TaxTMI 
TaxTMI 
2025 (1) TMI 640
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....No.2/319, Rajiv Gandhi Salai(OMR), Karapakkam, Chennai-600 097. [PAN: AABCR7106G] ITA Nos. 13, 14, 38 & 39/2016-17 dated 14.12.2017. Dy. Commissioner of Income Tax, Large Tax Payer Unit, Chennai. 2 ITA-87/2018 2009-10 ITA Nos. 13, 14, 38 & 39/2016-17 dated 14.12.2017. 3 ITA-88/2018 2010-11 ITA Nos. 13, 14, 38 & 39/2016-17 dated 14.12.2017. 4 ITA-89/2018 2011-12 ITA Nos. 13, 14, 38 & 39/2016-17 dated 14.12.2017. 5 ITA-90/2018 2011-12 ITA Nos. 24/14-15, 12/16-17, 73/16-17 & 72/16-17 dated 14.12.2017. 6 ITA-91/2018 2012-13 ITA Nos. 24/14-15, 12/16-17, 73/16-17 & 72/16-17 dated 14.12.2017. 7 ITA-92/2018 2013-14 ITA Nos. 24/14-15, 12/16-17, 73/16-17 & 72/16-17 dated 14.12.2017. 8 ITA-93/2018 2014-15 ITA Nos. 24/14-15, 12/16-17, 73/16-17 & 72/16-17 dated 14.12.2017. 9 ITA-491/2018 2008-09 ITA Nos.13,14,38 & 39/2016-17 dated 14.12.2017 10 ITA-492/2018 2010-11 ITA Nos. 13, 14, 38 & 39/2016-17 dated 14.12.2017. 11 ITA-493/2018 2011-12 ITA Nos. 24/14-15, 12/16-17, 73/16-17 & 72/16-17 dated 14.12.2017. 12 ITA-494/2018 2012-13 ITA Nos. 24/14-15, 12/16-17, 73....
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....y also dismissed the objections qua reassessment proceedings and confirmed the order of the Ld. AO. He held that material gathered by the assessing officer after due diligence will not amount to change of opinion because it would be hard to conclude that assessing officer had expressed opinion on an issue that he was not fully aware of in the first place. He concluded that availability of "reasons to believe" is important rather than an established facts of escapement in any case for initiation of action u/s 148. 2.3 We have heard the rival submissions in the light of material available on records. The Ld. Counsel for the assessee invited our attention to the following reasons recorded by the revenue. Reasons recorded for AY-2008-09 "....As requested by you vide above referred letter, the reasons recorded for initiation of proceedings u/s 147 of the Income-tax Act, in your case for Assessment Year 2008-09 are reproduced below: The information existing as per records reflect the fact M/s. Paramount Health Services TPA Pvt. Ltd. (PAN: AACCP4465H) is a TPA (Third Party Administrator) for M/s. Royal Sundaram Alliance Insurance Company Limited. The assessee....
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....that you had entered into agreement with M/s TATA Motors, M/s Ford India Pvt Ltd, M/s Honda Cars India Ltd, and M/s Tata Business Support Services for issuance of Insurance policies through their Dealer network and the company was availing ineligible CENVAT credit in respect of Motor Vehicles. The vehicle dealers collected premium from the customers and issued policies to them by accessing the portal of the Insurance Brokers. For insuring the vehicles, dealers are given Payout calculated at a given percentage on Own Damage premium by your Insurance Company. On the basis of the invoices issued by the dealers, the Assessee -M/s Royal Sundaram Alliance Insurance Co.Ltd., (RSAICL) had taken CENVAT Input Service Credit. The Dealers had admitted that though they had not provided any service as mentioned in the invoices, they simply issued the same as per the directions of insurance companies. It is further noticed that the rates are not fixed according to the services mentioned in the invoices but calculated on the basis of the percentage on Own damage premium and dealers are paid accordingly. The ineligible CENVAT credit on this count worked out for this Assessment Year 2009-10....
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.... conclusions of original proceedings or the assessee is found guilty of concealing true particulars of its facts before the AO during the original assessment proceedings. The Ld. Counsel has argued that in its case no such circumstances exists. During the course of original assessment proceedings each and every information covering the transactions, was provided to the Ld. AO and that therefore there cannot be any case for reopening u/s 148. 2.6 At this stage we deem it necessary to examine the statutory provisions of Income escaping assessment postulated u/s 147 of the act reproduced herein below. ".....147. Income escaping assessment.-If the 2[Assessing Officer]3[has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this se....
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....learly indicate that the case of revenue qua reopening u/s 148 rests upon a very weak rather negligible foundation. During the original assessment proceedings u/s 143(2), the issues qua which reassessment proceedings were initiated for non-deduction of TDS, were examined and considered by the Ld. AO. Thus it is crystal clear that full application of mind was made to the facts of the case surrounding determination of taxable income of the assessee. In view of the elaborate enquiries and discussions made in the assessment order in respect of impugned transactions the AO is precluded from changing his opinion subsequently and reopening the case u/s 148. 2.9 The reasons recorded by the Ld. AO and as approved by his supervisory authorities, reproduced herein above do not in any way demonstrate that there was any failure on part of the assessee to have not fully and truly disclosed true facts of the case. The action of the AO in initiating proceedings u/s 148 is thus hit by the concept of "change of opinion" or a case of "review of the assessment order" and the same cannot be approved. We have also noted that there is no fresh and tangible material which has been brought on record by ....
