferred against two separate orders of the ld. CIT(A) – 22, New Delhi dated 28.12.2018 for A.Y 2015-16 and CIT(A) – 22 order dated 30.09.2019 for A.Y 2016-17. The assessee has filed cross appeal against the order of the CIT(A) – 22 dated 30.09.2019 pertaining to A.Y 2016-17.
2. Since the underlying facts are common in the cross appeals of the assessee and Revenue and pertain to same assessee, they were heard together and are disposed of by this common order for the sake of convenience and brevity.
3. Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules. Relevant judicial decisions considered wherever necessary.
ITA No. 9425/DEL/2019 [A.Y 2016-17]
4. We take up the assessee appeal for AY 2016-17 first where the grounds raised by the assessee read as under:
“1. That on the facts and circumstances of the case and in law, the Hon’ble CIT(A) erred in upholding the disallowance of Rs 9,79,31,000, made by the Ld. AO on account of Corporate Social Responsibility expenditure (‘CSR’), without appreciating the fact that the provisions of section 37 of the Act do not apply to Life Insurance Companies.
1.1 That on the facts and circumstances of the case and in law, the Hon’ble CIT(A)/ Ld. AO erred in not appreciating the fact that the taxability of the Appellant is governed by the specific provisions prescribed under section 44 read with First Schedule to the Act and that the normal provisions of the Act are not applicable on the Appellant.
2 Without prejudice to Ground No.1 above, the Hon’ble CIT(A)/ Ld. AO erred in not allowing deduction under section 80G of the Act during the previous year relevant to the subject year.
2.1 That on the facts and circumstances of the case and in law, the Hon’ble CIT(A)/ Ld. AO erred in not following the decision of Hon’ble ITAT, Delhi Bench rendered in Appellant’s own case for AY 2006-07 wherein deduction under section 80G of the Act was allowed.”
5. The assessee has raised an additional ground of appeal under Rule 11 of the ITAT Rules 1963 which reads as under:
“That, under the facts and circumstances of the case and in law, the Ld. AO and CIT (A) erred in not granting exemption under Section 10 (15) (iv) (h) of the Act to the Appellant in relation to interest income amounting to Rs. 4,10,35,585/- arising out of its investment in the redeemable non-convertible bonds/ debentures issued by public sector companies.”
6. Briefly stated, the facts of the case are that the assessee is a life insurance company and for the A.Y 2016-17 under consideration, the assessee filed its return of income declaring an income of Rs. 371,68,91,170/- which was enhanced to Rs. 1,271,18,60,170 vide order dated 17.12.2018. Against this assessment order, the assessee preferred an appeal before the ld. CIT(A) which was partly allowed.
7. During the year under consideration, the assessee earned a total interest of Rs. 4,10,35,585/- on the investments in Rural Electrification Corporation Limited, India Infrastructure Finance Company Limited, Indian Railway Finance Corporation Limited and Housing and Urban Development Corporation Limited. During the course of its business it invested in securities issued by various public sector companies.
8. At the very outset, the ld. counsel for the assessee submitted that due to an oversight, the assessee did not make a claim of exemption in relation to the interest income before the Assessing Officer and CIT(A). Under these circumstances, the assessee prayed that the Tribunal may kindly exercise the powers specified under Rule 11 of the ITAT Rules and admit for adjudication of the additional ground of appeal as specified above.
9. We find that admittedly, neither in the return of income nor before the AO/ CIT(A), the assessee made a claim for exemption u/s 10 (15)(iv)(h) of the Act in respect of interest income which accrued to it on account of its investments in the redeemable non-convertible bonds/debentures issued by the public sector companies specified above. The assessee also did not raise a ground claiming the aforesaid exemption in the captioned appeal. In view of the above submissions of the ld. counsel for the assessee, we take up the additional ground first.
