Delhi High Court Condoned Delay and Upheld Deletion of Addition in Trinity Insurance Brokers Pvt. Ltd. Case

Case Name:

ITA 624/2023 - Principal Commissioner of Income Tax -7 vs. Trinity Insurance Brokers Pvt. Ltd.

Key Takeaways:

1. The High Court of Delhi condoned a delay of 448 days in re-filing an appeal by the Principal Commissioner of Income Tax -7 against Trinity Insurance Brokers Pvt. Ltd.
2. The appeal concerned the deletion of an addition made by the Assessing Officer pertaining to supervisory and risk management expenses.
3. The court upheld the deletion of the addition, stating that the expenses were incurred for prospective clients and should be deductible.
4. The court found the argument that the expenses were not linked to the respondent’s business to be untenable.
5. The court noted that the appellant/revenue treated the amount expended by the respondent as revenue receipts in the hands of its sister concerns, and therefore, the same transaction cannot be treated differently in the hands of the payer.

Case Synopsis:

This is a decision delivered by the High Court of Delhi on November 16, 2023, in the case of ITA 624/2023. The appellant in this case is the Principal Commissioner of Income Tax -7, and the respondent is Trinity Insurance Brokers Pvt. Ltd.

The appellant filed an application seeking condonation of a delay of 448 days in re-filing the appeal. The court allowed the application and condoned the delay.

The appeal concerns the Assessment Year (AY) 2011-12. The appellant is challenging the order passed by the Income Tax Appellate Tribunal (Tribunal) on August 19, 2021.

The only issue raised in the appeal is the deletion of the addition made by the Assessing Officer (AO) pertaining to supervisory and risk management expenses. The AO had added Rs. 4,33,06,842/- on this account.

The Commissioner of Income Tax Appeals (CIT(A)) deleted the addition, and this view was upheld by the Tribunal.

The appellant argues that the deletion of the addition was flawed because the expenses were not incurred by the respondent for its business purposes. The respondent is in the insurance brokerage business, and it claimed the aforementioned expenses against its brokerage income.

The respondent had paid the amount to its sister concerns, M.M. Carpets & Industries Ltd. and Trinity Global Enterprises Ltd. The amount paid to M.M. Carpets & Industries Ltd. was Rs. 32,84,250/-, and Trinity Global Enterprises Ltd. was paid Rs. 3,99,29,200/-.

The appellant/revenue treated the amounts received by the respondent’s sister concerns as revenue receipts, and the rate of tax levied on these amounts was the same as that which the respondent was subjected to.

In the preceding AY 2010-11, the AO did not raise any objection to the deduction claimed by the respondent for the expenses incurred towards supervisory and risk management charges.

The court finds the argument advanced by the appellant that the expenses were not linked to the respondent’s business to be untenable. The fact that the expenses were incurred for prospective clients should be sufficient for the respondent to claim a deduction.

Furthermore, since the appellant/revenue treated the amount expended by the respondent as revenue receipts in the hands of its sister concerns, the same transaction cannot be treated differently in the hands of the payer.

In AY 2013-14, the AO had raised an objection to the deduction, but it was ultimately deleted by the CIT(A). Therefore, the court sees no substantial question of law arising for consideration and decides not to interfere with the impugned order.

The appeal is closed, and the copy of the judgment will be dispatched to the respondent via all modes, including email.

FAQ:

Q1: What was the delay in re-filing the appeal?

A1: The delay in re-filing the appeal was 448 days.

Q2: What was the issue raised in the appeal?

A2: The issue raised in the appeal concerned the deletion of an addition made by the Assessing Officer pertaining to supervisory and risk management expenses.

Q3: What was the court’s decision regarding the deletion of the addition?

A3: The court upheld the deletion of the addition, stating that the expenses were incurred for prospective clients and should be deductible.

Q4: How did the court view the argument that the expenses were not linked to the respondent’s business?

A4: The court found the argument to be untenable and stated that the fact that the expenses were incurred for prospective clients should be sufficient for the respondent to claim a deduction.

Q5: How did the court consider the treatment of the amount expended by the respondent in the hands of its sister concerns?

A5: The court noted that the appellant/revenue treated the amount expended by the respondent as revenue receipts in the hands of its sister concerns, and therefore, the same transaction cannot be treated differently in the hands of the payer.