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....1-12, we have noted that no satisfactory case exists for the assessee qua its challenge for the reopening and hence the ground of appeal no.1 raised by the assessee for the impugned ITA Nos. 88 & 89 for Assessment Years: 2010-11 & 2011-12 is dismissed. ITA Nos.89, 91, 92 & 93 /Chny/2018 for Assessment Years: 2011-12, 2012-13, 2013-14, 2014-15 of assessee's appeal and ITA Nos.493 to 496 for AYs-2011-12 to AY-2014-15, of revenues appeal. 6.0 The first issue raised by the assessee and revenue vide its ground of appeals in above indicated ITA Nos. is regarding the disallowance of insurance premium paid to Non-Resident Insurers. Brief facts of the case are that the assessee has been paying reinsurance premium to Non-resident entities. It is the case of the revenue that the amounts remitted by the assessee to Non-resident entities is exigible to TDS deduction u/s 40(a)(i) of the act. The issue has been considered at length by the Hon'ble Coordinate Benches of this tribunal and decided in favour of the assessee's and against the revenue. We have noted that identical facts exists in the present case as well. On the available judicial landscape, the Ld. Counsel for the assessee has in....
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.... following the earlier decision of the Tribunal in ITA Nos.1673, 1688, 1689, 1691/Chny/2011 dated 26.08.2022 in assessee's own case came to the conclusion that reinsurance premium ceded to NRRs, is not taxable in India under the Income Tax Act, 1961 or under DTAA between India and respective countries, where the NRRs are tax residents, and thus, reinsurance premium cannot be disallowed u/s. 40(a)(i) of the Act, for non-deduction of TDS u/s. 195 of the Act. The relevant portion of the findings of the Tribunal in para 6 & 7 of the order in ITA No.1692/Chny/2011 dated 28.06.2023 are extracted herein below:- "6. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in the assessee's own case in ITA Nos.1673, 1688, 1689, 1691/Chny/2011 for AYs 2003-04, 2004-05, 2005-06, 2006-07, order dated 26.08.2022, and after considering relevant facts held that reinsurance premium ceded to NRRs, is not taxable in India under the Income Tax Act, 1961 or under DTAA between India and respective countries, where the NRRs are tax residents, and thus, reinsuran....
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....pted fact that the assessee has complied with reinsurance regulations by taking required percentage of reinsurance contract with General Insurance Corporation of India. But disputed reinsurance premium ceded to non-resident reinsurer companies. In the earlier round of litigation, the Tribunal had discussed the issue of payments made to non-resident reinsurer, in light of provisions of section Insurance Act, 1938 and IRDAI Regulations on reinsurance and concluded that the assessee has violated provisions of Insurance Act, 1938 and consequently, reinsurance premium ceded to NRRI is not deductible u/s. 37 (1) Of the Income Tax Act, 1961. The matter travelled to the Hon'ble High Court of Madras and the Hon'ble High Court has remanded the issue back to the Tribunal and directed the Tribunal to decide the issue on three points:- i) Whether the Assessing Officer was right in disallowing reinsurance premium u/s. 40(a)(i) of the Act; ii) Whether the CIT(A) was right in rejecting partially the appeal filed by the assessee; & iii) Whether the CIT(A) was justified in restricting claim of the assessee to 15% instead of confirming order passed by the Assessing Officer.....
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....assessee to 15% of payment made to NRRs of other countries and direct the Assessing Officer to delete the additions made towards disallowance of reinsurance premium ceded to NRRs u/s. 40(a)(i) of the Act for the assessment years 2013-14 to 2016-17. Thus, the ground raised by the assessee on this issue for the assessment years 2013-14 to 2016-17 is allowed and that of the Revenue for the assessment years 2017-18 to 2019-20 is dismissed....". 6.2 We have noted the facts of the present case are identical to the decision taken herein above and the same has not been distinguished in any way. Accordingly, in respectful compliance to the decision of Hon'ble Coordinate Bench in the case of United India Insurance Limited supra, the order of lower authorities is set aside and the Ld.AO is directed to delete the additions made towards disallowance of reinsurance premium conceded to NRRs u/s. 40(a)(i) of the Act for the assessment years 2011-12, 2012-13, 2013-14 and 2014-15. Thus, the grounds of appeal raised by the assessee on this issue for the assessment years 2011-12, 2012-13, 2013-14 and 2014-15 are allowed and that of the Revenue for the assessment years 2011-12, 2012-13, 2013-14 and ....
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....he ITAT, Chennai in assessee's own case for the earlier year. 25. We have heard both the parties and considered relevant materials on record and we find that the ITAT., Chennai in assessee's own case for the assessment year 2008-09 in ITA No.1366/Mds/2013 had considered an identical issue and held that UPS is part of computer and eligible for depreciation @ 60% and directed the Assessing Officer to allow 60% on UPS also. Therefore, consistent with the view taken by the co-ordinate Bench, we are inclined to uphold findings of the learned CIT(A) and direct the Assessing Officer to allow depreciation on UPS @ 60% as claimed by the assessee....". 7.3 It has been noted that the facts of the present case identical to the one existing in the case of Cholamandalam General Insurance Company Limited. Accordingly, in respectful compliance to the decision of Hon'ble Coordinate Bench supra we set aside the order of the lower authorities and direct the Ld. AO to allow depreciation @ 60% on UPS. As regards claim of depreciation on projectors, we do not find any infirmity with the findings of the Ld.CIT(A) that a projector is neither nor an output device or a computer and can b....
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....ce and paid to the Government account. From the material available on record it appears that the assessee company in order to propagate its insurance business, had arrangement with motor car dealers in their showroom for providing space, computer stationeries, etc. For that, the assessee appears to have made the payment. The assessee has filed copies of invoice, confirmation letters from service providers and details of premium collected by the motor vehicle dealers from the customers. There is no doubt about the genuineness of service rendered by the car dealers. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed...." 8.2 We have also noted that identical controversy had come up for consideration of Hon'ble Coordinate Bench of this tribunal in ITA NO.1085/Chny/2017 dated 19.07.2024 in the case of United India Insurance Company Limited. ".....22. The next issue that came up for our consideration from the Revenue appeals for the assessment years 2014-15 to 2019-20 is in regard to disallowance of amount paid to motor car dealers towards infra payment u/s. 37 of the Act amounting to Rs. 6....
