ACIT 6(1), MUMBAI v. ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD, MUMBAI

ITA 1649/MUM/2012 | 2005-2006
Pronouncement Date: 24-07-2013 | Result: Dismissed

Appeal Details

RSA Number 164919914 RSA 2012
Assessee PAN NGITA1647T
Bench Mumbai
Appeal Number ITA 1649/MUM/2012
Duration Of Justice 1 year(s) 4 month(s) 16 day(s)
Appellant ACIT 6(1), MUMBAI
Respondent ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 24-07-2013
Appeal Filed By Department
Order Result Dismissed
Bench Allotted I
Tribunal Order Date 24-07-2013
Date Of Final Hearing 14-05-2013
Next Hearing Date 14-05-2013
Assessment Year 2005-2006
Appeal Filed On 09-03-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH MUMBAI .. !'# $ $ $ $ ! % & !'# !' BEFORE SHRI P.M. JAGTAP AM AND SHRI SANJAY GARG J M !./ I.T.A. NO. 1647 /MUM/2012 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEAR : 2007-08) !./ I.T.A. NO. 1648 /MUM/2012 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEAR : 2005-06) !./ I.T.A. NO. 1649 /MUM/2012 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEAR : 2005-06) !./ I.T.A. NO. 1650 /MUM/2012 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEAR : 2006-07) ASSTT. COMMISSIONER OF INCOME TAX CIR. 6(1) ROOM NO. 506 5 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI 400 020. ) ) ) ) / VS. ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. 1089 APASAHEB MARATHE MARG PRABHADEVI MUMBAI 400 026. #+ !./ PAN : AAAC 17351P ( + / // / APPELLANT ) .. ( -.+ / RESPONDENT ) + / 0 ! / APPELLANT BY : SHRI K.C.P. PATNAIK -.+ / 0 ! / RESPONDENT BY : MS. AARTI VISSANJI !)$ / / // / DATE OF HEARING : 16-07-2013 12* / / DATE OF PRONOUNCEMENT : 24-07-2013 ITA 1647 TO 1650/MUM/12 2 '3 / O R D E R PER P.M. JAGTAP A.M . : THESE FOUR APPEALS PREFERRED BY THE REVENUE IN THE CASE OF ONE SINGLE ASSESSEE HAVE BEEN HEARD TOGETHER AND ARE BEING DIS POSED OF BY THIS SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. OUT OF THESE FOUR APPEALS THREE APPEALS BEING I TA NO. 1649/M/12 1650/M/12 AND 1647/M/12 WHICH ARE DIRECTED AGAINST SEPARATE ORDERS OF LD. CIT(A) -14 MUMBAI DTD. 9-12-2011 FOR ASSESSMENT YE ARS 2005-06 2006-07 AND 2007-08 INVOLVE A COMMON ISSUE AS RAISED IN THE SOLITARY IDENTICAL GROUND WHICH READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) ERRED IN UPHOLDING THE METHODOLOGY ADOPTED B Y THE ASSESSEE IN CALCULATING THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT 1961 AND DELETING THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT 1961` MADE BY THE A.O. @ 5% OF THE AVERAGE INVESTMENT WITHOUT APPRECIATING THE FACT THAT REASONABLE DISALLOWANCE U/S 14A OF THE IN COME TAX ACT 1961 WAS MADE BY THE A.O. AND ASSESSEE IS UNABLE TO PROD UCE DOCUMENTARY EVIDENCE IN SUPPORT OF THE ALLOCATION OF EXPENSES O F THE INVESTMENT DEPARTMENT OF THE ASSESSEE AND THEREFORE THE METHOD OLOGY ADOPTED BY THE ASSESSEE FOR CALCULATING DISALLOWANCE U/S 14A O F THE INCOME TAX ACT 1961 DOESNT HAVE ANY BASIS. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 3. THE ASSESSEE IN THE PRESENT CASE IS JOINT VENTUR E BETWEEN ICICI BANK LIMITED INDIA AND PRUDENTIAL PLC U.K. IT IS ENGA GED IN LIFE INSURANCE BUSINESS. IN THE RETURNS FILED FOR THE YEARS UNDER CONSIDERATION DIVIDEND INCOME EARNED WAS CLAIMED TO BE EXEMPT BY THE ASSES SEE AND DISALLOWANCE U/S 14A OF THE ACT WAS OFFERED AS UNDER:- ITA 1647 TO 1650/MUM/12 3 ASST. YEAR EXEMPT DIVIDEND INCOME DISALLOWANCE U/S 14A OFFERED 2005-06 1 56 09 222/- 1 44 377/- 2006-07 2 26 22 996/- 2 17 062/- 2007-08 5 40 41 080/- 4 59 811/- IN THE ORDERS ORIGINALLY PASSED U/S 143(3) OF THE A CT THE A.O. APPLIED RULE 8- D OF THE INCOME TAX RULES 1962 TO WORK OUT THE DIS ALLOWANCE U/S 14A OF THE ACT ON MUCH HIGHER SIDE. ON APPEAL THE LD. CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT SECTION 14A WAS NOT APPLICABLE IN ITS CASE BEING INSURANCE COMPANY. HE HOWEVER HELD VIDE HI S APPELLATE ORDERS DATED 30-8-2010 PASSED IN THE FIRST ROUND RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MANUF ACTURING CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM.) THAT RULE 8-D WAS NOT APPLICABLE TO THE YEARS UNDER CONSIDERATION. HE ACCORDINGLY DIRECTED THE A .O. TO WORK OUT THE DISALLOWANCE U/S 14A OF THE ACT ON SOME REASONABLE BASIS. WHILE GIVING EFFECT TO THE ORDERS OF THE LD. CIT(A) THE A.O. ADOPTED T HE SAME BASIS AS GIVEN IN RULE 8-D OF THE INCOME TAX RULES 1962 TO WORK OUT THE DISALLOWANCE U/S 14A OF THE ACT BUT RESTRICTED THE SAME TO THE AMOUNT OF DIVIDEND INCOME CLAIMED TO BE EXEMPT BY THE ASSESSEE. THE ASSESSEE AGAIN P REFERRED APPEALS BEFORE THE LD. CIT(A) AND WHILE DISPOSING OF THE SAID APPE ALS THE LD. CIT(A) DELETED THE DISALLOWANCE MADE BY THE A.O. U/S 14A OF THE AC T WHILE GIVING EFFECT TO THE APPELLATE ORDER ORIGINALLY PASSED BY THE LD. CI T(A) HOLDING THAT THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR COMPUTING T HE DISALLOWANCE U/S 14A OF THE ACT WAS REASONABLE. ACCORDINGLY HE DIRECTE D THE A.O. TO WORK OUT THE DISALLOWANCE U/S 14A OF THE ACT AS PER THE METHOD A DOPTED BY THE ASSESSEE AFTER VERIFYING THE RELEVANT DETAILS. AGGRIEVED BY THE ORDERS OF THE LD. CIT(A) THE REVENUE HAS PREFERRED THESE APPEALS BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THE ORDERS ORIGINALLY PASSED BY THE LD. C IT(A) ON 30-8-2010 REJECTING ITA 1647 TO 1650/MUM/12 4 THE CONTENTION OF THE ASSESSEE ABOUT NON-APPLICABIL ITY OF SECTION 14A OF THE ACT TO THE INSURANCE COMPANIES WERE IMPUGNED BY THE ASSESSEE IN THE APPEALS FILED BEFORE THE TRIBUNAL AND THE TRIBUNAL VIDE ITS COMMON ORDER DATED 14 TH SEPTEMBER 2012 PASSED IN ITA NO. 6854 TO 6856/M/2 010 FOR ASSESSMENT YEARS 2005-06 TO 2007-08 HELD THAT THE P ROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE IN THE CASE OF INSURA NCE COMPANY. A COPY OF THE SAID ORDER IS PLACED ON RECORD BEFORE US AND A PERU SAL OF THE SAME SHOWS THAT THE PROVISIONS OF SECTION 14A HAVE BEEN HELD TO BE NOT APPLICABLE IN THE CASE OF INSURANCE COMPANIES BY THE TRIBUNAL RELYING ON T HE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF GENERAL INSURA NCE CORPORATION OF INDIA (ITA NO. 3554/M/2011) WHEREIN A SIMILAR ISSUE WAS D ECIDED IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS:- 9. ISSUE NO.6 NON APPLICABILITY OF PROVISIONS OF SECT ION 14A . (MODIFIED GROUND OF APPEAL NO.3.1 TO 3.4 ORIGINAL GROUND OF APPEAL NO.3.1 TO 3.5). THE ISSUE IS WITH REFERENCE TO THE APPLICABILITY OF SECTION 14A AND DISALLOWANCE OF EXPENDITURE IN RESPECT OF S ALE OF INVESTMENT WHICH ARE NOT TAXED. WE HAVE HEARD THE RIVAL CONTEN TIONS. WE ALSO NOTE THAT THIS ISSUE IS ALSO CONSIDERED BY THE COORDINAT E BENCH IN ASSESSEES OWN CASE FOR 2006-07 VIDE PARA 7 TO 9: 7. GROUNDS OF APPEAL NO.4 REGARDING THE EXPENDITURE UNDER SECTION 14A. