DCIT CEN 5 3, MUMBAI, MUMBAI vs. ICICI LOMBARD GENERAL INSURANCE CO. LIMITED, MUMBAI

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 3 1681, 1682 & reasons to believe that income had escaped assessment, and issued reasons to believe that income had escaped assessment, and issued reasons to believe that income had escaped assessment, and issued notice under section 148 of the Act on 30.06.2021. notice under section 148 of the Act on 30.06.2021.

3.1 Following the directions of the Hon’ble Supreme Court in Following the directions of the Hon’ble Supreme Court in Following the directions of the Hon’ble Supreme Court in [2022] 138 taxmann.com 64 (SC), Union of India v. Ashish Agarwal Union of India v. Ashish Agarwal [2022] 138 taxmann.com 64 (SC), the Assessing Officer passed an order under section 148A(d) on the Assessing Officer passed an order under section 148A(d) on the Assessing Officer passed an order under section 148A(d) on 29.07.2022, after obtaining approval from the specified authority, 29.07.2022, after obtaining approval from the specified authority, 29.07.2022, after obtaining approval from the specified authority, and issued notice under section 148 on the same date. In response, issued notice under section 148 on the same date. In response, issued notice under section 148 on the same date. In response, the assessee filed its return of income on 27.08.2022. the assessee filed its return of income on 27.08.2022. the assessee filed its return of income on 27.08.2022.

3.2 During reassessment proceedings, notices were issued from During reassessment proceedings, notices were issued from During reassessment proceedings, notices were issued from time to time (including on 29.07.2022, 04.01.2023, 17.01.2023, time to time (including on 29.07.2022, 04.01.2023, 17.01.2023, time to time (including on 29.07.2022, 04.01.2023, 17.01.2023, 12.05.2023, and 19.05.2023). The Assessing Officer also afforded nd 19.05.2023). The Assessing Officer also afforded nd 19.05.2023). The Assessing Officer also afforded an opportunity of virtual hearing on 22.05.2023. Pursuant thereto, an opportunity of virtual hearing on 22.05.2023. Pursuant thereto, an opportunity of virtual hearing on 22.05.2023. Pursuant thereto, the assessee filed a detailed reply dated 24.05.2023. the assessee filed a detailed reply dated 24.05.2023.

3.3 In its submissions, the assessee contended that income from In its submissions, the assessee contended that income from In its submissions, the assessee contended that income from interest and sale of investments had already been credited to the f investments had already been credited to the f investments had already been credited to the profit and loss account under section 44 read with the First profit and loss account under section 44 read with the First profit and loss account under section 44 read with the First Schedule, but exemption under section 10 was separately claimed. Schedule, but exemption under section 10 was separately claimed. Schedule, but exemption under section 10 was separately claimed. Reliance was placed on the judgment of the Hon’ble Bombay High Reliance was placed on the judgment of the Hon’ble Bombay High Reliance was placed on the judgment of the Hon’ble Bombay High Court in Life Insurance Corporation of India v. CIT nce Corporation of India v. CIT (1978) 115 ITR 45 (1978) 115 ITR 45 (Bom), wherein it was held that an assessee engaged in insurance (Bom), wherein it was held that an assessee engaged in insurance (Bom), wherein it was held that an assessee engaged in insurance business is entitled to exemption under section 10(15), as the business is entitled to exemption under section 10(15), as the business is entitled to exemption under section 10(15), as the provisions of section 44 do not exclude such claim. The assessee provisions of section 44 do not exclude such claim. The assessee provisions of section 44 do not exclude such claim. The assessee nce income of ₹263,78,71,983/- argued that once income of (exempt under ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 4 1681, 1682 & sections 10(15), 10(34), and 10(38)) stood credited to the profit and sections 10(15), 10(34), and 10(38)) stood credited to the profit and sections 10(15), 10(34), and 10(38)) stood credited to the profit and loss account, there was no occasion to add it back on the ground loss account, there was no occasion to add it back on the ground loss account, there was no occasion to add it back on the ground that it was not routed through the accounts. that it was not routed through the accounts. d disallowance under section 14A, 3.4 With respect to the propose With respect to the proposed disallowance under section 14A, the Assessing Officer in its show cause notice asked the assessee the Assessing Officer in its show cause notice asked the assessee the Assessing Officer in its show cause notice asked the assessee company as to why the sum of Rs.19,17,22,236/- (i.e. cost company as to why the sum of Rs.19,17,22,236/ company as to why the sum of Rs.19,17,22,236/ indentified for investment function amounting to Rs.7,41,71,779/- indentified for investment function amounting to Rs.7,41,71,779/ indentified for investment function amounting to Rs.7,41,71,779/ + = ½ percent of the average of + = ½ percent of the average of the value of relevant investments the value of relevant investments ) should not be disallowed and amounting to Rs.11,71,50,757/ amounting to Rs.11,71,50,757/-) should not be disallowed and added to the taxable income added to the taxable income. The assessee argued that section 44, he assessee argued that section 44, read with Rule 5 of the First Schedule, constitutes a special code for read with Rule 5 of the First Schedule, constitutes a special code for read with Rule 5 of the First Schedule, constitutes a special code for computation of income of computation of income of insurance companies, rendering section insurance companies, rendering section 14A inapplicable. Alternatively, and without prejudice, the assessee 14A inapplicable. Alternatively, and without prejudice, the assessee 14A inapplicable. Alternatively, and without prejudice, the assessee submitted that disallowance, if at all, should be restricted to submitted that disallowance, if at all, should be restricted to submitted that disallowance, if at all, should be restricted to ₹2,08,80,098/- on a proportionate basis, having regard to the fact on a proportionate basis, having regard to the fact on a proportionate basis, having regard to the fact that exempt income constituted only 28% of the total investment income constituted only 28% of the total investment income constituted only 28% of the total investment income. A detailed working was furnished. income. A detailed working was furnished. Accordingly, the Accordingly, the disallowance for the exempt income cannot exceed 28% of the disallowance for the exempt income cannot exceed 28% of the disallowance for the exempt income cannot exceed 28% of the investment cost of Rs.7,45,71,779/ investment cost of Rs.7,45,71,779/- which was worked out to which was worked out to Rs.2,08,80,098/-.

3.5 The Assessing Officer rejected the assessee’s contentions. He e Assessing Officer rejected the assessee’s contentions. He e Assessing Officer rejected the assessee’s contentions. He held that in view of the overriding provision of section 44, the held that in view of the overriding provision of section 44, the held that in view of the overriding provision of section 44, the assessee could not take its income outside the purview of taxation assessee could not take its income outside the purview of taxation assessee could not take its income outside the purview of taxation

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 5 1681, 1682 & by claiming exemptions under section 10. It was also noted that the by claiming exemptions under section 10. It was also noted that by claiming exemptions under section 10. It was also noted that Department had already preferred appeal against contrary orders of Department had already preferred appeal against contrary orders of Department had already preferred appeal against contrary orders of the ITAT in earlier years before the Hon’ble Bombay High Court. On the ITAT in earlier years before the Hon’ble Bombay High Court. the ITAT in earlier years before the Hon’ble Bombay High Court. the disallowance under section 14A, the Assessing Officer observed the disallowance under section 14A, the Assessing Officer observed the disallowance under section 14A, the Assessing Officer observed that once the assessee itself had furnished working on a that once the assessee itself had furnished working that once the assessee itself had furnished working proportionate basis, disallowance was warranted. Accordingly, he proportionate basis, disallowance was warranted. Accordingly, he proportionate basis, disallowance was warranted. Accordingly, he disallowed ₹2,08,80,098/ 2,08,80,098/-, being 28% of the identified investment , being 28% of the identified investment function cost of ₹7,45,71,779/ 7,45,71,779/-, and added the same to the taxable , and added the same to the taxable income. The relevant computation of the disallowance The relevant computation of the disallowance is reproduced The relevant computation of the disallowance for ready reference:

“ICICI Lombard General Insurance Company Limited ICICI Lombard General Insurance Company Limited Annexure 4 Assessment Year 2015 Assessment Year 2015-16 Details of Investment Function Cost Details of Investment Function Cost Particulars Amount (Rs) Amount (Rs) Business & Sates promotion Sates promotion 2,18,029 2,18,029 Communication 4,28,881 4,28,881 Depreciation 30,458 Employees' remuneration & welfare benefits Employees' remuneration & welfare benefits 5,71,67,541 5,71,67,541 Legal & professional charges Legal & professional charges 1,33,37,144 1,33,37,144 Printing & Stationery Printing & Stationery 60,740 Rents, Rates & Taxes Rents, Rates & Taxes 3,52,594 3,52,594 Repairs & Maintenance Repairs & Maintenance 17,04,979 17,04,979 Training expenses Training expenses 1,19.583 1,19.583 Travel, conveyance and vehicle running expenses conveyance and vehicle running expenses 11,51,831 11,51,831 Total 7,45,71,779 7,45,71,779 In response to SCN, assessee has submitted that the proportion of tax-free income In response to SCN, assessee has submitted that the proportion of tax In response to SCN, assessee has submitted that the proportion of tax to the total income is 28 percent and therefore the percentage of the cost to the total income is 28 percent and therefore the percentage of the cost to the total income is 28 percent and therefore the percentage of the cost identified for the investment identified for the investment function as allocated to the separate investment cost function as allocated to the separate investment cost center should be taken at 28% of Rs 7,45,71,779, i.e. Rs. 2,08,80,098/- only. center should be taken at 28% of Rs 7,45,71,779, i.e. Rs. 2,08,80,098/ center should be taken at 28% of Rs 7,45,71,779, i.e. Rs. 2,08,80,098/ The breakup of the total investment income of the Company is as below. The breakup of the total investment income of the Company is as below. The breakup of the total investment income of the Company is as below.