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....ance premium amount of Rs. 79,47,53,000/- from the profit of the business being related to premium for the purposes of "reserve for unexpired risks". The Ld. AO held the view that the above amount is in effect but the reserve made from insurance premium collected and hence eligible for adding back for computation of book profit u/s 115JB. Consequently rejecting the arguments put forth by the assessee he made the impugned addition of Rs. 79,47,53,000/-. The Ld. First Appellate Authority concurred with the findings of the Ld.AO holding that unexpired premium reserve falls under clause(c) of explanation-1 to section 115JB and confirmed the addition. 9.1 We have heard the rival submissions in the light of material available on records. It is the case of the assessee that the impugned addition is unwarranted. It has been argued that UPR created in the books of accounts is based on the guidelines issued by IRDA and not on any adhoc basis. It was further argued that UPR is neither a reserve nor a provision for any unascertained liability and therefore cannot be exigible for any adjustments u/s 115JB. The Ld. Counsel for the assessee would like to place reliance upon the decision of Hon....
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....e ITAT., Mumbai in the case of M/s.Munchener Ruckversicherungs Gesellschaft Aktiengesellschaft in Munchen Vs. CIT in ITA No. 937/Mum/2021 dated 13.05.2022, where the Tribunal by following decision of the ITAT., Kolkatta Bench in the case of DCIT Vs. M/s. National Insurance Co.Ltd. (supra), held that provision for UPR is not an item contemplated to be added in Explanation 1 to section 115JB(2) of the Income Tax Act, 1961. The relevant findings of the Tribunal are as under:- "3. We have heard the rival submissions and perused the materials available on record. We find that the assessee is a German re-insurance company Munchener Ruckversichrungs Gesellschaft Aktiengesellschaft in Munchen (Munich Re) which provides re-insurance solutions worldwide and operates in three segments namely, non-life reinsurance, life insurance and health solutions. The assessee is registered with Insurance Regulatory and Development Authority of India ('IRDAI') from 01/02/2017 and carries on various activities through its Indian Branch including receipts of premium on re-insurance treaties and purchase/sale of investment as per IRDAI guidelines. The assessee is regulated by the IRDAI and it....
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....00,000/- on account of provision for unexpired risk and premium deficiency reserve of Rs. 7,73,000/- totaling Rs. 14,20,95,000/- for the year under consideration for the purpose of calculating book profits u/s 115JB of the Act. b) The ld. AO in his draft assessment order relied on clause (b) of Explanation 1 to section 115JB(2) of the Act which provides that the amount carried to any reserves, by whatever name called, should be added and held that the entry passed in respect of the reserve for unexpired risk should be added for the purpose of computation of book profit. The ld. AO observed that the word 'any reserve' in clause (b) of Explanation 1 to section 115JB(2) of the Act refers to all kinds of reserves and encompasses all types and categories and only excludes the reserve specified under section 33AC of the Act. c) The ld. AO observed that the assessee has deferred its income by creating 'the Reserve for Unexpired Risk' but has not deferred the expenditure incurred for earning the same during the year and is accumulating the premium over time by a reserve for unexpired risk without any taxation. The ld. AO observed that the accounting treatm....
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.... year under consideration. 7. We find that the aforesaid facts and submissions made by the ld. AR remain undisputed and hence the same are not reiterated for the sake of brevity. From the perusal of the above, in our considered opinion, the reserve for unexpired risk does not fall under clause (b) of Explanation 1 to section 115JB(2) of the Act as the premium is recognized 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 the particular accounting period in which the said premium has been received, is separately disclosed in the financial statements. Hence logically that part of income which is attributable to the succeeding accounting period is reduced from the total premiums received during an accounting period by way of creation of a reserve for unexpired risk which is in accordance with the Insurance Act, 1938. In this regard, the ld. AR also submitted that every year adjustments are made to the existing reserve for unexpired risk by way of crediting or debiting the amount of difference between the reserve created in the immediately preceding year and the reser....
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....construed as an adhoc or contingent liability. Hence the same would not fall under clause (c ) of Explanation 1 to section 115JB(2) of the Act also under the category of unascertained liability. We find that the Hon'ble Supreme Court in the case of Bharat Earth Movers reported in 245 ITR 428 (SC) has held that the provision for leave encashment based on actuarial valuation is allowed although the liability may have to be quantified and discharged at a future date. The fact that it is capable of being estimated with reasonable certainty although actual quantification may not be possible and such liability cannot be a contingent one. This decision would be squarely applicable for the reserve for unexpired risk and premium deficiency made by the assessee in the instant case as they are not only estimated but are also derived based on statistical method and the same has been duly certified by the actuary and the auditors of the assessee. Hence we hold that the same should be excluded for the purpose of computing book profit. 10. Our aforesaid view is also fortified by the decision of Co- ordinate Bench of Kolkata Tribunal in the case of DC1T v. National Insurance Co.Ltd re....
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....serve created in the immediate preceding year and the Reserve required to be credited during the current accounting year. This cannot be considered as any alleged "Amount carried to any Reserve" debited to the Profit & Loss Account, but it should be appreciated that this Reserve represents that part of Premium Income which does not relate to the current accounting period. It must be appreciated that as per the Mercantile System of accounting, it is only that Income/Expenditure which relate to the current accounting period, should find places in 'the Revenue/Profit & Loss Account of the year. Hence it was submitted that in case of an Insurance Company (carrying on General Insurance Business), the creation of "Reserve for Unexpired Risk" cannot be considered to be similar to those "Reserves" which have been referred to in Clause (b) of Explanation (1) to Section 115JB(2). It may also be appreciated that the "Reserve for Unexpired Risk" can, in any case, not be considered as any provision made for meeting liabilities, other than ascertained liabilities as referred to in Clause(c) of Explanation (1) to Section 115JB(2). On the basis of the above facts it may kindly be appreciated t....
