TaxTMI 
TaxTMI 
2026 (1) TMI 547
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..... 683/Chny/2023 is filed by the assessee against the corrigendum order of the ld. PCIT-3, Chennai dated 29.03.2023 for the assessment year 2017-18. 2. Since, the issues raised in these appeals are similar based on the same identical facts, with the consent of both the parties, we proceed to hear all the appeals together and pass consolidated order for the sake of convenience. 3. First, we shall take appeal in ITA No. 1759/Chny/2019 - AY 2014- 15 for adjudication. 4. Ground No. 1 is general in nature and requires no adjudication. 5. Ground No. 2 to 5 raised by the assessee in challenging the action of the ld. PCIT in passing revision order under section 263 of the Income Tax Act, 1961 ["Act" in short] by holding that the assessee is not entitled to claim deduction under section 10(38) of the Act towards profit on sale of investments. 6. Brief facts as emanating from the record, it is noted that the appellant assessee claimed the profit on sale of investments to an extent of Rs..377,22,70,740/- as exempt under section 10(38) of the Act. According to PCIT, the profit on sale of investments shall not be excluded for the purpose of computation of profits and gains of busi....
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....Y 2011-12 is to tax debt instruments and short-term capital gains which were exempt till AY 2010-11. He submits that the assessee started to claim deduction under section 10(38) of the Act from AY 2005-06 and has been allowed in the assessee's own case both pre and post amendment of Rule 5(b) of the First Schedule and no appeal has been filed by the Revenue in any of the aforementioned assessment years. 11. The ld. AR drew our attention to the memo of income for the assessment years 2010-11, 2011-12, 2012-13 and 2013-14 placed at pages 81 to 84, wherein, the claim of deduction towards profit on sale of investments under section 10(38) of the Act has been accepted by the Department. He drew our attention to page 26 of the paper book and submits that ld. CIT(A) accepted the deduction under section 10(38) of the Act in the appellate order for the AY 2012-13 in assessee's case and the ld. PCIT also accepted the deduction under section 10(38) of the Act considering remand report of the Assessing Officer. He also drew our attention to the assessment order for AY 2013-14, at pages 88 to 97 of the paper book and submits, the Assessing Officer elaborately discussed and allowed the deduct....
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....anding Counsel Ms. V. Pushpa for Respondent- Revenue submits that the ld. PCIT invoked the provisions of section 263 of the Act for the reason that the assessment order passed by the Assessing Officer under section 143(3) of the Act dated 29.12.2016 has been found erroneous and prejudicial to the interest of Revenue as the assessment was made without making enquiry and allowed relief to the assessee. She submits that section 44 of the Act deals with the computation of income for insurance business, both life insurance and general insurance and argued vehemently the said section provides special provisions for the assessment of profits and gains from the business of insurance, overriding the general provisions applicable to the computation of income under the heads "Profits and gains of business or profession" i.e., provisions of section 28 to section 43D of the Act are not applicable for the computation of income of insurance companies. She submits that in respect of general insurance companies, profits are computed as per the annual accounts maintained in accordance with Insurance Act, 1938 or the Rules there under or the provisions of Insurance Regulatory and Development Authorit....
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....n under the normal provisions of the Act or for any other reason whatsoever, deduction in respect of such amount cannot be claimed in the computation of total income. She argued that the assessee has credited profit on sale of investment to the P& L account prepared as per the IRDA Act/Insurance Act and thereafter claimed an amount of Rs.5,34,45,92,750/- out of these profits as exempt under section 10(38) of the Act. However, an amount of Rs..32,21,37,914/- also shown as on account of profit on sale of investment has been offered for taxation, as the conditions prescribed in section 10(38) of the Act are stated to be not satisfied in the case of such investments, argued, it is apparent that the assessee has bifurcated a single source of income namely profits from sale of investments and classifying it under two different heads of income from LTCG and business income and supported the order of the ld. PCIT. 20. She drew our attention to the clarification issued by the CBDT vide letter dated 21.02.2006 as well as decision in the case of PCIT-3 v. New India Assurance Co. Ltd. [2018(3) TMI 589], the ld. Senior Standing Counsel argued that the above precedent as well as clarification....
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....r, the assessee offered an amount of Rs..133,11,54,362/- out of above said profit for taxation, which is also not disputed by the ld. AR. 23. We find that the ld. AR placed on record two orders of Mumbai Tribunal and one order of Delhi Tribunal. On an examination of the order dated 30.03.2021 passed by the ITAT Mumbai Benches in ITA No. 1080/Mum/2019 for AY 2011-12, we find the fact of that case relating to the issue on hand is discussed in para 3.1 of the said order. It is noted the assessee therein is engaged in the business of general insurance, wherein, the 100% of the share capital was held by the Central Government. The assessee claimed exemption under section 10 of the Act relating to income from LTCG on transfer of shares exempt under section 10(38) of the Act. Further, income from VCF as tax is paid by fund, interest on tax free bonds under section 10(15)(i) of the Act, dividend income received from VCF under section 10(34) of the Act and dividend income under section 10(34) of the Act. The details of which are reproduced hereunder: Income from LTCG on transfer of shares exempt u/s 10(38) Rs.. 588,85,02,720/- Income from VCF as tax is paid by Fund Rs.. 22,52....