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT RECORD. WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED AND DEC IDED BY THE PUNE BENCH OF THIS TRIBUNAL IN THE CASE OF BAJAJ ALLIANZ GENERAL INSURANCE COMPANY LIMITED V/S ADD. CIT IN ITA NO.1447/PN/2007 FOR THE ASSESSMENT YEAR 2003-04 ORDER DATED 31.08.2009. THI S TRIBUNAL IN THE CASE OF JCITV/S M/S RELIANCE GENERAL INSURANCE CO. IN ITA NO.3085/MUM/2008 FOR THE ASSESSMENT YEAR 2005-06 VI DE ORDER DATED 26.2.2010 HAS CONSIDERED THIS ISSUE AND DECIDED IN FAVOUR OF THE ASSESSEE. THIS ORDER WAS FOLLOWED BY THIS TRIBUNAL WHILE DECIDING THE ISSUE IN ITA NO.781/MUM/2007 VIDE ORDER DATED 30.4. 2010. THUS THIS ISSUE HAS BEEN CONSISTENTLY DECIDED IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE BY THIS TRIBUNAL. THE PUNE BENC H OF THIS TRIBUNAL IN THE CASE OF BAJAJ ALLIANZ GENERAL INSURANCE COMPANY LIMITED V/S ADD. CIT (SUPRA) HAS DECIDED THIS ISSUE IN PARAGRAPHS 17 TO 20 AS UNDER: 17. FINALLY THE QUEST ION TO BE ANSWERED IS ABOUT THE APPLICABILITY OF S. 14A IN RESPECT OF SALE OF INVESTMENT WHICH IS NOT TAXED UNDER THE SPECIAL CIRCUMSTANCES OF DELETION OF A SUB-RULE FROM THE STATUTE. IT IS NOT QUESTIONED THAT THE IMPUGNED PRO FIT WAS NON- ITA 1647 TO 1650/MUM/12 5 TAXABLE PER SE RATHER THE ACCEPTED LEGAL POSITION I S THAT THE IMPUGNED PROFIT WAS VERY MUCH TAXABLE IN THE PAST. NOW IT HAS BEEN INFORMED THAT THIS CONTROVERSY IN RESPECT OF I NSURANCE COMPANY SET AT REST BY A DECISION OF TRIBUNAL DEL HI BENCH VERDICT IN THE CASE OF ORIENTAL INSURANCE CO. LTD. (ITA NOS . 5462 & 5463/DEL /2003)ASST. YRS. 2000-01 AND 2001-02 ORDER DT. 27TH FEB. 2009 [REPORTED AS ORIENTAL INSURANCE CO. LTD. VS. ASST T . CIT [2010] 130 TTJ (DELHI)388 : [2010] 38 DTR (DELHI ) 225ED. ] . THEREFORE CONSIDERING THE VEHEMENT RELIANCE OF LEAR NED AUTHORIZED REPRESENTATIVE IT IS WORTH TO MENTION AT THE OUTSET ITSELF THAT THE ISSUE NOW STOOD RESOLVED BY THIS LATEST DECISION OF DELHI TRIBUNAL IN THE CASE OF ORIENTAL INSURANCE CO. LTD. (SUPRA) THE RELEVANT PORTION REPRODUCED BELOW: '17. WE HAVE HEARD RIVAL SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IDENTICAL ISSUE AROSE IN ASSESSEE'S OWN CASE FOR AS ST. YR. 1985-86. THE TRIBUNAL ACCEPTED THE PLEA OF THE ASSE SSEE AND IN FACT THE ISSUE WENT UP TO THE HON'BLE DELHI HIGH COURT IN ASST . YRS. 1986-87 TO 1988-89 WHICH IS R EPORTED AS CIT V. ORIENTAL INSURANCE CO. LTD. [2003] 179 CT R (DELHI ) 85 : [2002] 125 TAXMAN 1094 (DELHI ) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT S. 44 OF THE ACT IS A SPECIAL PROVISION DEALING WITH THE COMPUTATION OF P ROFITS AND GIFTS OF BUSINESS OF INSURANCE. IT BEING A NON OBSTINATE PROVISION HAS TO PREVAIL OVER OTHER PROVISIONS IN THE ACT. IT CLEARLY PROVIDES THAT INCOME FROM INSURANCE BUSINES S HAS TO BE COMPUTED IN ACCORDANCE WITH THE RULE CONTAINE D IN THE FIRST SCHEDULE. IT IS NOT THE CASE OF THE REVENUE T HAT THE ASSESSEE HAS NOT COMPUTED THE PROFITS AND GAINS OF ITS INSURANCE BUSINESS IN ACCORDANCE WITH THE SAID RULE S. RELIANCE WAS PLACED ON