Particulars Particulars Amount (in 000’s)

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 6 1681, 1682 & ITA No 1680/MUM/2025

Exempt Income Exempt Income 2,637,872 Other Taxable Other Taxable 6,784,006 Hence, the proportion of tax Hence, the proportion of tax-free income to the total income is 28 percent and free income to the total income is 28 percent and without prejudice to our stand of section 14A of the Act and Rule 8D of the Rules without prejudice to our stand of section 14A of the Act and Rule 8D of the Rules without prejudice to our stand of section 14A of the Act and Rule 8D of the Rules not being applicable in the Company’s case, on a not being applicable in the Company’s case, on a without prejudice basis, the without prejudice basis, the disallowance for exempt income cannot exceed 28 percent of Rs 7,45,71,779, i.e., disallowance for exempt income cannot exceed 28 percent of Rs 7,45,71,779, i.e., disallowance for exempt income cannot exceed 28 percent of Rs 7,45,71,779, i.e., Rs 2,08,80,098.” 3.6. On further appeal, the assessee raised multiple grounds, On further appeal, the assessee raised multiple grounds, On further appeal, the assessee raised multiple grounds, including the validity of reassessment and merits of the including the validity of reassessment and merits of the including the validity of reassessment and merits of the disallowance. The assessee contended that reassessment was ce. The assessee contended that reassessment was ce. The assessee contended that reassessment was beyond four years, and that notice under section 148 should have beyond four years, and that notice under section 148 should have beyond four years, and that notice under section 148 should have been issued by the Faceless Assessing Officer rather than the been issued by the Faceless Assessing Officer rather than the been issued by the Faceless Assessing Officer rather than the jurisdictional officer, placing reliance on jurisdictional officer, placing reliance on Hexaware Technologies Hexaware Technologies Ltd. v. ACIT (2024) 162 taxmann.com 225 (Bom). The Ld. CIT(A), 2024) 162 taxmann.com 225 (Bom). The Ld. CIT(A), 2024) 162 taxmann.com 225 (Bom). The Ld. CIT(A), however, rejected this ground, following the judgment of the Hon’ble however, rejected this ground, following the judgment of the Hon’ble however, rejected this ground, following the judgment of the Hon’ble Delhi High Court in Delhi High Court in TKS Builders Pvt. Ltd. v. ITO TKS Builders Pvt. Ltd. v. ITO (2024) 167 taxmann.com 759 (Del). The assessee has not carried the rejection taxmann.com 759 (Del). The assessee has not carried the rejection taxmann.com 759 (Del). The assessee has not carried the rejection of this ground further in appeal. und further in appeal.

3.7 On merits, the Ld. CIT(A) followed the orders of his On merits, the Ld. CIT(A) followed the orders of his On merits, the Ld. CIT(A) followed the orders of his predecessor for earlier years and allowed the claim of exemption predecessor for earlier years and allowed the claim of exemption predecessor for earlier years and allowed the claim of exemption under sections 10(15), 10(34), and 10(38), noting that the ITAT, under sections 10(15), 10(34), and 10(38), noting that the ITAT, under sections 10(15), 10(34), and 10(38), noting that the ITAT, Mumbai, in the assessee’s own case for A.Ys. Mumbai, in the assessee’s own case for A.Ys. 2007- -08 to 2010-11, and the CIT(A) for A.Ys. 2011 and the CIT(A) for A.Ys. 2011-12, 2013-14, and 2014 14, and 2014-15, had consistently allowed the same. The findings of the CIT(A) clearly consistently allowed the same. The findings of the CIT(A) clearly consistently allowed the same. The findings of the CIT(A) clearly record that there is no material difference in facts for the present record that there is no material difference in facts for the present record that there is no material difference in facts for the present year. The relevant finding of the Ld. CIT The relevant finding of the Ld. CIT(A) is reproduced as under: (A) is reproduced as under:

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 7 1681, 1682 & ITA No 1680/MUM/2025

“6.3 The facts recorded and finding of the AO in the assessment 6.3 The facts recorded and finding of the AO in the assessment 6.3 The facts recorded and finding of the AO in the assessment order and the submission made by the appellant has been order and the submission made by the appellant has been order and the submission made by the appellant has been considered. 6.3.1 The facts of the case are that during the assessment 6.3.1 The facts of the case are that during the assessment 6.3.1 The facts of the case are that during the assessment proceedings the AO observed that duri proceedings the AO observed that during the year the assessee ng the year the assessee claimed exemption u/s. 10(15) amount of Rs. 136,28,92,790/ claimed exemption u/s. 10(15) amount of Rs. 136,28,92,790/ claimed exemption u/s. 10(15) amount of Rs. 136,28,92,790/- in respect of interest income, exemption u/s. 10(33/34) in respect of respect of interest income, exemption u/s. 10(33/34) in respect of respect of interest income, exemption u/s. 10(33/34) in respect of dividend income of Rs. 21,14,67,970/ dividend income of Rs. 21,14,67,970/- and LTCG exemption u/s. and LTCG exemption u/s. 10(38) of Rs. 106,35,11,223/ 10(38) of Rs. 106,35,11,223/-. The AO denied claim of exemption enied claim of exemption u/s. 10(15), 10(33/34), and 10(38) of the Act on the ground that u/s. 10(15), 10(33/34), and 10(38) of the Act on the ground that u/s. 10(15), 10(33/34), and 10(38) of the Act on the ground that the income of the appellant is assessable u/s. 44 of the IT Act. the income of the appellant is assessable u/s. 44 of the IT Act. the income of the appellant is assessable u/s. 44 of the IT Act. Therefore, other provisions of Act are not applicable to the case of Therefore, other provisions of Act are not applicable to the case of Therefore, other provisions of Act are not applicable to the case of the appellant. the appellant. 6.3.2 During the 6.3.2 During the appellate proceedings the appellant has appellate proceedings the appellant has submitted that the denial of exemption u/s. 10(15), 10(34), and submitted that the denial of exemption u/s. 10(15), 10(34), and submitted that the denial of exemption u/s. 10(15), 10(34), and 10(38) is a recurring issue in the case of the appellant. On the 10(38) is a recurring issue in the case of the appellant. On the 10(38) is a recurring issue in the case of the appellant. On the issue the ITAT Mumbai for A.Y. 2007 issue the ITAT Mumbai for A.Y. 2007-08, 2008-09, 2009 09, 2009-10 has allowed the claim of the a allowed the claim of the appellant regarding exemption u/s. ppellant regarding exemption u/s. 10(15), 10(34), and exemption u/s. 10(38) of the Act. The 10(15), 10(34), and exemption u/s. 10(38) of the Act. The 10(15), 10(34), and exemption u/s. 10(38) of the Act. The appellant also submitted that on similar facts the CIT(A) has also appellant also submitted that on similar facts the CIT(A) has also appellant also submitted that on similar facts the CIT(A) has also allowed the claim of exemption u/s. 10(15), 10(34), and 10(38) allowed the claim of exemption u/s. 10(15), 10(34), and 10(38) allowed the claim of exemption u/s. 10(15), 10(34), and 10(38) for A.Y. 2011 for A.Y. 2011-12, 2013-14 and 2014-15. Apart from that the 15. Apart from that the appellant has also submitted a detailed reply of on the merit appellant has also submitted a detailed reply of on the merit appellant has also submitted a detailed reply of on the merit regarding claim of exemption u/s. 10(15), 10(34), and 10( regarding claim of exemption u/s. 10(15), 10(34), and 10( regarding claim of exemption u/s. 10(15), 10(34), and 10(38). During the appellate proceedings the appellant has provided the During the appellate proceedings the appellant has provided the During the appellate proceedings the appellant has provided the copies of orders of the ITAT for A.Y. 2007 copies of orders of the ITAT for A.Y. 2007-08 to 2009- 08 to 2009-10 as well as the CIT(A) in its own case for 2011 as the CIT(A) in its own case for 2011-12, 2013-14 and 2014 14 and 2014-15. From perusal of the orders of the ITAT it is seen that the ITAT From perusal of the orders of the ITAT it is seen that the ITAT From perusal of the orders of the ITAT it is seen that the ITAT Mumbai in for A.Y. 2010 Mumbai in for A.Y. 2010-11 in the case 11 in the case of appellant has decided the identical issue of appellant has decided the identical issue regarding claim of regarding claim of exemption u/s. 10 (15), 10(34), and 10(38). While deciding the exemption u/s. 10 (15), 10(34), and 10(38). While deciding the exemption u/s. 10 (15), 10(34), and 10(38). While deciding the appeal for A.Y. 2010 appeal for A.Y. 2010-11 the ITAT relied upon the decision of ITAT 11 the ITAT relied upon the decision of ITAT in & 6832/Mum/2014 dated 04.10.2016 for A.Y. in ITA No. 6837 & 6832/Mum/2014 dated 04.10.2016 for A.Y. in ITA No. 6837 & 6832/Mum/2014 dated 04.10.2016 for A.Y. 2005-06 and 2009 06 and 2009-10. For ready reference the relevant paras of ant paras of the decision of the ITAT for A.Y. 2010 the decision of the ITAT for A.Y. 2010-11 are reproduced as 11 are reproduced as under :- "...2. The solitary grievance of the Revenue in the present appeal "...2. The solitary grievance of the Revenue in the present appeal "...2. The solitary grievance of the Revenue in the present appeal relates to allowance of assessee's claim of exemption under relates to allowance of assessee's claim of exemption under relates to allowance of assessee's claim of exemption under section 10(15), 10(34), and 10(38) of the Act. section 10(15), 10(34), and 10(38) of the Act. …………………….