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....e, this reserve viz., the reserve for Unexpired Risk in the case of a General Insurance business, should not be added back for the purpose of computation of Book Profit u/s. 115JB(2) for MAT purposes. On the basis of this observation, it was held that the ld AO's action in adding back a sum of Rs. 169,45,00,000/- being reserve created for Unexpired Risk, was not in accordance with the relevant provisions of the Income-tax Act, 1961 and accordingly deleted the addition. 11.2 Aggrieved, the revenue is in appeal before us on the following ground:-- "4. The CIT(A) erred on the facts of the case and in law in holding the sum of Rs. 1694500000 being the reserve created for unexpired risk should be considered as reserve for computing the Book Profit under section 115JB of the Income-tax Act." 11.3 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. 11.4 We have heard the rival submissions. We find that the ld CITA had dealt this issue very elaborately and had given proper finding that the reserve created for unexpired risk need not be added back for the purpose of compu....
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....5JB of the Act. As stated supra, this is not an item contemplated to be added in the Explanation 1 to section 115JB(2) of the Act. Hence the revenue grossly erred in adding back the same while computing book profits u/s 115JB of the Act. 13. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we direct the ld. AO to delete the addition made in respect of reserve for unexpired risk and premium deficiency while computing the book profits u/s 115JB of the Act. Accordingly, the grounds raised by the assessee are allowed." 65. In this view of the matter and consistent with the view taken by the co-ordinate Bench, we direct the Assessing Officer to delete additions made towards UPR to book profit u/s. 115JB of the Income Tax Act, 1961, for both the assessment years...." 9.3 We have also noted that the facts of the present case are identical to those in the case of M/s. Cholamandalam Insurance Supra. Accordingly, in respectful compliance to the ratio laid down by Hon'ble Coordinate Bench above, the order of the lower authorities is set aside and the Ld. AO is directed to delete the additions made towards UP....
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....dingly, in respectful compliance to the decisionof Hon'ble Apex Court in the case of British Paints India Limited at 188 ITR 44 we hold the view that the Ld.AO is fully empowered to determine the correct taxable income by making correct interpretation of books results. Accordingly the order of the Ld. First Appellate Authority in making the impugned addition is sustained and the grounds of appeal raised by the assessee vide ITA Nos.88 & 90 for AY-2010-11 & 2011-12 pertaining to addition of insurance premium received in respect of long term policy is dismissed. ITA Nos.491, 492, 493, 494, 495 & 496 /Chny/2018 AYs: 2008-09, 2010-11, 2011-12, 2012-13, 2013-14, 2014-15 11.0 We now proceed to take up the remaining issues raised in the appeal of the revenue save those adjudicated herein above. The first issue raised by the revenue is regarding depreciation on computer software raised vide ITA Nos. 491 492, 494, 495 & 496 /Chny/2018 for AYs: 2008-09, 2010-11, 2012-13, 2013-14, 2014-15. As regards ITA No. 491 for AY-2008-09 is concerned the Assessment order per se which is based upon proceedings u/s 147/148 has been found to be barred by limitation on account of suffering from inc....
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....levant to the assessee's case. 3. The Brief facts of the case are that the assessee company is in the business of data processing, prepress services and export of software and filed return of income electronically on 27.09.2012 with total income of 16,27,41,050/- and was processed u/s. 143(1) of the Act and subsequently, the case was selected for scrutiny and notice u/s. 143(2) and 142(1) of the Act was issued. In compliance to notice, the ld. Authorised Representative of assessee appeared from time to time and furnished details as called for by the ld. Assessing Officer. In the assessment proceedings, the ld. Assessing Officer on perusal of form No. 3CD found that the assessee company has claimed depreciation on software licence at the rate of 60% instead of 25% allowable on intangible assets as the software license being intangible amount as per part B of depreciation schedule and the ld. Authorised Representative submitted break up Written Down Value (WDV) of computer and software license. The ld. Assessing Officer considering the claim of the assessee on depreciation rate and applicability of inclusive definition of intangible assets has disallowed the excess claim of ....
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.... the rate of 60% w.e.f. 01.04.2013 (111 ITD 112 Delhi SB). Hence, the disallowance made by the Assessing Officer is deleted and the ground is allowed. and deleted the addition of excess claim of depreciation and allowed the appeal. Aggrieved by the Commissioner of Income Tax (Appeals) order, the Revenue has assailed an appeal before Tribunal. 5. Before us, the ld. Departmental Representative reiterated the facts and argued the grounds and relied on the findings of the ld. Assessing Officer were computer and computer software license are different as the software takes the character of tangible asset were as software license is a intangible asset and depreciation is allowable @25% as per part B of Appendix 1 of depreciation table and the ld. Commissioner of Income Tax (Appeals) has erred in allowing depreciation @60% relying on the judicial decisions not relevant to the facts of the assessee and prayed for allowing the appeal. 6. Contra, the ld. Authorised Representative relied on the orders of Commissioner of Income Tax (Appeals) and the assessee's own case for the assessment year 2010-2011 allowed in favour of the assessee on similar issue and submitted ....
