TaxTMI 
TaxTMI 
2016 (8) TMI 326
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.... revenue. Based on the concession given by the ld AR for condoning the said delay, we hereby condone the delay and admit the appeals for adjudication. ITA No. 674/Kol/2012 - Asst Year 2005-06 3. The first issue to be decided in this appeal is as to whether the ld CITA is justified in deleting the addition made on account of provision for IBNR amounting to Rs. 12,77,00,000/- as ascertained liability and thereby holding that the same need not be added back to book profits computed u/s 115JB of the Act. 3.1. The brief facts of this issue is that the ld AO observed that the assessee disclosed that provision is made in the accounts in respect of claims received or likely to be received after the end of the year but relating to the relevant accounting year. This provision for liability is made as per valuations carried out by actuaries and is shown under the head liabilities 'incurred but not reported'. The assessee claimed that such provisioning is made as per guidelines issued by the IRDA. Since Insurance business is a special kind of business, this provisioning may be binding for the assessee as per IRDA guidelines, but there is no scope for allowance of such amount set aside from ....
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....h was subsequently modified by an order of rectification dated 15-01-2010 passed u/s 154/147/143(3). In the assessee's appeal against the addition of Provision of IBNR, the ld CITA- VI, Kolkata, vide his Appellate Order dated 31-03-2010 [IT. Appeal No.988/CIT(A)-VI/09-10/Cir.-6/Kol] held that Provision for IBNR could not be termed as a Provision made to meet any unascertained liability. The ld CITA directed the ld AO to delete the addition of Rs. 16,18,00,000/- being Provision for IBNR while computing the Book Profit u/s 115JB(2) of the Act. On the basis of the above facts and the ld CITA order referred to above, it was submitted that the ld AO's action in adding back the Provision for IBNR of Rs. 12,77,00,000 as an alleged Unascertained liability while computing the Book profit u/s 115JB of the Act was unjustified. 3.3. The ld CITA on going through the submissions of the assessee observed as under :- "The provision for IBNR could not be termed as any provision made to meet any unascertained liability and so the addition made for IBNR Provision in computing Book Profit, was directed to be deleted by my Ld. Predecessor. Since the issue in the present Appeal is the same, following....
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.... a particular claim it is observed that necessary detailed information as regards the relevant policy are not available in the concerned summons or where the assessee considers that on the basis of the investigations to be carried out there may be a possibility of disputing the quantum of the claim, the company does not make provision for the entire claim made. In accordance with the guidelines framed by the General Insurance Corporation of India, the assessee does not provide for the entire claim but only 1/3rd of the respective claims are provided for. Here also, the provision is made for a liability which has not crystallized. Earlier, the assessee stated that such making of provision is an accepted norm as decided in a meeting dated 23rd/24th April, 1997 of the General Insurance Public Sector Association. When a claim is received which is more than a year old, provision is made even for 100%. This is done as per the convention which is not backed by any IRDA Guidelines or any Accounting Standards. Since Insurance business is a special kind of business, this provisioning may be binding for the assessee . On the basis of the above, the Assessing Officer added back the provision f....
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....ed 11.10.2011 on the same issue which was decided in favour of the assessee. Based on these submissions, the ld CITA deleted the addition made by the ld AO. 4.3. Aggrieved, the revenue is in appeal before us on the following ground:- "2. That on the facts and circumstances of the case, ld. CIT(A) erred in law in holding that the provision unidentified Motor third Party Claim is an ascertained liability and should be deducted while computed the Book Profits u/s. 115JB of the Act." 4.4. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR argued that the revenue had not preferred any appeal against the order of the ld CITA passed for the Asst Year 2004-05 in view of the decision taken by the Committee on Disputes not to prefer further appeal to the tribunal, as per the procedure then prevailing in respect of preferring appeals by the revenue in the case of Public Sector Undertakings and Government Companies. Apart from that, the issue is also covered by the order of this tribunal in assessee's own case in ITA No. 812/Kol/2009 dated 11.10.2011. 4.5. We have heard the rival submissions. We find that the issue involved is squarely covered by the dec....
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....l, we dismiss the Ground No. 2 raised by the revenue. 5. The last issue to be decided in this appeal is as to whether the ld CITA is justified in directing the ld AO that interest u/s 234B and 234C of the Act should not be charged on account of addition to the total income due to retrospective amendment. 5.1. The brief facts of this issue is that the ld AO made the following additions to the book profits computed u/s 115JB of the Act:- (i) Provision of IBNR 12,77,00,000 (ii) Provision for Unidentified Motor Third Party Claim 37,69,96,000 (iii) Provision for Bad & Doubtful Debts 5,50,91,000 (iv) Provision for Diminution in Value of Investments 1,96,09,000 57,93,96,000 The ld CITA by placing reliance on the decision of the Jurisdictional High Court in the case of Emami Ltd vs CIT reported in 200 Taxman 326 (Cal) directed the ld AO not to charge interest u/s 234 B and 234C of the Act as the same is levied only for non-payment of advance tax liability and deferment of the same and the retrospective amendment in the statute could not have been envisaged by the assessee while calculating the advance tax liability. Aggrieved, the revenue is in appe....
