×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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This appeal by the Revenue is preferred against the order of the Commissioner of Income Tax [Appeals] - I, New Delhi dated 04.12.2015 pertaining to assessment year 2012-13.
2. The grievances raised by the revenue in this appeal read as under:
“1. On the facts and in the circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs. 8,62,47,181/- being income from investment not included.
2. On the facts and in the circumstances of the case the ld. CIT(A) erred in deleting the addition on account of Rs. 75,29,079/- being disallowance u/s 14A of the Income tax Act, 1961 [hereinafter referred to as 'The Act' for short] r.w.r 8D of the I.T. Rules.”
3. Briefly stated, the facts of the case are that the assessee company has been set up to provide financial security to persons engaged in agriculture and elite activities, through insurance product and other support services, as per declared policy of the Government of India. The assessee company is promoted by the General Insurance Corporation of India (GIC), National Bank for Agriculture and Rural Development (NABARD) and four Public Sector Insurance Companies viz. National Insurance Company Ltd., New India Assurance Company Ltd., Oriental Insurance Company Ltd. and United India Insurance Company Ltd. As in the past, the assessee company is engaged in the business of Agriculture Corp Insurance.
4. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has invested its funds as per the investment pattern prescribed by the IRDA Regulations on Investments, and the company's Investment Policy. Gross income from investments amounted to Rs. 252.56 crores, which included an investment income of Rs. 8.62 crores. The Assessing Officer found that the profit and loss account excludes income from investment amounting to Rs. 8,62,47,181/-, which he found directly credited to the Corpus Fund of Central & State Government, as their share of income.
5. The assessee was asked to explain why the amount of Rs. 8.62 crores has not been credited to the Profit and Loss Account.
6. The assessee filed detailed reply explaining that this income is the proportionate income generated on the amount of corpus fund allocated in the ratio of corpus fund lying with the company to total investible funds, as the beginning of the year. It was strongly contended that the corpus fund held by the assessee is on behalf of the Government and the same is directly credited to the Corpus Fund at the end of the year.
7. The claim of the assessee did not find any favour with the Assessing Officer who proceeded by making an addition of Rs. 8,62,47,181/-. Proceeding further, the Assessing Officer noticed that in the preceding Assessment Year, the assessee has suo moto disallowed a sum of Rs. 43,88,951/- and u/s 14A of the Act r.w.r 8D of the Rules, further disallowed a sum of Rs. 2,50,038/-. However, the Assessing Officer found that during the year under consideration, no such disallowance was made. The Assessing Officer, accordingly, proceeded by computing the disallowance u/s 14A r.w.r 8D of the Act at Rs. 75,29,079/-.
8. The assessee carried the matter before the ld. CIT(A) and in respect of addition of Rs. 8.62 crores, the assessee reiterated its contentions before the ld. CIT(A) and placed strong reliance on the decision of the Hon'ble Supreme Court in the case of Associated Power 218 ITR 195 and further substantiated its claim of diversion of income by overriding titles.
9. After considering the facts and submissions, the ld. CIT(A) held as under:
“I have considered the submission of the appellant and observation of the Assessing Officer. It is seen that an amount of Rs. 8,62,47,181/- was added by the AO which was income received by the appellant from the investments and directly credited to the corpus fund. This corpus fund was created by the Government of India and State Governments with contributions received from the Government of India and State / U.T.s. This corpus fund is the public fund which is managed by implementing agency i.e. the Government of India has duly designated the appellant company to act as an implementing agency. The Ministry of Agriculture,
Government of India had issued directions to the appellant company to credit the interest earned to corpus fund only as the income earned belongs to the Government. The Ministry of Agriculture, Department of Agriculture and Cooperation vide letter dated 28.06.2007 has directed the appellant company to add up the interest accrued in the corpus fund. The appellant has filed this copy of the letter as Annexure A to the submission.x The appellant has also filed the auditor’s observation and comments of the management on the objections raised by the CAG wherein it is mentioned that CAG has raised objections on the accounts of the appellant company and suggested that interest earned to be credited to corpus fund and it was to be accepted by the appellant company being a public sector company. The remark sheet has been attached by the appellant as Annexure B to the submission. It is submitted by the appellant that corpus fund belonged to and owned by the Government.' The company used the funds as per the investment guidelines of IRDA along with the normal business investment and credited the proportionate interest amount