THE SCOPE OF S. 144 AS HELD IN THE CASE OF GENERAL INSURANCE CORPORATION OF INDIA V. C IT [1999] 156 CTR (SC) 425 : [1999] 240 ITR 139 (SC) WHEREIN THEIR LORDSHIPS OF THE APEX COURT HAVE CATEGORICALL Y HELD THAT THE PROVISIONS OF S. 44 BEING A SPECIAL PROVIS ION GOVERN COMPUTATION OF TAXABLE INCOME EARNED FROM BUSINESS OF INSURANCE. IT MANDATES THE TAX AUTHORITIES TO COMPU TE THE TAXABLE INCOME IN RESPECT OF INSURANCE BUSINESS IN ACCORDANCE WITH THE PROVISIONS OF THE FIRST SCHEDUL E TO THE ACT. IN THE LIGHT OF THESE THEIR LORDSHIPS OF DELH I HIGH COURT HAVE HELD THAT NO QUEST ION OF LAW MUCH LESS A SUB STANTIAL QUEST ION OF LAW SURVIVES FOR THEIR CONSIDERATION. IN OTHER WORDS ORDER OF THE TRIBUNAL HAS BEEN AFFIRMED. FOL LOWING THE SAME REASONING ADDITION MADE BY THE AO IS DELE TED. 22. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GO NE THROUGH THE RECORDS. THE PROVISIONS OF S. 44 READ AS UNDER: ITA 1647 TO 1650/MUM/12 6 44. INSURANCE BUSINESS.NOTWITHSTANDING ANYTHING T O THE CONTRARY CONTAINED IN THE PROVISIONS OF THIS ACT RE LATING TO THE COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD ' INTEREST ON SECURITIES' . 'INCOME FROM HOUSE PROPER TY' 'CAPITAL GAINS' OR ' INCOME FROM OTHER SOURCES' O R IN S. 199 OR IN SS. 28 TO 43B THE PROFITS AND GAINS OF ANY B USINESS OF INSURANCE INCLUDING ANY SUCH BUSINESS CARRIED ON B Y A MUTUAL INSURANCE COMPANY OR BY A CO OPERATIVE SOCIE TY SHALL BE COMPUTED IN ACCORDANCE WITH THE RULES CONT AINED IN THE FIRST SCHEDULE'. 23. THE ABOVE PROVISION MAKES IT VERY CLEAR THAT S. 44 APPLIES NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED WITHIN THE PROVISIONS OF THE IT ACT RELATING TO COMPUTATION OF INCOME CHARGEABLE UNDER DIFFERENT HEADS. WE AGREE WITH THE LEARNED CO UNSEL THAT THERE IS NO REQUIREMENT OF HEAD-WISE BIFURCATION CALLED FOR WHILE COMPUTING THE INCOME UNDER S. 44 OF THE ACT IN THE CASE OF AN INS URANCE COMPANY. THE INCOME OF THE BUSINESS OF INSURANCE IS ESSENTIALLY TO BE AT THE AMOUNT OF THE BALANCE OF PROFITS DISCLOSED BY THE ANNUAL A CCOUNTS AS FURNISHED IN THE CONTROLLER OF INSURANCE. THE ACTUAL COMPUTAT ION OF PROFITS AND GAINS OF INSURANCE BUSINESS WILL HAVE TO BE COMPUTE D IN ACCORDANCE WITH R. 5 OF THE FIRST SCHEDULE. IN THE LIGHT OF TH ESE SPECIAL PROVISIONS COUPLED WITH NON OBSTANTE CLAUSE THE AO IS NOT PERM ITTED TO TRAVEL BEYOND THESE PROVISIONS. 24. SEC. 14A CONTEMPLATES AN EXCEPTION FOR DEDUCTIO NS AS ALLOWABLE UNDER THE ACT ARE THOSE CONTAINED UNDER SS. 28 TO 4 3B OF THE ACT. SEC. 44 CREATES SPECIAL APPLICATION OF THESE PROVISIONS IN THE CASES OF INSURANCE COMPANIES. WE THEREFORE AGREE WITH THE A SSESSEE AND DELETE THE ACT AS ACCORDING TO US IT IS NOT PERMISSIBLE T O THE AO TO TRAVEL BEYOND S. 44 AND FIRST SCHEDULE OF THE IT ACT .' 18. IT MAY NOT BE OUT OF PLACE TO MENTION THAT THE RESPECTED CO-ORDINATE BENCH HAS DULY TAKEN THE NOTE OF AN EAR LIER DECISION OF THAT VERY BENCH DECIDED IN THE CASE OF THAT VERY ASSESSEE VIDE ORDER DT . 29TH SEPT. 2004 BEARING ITA NOS. 7815/DE L/1989 3607 TO 3609/DEL /1990; 5035/DEL / 1998 AND 3910/DEL /20 00 NAMED AS DY. CIT V. ORIENTAL GENERAL INSURANCE CO. LTD. [2005] 92 TTJ (DELHI ) 300. AS SEEN FROM THE PARAS REPRODUCED ABOVE ON DUE CONSIDERATION OF THE RELEVANT PROVISIONS AS APPLICA BLE TO RESOLVE THIS ISSUE A CONCLUSION WAS DRAWN THAT SINCE THE CO URTS HAVE HELD S. 44 CREATES A SPECIAL PROVISION IN THE CASE S OF ASSESSMENT OF INSURANCE COMPANIES THEREFORE IT WAS NOT PERMISS IBLE TO THE AO TO TRAVEL BEYOND S. 44 OF FIRST SCHEDULE OF IT ACT . 