10. In this regard, the ld. counsel for the assessee submitted that the Indian courts have consistently held that additional claims by a taxpayer can be raised before the appellate authorities even if such claims were not made in the return of income or during the assessment proceedings. Reliance is placed on the decision of the Hon’ble Supreme Court of India in the case of National Thermal Power Co. Ltd. v. CIT[1999] 229 ITR 383 (SC) wherein the Hon’ble Court observed that the powers of a Tribunal under Section 254 of the Act have been expressed in the widest possible terms. Accordingly, the Tribunal is not restricted to adjudicate an appeal only in respect of the grounds which arise from the order of the ld. CIT(A).
11. Per contra, the ld. DR strongly opposed the admission of additional ground on the ground that the assessee has failed to claim exemption u/s 10(15)(iv)(h) of the Act. The ld. DR relied upon the judgment of the Hon’ble Supreme Court in the case of NTPC [1999] 229 ITR 383 (SC) to state that for applying this judgment additional ground proposed should be a question of law and all facts relevant to the issue should have been found by the lower authorities. In view of the above, the ld DR argued that there is no vested right with the assessee to raise additional ground.
12. Having heard the rival submission, we find that the Supreme Court in NTPC (supra) has held as follows:
“5. Under section 254 of the Income-tax Act, 1961, the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is, thus, expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.”
13. The Supreme Court permits the ITAT to entertain additional grounds u/s 254 of the IT Act for the first time with the only caveat that the relevant facts are on record in respect of that item. In the instant case the relevant facts of investment in PSU Bonds/debentures etc are available in the audited balance sheet and was before the assessing officer. Further, we find from the recent decision of the Hon’ble Bombay High Court cited by the ld AR in the case of Siva Equipment (P.) Ltd. v. ACIT [2020] 423 ITR 20 (Bombay) which held that a taxpayer is entitled to raise not merely additional legal submissions before the appellate authorities but is also entitled to raise additional claims before the appellate authorities. In view of the above, we admit the additional ground raised.
14. We are of the considered view that the though the facts of the investments in PSU Bonds and debentures are available in the audited accounts, the assessing officer needs to examine the same with regard to the eligibility of assessee’s claim considering the eligibility criteria laid down in section 10(15)(iv)(h). For this purpose, we find it fit to set aside this issue to the file of the assessing officer for examining the claim of the assessee. Where the claim made is as per the law, the same should be allowed. The additional ground is allowed for statistical purpose.
15. With respect to the ground 1 regarding CSR expenses of Rs. 9,97,31,000/- disallowed, the ld AR fairly submitted that the ground is not pressed as the same is decided against the assessee by the ITAT in AY 2010-11.
16. Per contra, the ld DR relied on the decision of ITAT in the assessee’s own case for AY 2010-11 where the CSR expense was disallowed.
17. We have heard the rival submissions and have carefully perused the materials on record. Having heard the rival submissions, the ground no. 1 and its sub-ground is dismissed as not pressed.
18. Ground no 2 relates to non-allowance of deduction u/s 80G. The ld AR submitted that the neither the assessing officer, nor the CIT(A) allowed deduction u/s 80G though the ITAT in assessee’s own case in AY 2006-07 had set aside the file to the AO for examining the claim for the deduction u/s 80G.
19. Per contra, the ld DR strongly supported the orders of the authorities below.
20. We have heard the rival submissions and have carefully perused the materials on record. Having heard the rival submissions, we find that the CIT(A), has not adjudicated the issue of allowance/disallowance u/s 80G although the assessee had taken this ground before the CIT(A). The assessee has claimed that the issue of 80G was set aside to the file of AO for verification in the assesse’s own case by the ITAT in AY 2006-07. Following the earlier ITAT decision, we are of the considered view that the issue of 80G be set aside to the file of Assessing officer to decide on the issue of allowability u/s 80G in accordance with law. The ground no 2 and 2.1 is allowed for statistical purpose.
21. The appeal of the assessee is partly allowed.
ITA No. 9575/DEL/2019 [Revenue’ Appeal for A.Y 2016-17]
22. The Revenue has taken the following grounds of appeal:
1. “On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in allowing the Taxability of company engaged in the business of providing life insurance services is covered by specific provisions of providing life insurance services in holding that such expense relates to life insurance business only and section 44 of the I.T.Act 1961 was applicable with regard to such expenses and any other provision of the Act from section 28 to section 43B cannot be applied.