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....he Financial Year, i.e., 31-3-2001 when its book profit was nil according to the then law of the land. The various decisions of the other High Courts and the Tribunals relied upon by the Tribunal did not effectively consider the question whether even in a case like the present one where on the last date of the Financial Year preceding the relevant assessment year, the assessee had no liability to pay advance tax, he would be nevertheless asked to pay interest in terms of section 234B and section 234C of the Act for default in making payment of tax in advance which was physically impossible. 15. We, therefore, partly allow the appeal by answering the first question in the affirmative and against the assessee and the second and the third questions in the negative and against the revenue." Respectfully following the aforesaid decision, we dismiss the Ground No. 3 raised by the revenue. 6. In the result, the appeal of the revenue in ITA No. 674/Kol/2012 for Asst Year 2005-06 is dismissed. ITA Nos. 982/Kol/2012 & 983/Kol/2012 - Asst Years 2007-08 & 2008-09 7. Disallowance of Employees Contribution to Provident Fund - Rs. 2,22,78,598/- The Assessing Officer in his Assessment Order,....
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....chedule, should not be considered as applicable in the case of any business of Insurance other than Life Insurance. On the basis of the above observations, it was submitted that there being no question of incurring of any expenditure in the matter of crediting the sum received towards contributions from the employees, there could not be any scope for making any addition under clause (a) of Rule 5 of the First Schedule in the case of the assessee who has been carrying on the business of Insurance other than Life Insurance. Accordingly, it was submitted that there could not be any applicability of section 36(1)(va) read with section 2(24)(x) of the Act in view of the same not being covered by Rule 5(a) of the First Schedule. On the basis of the above facts it was submitted that the disallowance of Rs. 2,22,78,598/- by application of section 36(1)(va) of the Act, may kindly be directed to be deleted. The assessee also made an alternative submission before the Ld. CIT(A) that section 36(1)(va) of the Act requires crediting of the employees' contributions within the "due date" by the employer and the said "due date ", has been clarified by way of an Explanation. Unlike section 43B....
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....ers' contribution during the financial year 2000-01 which was placed at page 3 of the paper book and copy of the rules and regulations of the assessee's provident fund rules placed at pages 4-30 of the paper book, we are of the view that since the assessee has credited both employees' as well as employers' contributions to the individual accounts of the employees on the date of recovery of the provident fund in our opinion assessee fulfils the requirements mentioned u/s. 36(1)(va). Therefore we set aside the orders of the revenue authorities on this issue and direct AO to give relief of Rs. 8,67,57,956/-." Respectfully following the same, we dismiss the Ground No. 1 raised by the revenue. 8. Disallowance of Amortisation of Premium paid on Purchase of Investments The brief facts of this issue is that the assessee claimed Rs. 6,02,18,000/- towards amortization of premium paid on investments. Without assigning any reason, the ld AO stated in his order that the said claim of amortization could allegedly not be allowed as admissible deduction and accordingly disallowed the same. The assessee submitted that it has been carrying on the business of insurance other than life insurance an....
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.... be considered as unjustified. It was also submitted that the transactions in investments being a part of the business of the assessee, the amortization of premium paid on investments should be considered as deductible for the purpose of computing the business income of the assessee. It was submitted further that this was the first year in which such disallowance has been made. The assessee buys the Government Securities on Premium. The premium amount is amortised and is being charged to profit & loss account on pro rata basis depending on the number of years when the securities will be paid back. The purchasing of the securities at premium is compulsory as per the guidelines of the Government of India and there is no choice with assessee for not to buy the same. The assessee distributes the premium paid over a period of holding rather than debiting the same in the year of purchase which will give a distorted look to the Profit & Loss Account and will not be reflecting the true and fair view of the company as per the assessee. It was further submitted that since the assessee has been carrying on the General Insurance business and consequently its assessment is required to be made ....