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.... to profit on sale of investment, is justified. The subsequent orders in the case of M/s. General Insurance Corporation in ITA No. 1080/Mum/2019 and ECGC Ltd. in ITA No. 3551/M/2023 followed vide orders dated 02.02.2023 and 27.02.2024 respectively. 25. Now let us see the facts on hand with reference to the above orders of Mumbai ITAT Benches. Admittedly, the facts in the present case and that of the Mumbai Tribunal are identical and the issue dealt therein are also similar. In the present case, the main contention of the assessee is that if an amount has been credited in profit & loss account so prepared as per IRDAI Act/Insurance Act and it cannot be subjected to tax either because of exemption under the normal provisions of the Income Tax Act. The ld. PCIT did not agree with the said contention of the assessee, we find the assessee credited the profit on sale of investments to the profit and loss account prepared as per IRDAI/Insurance Act and claimed exemption under section 10(38) of the Act. In this regard, let us examine the Rule 5(b) to the First Schedule of the Act, which is reproduced herein under: B.-Other insurance business Computation of profits and gains ....
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....thority Act, 1999. Clause (b)(i) of Rule 5(b) explains any gain or loss on realization of investments shall be added or deducted as the case may be, if such gain or loss is not credited or debited to profit & loss account as per Insurance Act, 1938 and Insurance Regulatory & Development Authority Act, 1999. Therefore, it is clear that adjustment under the Income Tax Act cannot be made if any gain or loss on realization of investment not credited or debited to the profit & loss account under Insurance Act, 1938 and Insurance Regulatory & Development Authority Act, 1999. In the present case, the ld. PCIT clearly held that the assessee credited gain on sale of investments to the profit & loss account under Insurance Act, 1938 and Insurance Regulatory & Development Authority Act, 1999 vide para 14.9 of the impugned order. Therefore, the findings of the ld. PCIT in holding that the profit on sale of investment shall not be excluded for the purpose of computation of profit and gains of business as per Rule 5(b)(i) of First Schedule to the Income Tax Act and consequently holding the assessment dated 29.12.2016 is erroneous and prejudicial to the interest of Revenue is not justified. Furth....
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....d by the assessee. 30. Heard both the parties and perused the material available on record. The ld. PCIT was of the opinion that the amount to an extent of Rs. 1,27,86,000/- claimed as provisions for diminution in the value of equities other than actively traded on account of fire insurance account, marine insurance account, miscellaneous insurance account and debit in the profit & loss account. Further, according to the ld. PCIT, no explanation offered by the assessee in respect of applicability of provisions under Rule 5(b)(ii) of First Schedule, which reads as "(ii) any provision for diminution in the value of investment debited to the profit & loss account, shall be added back." The ld. AR's contention is that the provision amount debited to the profit & loss account by the assessee are based on actual position and is not at par with provisions referred to in Rule 5 of First Schedule. In this regard, we find that the assessee provided separate accounts in its financials which are page 60 to 63 of the Annual Report for FY 2013-14 relevant to AY 2014-15, wherein, the provision for diminution in the value of other than actively traded equities for fire insurance account debited....
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....), notice dated 12.07.2016 under section 143(2) and another notice dated 20.11.2016 under section 143(2) of the Act, wherein, the Assessing Officer sought explanations with regard to exemption claimed under section 10(38) of the Act vide question No. 4 and dealt the issue extensively. Thus, the question of no enquiry by the Assessing Officer does not arise at all. Thus, the grounds 1 to 8 raised by the assessee are allowed. 34. In the result, the appeal filed by the assessee is allowed. ITA No. 183/Chny/2021- AY: 2016-17 35. Ground No. 1, 8 & 9 raised by the assessee are general in nature and requires no adjudication. 36. Ground Nos. 2 to 6 raised by the assessee as to whether the ld. PCIT is justified in invoking jurisdiction under section 263 of the Act with reference to allowing exemption under section 10(38) of the Act on account of profit on sale of investments. Similar issue has been raised in the AY 2014-15, wherein, we have held that the findings of the ld. PCIT in holding the assessment order is erroneous and prejudicial to the interest of revenue is not justified as the assessee considered the profit on sale of investments to the profit & loss account prepared....