18. THE NEXT COMMON DISPUTE RELATES TO THE ORDER OF THE CIT (A) IN SUSTAINING THE ACT ION OF AO IN AL LOWING ONLY 50 P ER CENT OF THE MANAGEMENT EXPENSES BY INVOKING THE PROVISIONS OF S . 14A OF THE ITA 1647 TO 1650/MUM/12 7 ACT . THE ADDITION IS MADE BY THE AO ON THE PLEA TH AT THE PROVISIONS OF S.14A WAS INSERTED BY FINANCE ACT 20 01 W.E.F. 1ST APRIL 1962. IT IS STATED THAT THE INVESTMENTS MADE BY THE ASSESSEE ARE BOTH TAXABLE AS WELL AS TAX FREE. AN E STIMATED DISALLOWANCE OF 50 PER CENT OUT OF THE MANAGEMENT E XPENSES INCURRED AND AS CLAIMED IN THE P&L A/C IS TREATED A S EXPENSES INCUR RED IN CONNECT ION WITH THE LOOKING AFTER TAX -FREE INVESTMENT. 19. THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE INCOME OF THE ASSESSEE IS TO BE COMPUTED UNDER S. 44 R/W/R. 5 OF SCH. 1 OF THE IT ACT. SEC. 44 IS A NON OBSTINATE CLAUSE AND APPLIES NOTWITHSTANDING ANYTHING TO THE CONTRARY CO NTAINED WITHIN THE PROVISIONS OF THE IT ACT RELATING TO COMPUTATIO N OF INCOME CHARGEABLE UNDER DIFFERENT HEADS OTHER THAN THE IN COME TO BE COMPUTED UNDER THE HEAD 'PROFIT AND GAINS OF BUSINE SS OR PROFESSION' . FOR COMPUTATION OF PROFITS AND GAINS OF BUSINESS OR PROFESSION THE MANDATE TO THE AO IS TO COMPUTE THE SAID INCOME IN ACCORDANCE WITH THE PROVISIONS OF SS. 28 TO 43B OF THE ACT . IN THE CASE OF THE COMPUTATION OF PROFITS AND GAINS OF ANY BUSINESS OF INSURANCE THE SAME SHALL BE DONE IN ACCORDANCE WIT H THE RULES PRESCRIBED IN FIRST SCHEDULE OF THE ACT MEANING TH EREBY SS. 28 TO 43B SHALL NOT APPLY. NO OTHER PROVISION PERTAINING TO COMPUTATION OF INCOME WILL BECOME RELEVANT. ACCORDING TO THE LE ARNED COUNSEL TWO PRESUMPTIONS THAT FOLLOW ON A COMBINED READING OF SS. 14 14A 44 AND R. 5 OF THE FIRST SCHEDULE ARE: (A)THAT NO HEAD-WISE BIFURCATION IS CALLED FOR. THE INCOME INTER ALIA OF THE BUSINESS OF INSURANCE IS ESSENTIALLY T O BE AT THE AMOUNT OF THE BALANCE OF PROFITS DISCLOSED BY THE A NNUAL ACCOUNTS AS FURNISHED TO THE CONTROLLER OF INSURANCE UNDER T HE INSURANCE ACT 1938. THE SAID BALANCE OF PROFITS IS SUBJECT O NLY TO ADJUSTMENTS THERE UNDER. THE ADJUSTMENTS DO NOT REF ER TO DISALLOWANCE UNDER S. 14A OF THE ACT. (B) PROFITS AND GAINS OF BUSINESS AS REFER RED TO I N (A) ABOVE HAVE ONLY TO BE COMPUTED IN ACCORDANCE WITH R. 5 OF THE FIRST SCHEDULE. 22. SEC. 44 CREATES A SPECIFIC EXCEPTION TO THE APP LICABILITY OF SS. 28 TO 43B. THEREFORE THE PURPOSE OBJECT AND PURVI EW OF S. 14A HAS NO APPLICABILITY TO THE PROFITS AND GAINS OF AN INSURANCE BUSINESS. 21. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGL Y JUSTIFIED THE ACT ION OF THE AO AND THAT OF THE CIT(A) IN THE LIG HT OF THE CLEAR PROVISIONS OF S. 14A OF THE ACT . SINCE THE VIEW HA S ALREADY BEEN EXPRESSED BY RESPECTED CO-ORDINATE BENCH THEREFORE WE HAVE NO REASON TO TAKE ANY OTHER VIEW EXCEPT TO FOLLOW THE SAME. WITH THE RESULT WE HEREBY ACCEPT THE ARGUMENT OF LEARNED AUT HORIZED REPRESENTATIVE TO THE EXTENT THAT IN THE PRESENT SI TUATION THE PROVISIONS OF S. 14A NEED NOT TO APPLY WHILE GRANTI NG EXEMPT ION TO ITA 1647 TO 1650/MUM/12 8 AN INCOME EARNED ON SALE OF INVESTMENT PRIMARILY BE CAUSE OF THE REASON OF THE WITHDRAWAL OR DELETION OF SUB- R. 5(B ) TO FIRST SCHEDULE OF S. 44 OF IT ACT. ONCE WE HAVE TAKEN THI S VIEW THEREFORE THE ENHANCEMENT AS PROPOSED BY LEARNED CI T(A) IS REVERSED AND THE DIRECTIONS IN THIS REGARD ARE SET ASIDE. RESULTANTLY GROUND NO. 1 IS ALLOWED CONSEQUENT THER EUPON GROUND NO. 2 AUTOMATICALLY GOES IN FAVOUR OF THE ASSESSEE . ACCORDINGLY BY FOLLOWING THE ORDERS OF THIS TRIBUN AL WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THEREFORE THE GROUND IS ALLOWED. 5. AS HELD BY THE TRIBUNAL IN ASSESSEES OWN CASE F OR THE YEARS UNDER CONSIDERATION I.E. ASSESSMENT YEARS 2005-06 2006-0 7 AND 2007-08 THE PROVISIONS OF SECTION 14A OF THE ACT THUS ARE NOT A PPLICABLE IN THE CASE OF THE ASSESSEE BEING INSURANCE COMPANY AND RESPECTFULLY F OLLOWING THE SAID DECISION OF THE TRIBUNAL WE UPHOLD THE IMPUGNED OR DER OF THE LD. CIT(A) DELETING THE DISALLOWANCE MADE BY THE A.O. U/S 14A OF THE ACT. APPEALS OF THE REVENUE BEING ITA NO. 1649/M/2012 1647/M/12 & 1650 /M/2012 ARE ACCORDINGLY DISMISSED. 6. IN THE REMAINING APPEAL BEING ITA NO. 1648/MUM/2 012 WHICH IS ARISING FROM THE REASSESSMENT MADE BY THE A.O. U/S 143(3) R .W.S. 147 FOR A.Y. 2005-06 THE REVENUE HAS RAISED THE FOLLOWING TWO GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN QUASHING THE ORDER U/S 143(3) R .W.S. 147 OF THE I.T. ACT 1961 TREATING THE SAME AS CHANGE OF OPINION WITHOUT APPRECIATING THE FACT THAT ORIGINAL ORDER OF ASSESSMENT DOES NOT ADDRESS THE ASPECT OF NEGATIVE RESERVE WHICH IS THE BASIS FOR REOPENING OF THE ASSESSMENT AND THEREFORE THERE IS NO CHANGE OF OPINION AS HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CONSOLIDATED PHOTO AND FI NVEST VS. ACIRT 281 ITR 394. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN NOT SUBJECTING THE NEGATIVE RES ERVE AMOUNTING TO RS. 7 19 62 640/- IGNORING THE FACTS THAT NEGATIVE RESE RVE HAS AN IMPACT OF REDUCING THE TAXABLE SURPLUS AS PER FORM -1. ITA 1647 TO 1650/MUM/12 9 7. AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SIDES THE ISSUE RAISED IN GROUND NO. 2 OF THE REVENUES APPEAL IS SQUARE LY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 14 TH SEPTEMBER 2012 (SUPRA) WHEREIN A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRI BUNAL IN FAVOUR OF THE ASSESSEE FOR A.Y. 2006-07 AFTER CONSIDERING ALL THE RELEVANT ASPECTS VIDE PARA 57 TO 59 OF ITS ORDER WHICH READ AS UNDER :- 57. GROUND NO. 1 IS ON THE ISSUE OF TREATING NEGAT IVE RESERVE AND DISALLOWING THE AMOUNT. WHILE COMPLETING THE ASSESS MENT OF LIFE INSURANCE BUSINESS THE AO AFTER TAKING THE TOTAL S URPLUS FROM FORM-I REDUCED THE NEGATIVE RESERVE AMOUNTING TO `27.27 CR ORES. ASSESSEE SUBMITTED BEFORE THE CIT(A) AS UNDER: - METHOD OF DETERMINATION OF MATHEMATICAL RESERVES (1) MATHEMATICAL RESERVES SHALL BE DETERMINED SEPARATEL Y FOR EACH CONTRACT BY A PROSPECTIVE METHOD OF VALUATION IN ACCORDANCE WITH SUB-PARAS (2) TO (4). (2) THE VALUATION METHOD SHALL TAKE INTO ACCOUNT AL L PROSPECTIVE CONTINGENCIES UNDER WHICH ANY PREMIUMS (BY THE POLI CYHOLDER) OR BENEFITS (TO THE POLICYHOLDER/BENEFICIARY) MAY BE P AYABLE UNDER THE POLICY AS DETERMINED