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.... 8. In the result, the appeal of the Revenue in ITA No.330/Mds/2016 is dismissed...." 11.3 The only issue seminal to the controversy is as to whether computer software taken on lease by an assessee would be eligible for 60% depreciation or not. It has been noted that the Hon'ble Coordinate Bench of this tribunal in the case of TNQ Books and Journal Pvt Ltd supra has comprehensively dealt the subject so as to conclude admissibility of depreciation @ 60% in similar situations. As the facts of the case are identical, we do not find any need to interfere with the findings of the Ld. First Appellate Authority. Accordingly, the decision of Ld. CIT(A) is sustained and grounds of appeal raised by the appellate revenue is dismissed. 12.0 The next issue raised by the revenue vide ITA Nos. 492, 493, 494, & 495/Chny/2018 AYs: 2010-11, 2011-12, 2012-13 & 2013-14 is regarding the disallowance of amortization of premium on investments. For the purposes of this appeal, we consider the assessment order for AY-2010-11 as facts of all the remaining years are identical. The Ld. AO has discussed the issue on page 12 to page 16 of his order. It is the case of the Ld. AO that the method of differi....
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.... this Tribunal confirmed an identical order of CIT(Appeals). 39. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel also. This Tribunal for the assessment year 2003-04, confirmed a similar disallowance towards amortization of premium on securities. For the reason stated by this Tribunal for assessment year 2003-04 in I.T.A. No.801/Mds/2007, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed." 9. After hearing both the sides, we find that the Tribunal has already decided the issue against the assessee in earlier assessment years 2004-05 to 2013-14 vide its order dated 28.08.2018. Accordingly, we see no reason to interfere with the order of the CIT(A) for the assessment years 2013-14, 2014-15, 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20 on the issue of disallowance towards amortization of premium paid on purchase of securities. Therefore, the ground raised by the assessee on this issue of amortization of premium paid on purchase of securities for the assessment years 2013-14, 2014-15, 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20 is dismissed...." 12.2 We have noted that there is n....
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....ted our reference to the following parts of the decision and accordingly requested for restoring the order of the Ld. Assessing Officer:- "......10. The next common issue that came up for our consideration in the appeals of the assessee for the assessment years 2014-15, 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20 is disallowance of provision for IBNR and IBNER. 11. The learned counsel for the assessee submitted that during the relevant assessment years, the assessee has made provision for claims incurred, but were not reported (IBNR) and claims incurred, which were not enough reported (IBENR) and such provision has been made for all unsettled claims on the basis of claim lodged by insured persons. According to the learned counsel, date of damage/loss was considered for recognizing the claim in a particular year. In certain circumstances, damages/loss were not reported in the balance sheet of the insurance company and such claims are known as claims incurred, but not reported. Sometimes, damage/loss incurred may be reported, however, it was not enough reported and therefore, the assessee has made provision as per IRDAI guidelines. The liability of the assessee com....
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....he according to the Ld. Sr. Standing Counsel for the Revenue, the liability to make the payment accrues to the assessee only in the year in which the loss or damage was ascertained and compensation payable to insured person is determined. Admittedly, the compensation payable to insured person was not determined during the assessment year 2009-10. Therefore, this Tribunal is of the considered opinion that merely because the incident happened during the year which is the basis for making claim, that cannot be a reason for allowing the compensation payable by the assessee for the assessment year 2009-10. In other words, the compensation payable by the assessee has to be allowed in the year in which the amount of compensation was determined. Since the amount was not determined during the year under consideration, this Tribunal is of the considered opinion that the same cannot be allowed for assessment year 2009-10. Hence, the CIT(Appeals) is not correct in allowing the claim of the assessee. Accordingly, the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored." 14. In this view of the matter and consistent with view taken by the co-ordinate Ben....
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.... limited ITA no.14/mum/ 2021 dated 08.03.2022 has ruled as under:- ".....06. The learned Departmental Representative vehemently supported the order of the learned Assessing Officer and merely referred to the order of the learned Assessing Officer and learned CIT (A) stating relevant paragraph of the issues involved. It was submitted that the issues are decided in favour of the assessee by the co-ordinate Bench in assessee's own case; however, the above Page | 5 ITA No.14/Mum/2021 Tata AIG General Insurance Co. Ltd.; AY 15-16 disallowance should not have been deleted by the learned Commissioner of Income-Tax (Appeals) for the reason given in assessment order y the ld AO. He extensively referred assessment order on all these [3] issues. 07. 08. 09. The Authorised Representative submitted that the appeal of the Revenue deserves to be dismissed in view of the issues already decided in favour of the assessee by the co-ordinate Bench in assessee's own case for earlier years as well as in case of other insurance companies involving similar issues. He placed on record the decision of ITAT in assessee's own case in ITA No. 3535 and 1702/Mum/2011 and ITA No. 1584 and 3596/Mum/2011 p....
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....bility incurred by the assessee company is allowable. He further held that the methodology to determine the liability is also certified by actuary in accordance with guidelines and norms issued by the Institute of actuaries of India and insurance regulatory and development authority of India. He further held that such provisioning relates to present obligation and involves outflow of resources. He further considered the provisioning made by the assessee in different years and actual utilization of such provision with respect to those financial years and then he found that the provision was made less than the actual amount incurred in settling those claims. He further held that the coordinate bench in case of DCIT vs. National Insurance co. Ltd. (2016) 72 taxmann.com 116 (Kolkata p Trib.) which has been affirmed by Hon'ble Calcutta High Court in ITA No.76 of 2019. Therefore he held that such provisioning is allowable Page | 8 ITA No.14/Mum/2021 Tata AIG General Insurance Co. Ltd.; AY 15-16 u/s 37 (1) of the act and the addition made by the learned AO was deleted. 012. We have carefully considered the rival contentions and perused the orders of the lower authorities. The facts sh....