2. Ld. CIT(A) has erred both in law and facts by deleting the addition of Rs.177,70,02,000/- being income in share holder account as income derived from life insurance business contrary to the decision of the Hon’ble ITAT in the case of M/s Oriental Insurance Co. Ltd in (2005) TTJ 300,[2010] 40 SOT 19 (Delhi)(Delhi) and in ITA No.3910/Del/2009 dated 22.07.2011 for A.Y.2004-05. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting addition of Rs.66,11,65,000/ made by AO on account of profit on sale of investment relying upon the Hon ‘ble ITAT decision in the case of ICICI Prudential Insurance Co.Ltd although same was from sale of investment which cannot be termed as profit and gains of insurance business.
4. Whether the CIT(A) is legally justified in allowing deduction of bonus allocated to policy holders and amount appropriated to funds for future appropriation out of taxable actuarial surplus in contravention to Rule 2 of First Schedule of Income Tax Act, 1961 (‘the Act’) which does not stipulate such deduction?
4.1. Whether the CIT(A) is legally justified in allowing deduction of bonus allocated to policy holders and amount appropriated to funds for future appropriation out of taxable actuarial surplus because ascertainable liabilities are allowable as deduction in computing total income by ignoring that the provisions of Rules contained in the first schedule stipulate for taxation of actuarial surplus as determined by IRDA regulation and not under other provisions of the Act?
5. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition Rs.887,15,81,000/-, made by AO in which Rs.122,69,03,000/- made on account of amount appropriated towards funds for Future Appropriation (FFA) and Rs.764,46,78,000/- made on account of bonus allocated to policy holder respectively by treating FFA and bonus as charge on the profit while determining the profit and gains from the life insurance business.
6. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition Rs.2,36,57,000/-, made by AO on account of provision of bad debts holding that such expense relates to life insurance business only and section 44 of the I.T.Act 1961 was applicable with regard to such expenses and any other provision of the Act cannot be applied.
7. The appellant craves leave to, add to, alter, amend or vary from the above grounds of appeal at or before the time of hearing.”.
23. At the very outset, the Id AR submitted that identical issues have been decided by this Tribunal in assessee’s own case for A.Ys 2006-07 to 2013-14 and 2014-15 in favour of the assessee and against the Revenue.
24. Having heard the rival submissions and perusal of records, we find that Ground no 1 is with regard to computation of income as per Rule-2 of First Schedule of Section 44 which has been decided by the ITAT in AY 2010-11 in favour of the assessee as follows:
68. “We noted that Section 44 of the Act start with a non-obstante clause and overriding other provisions of the Act, provides for profits and gains from life insurance business to be computed in accordance with the rules contained in the First Schedule to the Act. As per rule 2 of the First Schedule to the Act, profits and gains of life insurance business has to be taken to be the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938, in respect of the last inter valuation period ending before the commencement of the assessment year, so as to exclude any surplus or deficit included therein, which was made in any earlier inter valuation period. According this rule as is applicable from A.Y.1977-78, the surplus or deficit between two inter valuation periods disclosed by the actuarial valuation made in accordance with Insurance Act, 1938, can only be taken as income or loss of the period. The old Rule 2 which was in existence prior to amendment made by Finance Act, 1976 contains two methods of determining profits and gains of the 10 which has been allowed by the ITAT As no distinguishing decision has been brought to our notice, we, therefore, respectfully following the decision of the co-ordinate bench, dismiss all the grounds raised by the Revenue. The Assessing Officer is directed to delete the impugned addition”.
Following the decision of ITAT in 2010-11, the ground no 1 is dismissed.
25. Similarly, the ground no 2 treating the income in share holder account as income derived from life insurance business has been decided in assessee’s favour by the ITAT in AY 2010-11 and 2014-15. Nothing contrary to the above decision has been cited by the ld DR. Following the decision of ITAT in 2010-11 and 2014-15, the ground no 2 is dismissed.