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 8 1681, 1682 & ITA No 1680/MUM/2025

8. There being no difference in fact brought to our notice and 8. There being no difference in fact brought to our notice and 8. There being no difference in fact brought to our notice and there being no contrary decision brought to our notice by the there being no contrary decision brought to our notice by the there being no contrary decision brought to our notice by the learned Departmental Representative, respectfully following the learned Departmental Representative, respectfully following the learned Departmental Representative, respectfully following the view expressed by the Tribunal in assessee's view expressed by the Tribunal in assessee's own own case as referred to above, we uphold the order of the first appellate referred to above, we uphold the order of the first appellate referred to above, we uphold the order of the first appellate authority by dismissing the ground raised

. authority by dismissing the ground raised.

9. In the result, Revenue's appeal is dismissed...."

9. In the result, Revenue's appeal is dismissed...." On the basis of the order of the ITAT, the CIT(A) also allowed the On the basis of the order of the ITAT, the CIT(A) also allowed the On the basis of the order of the ITAT, the CIT(A) also allowed the claim of exemption u/s. 10(15), claim of exemption u/s. 10(15), 10(34), and 10(38) for A.Y. 2011 10(34), and 10(38) for A.Y. 2011- 12, 2013-14 and 2014 14 and 2014-15. 6.3.3 There is no material difference in the facts of the case of the 6.3.3 There is no material difference in the facts of the case of the 6.3.3 There is no material difference in the facts of the case of the appellant for A.Y. 2015 appellant for A.Y. 2015-16 and that for A.Y. 2010-11, 2011 11, 2011-12, 2013-14 and 2014 14 and 2014-15, as far as the claim of exemption u/s. 15, as far as the claim of exemption u/s. 10(15), 10(34), and 10(38) is concerned. Therefore following the ), 10(34), and 10(38) is concerned. Therefore following the ), 10(34), and 10(38) is concerned. Therefore following the decision of the ITAT Mumbai in the case of the appellant for A.Y. decision of the ITAT Mumbai in the case of the appellant for A.Y. decision of the ITAT Mumbai in the case of the appellant for A.Y. 2010-11 and also following the order of the CIT(A) for A.Y. 2011 11 and also following the order of the CIT(A) for A.Y. 2011 11 and also following the order of the CIT(A) for A.Y. 2011- 12, 2013-14 and 2014 14 and 2014-15, the disallowance of exemption 15, the disallowance of exemption claimed by the appellant u/s. 10(15), 10(34), and 10(38) in the appellant u/s. 10(15), 10(34), and 10(38) in the appellant u/s. 10(15), 10(34), and 10(38) in respect of interest income, dividend and LTCG, respectively is respect of interest income, dividend and LTCG, respectively is respect of interest income, dividend and LTCG, respectively is deleted. Accordingly, ground no. 2 of the appeal Accordingly, ground no. 2 of the appeal is allowed.” 3.8 Similarly, with regard to the disallowance under section 14A, Similarly, with regard to the disallowance under section 14A, Similarly, with regard to the disallowance under section 14A, the Ld. CIT(A) deleted the addition, again following the consistent deleted the addition, again following the consistent deleted the addition, again following the consistent orders of the ITAT in the assessee’s own case for earlier years, orders of the ITAT in the assessee’s own case for earlier years, orders of the ITAT in the assessee’s own case for earlier years, including A.Ys. 2005 including A.Ys. 2005-06 and 2006-07 and deleted the disallowance deleted the disallowance observing as under:

“7.3.1 During the appellate proceedings the appellant 7.3.1 During the appellate proceedings the appellant 7.3.1 During the appellate proceedings the appellant has submitted that disallowance u/s. 14A is a recurring issue in the submitted that disallowance u/s. 14A is a recurring issue in the submitted that disallowance u/s. 14A is a recurring issue in the case of the appellant. On the issue the ITAT Mumbai for A.Y. case of the appellant. On the issue the ITAT Mumbai for A.Y. case of the appellant. On the issue the ITAT Mumbai for A.Y. 2005-06 and 2006 06 and 2006-07 has deleted disallowance u/s. 14A. Apart 07 has deleted disallowance u/s. 14A. Apart from that the appellant has also submitted a detailed reply of o from that the appellant has also submitted a detailed reply of o from that the appellant has also submitted a detailed reply of on the merit regarding disallowance u/s. 14A. During the appellate the merit regarding disallowance u/s. 14A. During the appellate the merit regarding disallowance u/s. 14A. During the appellate proceedings the appellant has provided the copies of orders of proceedings the appellant has provided the copies of orders of proceedings the appellant has provided the copies of orders of the ITATfor A.Y. 2005 the ITATfor A.Y. 2005-06 and 2006-07.

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 9 1681, 1682 & ITA No 1680/MUM/2025

From perusal of the orders of the ITAT, it is seen that the ITAT From perusal of the orders of the ITAT, it is seen that the ITAT From perusal of the orders of the ITAT, it is seen that the ITAT Mumbai in Mumbai in for A.Y. 2005-06 in the case 06 in the case of of of appellant appellant appellant has has has decided decided decided the the the identical identical identical issue issue issue regarding regarding regarding disallowance u/s. 14A. While deciding the appeal for A.Y. 2005 disallowance u/s. 14A. While deciding the appeal for A.Y. 2005 disallowance u/s. 14A. While deciding the appeal for A.Y. 2005- 06 the ITAT relied upon the decision of ITAT in the ITAT relied upon the decision of ITAT in ITA No. 06 the ITAT relied upon the decision of ITAT in ITA No. 6854/Mum/2010 in the case of ICICI Prudential 6854/Mum/2010 in the case of ICICI Prudential Insurance Co. Insurance Co. Ltd. 7.3.2 There is no material difference in the facts of the case of the 7.3.2 There is no material difference in the facts of the case of the 7.3.2 There is no material difference in the facts of the case of the appellant for A.Y. 2015 appellant for A.Y. 2015-16 and any A.Y. 2005-06 and 2006 06 and 2006-07, as far as disallowance u/s. 14A is concerned. Therefore, as far as disallowance u/s. 14A is concerned. Therefore, as far as disallowance u/s. 14A is concerned. Therefore, respectfully following the decision of the ITAT respectfully following the decision of the ITAT Mumbai in the case Mumbai in the case of the appellant for A.Y. 2005 of the appellant for A.Y. 2005-06 and 2006-07, disallowance u/s. 07, disallowance u/s. 14A made by AO is deleted.”

5. Before us, the assessee has filed Before us, the assessee has filed an application under Rule 27 application under Rule 27 of the ITAT Rules raising the ground e ITAT Rules raising the ground as under:

"The learned CIT(A) has failed "The learned CIT(A) has failed to appreciate that proceedings to appreciate that proceedings under section 148 of the Act for the captioned assessment year are under section 148 of the Act for the captioned assessment year are under section 148 of the Act for the captioned assessment year are barred by limitation which has also been accepted by the barred by limitation which has also been accepted by the barred by limitation which has also been accepted by the Department and therefore, the proceedings being void Department and therefore, the proceedings being void Department and therefore, the proceedings being void-ab-initio ought to have been quashed;" ought to have been quashed;" 5.1 In aid of the above contention, learned counsel for the d of the above contention, learned counsel for the d of the above contention, learned counsel for the assessee has drawn our attention to the judgment of the Hon’ble assessee has drawn our attention to the judgment of the Hon’ble assessee has drawn our attention to the judgment of the Hon’ble Bombay High Court in Bombay High Court in Skol Breweries Ltd. v. ACIT Skol Breweries Ltd. v. ACIT (ITA No. 34 of 2009) as also the decision of the Delhi Bench of the Tribunal in 2009) as also the decision of the Delhi Bench of the Tribunal in 2009) as also the decision of the Delhi Bench of the Tribunal in ACIT v. SIS Live (175 TTJ 643). (175 TTJ 643). In support of the issue raised in the n support of the issue raised in the application under Rule 27 of the ITAT Rules, the assessee further application under Rule 27 of the ITAT Rules, the assessee further application under Rule 27 of the ITAT Rules, the assessee further submitted as under:

“2. Reassessment proceeding for AY 2015 2. Reassessment proceeding for AY 2015-16 are barred by 16 are barred by limitation 2.1 At the outset, the Company wishes to sub 2.1 At the outset, the Company wishes to submit that it has filed mit that it has filed application dated 21 April 2025 under Rule 27 of the Appellate application dated 21 April 2025 under Rule 27 of the Appellate application dated 21 April 2025 under Rule 27 of the Appellate Tribunal Rules, 1963 (Rules) requesting your Honour to dismiss Tribunal Rules, 1963 (Rules) requesting your Honour to dismiss Tribunal Rules, 1963 (Rules) requesting your Honour to dismiss the Income-tax department appeal for AY 2015 tax department appeal for AY 2015-16 on the grounds 16 on the grounds ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 10 1681, 1682 & that the reopening of assessment under sectio that the reopening of assessment under section 148 of the Act is n 148 of the Act is barred by limitation based on the decision of the barred by limitation based on the decision of the barred by limitation based on the decision of the Hon'ble Supreme Court in case of Union of India (UOI) v Rajeev Supreme Court in case of Union of India (UOI) v Rajeev Supreme Court in case of Union of India (UOI) v Rajeev Bansal [469 ITR 46 (SC)] Bansal [469 ITR 46 (SC)]. 2.2 It is submitted that the Company had received a notice under 2.2 It is submitted that the Company had received a notice under 2.2 It is submitted that the Company had received a notice under section 148 of the Act for AY section 148 of the Act for AY 2015-16 on 30 June 2021. Further, 16 on 30 June 2021. Further, following the directions of Hon'ble Supreme Court in the case of following the directions of Hon'ble Supreme Court in the case of following the directions of Hon'ble Supreme Court in the case of UOI v Ashish Agrawal (444 ITR 01), the notice received on 30 June UOI v Ashish Agrawal (444 ITR 01), the notice received on 30 June UOI v Ashish Agrawal (444 ITR 01), the notice received on 30 June 2021 was deemed to be notice under section 148A(b) of the Act 2021 was deemed to be notice under section 148A(b) of the Act 2021 was deemed to be notice under section 148A(b) of the Act and the order under section 1 and the order under section 148A(d) of the Act was passed on 29 48A(d) of the Act was passed on 29 July 2022. Following that, a notice under section 148 of the Act of July 2022. Following that, a notice under section 148 of the Act of July 2022. Following that, a notice under section 148 of the Act of even date was also issued. even date was also issued. 2.3 The Hon'ble Supreme Court in the case of Rajeev Bansal 2.3 The Hon'ble Supreme Court in the case of Rajeev Bansal 2.3 The Hon'ble Supreme Court in the case of Rajeev Bansal (supra) observed that extension granted by the Taxation and Other (supra) observed that extension granted by the Taxation and Other (supra) observed that extension granted by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 aws (Relaxation and Amendment of Certain Provisions) Act, 2020 aws (Relaxation and Amendment of Certain Provisions) Act, 2020 (hereinafter referred to as 'TOLA') was applicable to reassessment (hereinafter referred to as 'TOLA') was applicable to reassessment (hereinafter referred to as 'TOLA') was applicable to reassessment notices for AYs 2016 notices for AYs 2016-17 and 2017-18 (three-year limitation for year limitation for amounts below INR 50 lakh) and AYs 2013 amounts below INR 50 lakh) and AYs 2013-14 and 2014 14 and 2014-15 (six- year limitation for amounts above INR 50 lakh), as these would r limitation for amounts above INR 50 lakh), as these would r limitation for amounts above INR 50 lakh), as these would have otherwise become time have otherwise become time-barred during the COVID exclusion barred during the COVID exclusion period. However, for AYs outside the extension, i.e., AY 2015 period. However, for AYs outside the extension, i.e., AY 2015 period. However, for AYs outside the extension, i.e., AY 2015-16, where the timeline to issue reassessment notice expired on 31 where the timeline to issue reassessment notice expired on 31 where the timeline to issue reassessment notice expired on 31 March 2022, the Hon'ble Supreme Court observed that the TOLA's 022, the Hon'ble Supreme Court observed that the TOLA's 022, the Hon'ble Supreme Court observed that the TOLA's extension did not apply based on Revenue's acceptance on this extension did not apply based on Revenue's acceptance on this extension did not apply based on Revenue's acceptance on this point before the court. (Refer Paragraph 19(e) and 19(f) at Page point before the court. (Refer Paragraph 19(e) and 19(f) at Page point before the court. (Refer Paragraph 19(e) and 19(f) at Page 225 of First Paper Book). 225 of First Paper Book). 2.4 Thus, in terms of the aforesaid Supreme Cou 2.4 Thus, in terms of the aforesaid Supreme Cou 2.4 Thus, in terms of the aforesaid Supreme Court decision, the reassessment proceedings for AY 2015 the reassessment proceedings for AY 2015-16 are barred by 16 are barred by limitation. 2.5 This view has been affirmed in various other decisions 2.5 This view has been affirmed in various other decisions 2.5 This view has been affirmed in various other decisions including decisions of the coordinate benches of Mumbai ITAT including decisions of the coordinate benches of Mumbai ITAT including decisions of the coordinate benches of Mumbai ITAT  Deepak Steel and Power Limited [SLP(Civil) Appeal No. Deepak Steel and Power Limited [SLP(Civil) Appeal No. Deepak Steel and Power Limited [SLP(Civil) Appeal No. 5177/ 2025 dated 2 April 2025 (SC)] (Refer Paragraph 3 to 5177/ 2025 dated 2 April 2025 (SC)] (Refer Paragraph 3 to 5177/ 2025 dated 2 April 2025 (SC)] (Refer Paragraph 3 to 5 at Page 228 of First Paper Book). 5 at Page 228 of First Paper Book).  Nehal Ashit Shah [SLP(Civil) Diary No(s). 57209/2024 Nehal Ashit Shah [SLP(Civil) Diary No(s). 57209/2024 Nehal Ashit Shah [SLP(Civil) Diary No(s). 57209/2024 dated 4 April 2025 (SC)] (Refer Paragraph 5 at Page 231 of dated 4 April 2025 (SC)] (Refer Paragraph 5 at Page 23 dated 4 April 2025 (SC)] (Refer Paragraph 5 at Page 23 First Paper Book). First Paper Book).  RK Build Creations Pvt. Ltd. [SLP(Civil) Diary No(s). 59625/ RK Build Creations Pvt. Ltd. [SLP(Civil) Diary No(s). 59625/ RK Build Creations Pvt. Ltd. [SLP(Civil) Diary No(s). 59625/ 2024 dated 17 January 2025 (SC)] (Refer Page 233 and 2024 dated 17 January 2025 (SC)] (Refer Page 233 and 2024 dated 17 January 2025 (SC)] (Refer Page 233 and 234 of First Paper Book). 234 of First Paper Book).  Manish Financial [ITA No. 5055/Mum./2024 dated 2 Manish Financial [ITA No. 5055/Mum./2024 dated 2 Manish Financial [ITA No. 5055/Mum./2024 dated 2 December 2024 (Mumbai ITAT)] December 2024 (Mumbai ITAT)]

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 11 1681, 1682 &  Larsen & Toubr Larsen & Toubro Limited [ITA No. 5745/Mum/2024 dated 7 o Limited [ITA No. 5745/Mum/2024 dated 7 April 2025 (Mumbai ITAT)] April 2025 (Mumbai ITAT)]  Pushpak Realities Pvt. Ltd. [ITA No. 4812/Mum./2024 Pushpak Realities Pvt. Ltd. [ITA No. 4812/Mum./2024 Pushpak Realities Pvt. Ltd. [ITA No. 4812/Mum./2024 dated 7 November 2024 (Mumbai ITAT)] dated 7 November 2024 (Mumbai ITAT)]  Lalit Surajprakash Garg vs. DCIT [ITA 6124/MUM/2024 Lalit Surajprakash Garg vs. DCIT [ITA 6124/MUM/2024 Lalit Surajprakash Garg vs. DCIT [ITA 6124/MUM/2024 dated 15 April 2025 (Mumbai ITAT)] dated 15 April 2025 (Mumbai ITAT)]  Ashok Amratla Ashok Amratlal Shah vs. ITO [ITA No.4286/Mum/2024 l Shah vs. ITO [ITA No.4286/Mum/2024 dated 31 December 2024 (Mumbai ITAT)] dated 31 December 2024 (Mumbai ITAT)] In the present case, given that the reassessment notice under In the present case, given that the reassessment notice under In the present case, given that the reassessment notice under section 148 of the Act for AY 2015 section 148 of the Act for AY 2015-16 was issued on 29 July 2022 16 was issued on 29 July 2022 i.e. after 31 March 2022, in light of the above i.e. after 31 March 2022, in light of the above-mentioned decisions, ned decisions, it is submitted that the reassessment proceedings for AY 2015 it is submitted that the reassessment proceedings for AY 2015 it is submitted that the reassessment proceedings for AY 2015-16 are barred by limitation, void ab initio and should are barred by limitation, void ab initio and should be quashed.”

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 12 1681, 1682 & ITA No 1680/MUM/2025

“Respondent may support order on grounds decided against Respondent may support order on grounds decided against Respondent may support order on grounds decided against him.

7.3 In the present case, however, it is manifest tha In the present case, however, it is manifest tha In the present case, however, it is manifest that the issues relating to limitation under section 148 as well as the alleged relating to limitation under section 148 as well as the alleged relating to limitation under section 148 as well as the alleged absence of sanction under section 151 were never raised before, nor absence of sanction under section 151 were never raised before, nor absence of sanction under section 151 were never raised before, nor adjudicated upon, by the learned CIT(A). Consequently, there exists adjudicated upon, by the learned CIT(A). Consequently, there exists adjudicated upon, by the learned CIT(A). Consequently, there exists no finding adverse to the assessee in respe no finding adverse to the assessee in respect of these pleas. The ct of these pleas. The invocation of Rule 27, in the manner now attempted, is therefore invocation of Rule 27, in the manner now attempted, is therefore invocation of Rule 27, in the manner now attempted, is therefore outside its permissible ambit. outside its permissible ambit. While appellate authorities under the hile appellate authorities under the Act have wide powers to do justice between the parties, such Act have wide powers to do justice between the parties, such Act have wide powers to do justice between the parties, such powers must be exercised within the fr powers must be exercised within the framework of the issues which amework of the issues which arise from the order impugned. Rule 27 operates within this very arise from the order impugned. Rule 27 operates within this very arise from the order impugned. Rule 27 operates within this very discipline. It is not intended to enlarge the scope of appeal by discipline. It is not intended to enlarge the scope of appeal by discipline. It is not intended to enlarge the scope of appeal by permitting a respondent to set up an altogether fresh ground which permitting a respondent to set up an altogether fresh ground which permitting a respondent to set up an altogether fresh ground which was neither raised nor adjudica was neither raised nor adjudicated upon by the authority below.. ted upon by the authority below..