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....ench vide order dated 11.10.2017 vide para No.3.3 has allowed the identical claims. The learned CIT(A) while deciding the issue has relied upon the decision Page | 10 ITA No.14/Mum/2021 Tata AIG General Insurance Co. Ltd.; AY 15-16 co-ordinate Bench in DCIT vs. National Insurance Company Limited (supra) has held that the provisions made available the above claim are based on scientific calculation with a proper and rational and therefore, it could only be termed as ascertain liability. Though the above decision was rendered with respect to the computation of book profit under section 115JB of the Act, however, the learned CIT (A) applied it and allowed the claim of assessee for deduction under section 37(1) of the Act for the reason that the claim of the assessee is ascertained claim, supported by Actuarial valuation and also made on a scientific basis. To reach at this calculation, the learned CIT (A) obtained information for 6 different assessment years and found that the actual claim settled is always higher than the provisions made by the assessee. This it shows that the provisions made are not excessive. Further, it was stated before us that this claim is allowed to the assess....
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....R) made by the assessee as per the regulations framed by Insurance Regulatory Development Authority (IRDA) based on a scientific calculation with a proper rationale could only be termed as ascertained liability. Hence, the same need not be added back by treating the same was unascertained liability whi1e computing the book profits u/s115JB of the Act. The revenue was not able to controvert the findings given by the Ld CITA before us. Hence, we find no infirmity in the order of the Ld. CITA in this regard and accordingly dismiss the Ground No. l raised by the revenue." Thus, as said provision has been created by it to meet ascertained liabilities, the Company is entitled to claim a deduction of the same IT APPEAL NOS. 674, 982 & 983 (KOL.) OF 2012 while computing its income under the head 'profits & gains from business and profession'. Therefore, respectfully following the decision of the Hon'ble ITAT in the case of National Insurance above, I do not find any merit in the addition made by the AO in this case. Hence, this ground of appeal is allowed." 14. We have heard both the parties and perused the records. In the light of the assessee's submissions herein....
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....e claims outstanding reserve shall be certified by Appointed Actuary. Where the Appointed Actuary identifies material changes in the claims handling practices, their impact on the outstanding claims reserve pattern shall be taken into account and reported. (3) Incurred But Not Reported (IBNR) Claims Reserve (a) The incurred but not reported (IBNR) claims reserve shall be determined using actuarial principles and methods detailed in clause 4 below (b) The IBNR shall be estimated using appropriate actuarial principles and shall be certified by the Appointed Actuary. (c) The Appointed Actuary shall estimate IBNR on both net of reinsurance and gross of reinsurance basis. (d) The Appointed Actuary shall estimate the provision for IBNR for each year of occurrence and the figures shall be aggregated to arrive at the total amount to be provided. (e) If estimate of IBNR provision for any year of occurrence is negative, the Appointed Actuary shall reexamine the underlying assumptions. Even after re-examination, if the mathematics produces negative value, the Appointed Actuary shall ignore the IBNR provision for that year of occurrence. ....
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....sides at some length, we find merit in the stand as struck by the respondents for reasons which are set out hereunder. One of the seminal decisions rendered by the Supreme Court in the context of warranties and whether provisions made in respect thereof would amount to contingent liabilities is the one rendered in Rotork Controls India Private Limited. vs. Commissioner of Income Tax, Chennai 9. In the aforesaid matter, the Supreme Court was concerned with whether a standard warranty which had been provided by the assessee in respect of claims likely to arise could be construed to be a contingent liability and thus not allowable as a deduction under Section 37. 12. While expounding upon the concept of a provision being made in the books of account, the Supreme Court pertinently observed as follows:- "22. What is a provision? This is the question which needs to be answered. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognised when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and....
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....ast events have to be recognised as provisions. These past events are known as obligating events. 26. In the present case, therefore, warranty provision needs to be recognised because the appellant is an enterprise having a present obligation as a result of past events resulting in an outflow of resources. Lastly, a reliable estimate can be made of the amount of the obligation. In short, all three conditions for recognition of a provision are satisfied in this case. " 13. As is evident from the principles enunciated above, the Supreme Court explained the concept of provisioning for liabilities as being based upon a present obligation which may come to be owed by an enterprise as a result of a past event and the probability of an outflow of resources that may be required to settle that obligation. One of the crucial aspects which was highlighted in this regard was of the enterprise being entitled to make a reliable estimate and whether such an estimation could be made of the amount that may be ultimately owed on account of the obligation. Apart from obligations flowing from past events, the Supreme Court also recognized the concept of historical trends and those ju....
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....hstanding anything contained in Sections 30 to 39 of the 1961 Act. In other words, as regards deduction in respect of gratuity, the assessee was required to comply with the provisions of Section 40-A(7) after the Finance Act, 1975. 38. It is interesting to note that prior to 1-4-1973 actual payment or provision for payment was eligible for deduction either under Section 28 or under Section 37 of the 1961 Act. This has been reiterated in Shree Sajjan Mills [(1985) 4 SCC 590 : 1986 SCC (Tax) 82 : (1985) 156 ITR 585]. The position got altered only after 1-4-1973. Before that date, provision made in the profit and loss account for the estimated present value of the contingent liability properly ascertained and discounted on an accrued basis could be deducted either under Section 28 or Section 37 of the 1961 Act. This has been explained in Shree Sajjan Mills [(1985) 4 SCC 590 : 1986 SCC (Tax) 82 : (1985) 156 ITR 585] at p. 599. 39. Section 40-A(7) deals only with the case of gratuity. Even in the case of gratuity but for insertion of Section 40-A(7), provision made in the profit and loss account on the basis of present value of the contingent liability properly ascerta....