26. Ground no 3 relating to sale of investment being treated as income from insurance business has been decided in assesssee’s favour by the ITAT in AY 2006-07 to 2014-15. Nothing contrary to the above decision has been cited by the Id. DR. Following the decision of ITAT as above, the ground no 3 is dismissed.
27. Ground no 4, 4.1 and 5 relates to expenditure on Bonus and Funds for Future appropriation (FFA) has been determined in assessee’s favour by the ITAT in AY 2010-11 and 2014-15. Nothing contrary to the above decision has been cited by the ld. DR. Following the decision of ITAT as above, the ground no 4, 4.1 and 5 are dismissed.
28. Ground no 5 relates to disallowance on account of bad debts which has been determined in assessse’s favour by the ITAT in AY 2006-07, 2010-11 to 2013-14. Nothing contrary to the above decision has been cited by the ld DR. Following the decision of ITAT as above, the ground no 6 is dismissed.
28.1 The appeal of the Revenue is dismissed.
ITA No. 2574/DEL/2019 [Revenue’ Appeal for A.Y 2015-16]
29. In this appeal of the Revenue, the assessee has raised an additional ground of appeal under Rule 27 of the ITAT Rules,1963 which reads as under:
“That, under the facts and circumstances of the case and in law, the Ld. AO and CIT (A) erred in not granting exemption under Section 10 (15) (iv) (h) of the Act to the Appellant in relation to interest income amounting to Rs. 4,13,59,821/- arising out of its investment in the redeemable non-convertible bonds/ debentures issued by public sector companies.”
30. Briefly stated, the facts of the case are that the assessee is a life insurance company. During the year under consideration, the assessee earned a total interest of Rs. 4,13,59,821/- on the investments in Rural Electrification Corporation Limited, India Infrastructure Finance Company Limited, Indian Railway Finance Corporation Limited and Housing and Urban Development Corporation Limited. During the course of its business it invested in securities issued by various public sector companies.
31. For the A.Y 2015-16 under consideration, the assessee filed its return of income declaring an income of Rs. 447,32,96,000/- which was enhanced to Rs. 1024,32,59,426/- vide order dated 20.12.2017. Against this assessment order, the assessee preferred an appeal before the ld. CIT(A) which was partly allowed.
32. At the very outset, the ld. counsel for the assessee vehemently submitted that due to an oversight, the assessee did not make a claim of exemption in relation to the interest income before the Assessing Officer and CIT(A). Under these circumstances, the assessee prayed that the Tribunal may kindly exercise the powers specified under Rule 27 of the ITAT Rules and admit for adjudication of the additional ground of appeal as specified above.
33. Per contra, the ld DR took exception to the additional ground being filed under Rule 11 of the ITAT Rules raised similar arguments as in AY 2016-17 as above.
34. The ld AR in its rejoinder vehemently argued that the additional ground has been raised under Rule 27 of the ITAT Rules and submitted that said additional ground filed is in accordance with the decisions of the Jurisdictional High Court in CIT v. Rose Services Apartment India (P.) Ltd.:[2020] (Delhi), wherein the Hon’ble Delhi High Court held that the respondent-assessee is allowed to raise additional grounds under Rule 27 of the ITAT Rules.
35. The ld DR also relied on the unreported decision of the Delhi High Court in the case of K.C. Khajanchi v. ITAT: ITA No. 2164/99, wherein it is held that additional ground, even though not raised by oversight by the assessee before the lower authorities, can be raised before the Tribunal. The ld AR also placed reliance on the decisions of Supreme Court in the case of National Thermal Power Limited v. CITt[1999] 229 ITR 383 (SC)and CIT v. Sinhgad Technical Education Society: [2017] 397 ITR 344 (SC) and Delhi High Court in the case of PCIT v. Silver Line: [2016] 383 ITR 455 (Delhi).
36. We have heard the rival submissions and have perused the relevant material on record. Having heard the rival submissions, we find that admittedly, neither in the return of income nor before the AO/ CIT(A), the assessee made a claim for exemption u/s 10 (15)(iv)(h) of the Act in respect of interest income which accrued to it on account of its investments in the redeemable non-convertible bonds/ debentures issue by the public sector companies specified above. The assessee also did not raise a ground claiming the aforesaid exemption in the captioned appeal.