7.4 In the present case, the learned CIT(A) allowed relief to the In the present case, the learned CIT(A) allowed relief to the In the present case, the learned CIT(A) allowed relief to the assessee on merits, while the only issue incidentally decided against assessee on merits, while the only issue incidentally decided against assessee on merits, while the only issue incidentally decided against the assessee pertained to the competence of the Faceless Assessing the assessee pertained to the competence of the Faceless Assessing the assessee pertained to the competence of the Faceless Assessing Officer vis-à-vis the jurisdictional Assessing Officer. No application he jurisdictional Assessing Officer. No application he jurisdictional Assessing Officer. No application under Rule 27 has been filed in relation to that adverse finding. under Rule 27 has been filed in relation to that adverse finding. under Rule 27 has been filed in relation to that adverse finding. Rather, what the assessee now seeks to urge is a new ground Rather, what the assessee now seeks to urge is a new ground Rather, what the assessee now seeks to urge is a new ground relating to limitation and want of sanction, which did not form part relating to limitation and want of sanction, which did not form part relating to limitation and want of sanction, which did not form part of the adjudication before the CIT(A). judication before the CIT(A). Such fresh pleas fall outside uch fresh pleas fall outside

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 14 1681, 1682 & the compass of Rule 27 the compass of Rule 27 and the Rule 27 can only be invoked in Rule 27 can only be invoked in respect of a ground already raised and adjudicated upon adversely respect of a ground already raised and adjudicated upon adversely respect of a ground already raised and adjudicated upon adversely by the first appellate authority, and not for introducing an entirely by the first appellate authority, and not for introducing an entirel by the first appellate authority, and not for introducing an entirel new ground which was never the subject new ground which was never the subject-matter of consideration. matter of consideration. Thus, the authorities cited by the assessee are distinguishable, for Thus, the authorities cited by the assessee are distinguishable, for Thus, the authorities cited by the assessee are distinguishable, for in those cases there existed an express finding adverse to the in those cases there existed an express finding adverse to the in those cases there existed an express finding adverse to the assessee which could legitimately be assailed under Rule 27. In assessee which could legitimately be assailed under Rule 2 assessee which could legitimately be assailed under Rule 2 contrary, no such finding exists here, and therefore the assessee , no such finding exists here, and therefore the assessee , no such finding exists here, and therefore the assessee cannot travel beyond the scope of Rule 27 by raking up new issues cannot travel beyond the scope of Rule 27 by raking up new issues cannot travel beyond the scope of Rule 27 by raking up new issues at this appellate stage at this appellate stage 7.5 In view of the foregoing discussion In view of the foregoing discussion, it is clear that Rule 27 of it is clear that Rule 27 of the ITAT Rules is a limit the ITAT Rules is a limited enabling provision meant to safeguard ed enabling provision meant to safeguard the right of a respondent to defend the ultimate conclusion of the the right of a respondent to defend the ultimate conclusion of the the right of a respondent to defend the ultimate conclusion of the lower appellate authority on any ground which has been decided lower appellate authority on any ground which has been decided lower appellate authority on any ground which has been decided against him. It does not, however, clothe the respondent with a against him. It does not, however, clothe the respondent with a against him. It does not, however, clothe the respondent with a right to introduce a right to introduce a fresh plea or ground which was never raised fresh plea or ground which was never raised before, nor adjudicated by, the authority below. To permit otherwise before, nor adjudicated by, the authority below. To permit otherwise before, nor adjudicated by, the authority below. To permit otherwise would be to enlarge the scope of appellate scrutiny beyond the would be to enlarge the scope of appellate scrutiny beyond the would be to enlarge the scope of appellate scrutiny beyond the statutory framework and to obliterate the discipline inherent in statutory framework and to obliterate the discipline inherent in statutory framework and to obliterate the discipline inherent in Rule 27. We are, therefore, unable to accept the contention of the , therefore, unable to accept the contention of the , therefore, unable to accept the contention of the assessee. The application under Rule 27 is devoid of merit and assessee. The application under Rule 27 is devoid of merit and assessee. The application under Rule 27 is devoid of merit and accordingly stands rejected. accordingly stands rejected.

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 15 1681, 1682 & ITA No 1680/MUM/2025

2. Ground Whether on the facts & circumstances of the case Ground Whether on the facts & circumstances of the case Ground Whether on the facts & circumstances of the case and in law, the Ld. and in law, the Ld. CIT(A) erred in deleting the disallowance CIT(A) erred in deleting the disallowance of Rs.13,80,30,155/ of Rs.13,80,30,155/- made by AO on account of 14A made by AO on account of 14A disallowance for expenses incurred towards earning disallowance for expenses incurred towards earning disallowance for expenses incurred towards earning exempt income without appreciating the fact that the income exempt income without appreciating the fact that the income exempt income without appreciating the fact that the income earned by the insurance company from policyholder earned by the insurance company from policyholder earned by the insurance company from policyholder investments and exempt sources (such as dividend income, vestments and exempt sources (such as dividend income, vestments and exempt sources (such as dividend income, capital gains, etc.) is clearly within the purview of Section capital gains, etc.) is clearly within the purview of Section capital gains, etc.) is clearly within the purview of Section 14A, which prohibits the deduction of expenses related to 14A, which prohibits the deduction of expenses related to 14A, which prohibits the deduction of expenses related to such exempt income and also in view of Hon'ble Bombay such exempt income and also in view of Hon'ble Bombay such exempt income and also in view of Hon'ble Bombay High Court's rulings in fav High Court's rulings in favour of department in the case of our of department in the case of Godrej & Boyce NFG Co. Ltd. Vs DCIT 234 CT 1(Bom)? Godrej & Boyce NFG Co. Ltd. Vs DCIT 234 CT 1(Bom)? Godrej & Boyce NFG Co. Ltd. Vs DCIT 234 CT 1(Bom)? 3. Ground Whether on the facts & circumstances of the case Ground Whether on the facts & circumstances of the case Ground Whether on the facts & circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance and in law, the Ld. CIT(A) erred in deleting the disallowance and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.13,80,30,155/ of Rs.13,80,30,155/- made by AO on account of 14A made by AO on account of 14A disallowance for expenses incurred towards earning llowance for expenses incurred towards earning llowance for expenses incurred towards earning exempt income without appreciating the fact that section 44 exempt income without appreciating the fact that section 44 exempt income without appreciating the fact that section 44 of the Act of the Income Tax Act governs the computation of of the Act of the Income Tax Act governs the computation of of the Act of the Income Tax Act governs the computation of income for insurance companies, and does not provide an income for insurance companies, and does not provide an income for insurance companies, and does not provide an exemption from the application of exemption from the application of Section 14A? 4. Ground Whether on the facts & circumstances of the case Ground Whether on the facts & circumstances of the case Ground Whether on the facts & circumstances of the case and in law, the Ld. CIT(A) erred in interpreting the and in law, the Ld. CIT(A) erred in interpreting the and in law, the Ld. CIT(A) erred in interpreting the provisions of Section 44 of the Income Tax Act, 1961 the provisions of Section 44 of the Income Tax Act, 1961 the provisions of Section 44 of the Income Tax Act, 1961 the Act) read with Rule 2 of the First Schedule along with Act) read with Rule 2 of the First Schedule along with Act) read with Rule 2 of the First Schedule along with provisions of Insuran provisions of Insurance Act, 1938, insurance Regulatory ce Act, 1938, insurance Regulatory and Development Authority Act, 1999 and regulations made and Development Authority Act, 1999 and regulations made and Development Authority Act, 1999 and regulations made thereunder and accordingly allowing adjustment from the thereunder and accordingly allowing adjustment from the thereunder and accordingly allowing adjustment from the 'surplus' worked out as per actuarial valuation? 'surplus' worked out as per actuarial valuation? 'surplus' worked out as per actuarial valuation? 5. Ground Whether on the facts and in the circumstances of Ground Whether on the facts and in the circumstances of Ground Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the case and in law, the Ld. CIT(A) has erred in deleting the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of deduction claimed on dividend addition made on account of deduction claimed on dividend addition made on account of deduction claimed on dividend income us. 10(34), of the act without considering the fact income us. 10(34), of the act without considering the fact income us. 10(34), of the act without considering the fact that such dividend income was assessable under the head that such dividend income was assessable under the head that such dividend income was assessable under the head income from business and income from business and profession and cannot be profession and cannot be ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 16 1681, 1682 & ITA No 1680/MUM/2025