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....d gains of the previous year either under Section 28 or under Section 37 of the 1961 Act. However, the above principle would not apply after insertion of Section 40-A(7) w.e.f. 1-4-1973. It may be stated that the principles of commercial accounting, mentioned above, formed the basis of the judgment of this Court in Metal Box Co. of India [AIR 1969 SC 612 : (1969) 73 ITR 53] and those principles are affirmed by the judgment of the Supreme Court in Shree Sajjan Mills [(1985) 4 SCC 590 : 1986 SCC (Tax) 82 : (1985) 156 ITR 585] up to 1-4-1973. " 14. What follows from the above is the right of an enterprise to make provisions for a liability which could be measured by and as the Supreme Court described a "substantial degree of estimation". It was thus held that as long as a liability is properly ascertainable on the basis of empirical data or a known methodology, the same cannot possibly be held to be a contingent liability. 15. The Supreme Court ultimately in Rotork Controls held as follows:- "47. At this stage, we once again reiterate that a liability is a present obligation arising from past events, the settlement of which is expected to result in an outflo....
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....e data systematically maintained by the assessee. 51. It may be noted that in all the impugned judgments before us the assessee(s) has succeeded except in Civil Appeals Nos. 3506-10 of 2009 -- arising out of SLPs (C) Nos. 14178-82 of 2007 -- Rotork Controls India (P)Ltd. v. CIT, in which the Madras High Court has overruled the decision of the Tribunal allowing deduction under Section 37 of the 1961 Act. However, the High Court has failed to notice the "reversal" which constituted part of the data systematically maintained by the assessee over last decade. " 16. A lucid explanation of the concept of contingent liabilities is then found in The Commissioner of Income Tax vs. Whirpool of India Ltd. 10 In the facts of that case, this Court found that the assessee there had been consistently making provisions on the basis of actuarial valuation in respect of machines sold and warranty claims lodged. Both the AO as well as the CIT(A) in that case had taken the view that claims pertaining to unexpired periods of warranty could be considered only when actual claims may arise and that the assessee would not be justified in estimating a warranty liability. 17. While....
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....not convert into a conditional one merely because the liability was to be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case. Applying the above said settled principles to the facts of the case at hand we are satisfied that the provision made by the appellant-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary. The appeal is allowed. The judgment under appeal is set aside. The question referred by the Tribunal to the High Court is answered in the affirmative, i.e. in favor ....
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.... be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy" 18. After noticing the judgment in Rotork Controls, the Court held:- "17. The Court then proceeded to determine as to what would be the most appropriate method for making a provision for 'product warranty', based on historical trend and held that:- (a) It should be based on historical trend and for determining a proper historical trend, the company should have proper accounting system for capturing of sales, warranty provisions made and the actual expenses incurred subsequently. (b) A detailed assessment of the warranty provisioning policy is required particularly if the experience suggests that warranty provisions are generally reversed if they remained unutilized based on past experience. (c) The warranty provision for the product should be based on estimate at year end of future warranty expense. This becomes clear from the following discussion in the said judgment:- "For determining an appropriate historical trend, it is important that the company has a pr....
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....ted that the latest decision on the subject has been delivered by Hon'ble Bombay High Court in the Writ petition No.2271 of 2019 as at 422 ITR 248 in the case of General Insurance Corporation of India holding as under:- ".....11. So far as Issue No.1 above is concerned, the Petitioner submits that same stands concluded in its favour by virtue of the decision dated 11 October 2017 of the Mumbai Bench of the Tribunal in Dy. CIT V. ECGC (IT Appeal No. 7657 (Mum.) of 2014] and the Kolkata Bench of the Tribunal in the case of Dy. CIT v. National Insurance Co. Ltd. [2016] 72 taxmann.com 116 in favour of the Petitioner. However, the impugned order still directed a deposit of 10% of disputed demand on this Court in view of the decision of Chennai Bench of the Tribunal in the case of United India Insurance Co. Ltd. v. Jt. CIT [2018] 97 taxmann.com 466. We note that the Chennai Bench decision of the Tribunal has ignored the co-ordinate bench decision of Mumbai and Kolkata benches of the Tribunal. Therefore, prima facie per incurium. In any case the CBDT Circular No. 530 dated 6 March 1989 states that stay of demand be granted where there are conflicting decisions of the High Court. ....
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....common for all the remaining years. The Ld. AO made the addition of Rs. 5,72,27,000/- as per discussions on page 16 to 18 of his order. While making the impugned addition, the Ld. AO noted that the assessee had earned exempted income but had not claimed any expenditure qua earning of said exempt income. The Ld. AO held that there is no restriction in the law stipulating that disallowance can only be made if corresponding expenses have been claimed. In support of its contentions the Ld. AO relied upon the stipulations prescribed under rule 8D(2) of the IT rules. The Ld. CIT(A) deleted the addition made by the Ld.AO as per discussions made in para 8.1 to 8.2 of his order. In principle he relied upon decisions of his predecessors in assessee's own case for AY-2009-10 and 2010-11 wherein it was held that section 14A is not applicable to insurance companies which are governed by section 44 r.w. first schedule of the income tax act. 14.1 We have heard the rival submissions in the light of material available on records. The Ld. Counsel for the assessee has apart from placing reliance upon the decision of Ld.First Appellate Authority has rested his arguments upon the decision of Hon'ble....
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....d (2015-TIOL-139-ITAT-DEL), Oriental Insurance Co. Ltd v s. ACIT (2009-TIOL-172-ITAT-DEL), ITAT Mumbai in the case of DCIT v. ICICI Prudential Life Insurance Co. Ltd (2015 (1) TMI 9), ICICI Lombard General Insurance Co. Ltd vs. ACIT (ITA No. 4287/Mum/2009), Reliance General Insurance Co. Ltd vs. DCIT (2010-TIOL-473-ITAT-MUM), Birla Sun Life Insurance Co. Ltd vs. DCIT (2010-TIOL-535-ITAT-MUM), the Hon'ble Delhi High Court in the case of Oriental Insurance Co. Ltd. In ITA No.172 of 2020 dated 04.03.2020 and other cases mandating that provision of section 14A were not applicable in the case of insurance companies which were taxed under the provisions of section 44 of the Act. It was also submitted that the department has accepted the order of the Ld.CIT(A) and not filed any appeal before any appellate authority. The Ld. Sr. Standing Counsel, however relied upon the order of the Assessing Officer on this issue. 18.2. We have heard the rival submissions in the light of materials available on records. Insurance Companies are liable for taxation within the meaning of section 44 of the Act. The said section begins with a non-obstante clause thus precluding application of computati....