37. The additional ground raised by the assessee in this appeal under Rule 27 of ITAT Rules is identical to the additional ground raised in the appeal of the assessee for A.Y 2016-17 discussed and decided hereinabove at Para 13 and 14. Respectfully following the same, we decide accordingly and we admit the additional ground of appeal. The additional ground for AY 2015-16 is similarly decided as in AY 2016-17 above and the issue is set aside to the file of AO for examination of the claim u/s 10(15)(iv)(h).
38. The Grounds raised by the Revenue in this appeal read as under:
1.”On the facts and in the circumstances of the case and in law, Ld. CIT (A) has erred in directing the AO to compute the taxability of company engaged in the business of providing life insurance services is covered by specific provisions of providing life insurance services in holding that such expense relates to life insurance business only and section 44 of the IT Act 1961 was applicable with regard to such expenses and any other provision of the Act from section 28 to section 43B cannot be applied.”
2.”Ld. CIT(A) has erred both in law and facts by deleting the addition of Rs. 72,63,77,000/- being profit from sale of investment made by AO relied upon the Hon’ble Delhi ITAT decision in the case of ICICI Prudential Insurance Co. Ltd. and direct the Assessing Officer to take profit shown in shareholders profit and loss account as income derived from life insurance business.”
3. “Ld. CIT(A) has erred both in law and facts by deleting the addition of Rs. 3,29,21,89,000 made by AO on account of amount appropriated towards Funds for Future Appropriation (FFA) and addition of Rs. 5,93,73,62,000 made by AO on account of bonus allocated to policy holder respectively by treating FFA and bonus as charge on the profit while determining the profit and gains from the life insurance business.”
3.1 Whether the CIT(A) is legally justified in allowing deduction of bonus allocated to policy holders and amount appropriated to funds for future appropriation out of taxable actuarial surplus in contravention to Rule 2 of First Schedule of Income Tax Act, 1961 (the Act) which does not stipulate such deduction?
3.2 “Whether the CIT(A) is legally justified in allowing deduction of bonus allocated to policy holders and amount appropriated to funds for future appropriation out of taxable actuarial surplus because ascertainable liabilities are allowable as deduction in computing total income by ignoring that the provisions of Rules contained in the first schedule stipulate for taxation of actuarial surplus as determined by IRDA regulation and not under other provisions of the Act.
4.” Whether the CIT(A) is legally justified in allowing deduction of share issue amounting to Rs. 238,14,60,000/- out of taxable actuarial surplus on the ground that the expenditure pertained to life insurance business by ignoring that the Rule contained in the first schedule stipulate for taxation of actuarial surplus as determined by IRDA regulations and not under other provisions of the Act?’
4.1″Whether expenditure relation to income on investment by the shareholders which is taxable under the normal provisions of the Act could legally be allowed as deduction out of actuarial surplus, taxation of which is governed by first Schedule of the Act.”
5.”The appellant craves leave to, add to, alter, amend or vary from the above grounds of appeal at or before the time of hearing.”
39. At the very outset, the Id AR stated that the identical issues under identical situation, in assessee’s own case for A.Ys 2006-07 to 2013-14 and 2014-15, the ITAT has decided all the above issues in favour of the assessee and against the Revenue. As no distinguishing decision or distinction in facts has been brought to our notice, we therefore, respectfully following the decision of the co-ordiniate bench, dismiss all the grounds raised by the Revenue. The Assessing Officer is directed to delete the impugned additions.
40. As a result, the appeal of the Revenue in ITA No. 2574/DEL/2019 is dismissed.
41. To sum up, in the result, Appeal of the assessee in ITA No.9425/DEL/2019 – Partly Allowed Appeal of the Revenue in ITA No.2574/DEL/2019 – Dismissed Appeal of the Revenue in ITA No. 9475/DEL/2019 – Dismissed