computed separately to claim exemption u/s. 10(34) of the computed separately to claim exemption u/s. 10(34) of the computed separately to claim exemption u/s. 10(34) of the Income Tax Act, 1961 as this will amount to violation of Income Tax Act, 1961 as this will amount to violation of Income Tax Act, 1961 as this will amount to violation of provision of section 44 of the Income Tax Act? provision of section 44 of the Income Tax Act? 6. Ground Whether on the facts & circumstances of the case Ground Whether on the facts & circumstances of the case Ground Whether on the facts & circumstances of the case and in law, and in law, the Ld. CIT(A) erred in holding that the the Ld. CIT(A) erred in holding that the exemption w/s. 10(34) of the Act is to be provided on the exemption w/s. 10(34) of the Act is to be provided on the exemption w/s. 10(34) of the Act is to be provided on the amount of dividend eared and not on the net basis as the amount of dividend eared and not on the net basis as the amount of dividend eared and not on the net basis as the provisions of S. 14A are not applicable to the insurance provisions of S. 14A are not applicable to the insurance provisions of S. 14A are not applicable to the insurance companies? companies? 7. Ground Whether on the facts and Ground Whether on the facts and in the circumstances of in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the the case and in law, the Ld. CIT(A) has erred in deleting the the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of exemption claimed on Long addition made on account of exemption claimed on Long addition made on account of exemption claimed on Long term Capital gain u/s. 10(38) and interest income u/s term Capital gain u/s. 10(38) and interest income u/s term Capital gain u/s. 10(38) and interest income u/s 10(15) of the act without considering the fact that such 10(15) of the act without considering the fact that such 10(15) of the act without considering the fact that such income was assessable under the head income from me was assessable under the head income from me was assessable under the head income from business business business and and and profession profession profession and and and cannot cannot cannot be be be computed computed computed separately to claim exemption u/s. 10(38) and 10(15) of the separately to claim exemption u/s. 10(38) and 10(15) of the separately to claim exemption u/s. 10(38) and 10(15) of the Income Tax Act, 1961 as this will amount to violation of Income Tax Act, 1961 as this will amount to violation of Income Tax Act, 1961 as this will amount to violation of provision of section 44 of the Income Tax Act? provision of section 44 of the Income Tax Act? 8. Ground Whether on the facts and in the circumstance of the Ground Whether on the facts and in the circumstance of the Ground Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in holding that the case and in law, the Ld. CIT(A) erred in holding that the case and in law, the Ld. CIT(A) erred in holding that the exemption under section 10(38), 10(15) and 10(34) of the exemption under section 10(38), 10(15) and 10(34) of the exemption under section 10(38), 10(15) and 10(34) of the Act were allowable to the assessee while calculating its Act were allowable to the assessee while calculating its Act were allowable to the assessee while calculating its income under section 44 r income under section 44 read with First Schedule of the ead with First Schedule of the Act*? 9. Ground Whether on the facts & circumstances of the case Ground Whether on the facts & circumstances of the case Ground Whether on the facts & circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the facts and in law, the Ld. CIT(A) erred in not appreciating the facts and in law, the Ld. CIT(A) erred in not appreciating the facts that the valuation of the insurance companies is done under that the valuation of the insurance companies is done under that the valuation of the insurance companies is done under the Insurance Act, therefore, what can b the Insurance Act, therefore, what can be reduced is only e reduced is only what is specifically provided in schedule 1 Rule 2 and what is specifically provided in schedule 1 Rule 2 and what is specifically provided in schedule 1 Rule 2 and nothing else. Therefore, exemption under section 10 i.e nothing else. Therefore, exemption under section 10 i.e nothing else. Therefore, exemption under section 10 i.e 10(38), 10(15) & 10(34) cannot be granted to an assessee 10(38), 10(15) & 10(34) cannot be granted to an assessee 10(38), 10(15) & 10(34) cannot be granted to an assessee engaged in business of life insurance where income is engaged in business of life insurance where income is engaged in business of life insurance where income is computed u/s 44 computed u/s 44 of the IT Act? 8.1 In the appeal preferred by the Revenue, the controversy lies in In the appeal preferred by the Revenue, the controversy lies in In the appeal preferred by the Revenue, the controversy lies in a narrow compass, though it raises questions of considerable a narrow compass, though it raises questions of considerable a narrow compass, though it raises questions of considerable importance touching upon the interpretation of the special importance touching upon the interpretation of the special importance touching upon the interpretation of the special provisions governing taxation of insurance companies under section provisions governing taxation of insurance companies unde provisions governing taxation of insurance companies unde 44 of the Act read with the First Schedule thereto. Two principal 44 of the Act read with the First Schedule thereto. Two principal 44 of the Act read with the First Schedule thereto. Two principal issues emerge for adjudication. The first and foremost issue is issues emerge for adjudication. The first and foremost issue is issues emerge for adjudication. The first and foremost issue is ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 17 1681, 1682 & whether the sum of Rs.263,78,71,983/ whether the sum of Rs.263,78,71,983/-, comprising interest , comprising interest income, dividend income and long income, dividend income and long-term capital gains, and term capital gains, and claimed by the assessee as exempt under sections 10(15), 10(34) and 10(38) by the assessee as exempt under sections 10(15), 10(34) and 10(38) by the assessee as exempt under sections 10(15), 10(34) and 10(38) of the Act respectively respectively, is legally allowable in the hands of the , is legally allowable in the hands of the assessee notwithstanding the non obstante mandate of section 44 assessee notwithstanding the non obstante mandate of section 44 assessee notwithstanding the non obstante mandate of section 44 of the Act. Put differently, the question is whether the assessee, of the Act. Put differently, the question is whethe of the Act. Put differently, the question is whethe being engaged in the business of general insurance, can still invoke being engaged in the business of general insurance, can still invoke being engaged in the business of general insurance, can still invoke the benefit of exemptions otherwise available under section 10 of the benefit of exemptions otherwise available under section 10 of the benefit of exemptions otherwise available under section 10 of the Act in respect of such income, or whether such income, by the Act in respect of such income, or whether such income, by the Act in respect of such income, or whether such income, by virtue of the special mode of computation p virtue of the special mode of computation prescribed under section rescribed under section 44 read with the First Schedule, must necessarily form part of the 44 read with the First Schedule, must necessarily form part of the 44 read with the First Schedule, must necessarily form part of the taxable business profits. taxable business profits.

8.2 The second issue, which arises as a corollary to the first, is The second issue, which arises as a corollary to the first, is The second issue, which arises as a corollary to the first, is that assuming such income is to be treated as exempt, whether the that assuming such income is to be treated as exempt, whether the that assuming such income is to be treated as exempt, whether the assessee can nevertheless be visited with a disallowance under ee can nevertheless be visited with a disallowance under ee can nevertheless be visited with a disallowance under section 14A of the Act in respect of expenditure allegedly incurred section 14A of the Act in respect of expenditure allegedly incurred section 14A of the Act in respect of expenditure allegedly incurred in relation to such exempt income. In essence, therefore, the in relation to such exempt income. In essence, therefore, the in relation to such exempt income. In essence, therefore, the dispute turns on the interplay between section 44, section 10, and dispute turns on the interplay between section 44, section 10, and dispute turns on the interplay between section 44, section 10, and section 14A of the Act, and the extent to which the special code ction 14A of the Act, and the extent to which the special code ction 14A of the Act, and the extent to which the special code under section 44 overrides or accommodates the general provisions under section 44 overrides or accommodates the general provisions under section 44 overrides or accommodates the general provisions of exemption and disallowance under the Act. of exemption and disallowance under the Act.

8.3 As regards the first issue, the contention of the assessee, As regards the first issue, the contention of the assessee, As regards the first issue, the contention of the assessee, advanced by the learned counsel, is that the assessee is a General arned counsel, is that the assessee is a General arned counsel, is that the assessee is a General

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 18 1681, 1682 & Insurance Company duly registered with the Insurance Regulatory Insurance Company duly registered with the Insurance Regulatory Insurance Company duly registered with the Insurance Regulatory and Development Authority of India (IRDAI) to carry on the and Development Authority of India (IRDAI) to carry on the and Development Authority of India (IRDAI) to carry on the business of general insurance. The computation of income of such business of general insurance. The computation of income of such business of general insurance. The computation of income of such entities is governed by the special provisions enshrined in section d by the special provisions enshrined in section d by the special provisions enshrined in section 44 of the Act read with Rule 5 of the First Schedule thereto. It has 44 of the Act read with Rule 5 of the First Schedule thereto. It has 44 of the Act read with Rule 5 of the First Schedule thereto. It has been emphasized that the non obstante clause contained in section that the non obstante clause contained in section that the non obstante clause contained in section 44 of the Act overrides only the provisions relating to computation 44 of the Act overrides only the provisions relating to computation 44 of the Act overrides only the provisions relating to computation of income under the specific heads, namely section 199, sections 28 ncome under the specific heads, namely section 199, sections 28 ncome under the specific heads, namely section 199, sections 28 to 43B, and allied provisions, but does not override the independent to 43B, and allied provisions, but does not override the independent to 43B, and allied provisions, but does not override the independent exemptions conferred under section 10 of the Act. According to the exemptions conferred under section 10 of the Act. According to the exemptions conferred under section 10 of the Act. According to the learned counsel, section 44 merely regulates the manner of learned counsel, section 44 merely regulates the manner learned counsel, section 44 merely regulates the manner computation of income of an insurance company, by bringing under computation of income of an insurance company, by bringing under computation of income of an insurance company, by bringing under the head “profits and gains of business” what otherwise would fall the head “profits and gains of business” what otherwise would fall the head “profits and gains of business” what otherwise would fall under separate heads of income, but it does not take away the under separate heads of income, but it does not take away the under separate heads of income, but it does not take away the statutory exemptions otherwise available under section 10 of the statutory exemptions otherwise available under section 10 o statutory exemptions otherwise available under section 10 o Act.