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....urt in the matter of Principal Commissioner of Income Tax LTU, New Delhi Vs Oriental Insurance Company Ltd reported in [2020] 118 taxmann.com 248 (Delhi), which has been referred to by this Court has decided the question of law in favour of the assessee. On going through the Judgment dated 18.11.2021, we find that Para No.5 ought to have read "the question of law stands decided against the Revenue". Instead by https://www.mhc.tn.gov.in/judis mistake it reads "the question of law stands decided against the assessee". The said error being typographical and apparent on the face of the record, the order at Para No.5 stands modified and would read as under: It is thus clear that Section 14A of Income Tax Act, 1961 stands excluded while computing the Income Tax of an Insurance Company, in view of the non-obstante clause contained in Section 44 of Income Tax Act, 1961, the questions of law stand decided against the Revenue. 4. It is submitted by the learned counsel for the appellant with regard to question C, the matter stands covered by the Judgment of this Court in Commissioner of Income Tax Vs. United India Insurance Co. reported in [2019] 111 taxmann.com 217 (Madras ....
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....enue vide ITA Nos. 493, 494, 495 & 496 /Chny/2018, AYs: 2011-12, 2012-13, 2013-14 and 2014-15 is regarding disallowance of UPR. As the facts of all the years are identical, the order of the Ld.AO AY-2011-12 is considered. The Ld. AO has discussed the issue in para 6 to para 6.6 from page 20 to page 21 of his order. The Ld. AO observed that the assessee had claimed an amount of Rs. 27,58,64,558/- as a deduction on account of unexpired premium reserve created in excess of rule 6E of IT rules. The Ld. AO held the view as per Rule 6E of IT Rules, reserve for unexpired risks is allowable on the net premium income of such business entities. It was contended that as per provision under Rule 6E any amount of the amount carried over to such reserve or additional reserve which is not allowable as a deduction under this rule, in respect of any previous year shall not be included in the total income for the assessment year relevant to the immediately next succeeding previous year in the revenue account relating to which the amount aforesaid is credited. The Ld. CIT(A) deleted the addition made by the Ld. AO in the light of discussions made in para 10.1 on page 10 of his order. While doing so h....
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....Bench of this tribunal in assessee's own case for AY 2009-10 and 2010-11 vide ITA No.1367 and 2371 of 2014. We have noted that the Hon'ble Coordinate Bench has settled the matter in assessee's favour observing as under:- ".....62. The next issue arises for consideration is disallowance of commission paid for receipt of re-insurance premium. This issue arises for consideration in the Revenue's appeals for assessment years 2005-06, 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11. 63. Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue, submitted that the assessee has paid commission for receipt of re-insurance premium. However, the assessee has not deducted tax at source. Therefore, according to the Ld. Sr. Standing Counsel, the Assessing Officer disallowed the payment of commission under Section 40(a)(ia) of the Act, hence, the CIT(Appeals) is not justified in allowing the claim of the assessee. 64. On the contrary, Shri Percy J. Pardiwalla, the Ld. Sr. counsel for the assessee, submitted that the assessee received re- insurance premium from M/s Cholamandalam MS General Insurance Company on discount basis, therefore, there is no question o....
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....-2011-12. Facts of case for all the years have found to be identical. The Ld. AO has held in para 3.6 that the provision for IBNR and IBNER amounting to Rs. 15 Crs is an unascertained liability and hence not allowable u/s 37(1). Consequently he proceeded to make addition u/s 115JB for the purpose of computation of income. The Ld. First Appellate Authority held that since the provision for IBNR and IBNER were held to be ascertained liability they were not liable for addition to book profits u/s 115JB of the act. 17.1 We have heard the rival submissions in the light of material available on records. The Ld. Counsel for the assessee accordingly pleaded for confirmation of the order of Ld. First Appellate Authority whereas the Ld. Standing Counsel for the revenue would like to place reliance from the order of Ld.AO. We have noted that there is no infirmity in the conclusion of the Ld. First Appellate Authority. Accordingly, we sustain the order of the Ld.CIT(A) and dismiss the grounds of appeal raised by the revenue for AYs 2011-12 to 2014-15. 18.0 The next issue raised by the revenue vide ITA Nos. 493, 494, 495 & 496 /Chny/2018, AYs: 2011-12, 2012-13, 2013-14, 2014-15 is regardi....
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....hand is squarely covered by the decision of the Special Bench of the Tribunal in the case of ACIT Vs. Vireet Investments ( supra), wherein the Special Bench has categorically held that provisions of section 14A read with Rule 8D will not apply while computing the book profit u/s. 115JB of the Act. Respectfully following the Special Bench decision cited above, we delete the disallowance made by invoking the provisions of section 14A read with Rule 8D of Income Tax Rules, 1962 while computing book profit u/s. 115JB of the Act. We, therefore, affirm the impugned order of Ld.CIT(A) on this issue and allow the claim of the assessee for assessment year 2013-14 and reject the grounds taken by the Revenue for the assessment year 2013-14. In the result, the ground raised by the Revenue for assessment year 2013-14 on the issue of disallowance by invoking the provisions of section 14A read with Rule 8D of Income Tax Rules, 1962 while computing book profit u/s. 115JB of the Act is dismissed...". 18.2 We have noted that the facts of the present case are identical to those as in the case of United India Insurance supra. Accordingly in respectful compliance to the decision of Hon'ble Special B....