BY THE POLICY CONDITIONS. THE LEVEL OF BENEFITS SHALL TAKE INTO ACCOUNT THE REASONABLE EXP ECTATIONS OF POLICYHOLDERS (WITH REGARD TO BONUSES INCLUDING TE RMINAL BONUSES IF ANY) AND ANY ESTABLISHED PRACTICES OF AN INSURER FOR PAYMENT OF BENEFITS. (3) THE VALUATION METHOD SHALL TAKE INTO ACCOUNT TH E COST OF ANY OPTIONS THAT MAY BE AVAILABLE TO THE POLICYHOLDER U NDER THE TERMS OF THE CONTRACT. (4) THE DETERMINATION OF THE AMOUNT OF LIABILITY UN DER EACH POLICY SHALL BE BASED ON PRUDENT ASSUMPTIONS OF ALL RELEVANT PARAMETERS. THE VALUE OF EACH SUCH PARAMET ER SHALL BE BASED ON THE INSURERS EXPECTED EXPERIENCE AND SHALL INCLUDE AN APPROPRIATE MARGIN FOR ADVERSE DEV IATIONS (HEREINAFTER REFERRED TO AS MAD) THAT MAY RESULT IN AN INCREASE IN THE AMOUNT OF MATHEMATICAL RESERVES. (5) (1) THE AMOUNT OF MATHEMATICAL RESERVE IN RESPE CT OF A POLICY DETERMINED IN ACCORDANCE WITH SUB-PARA (4) MAY BE NEGATIVE (CALLED NEGATIVE RESERVES) OR LESS THAN THE GUARANTEED SURRENDER VALUE AVAILABLE (CALLED GUARA NTEED SURRENDER VALUE DEFICIENCY RESERVES) AT THE VALUAT ION DATE. ITA 1647 TO 1650/MUM/12 10 THE APPOINTED ACTUARY SHALL FOR THE PURPOSE OF SEC TION 35 OF THE ACT USE THE AMOUNT OF SUCH MATHEMATICAL RES ERVES WITHOUT ANY MODIFICATION. THE APPOINTED ACTUARY SHALL FOR THE PURPOSE OF SEC TIONS 13 49 64V AND 64VA OF THE ACT SET THE AMOUNT OF SUCH MATHEMATICAL RESERVE TO ZERO IN CASE OF SUCH NEGAT IVE RESERVE OR TO THE GUARANTEED SURRENDER VALUE IN C ASE OF SUCH GUARANTEED SURRENDER VALUE DEFICIENCY RESERVES AS THE CASE MAY BE. (6) THE VALUATION METHOD SHALL BE CALLED GROSS PRE MIUM METHOD. (7) IF IN THE OPINION OF THE APPOINTED ACTUARY A M ETHOD OF VALUATION OTHER THAN THE GROSS PREMIUM METHOD OF VA LUATION IS TO BE ADOPTED THEN OTHER APPROXIMATIONS (E.G. RETROS PECTIVE METHOD) MAY BE USED. PROVIDED THAT THE AMOUNT OF CALCULATED RESERVE IS EXPECTED TO BE ATLEAST EQUAL TO THE AMOUNT THAT SHA LL BE PRODUCED BY THE APPLICATION OF GROSS PREMIUM METHOD. (8) THE METHOD OF CALCULATION OF THE AMOUNT OF LIAB ILITIES AND THE ASSUMPTIONS FOR THE VALUATION PARAMETERS SHALL NOT BE SUBJECT TO ARBITRARY DISCONTINUITIES FOR ONE YEAR TO THE NEXT. (9) THE DETERMINATION OF THE AMOUNT OF MATHEMATICAL RESERVES SHALL TAKE INTO ACCOUNT THE NATURE AND TERM OF THE ASSETS REPRESENTING THOSE LIABILITIES AND THE VALUE PLACED UPON THEM AND SHALL INCLUDE PRUDENT PROVISION AGAINST THE EFFECTS OF POSSIBLE FUTURE CHANGES IN THE VALUE OF ASSETS ON THE ABILIT Y TO THE INSURER TO MEET ITS OBLIGATIONS ARISING UNDER POLICIES AS T HEY ARISE. MANDATE TO APPOINTED ACTUARY UNDER REGULATIONS SUB-RULE 4 MANDATES APPOINTED ACTUARY TO HAVE PRUD ENT ASSUMPTION OF ALL RELEVANT PARAMETERS AND TO INCLUD E AN APPROPRIATE MARGIN FOR ADVERSE DEVIATIONS THAT MAY RESULT IN AN INCREASE IN THE AMOUNT OF MATHEMATICAL RESERVES. SUB-RULE 5 DEFINES SUCH MARGIN AS NEGATIVE RESERV E WHICH IS BEING DISCLOSED IN COLUMN 6 OF THE FORM 1. FURTHER CLAUSE (III) TO SUB-RULE 5 MANDATES APPOIN TED ACTUARY TO PROVIDE FOR NEGATIVE RESERVE IN MATHEMATICAL RESERV E ACCORDINGLY NOT TO INCLUDE IN DISTRIBUTABLE SURPLUS AS PER SECT ION 49 OF THE INSURANCE ACT 1938. CLAUSE (II) TO SUB-RULE 5 MANDATES APPOINTED ACTUA RY TO INCLUDE NEGATIVE RESERVE IN MATHEMATICS RESERVE ONLY AT