CM No.59054/2023 [Application filed on behalf of the appellant seeking condonation of delay of 448 days in re-filing the appeal]

1. This is an application moved on behalf of the appellant/revenue seeking condonation of delay in re-filing the appeal.

1.1 According to the appellant/revenue, there is a delay of 448 days in refiling the appeal.

2. The fact that the delay is in re-filing, and we intend to deal with matter on merits, we are inclined to condone the delay.

3. Accordingly, the prayer made in the application is allowed.

4. The application is disposed of, in the aforesaid terms.

ITA 624/2023

5. This appeal concerns Assessment Year (AY) 2011-12.

6. Via the instant appeal, the appellant/revenue seeks to assail the order dated 19.08.2021 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].

7. The only issue raised in the instant appeal concerns the deletion of the addition made by the Assessing Officer (AO) pertaining to supervisory and risk management expenses. The AO on this account had added Rs. 4,33,06,842/-.

8. The Commissioner of Income Tax Appeals [in short, “CIT(A)] deleted the addition; a view which has been sustained by the Tribunal.

9. Mr Puneet Rai, learned senior standing counsel, who appears on behalf of appellant/revenue, says that the deletion of the addition concerning the amount said to have been spent by the respondent/assessee towards supervisory and risk management, was flawed.

9.1 According to Mr Rai, the aforementioned expenses were not incurred by the respondent/assesee for its business purposes.

10. The record shows that the respondent/assessee is in the insurance brokerage business concerning both life and non-life products offered by various insurance companies.

11. The respondent/assessee is said to have incurred, according to the stand taken before the AO, the aforementioned amount vis-à-vis prospective clients.

12. Concededly the said amount was paid by the respondent/assessee to its sister concerns, namely M.M. Carpets & Industries Ltd. and Trinity Global Enterprises Ltd.

12.1 The amount paid to M.M. Carpets & Industries Ltd. was Rs.32,84,250/-. Likewise Trinity Global Enterprises Ltd. was paid Rs.3,99,29,200/-.

12.2 The respondent/assessee claimed Rs.4,33,06,842/- as expenses against brokerage income amounting to Rs.5,58,09,177/-.

13. It is not in dispute that the appellant/revenue has treated the amounts received by the respondent/assessee’s sister concerns as revenue receipts. Furthermore, it is also not in dispute that rate of tax levied on the amounts received by the respondent/assessee’s sister concerns is the same as that which the respondent/assessee is subjected to.

14. It appears (something which is not in dispute) that in the preceding AY i.e., AY 2010-11, the AO did not flag the deduction claimed by the respondent/assessee against the expenses incurred towards supervisory and risk management charges.

15. Mr Rai, though, informs us that in AY 2013-14, the AO had raised an objection, and, accordingly, made a suitable addition which was, ultimately, deleted by the CIT(A).

15.1. Mr Rai states that the appeal preferred by the appellant/revenue with the Tribunal was closed on account of low tax effect.

16. Having regard to the facts obtaining in the case, to our minds, the argument advanced by Mr Rai that the amounts expended by the respondent/ assessee towards supervisory and risk management charges were not linked to its business, is untenable.

16.1. The submission of Mr Rai is founded on the rationale that while the said expenses were incurred for prospective clients it did not result in the respondent/assessee earning a matching income.

17. According to us, this argument is flawed. The fact that the expenses were incurred for prospective clients should be good enough for the respondent/assessee to claim deduction qua the same, as every expense does not necessarily translate into corresponding income.

18. In any event, since, as noticed above, the appellant/revenue has treated the amount expended by the respondent/assessee as revenue receipt in the hands of its sister concerns, in our opinion, the same transaction cannot be treated differently in the hands of payer i.e., respondent/assessee.

19. Besides, as noted above, in AY 2010-11, the AO had allowed deduction vis-à-vis amounts expended towards supervisory and risk management charges.

20. Likewise, the CIT(A), in AY 2013-14, as noticed above, had deleted the addition made by the AO.

21. Thus, having regard to the overall circumstances, we are not inclined to interfere with the impugned order, since, according to us, no substantial question of law arises for our consideration.

22. The appeal is, accordingly, closed.

23. The Registry will dispatch the copy of the judgement rendered today to the respondent/assessee via all modes including email.

RAJIV SHAKDHER

(JUDGE)

GIRISH KATHPALIA

(JUDGE)

NOVEMBER 16, 2023