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.... the Asst Years 2007- 08 and 2008-09 are dismissed. The decision taken in Asst Year 2007-08 with regard to this ground would apply with equal force to Asst Year 2008-09 as similar disallowance was made in Asst Year 2008-09 except with variance in figures. 9. Disallowance of Investments written off The brief facts of this issue is that the assessee wrote off Rs. 4,22,26,000/- out of Investments by charging the said sum to its Profit & Loss Account. The ld AO held that the above-mentioned write off could allegedly not be allowed as admissible deduction and he disallowed Rs. 4,22,26,000/-. The assessee submitted that the sum of Rs. 4,22,26,000/- which had been debited to the Profit & Loss Account had represented the amount of investment written off and the sum was neither an expenditure nor an allowance. Since the aforesaid sum had not been of the nature of any expenditure or allowance, the same could not be added back as per the provisions of section 44 read with Rule 5 of the First Schedule to the Income-tax Act, 1961. The assessee also submits that the ld AO had the power to add back only that expenditure or allowance or a provision which was not admissible under the provisions o....
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....'ble Supreme Court as well as the Appellate decision in the assessee's own assessment for the Assessment Year 2002-03, as referred to above, the assessee submitted that the disallowance of Rs. 4,22,26,000/- in respect of Investments Written off, may kindly be deleted. It was also submitted that the ld CITA had deleted the disallowances on Investments written off for the Asst Years 2000-01 , 2002-03 and 2004-05 vide orders dated 30.1.2009 , 24.1.2007 and 15.6.2009 respectively. The ld CITA deleted the disallowance made by the ld AO. Aggrieved, the revenue is in appeal before us on the following ground:- "3. The CIT(A) erred on the facts of the case and in law in holding that a sum of Rs. 4,22,26,000/- being the investments written off is an allowable deduction." 9.1. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA. 9.2. We have heard the rival submissions and perused the materials available on record. We find that the ld CITA had deleted the disallowance by observing as under:- "23. I have carefully considered the observations of the Assessing Officer in the assessment order and submis....
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...., Ground No.5 is allowed." We find that the revenue was not able to controvert the detailed findings of the ld CITA before us. Hence we find no infirmity in the order of the ld CITA in this regard. Accordingly, the Ground No. 3 raised by the revenue for the Asst Years 2007-08 and 2008- 09 are dismissed. The decision taken in Asst Year 2007-08 with regard to this ground would apply with equal force to Asst Year 2008-09 as similar disallowance was made in Asst Year 2008-09 except with variance in figures. 10. Disallowance of Provision for Bad & Doubtful Debts The brief facts of this issue is that the assessee made provision for doubtful debts in the sum of Rs. 5,12,36,000/-. The ld AO observed that the Hon'ble Apex Court in the case of CIT vs Oriental Fire & General Insurance Co Ltd reported in (2007) 291 ITR 370 (SC) had held that such provision is not to be held as a provision for an expenditure and distinguishing the earlier decision of the Apex Court delivered in the case of State Bank of Patiala reported in 219 ITR 706 (SC) , held that it cannot be disallowed in case of a insurance business where a special provision for taxation is given u/s 44 read with Rule 5 of Part B of 1....
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.... find that strangely the revenue had preferred an appeal against this ground which is not warranted when the issue was decided by the ld CITA in favour of the revenue. Hence we dismiss the Ground No. 1 raised by the revenue for Asst Year 2008-09. 11. Addition towards Reserve created for Unexpired risk u/s 115JB of the Act The brief facts of this issue is that while computing the Book Profit u/s. 115JB of the Act for the purpose of MAT, the ld AO considered a sum of Rs. 169,45,00,000/- being the Reserve for Unexpired Risk created as per the requirement of law, as allegedly required to be added back. The ld AO added back the aforesaid sum of Rs. 169,45,00,000/- in computing the Book profit. The assessee submitted that as per the Insurance Act, 1938, in case of an Insurance Company carrying on General Insurance business, Premium is recognised as income over the contract period or the period of risk, whichever is appropriate. Premium received in advance which represents Premium Income not relating to that particular accounting period in which the said Premium has been received, is separately disclosed in the Financial Statements of an Insurance Company. That part of income which is a....
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.... "Reserve for Unexpired Risks" not being of the nature as specified in clause (b) of Explanation 1 to section 115JB(2), the action of the ld AO in making an addition of such Reserve should be held as unjustified. Hence, the assessee submitted that the ld AO may kindly be directed to delete the addition of Rs. 169,45,00,000/- made by him in computing the Book profit u/s 115JB of the Act. 11.1. The ld CITA observed that the provisions contained in Rule 6E of the Income-tax Rules, 1962 has also been considered. Section 115JB(2)- Explanation (1)(b) requires increasing "the amounts carried to any reserve, by whatever name called, other than a reserve specified u/s 33AC" if such amount is debited to the Profit & Loss Account. It is held that the Reserve for Unexpired Risk has not been debited in the Profit & Loss account at any point of time, therefore explanation 1 to sub-section 2 of section115JB is not applicable in the peculiar facts of the general insurance business carried out by the assessee. In the assessee's case, firstly the concerned reserve for Unexpired Risk has not been created through any debit entry made in the Profit & Loss Account. The reserve has been created in a....