THE TIME OF AMALGAMATION AND TRANSFER OF INSURANCE BUSINESS AND OTHERWISE. ITA 1647 TO 1650/MUM/12 11 TAXABLE SURPLUS SINCE TAXATION OF LIFE INSURANCE BUSINESS IS ON SUR PLUS DISCLOSED AS PER SECTION 49 WHICH IS COVERED BY RULE 2(5)(III ) WHERE IN APPOINTED ACTUARY IS MANDATED TO ARRIVE AT SURPLUS AFTER EXCLUDING NEGATIVE RESERVE. IN VIEW OF THE ABOVE WE HUMBLY SUBMIT BEFORE YOUR GOODSELF TO KINDLY NOT TREAT NEGATIVE RESERVE AS TAXABLE. SUB-R ULE 4 MANDATES APPOINTED ACTUARY TO HAVE PRUDENT ASSUMPTION OF ALL RELEVANT PARAMETERS AND TO INCLUDE AN APPROPRIATE MARGIN FOR ADVERSE DEVIATIONS THAT MAY RESULT IN AN INCREASE IN THE AM OUNT OF MATHEMATICAL RESERVES. 58. THE CIT(A) IN HIS BRIEF ORDER VIDE PARA 17 C ONSIDERED THE DETAILED EXPLANATION ABOVE AND ACCEPTED THAT THE NE GATIVE RESERVE DISCLOSED IN FORM-I DOES NOT GIVE RISE TO DISTRIBUT ABLE SURPLUS. ACCORDINGLY HE DISALLOWED THE SAME. 59. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND EX AMINING THE METHOD OF ACCOUNTING AND THE MANDATE GIVEN BY REGUL ATIONS TO APPOINT ACTUARIAL ON THE CONCEPT OF MATHEMATICAL RESERVES WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). T HE MATHEMATICAL RESERVE IS PART OF ACTUARIAL VALUATION AND THE SURP LUS AS DISCUSSED IN FORM-I UNDER REGULATION 4 TAKES INTO CONSIDERATION THIS MATHEMATICAL RESERVE ALSO. THEREFORE THE ORDER OF THE CIT(A) IS APPROVE. MOREOVER THE ASSESSING OFFICER HAS NO POWER TO MODIFY THE AMOUNT AFTER ACTUARIAL VALUATION WAS DONE WHICH WAS THE BASIS FOR ASSESSM ENT UNDER RULE 2 OF 1ST SCHEDULE R.W.S. 44 OF THE I.T. ACT. THE PRIN CIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN LIC VS. CIT 512 ITR 773 AB OUT THE POWERS OF ASSESSING OFFICER ALSO RESTRICTS THE SCOPE AND ADJU STMENTS BY THE AO. IN VIEW OF THIS WE UPHOLD THE ORDER OF THE CIT(A) A ND DISMISS THE REVENUE GROUND. 8. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDER ATION I.E. 2005-06 AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO A.Y. 2006-07 WE RESPECTFULLY FOLLOW THE ORDER OF THE CO-ORDINATE BE NCH OF THIS TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR A.Y. 2007-08 AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THI S ISSUE. GROUND NO. 2 OF THE REVENUES APPEAL IS ACCORDINGLY DISMISSED. 9. AS A RESULT OF OUR DECISION RENDERED ON GROUND N O. 2 DELETING THE ADDITION MADE BY THE A.O. IN THE ASSESSMENT COMPLET ED U/S 143(3) R.W.S. 147 ITA 1647 TO 1650/MUM/12 12 OF THE ACT THE ISSUE RAISED IN GROUND NO. 1 REGARD ING VALIDITY OF THE SAID ASSESSMENT HAS BECOME ONLY ACADEMIC. WE THEREFORE DO CONSIDER IT NECESSARY OR EXPEDIENT TO DECIDE THE SAME. 10. IN THE RESULT ALL THE FOUR APPEALS OF THE REV ENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24-7-2013. . '3 / 12* 4')5 24 -7-2013 2 / SD/- SD/- (SANJAY GARG) (P.M. JAGTAP ) & !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 4') DATED 24-07-2013 $.&).!./ RK SR. PS '3 / -&67 87* '3 / -&67 87* '3 / -&67 87* '3 / -&67 87*/ COPY OF THE ORDER FORWARDED TO : 1. + / THE APPELLANT 2. -.+ / THE RESPONDENT. 3. 9 () / THE CIT(A)- V MUMBAI 4. 9 / CIT MC-V MUMBAI 5. 7$< -&&) / DR ITAT MUMBAI I BENCH 6. =% > / GUARD FILE. '3)! '3)! '3)! '3)! / BY ORDER !.7 -& //TRUE COPY// ? ? ? ?/ // /!@ !@ !@ !@ ( DY./ASSTT. REGISTRAR) / ITAT MUMBAI