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....tly allowed. ITA No. 430/Chny/2022- AY: 2017-18 39. Ground No. 1 raised by the assessee is general in nature and requires no adjudication. 40. Ground Nos. 2 (a) along with 3 to 7 are relating to issue in claiming exemption under section 10(38) of the Act on account of profit on sale of investments. 41. We find similar issue in ITA No. 1759/Chny/2019 for AY 2014-15, wherein, we held that the assessee is entitled to claim deduction under section 10(38) of the Act in respect of profit on sale of investments as exempt by holding invocation of jurisdiction under section 263 of the Act by the ld. PCIT, is not justified. In the present case, notice dated 21.08.2018 under section 143(2), dated 26.08.2019 under section 142(1) and notice dated 19.12.2019 under section 142(1) of the Act, wherein, the Assessing Officer specifically sought information about the claim of exemption under section 10(38) of the Act as well as section 14A of the Act vide question No. 12(1) and dealt the issue extensively. The reasons recorded by us in the aforementioned paragraphs are equally applicable to the present issue for AY 2017-18. Thus, ground Nos. 2 (a) along with 3 to 7 are allowed. 42. Gro....
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....m the unclaimed policy holder's funds would never be paid to the policy holder and the TDS on the interest income is also claimed by the assessee and the Assessing Officer failed to verify the same. Thus, the ld. PCIT held that this income is necessarily to be added as income of the assessee. 47. The ld. AR submits that IRDAI Master Circular dated 17.11.2020 deals with unclaimed policy holder's funds due for a period of more than six months, according to which, no insurer shall appropriate or write-back any part of unclaimed amounts belonging to the policy holders under any circumstances, the unclaimed policy holder's funds are kept separately and invested in fixed deposits. Further, he submits that the income earned from investments out of unclaimed amounts belonging to the policy holder are part of policy holder's fund and if the said amounts were not claimed, would be transferred to Senior Citizen Welfare Fund. 48. The ld. Senior Standing counsel submits that the assessee received Rs..3,04,67,000/- as income from deposit of Rs..162,20,08,000/-. She vehemently argued that the claim of as the said interest income belongs to policy holders is not acceptable as these amounts a....
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....d explanations offered before the ld. PCIT, vide paras 1 to 12 of the written submissions under "Provision towards IBNR/IBNER claims", which are reproduced at pages 25 to 28 of the impugned order and reiterated the submissions as made before the ld. PCIT. The ld. AR vehemently argued that the provisions of IBNR and IBNER created in accordance with regulatory requirements of IRDAI, are ascertained contingent liabilities and are allowable deduction under section 37(1) of the Act. He further argued that the Assessing Officer erroneously made addition in the assessment order by observing that the liability is unascertained liabilities. He strongly relied on the decision in the case of Cholamandalam MS General Insurance Co. Ltd. V. DCIT [2025] 174 taxmann.com 603 (Madras) placed at page 5 of the paper book. 53. The ld. Senior Standing Counsel submits that the Assessing Officer failed to add the said disallowance for the computation of MAT income is erroneous as it is prejudicial to the interest of the Revenue and the Assessing Officer should have taken only the amount debited in the accounts of this year for the addition on this account, which was not done and the ld. PCIT is well wi....
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....essee before the ld. PCIT during the course of 263 proceedings, which are reproduced from page 28 to 32 of the impugned order. The ld. Senior Standing Counsel for Revenue vehemently argued that there was no discussion by the Assessing Officer in the assessment order which clearly supports the order of the ld. PCIT in holding the assessment is erroneous and prejudicial to the interest of Revenue. 58. Heard both the parties and perused the material available on record. On perusal of the written submissions filed during 263 proceedings, which are reproduced in the impugned order, we note that the assessee mainly referred to accounting methods, IRDA compliances and placed reliance on the order of the Kolkata Tribunal in the case of National Insurance Co. Ltd. In ITA No. 982 & 983/Kol/2012. On perusal of the assessment order, we note that the Assessing Officer issued notice dated 26.08.2019 under section 142(1) of the Act, wherein, it was specifically sought for explanation vide question No. (f) of the notice seeking auditor's report in Form No. 29B in respect of computation of book profit under section 115JB of the Act along with computation of book profit and also issued notice dat....
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....essing Officer. She argued that it is not the case of the assessee that the expenditure was crystalized during the financial year 2016-17 relevant AY 2017-18. At the time of issuance of order under section 263 of the Act, the ld. PCIT, had erroneously overlooked the above issue. She argued vehemently a corrigendum to the order passed under section 263 of the Act were issued to the assessee as the issue pertaining to prior period expenditure is erroneous in so far as it is prejudicial to the interest of the Revenue. Further she argued that the corrigendum issued by the ld. PCIT is not to add a fresh issue, but, it is merely a modification to rectify the oversight made by the ld. PCIT while issuing order section 263 of the Act. The issue pertaining to prior period expenditure is discussed in detail in the order passed by the ld. PCIT. She submits that by way of modification the issue was added to be adjudicated upon by issuance of a corrigendum to the order passed under section 263 of the Act. She prayed to dismiss the ground raised by the assessee. 62. Heard both the parties and perused the material available on record. On perusal of the impugned order dated 29.03.2023 passed by ....