The learned counsel further submitted that the finding of the 8.4 The learned counsel further submitted that the finding of the The learned counsel further submitted that the finding of the learned CIT(A), in so far as it proceeds on the basis of his learned CIT(A), in so far as it proceeds on the basis of his learned CIT(A), in so far as it proceeds on the basis of his predecessor’s orders for earlier years, is misplaced. It was argued predecessor’s orders for earlier years, is misplaced. It was argued predecessor’s orders for earlier years, is misplaced. It was argued that those orders pertain to years when clause (b) of Rule 5 of Part that those orders pertain to years when clause (b) of Rule 5 of P that those orders pertain to years when clause (b) of Rule 5 of P B of the First Schedule had been omitted from the statute. With the B of the First Schedule had been omitted from the statute. With the B of the First Schedule had been omitted from the statute. With the reintroduction of Rule 5(b) by the Finance (No. 2) Act, 2009 and the reintroduction of Rule 5(b) by the Finance (No. 2) Act, 2009 and the reintroduction of Rule 5(b) by the Finance (No. 2) Act, 2009 and the Finance Act, 2010, effective from 1.4.2011, the position in law has Finance Act, 2010, effective from 1.4.2011, the position in law has Finance Act, 2010, effective from 1.4.2011, the position in law has materially changed. Consequently, reliance plac materially changed. Consequently, reliance placed by the CIT(A) on ed by the CIT(A) on ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 19 1681, 1682 & decisions pertaining to A.Ys. 2007 decisions pertaining to A.Ys. 2007-08 to 2010-11, when Rule 5(b) 11, when Rule 5(b) did not form part of the statute, is wholly untenable for the year did not form part of the statute, is wholly untenable for the year did not form part of the statute, is wholly untenable for the year under consideration. It was submitted that prior to the amendment, under consideration. It was submitted that prior to the amendment, under consideration. It was submitted that prior to the amendment, the profits arising from sale of inve the profits arising from sale of investments were not taxable by stments were not taxable by virtue of the omission of Rule 5(b), as clarified in CBDT Circular No. virtue of the omission of Rule 5(b), as clarified in CBDT Circular No. virtue of the omission of Rule 5(b), as clarified in CBDT Circular No. 528 dated 16.12.1988. However, post amendment, i.e. from A.Y. 528 dated 16.12.1988. However, post amendment, i.e. from A.Y. 528 dated 16.12.1988. However, post amendment, i.e. from A.Y. 2011-12 onwards, while profits on sale of investments are brought 12 onwards, while profits on sale of investments are brought 12 onwards, while profits on sale of investments are brought within the scope of taxation, within the scope of taxation, the assessee is nevertheless entitled to the assessee is nevertheless entitled to claim exemption under section 10(38) of the Act in respect of long- claim exemption under section 10(38) of the Act in respect of long claim exemption under section 10(38) of the Act in respect of long term capital gains on sale of securities that have suffered Securities term capital gains on sale of securities that have suffered Securities term capital gains on sale of securities that have suffered Securities Transaction Tax (STT). Transaction Tax (STT).

8.5 The learned counsel elaborated that in conformity The learned counsel elaborated that in conformity The learned counsel elaborated that in conformity with this position, the assessee has duly included the entire profit on sale of position, the assessee has duly included the entire profit on sale of position, the assessee has duly included the entire profit on sale of in the profit and loss investments amounting to Rs. 24,32,99,800/ investments amounting to Rs. 24,32,99,800/- in the profit and loss account, and has claimed exemption only in respect of Rs. account, and has claimed exemption only in respect of Rs. account, and has claimed exemption only in respect of Rs. 10,63,511/- which qualifies for exemption under se which qualifies for exemption under section 10(38) of which qualifies for exemption under se the Act. The balance profit has been offered to tax in accordance the Act. The balance profit has been offered to tax in accordance the Act. The balance profit has been offered to tax in accordance with the specific provisions of section 44 read with Rule 5(b). Thus, with the specific provisions of section 44 read with Rule 5(b). Thus, with the specific provisions of section 44 read with Rule 5(b). Thus, the assessee has faithfully complied with the statutory scheme of the assessee has faithfully complied with the statutory scheme of the assessee has faithfully complied with the statutory scheme of computation.

8.6 In support of the ab In support of the above proposition, reliance was placed on the ove proposition, reliance was placed on the decision of the co-ordinate Bench of this Tribunal in the case of ordinate Bench of this Tribunal in the case of ordinate Bench of this Tribunal in the case of General Insurance Corporation of India General Insurance Corporation of India in in ITA No.1080/Mum/2019

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 20 1681, 1682 & for A.Y. 2011-12, wherein identical issues were adjudicated in 12, wherein identical issues were adjudicated in 12, wherein identical issues were adjudicated in favour of the assessee. ee.

8.7 The The The learned learned learned counsel counsel counsel also also also placed placed placed reliance reliance reliance on on on the the the communication issued by the CBDT dated 1st February, 2006 communication issued by the CBDT dated 1st February, 2006 communication issued by the CBDT dated 1st February, 2006 addressed to the Chairman of the IRDA, wherein it was categorically addressed to the Chairman of the IRDA, wherein it was categorically addressed to the Chairman of the IRDA, wherein it was categorically clarified that exemption under section 10(38) of the Act was clarified that exemption under section 10(38) of the Act was clarified that exemption under section 10(38) of the Act was available to General Insurance Companies. It was pointed out that General Insurance Companies. It was pointed out that General Insurance Companies. It was pointed out that this clarification has neither been withdrawn nor superseded and this clarification has neither been withdrawn nor superseded and this clarification has neither been withdrawn nor superseded and continues to hold the field. continues to hold the field.

8.8 Further reliance was placed on the judgment of the Hon’ble Further reliance was placed on the judgment of the Hon’ble Further reliance was placed on the judgment of the Hon’ble Delhi High Court in Delhi High Court in Oriental Insurance Corporation Ltd. tion Ltd. v. CIT (407 ITR 658), wherein the Court, after noticing CBDT Circular No. 528, ITR 658), wherein the Court, after noticing CBDT Circular No. 528, ITR 658), wherein the Court, after noticing CBDT Circular No. 528, held that investments of a general insurance company cannot be held that investments of a general insurance company cannot be held that investments of a general insurance company cannot be regarded as stock-in in-trade, and consequently, profit on sale of trade, and consequently, profit on sale of investments is not chargeable to tax. Th investments is not chargeable to tax. The Hon’ble High Court thus e Hon’ble High Court thus allowed the assessee’s claim of exemption on sale of investments allowed the assessee’s claim of exemption on sale of investments allowed the assessee’s claim of exemption on sale of investments and submitted as under: and submitted as under:

“3.20 In the case of Oriental Insurance Corporation Ltd. (OICL) for 3.20 In the case of Oriental Insurance Corporation Ltd. (OICL) for 3.20 In the case of Oriental Insurance Corporation Ltd. (OICL) for A.Y. 2005-06 407 ITR 658 (Delhi), the income 06 407 ITR 658 (Delhi), the income-tax department had tax department had contended that investments of the assessee company constitutes contended that investments of the assessee company constitutes contended that investments of the assessee company constitutes stock in trade and as such being business income cannot be stock in trade and as such being business income cannot be stock in trade and as such being business income cannot be allowed exemption in terms of CBDT Circular No.

528. However, the owed exemption in terms of CBDT Circular No.

528. However, the owed exemption in terms of CBDT Circular No.

'investments' 'investments' 'investments' and and and not not not by by by constituting constituting constituting it it it as as as business/stock business/stock in trade.” 8.9 Per Per Per contra, contra, contra, the the the learned learned learned Departmental Departmental Departmental Representative submitted written arguments contending that the learned CIT(A) submitted written arguments contending that the learned CIT(A) submitted written arguments contending that the learned CIT(A) erred in relying upon earlier decisions when Rule 5(b) was not in erred in relying upon earlier decisions when Rule 5(b) was not in erred in relying upon earlier decisions when Rule 5(b) was not in force. According to the Revenue, once Rule 5(b) was reintroduced, force. According to the Revenue, once Rule 5(b) was reintroduced, force. According to the Revenue, once Rule 5(b) was reintroduced, the entire profit on sale of investments is li the entire profit on sale of investments is liable to be taxed as part able to be taxed as part of business profits under section 44 read with Rule 5 of the First of business profits under section 44 read with Rule 5 of the First of business profits under section 44 read with Rule 5 of the First Schedule, and the exemption under section 10 e exemption under section 10 is not available in is not available in the case of insurance companies. the case of insurance companies.

9.1 The income of the assessee is taxed under the provisions of The income of the assessee is taxed under the provisions of The income of the assessee is taxed under the provisions of section 44 of the Act. For ready reference said section 44 of the Act. For ready reference said section is reproduced section is reproduced as under:

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 22 1681, 1682 & “Insurance business. Insurance business.

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 23 1681, 1682 & is to be charged under the head ‘profit and gains of the business’ is to be charged under the head ‘profit and gains of the business’ is to be charged under the head ‘profit and gains of the business’ subject to Rule 5 of the First Schedule subject to Rule 5 of the First Schedule.

9.3 Rule 5 of the First Schedule deals with the computation of Rule 5 of the First Schedule deals with the computation of Rule 5 of the First Schedule deals with the computation of Profit and Gains of General Insurance business subject to certain Profit and Gains of General Insurance business subject to certain Profit and Gains of General Insurance business subject to certain adjustments. One of the adjustments in clause (b) under Rule 5 of ustments. One of the adjustments in clause (b) under Rule 5 of ustments. One of the adjustments in clause (b) under Rule 5 of the First Schedule of the Income Tax Act, was omitted w.e.f. 1 April the First Schedule of the Income Tax Act, was omitted w.e.f. 1 April the First Schedule of the Income Tax Act, was omitted w.e.f. 1 April 1989 by the Finance Act 1988. 1989 by the Finance Act 1988. Prior to omission, Rule 5 (b) of First Prior to omission, Rule 5 (b) of First Schedule stood as under: Schedule stood as under:

"any amount either written off "any amount either written off or reserved in the accounts to or reserved in the accounts to meet depreciation of or loss on the realization of investments meet depreciation of or loss on the realization of investments meet depreciation of or loss on the realization of investments shall be allowed as a deduction, and any sums taken credit shall be allowed as a deduction, and any sums taken credit shall be allowed as a deduction, and any sums taken credit for in the accounts on account of appreciation of or gains on for in the accounts on account of appreciation of or gains on for in the accounts on account of appreciation of or gains on the realization of investments shall be the realization of investments shall be treated as part of the treated as part of the profits and gains: profits and gains: Provided that the Assessing Officer is satisfied about the Provided that the Assessing Officer is satisfied about the Provided that the Assessing Officer is satisfied about the reasonableness of the amount written off or reserved in the reasonableness of the amount written off or reserved in the reasonableness of the amount written off or reserved in the accounts, as the case may be, to meet depreciation of or loss accounts, as the case may be, to meet depreciation of or loss accounts, as the case may be, to meet depreciation of or loss on the realization of investment. on the realization of investment." 9.4 The Central Board of Direct Taxes vide Circular No. Central Board of Direct Taxes vide Circular No. Central Board of Direct Taxes vide Circular No. 528 [The Finance Act, 1988 528 [The Finance Act, 1988 - Explanatory Notes on the Explanatory Notes on the provisions relating to direct taxes] clarified the said provisions relating to direct taxes] clarified the said provisions relating to direct taxes] clarified the said amendment in Rule 5 as under : amendment in Rule 5 as under :-

Under the existing provisions of Section 44 of the Incom Under the existing provisions of Section 44 of the Incom Under the existing provisions of Section 44 of the Income Tax Act, the profits and gains of any insurance business is Act, the profits and gains of any insurance business is Act, the profits and gains of any insurance business is computed in accordance with the rules contained in the First computed in accordance with the rules contained in the First computed in accordance with the rules contained in the First Schedule to the Act. Under Rule 5 of this Schedule, Profits and Schedule to the Act. Under Rule 5 of this Schedule, Profits and Schedule to the Act. Under Rule 5 of this Schedule, Profits and gains of any business of insurance, other than life insurance, gains of any business of insurance, other than life insurance, gains of any business of insurance, other than life insurance, are taken to be balance of profits disclosed in the annual ken to be balance of profits disclosed in the annual ken to be balance of profits disclosed in the annual accounts furnished to the Controller of Insurance subject to accounts furnished to the Controller of Insurance subject to accounts furnished to the Controller of Insurance subject to certain adjustments. One of the adjustments provided therein certain adjustments. One of the adjustments provided therein certain adjustments. One of the adjustments provided therein is in respect of any amount either written off or reserved in the is in respect of any amount either written off or reserved in the is in respect of any amount either written off or reserved in the ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 24 1681, 1682 & accounts to mee accounts to meet depreciation or loss on the realisation of t depreciation or loss on the realisation of investment which is to be allowed as deduction. Similarly, any investment which is to be allowed as deduction. Similarly, any investment which is to be allowed as deduction. Similarly, any sum be credited to the account, due to appreciation of or gain sum be credited to the account, due to appreciation of or gain sum be credited to the account, due to appreciation of or gain on the realisation of investment is taken as part of the profits on the realisation of investment is taken as part of the profits on the realisation of investment is taken as part of the profits and gains of the bus and gains of the business. To enable the General Insurance iness. To enable the General Insurance Corporation and its subsidiaries to play a more active role in Corporation and its subsidiaries to play a more active role in Corporation and its subsidiaries to play a more active role in capital markets for the benefit of policy holders, the Finance capital markets for the benefit of policy holders, the Finance capital markets for the benefit of policy holders, the Finance Act has amended sub rule (b) of Rule 5 of the First Schedule to Act has amended sub rule (b) of Rule 5 of the First Schedule to Act has amended sub rule (b) of Rule 5 of the First Schedule to provide for exemption of th provide for exemption of the profits earned by them on the sale e profits earned by them on the sale of investment. As a corollary, it has been provided that the of investment. As a corollary, it has been provided that the of investment. As a corollary, it has been provided that the losses incurred by the General Insurance Corporation on the losses incurred by the General Insurance Corporation on the losses incurred by the General Insurance Corporation on the realisation of investment shall not be allowed as deduction in realisation of investment shall not be allowed as deduction in realisation of investment shall not be allowed as deduction in computing the profits chargeable to computing the profits chargeable to tax." 9.5 Thus, the intent of the legislature in the omission of clause (b) Thus, the intent of the legislature in the omission of clause (b) Thus, the intent of the legislature in the omission of clause (b) was to provide exemption to General Insurance Companies on the was to provide exemption to General Insurance Companies on the was to provide exemption to General Insurance Companies on the profits on sale of investments to enable them to play a more active profits on sale of investments to enable them to play a more active profits on sale of investments to enable them to play a more active role in the capital market for the benefit of po role in the capital market for the benefit of policy holders. However, licy holders. However, Rule 5 of the First Schedule has been amended by Finance (No. 2) Rule 5 of the First Schedule has been amended by Finance (No. 2) Rule 5 of the First Schedule has been amended by Finance (No. 2) Act, 2009 w.e.f. 1 April 2011, by re Act, 2009 w.e.f. 1 April 2011, by re-inserting clause 5(b) to provide inserting clause 5(b) to provide that any increase in respect of any amount taken credit for in the that any increase in respect of any amount taken credit for in the that any increase in respect of any amount taken credit for in the accounts on account of apprecia accounts on account of appreciation of or gains on realization of tion of or gains on realization of investments in accordance with the regulations prescribed by IRDA investments in accordance with the regulations prescribed by IRDA investments in accordance with the regulations prescribed by IRDA shall be treated as income and included in the profits and gains of shall be treated as income and included in the profits and gains of shall be treated as income and included in the profits and gains of business of insurance. Similarly, deduction shall be allowed in business of insurance. Similarly, deduction shall be allowed in business of insurance. Similarly, deduction shall be allowed in respect of any amount e respect of any amount either written off or provided in the accounts ither written off or provided in the accounts to meet diminution in or loss on realization of investments in to meet diminution in or loss on realization of investments in to meet diminution in or loss on realization of investments in accordance with the regulations prescribed by IRDA. accordance with the regulations prescribed by IRDA. accordance with the regulations prescribed by IRDA.

9.6 Rule 5(b) of the First Schedule has been further amended by Rule 5(b) of the First Schedule has been further amended by Rule 5(b) of the First Schedule has been further amended by Finance Act, 2010 w.e.f. 1 Apri Finance Act, 2010 w.e.f. 1 April 2011. For ready reference, t For ready reference, the amended rule 5 of First schedule of Act is amended rule 5 of First schedule of Act is reproduced as under: reproduced as under:

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 25 1681, 1682 & “Computation of profits and gains of other insurance business. Computation of profits and gains of other insurance business. Computation of profits and gains of other insurance business.

5. The profits and gains of any business of insurance other than life The profits and gains of any business of insurance other than life The profits and gains of any business of insurance other than life insurance shall be taken to be the 34[profit before tax and appropriations as insurance shall be taken to be the [profit before tax and appropriations as disclosed in the profit and loss account prepared in accordance with the disclosed in the profit and loss account prepared in accordance with the disclosed in the profit and loss account prepared in accordance with the provisions of the Insurance Act, 1938 (4 of 1938) or the rules made there visions of the Insurance Act, 1938 (4 of 1938) or the rules made there visions of the Insurance Act, 1938 (4 of 1938) or the rules made there under or the provisions of the Insurance Regulatory and Development under or the provisions of the Insurance Regulatory and Development under or the provisions of the Insurance Regulatory and Development Authority Act, 1999 (4 of 1999) or the regulations made there ity Act, 1999 (4 of 1999) or the regulations made there ity Act, 1999 (4 of 1999) or the regulations made there under,] subject to the following adjustments:- to the following adjustments: (a) subject to the other provisions of this rule, any 35expenditure subject to the other provisions of this rule, any subject to the other provisions of this rule, any or allowance 36[including any amount debited to the profit or allowance [including any amount debited to the profit and loss account either by way of a provision for any tax, and loss account either by way of a provision for any tax, and loss account either by way of a provision for any tax, dividend, reserve or any other provision as may be divide nd, reserve or any other provision as may be prescribed] which is not admissible under the provisions of prescribed] which is not admissible under the provi prescribed] which is not admissible under the provi sections 30 to 37[43B] in computing the profits and gains of a sections [43B] in computing the profits and gains of a business shall be added back; business shall be any gain or loss on realisation of investments shall be any gain or loss on realisation of investments shall be any gain or loss on realisation of investments shall be 38 [(b) added or deducted, as the case may be, if such gain or added or deducted, as the case may be, if such gain or added or deducted, as the case may be, if such gain or loss is not credited or debited to the profit and loss loss is not credited or debited to the profit and loss loss is not credited or debited to the profit and loss (i) account; account; (ii) any any provision for diminution in the value of investment provision for diminution in the value of investment debited to the profit and loss account, shall be added back;] debited to the profit and loss account, shall be added back;] debited to the profit and loss account, shall be added back;] 39 such amount carried over to a reserve for unex such amount carried over to a reserve for unex such amount carried over to a reserve for unexpired risks as (c) may be prescribed in this behalf may be prescribed in this behalf shall be allowed as a shall be allowed as a deduction: deduction: 40 [Provided that any sum payable by the assessee under that any sum payable by the assessee under that any sum payable by the assessee under section 43B, which is added back in accordance with clause (a) of this rule, shall be which is added back in accordance with clause (a) of this rule, shall be which is added back in accordance with clause (a) of this rule, shall be ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 26 1681, 1682 & ITA No 1680/MUM/2025

allowed as deduction in computing the income under the said rule in the deduction in computing the income under the said rule in the deduction in computing the income under the said rule in the previous year in which such sum is actually paid.]” previous year in which such sum is actually paid.] 9.7 From the above it is evident that if any expenditure in the From the above it is evident that if any expenditure in the From the above it is evident that if any expenditure in the nature of tax or dividend reserves dividend reserves or any other item item which is not admissible u/s 32 to 38 is to be added back while computing profit admissible u/s 32 to 38 is to be added back while computing profit admissible u/s 32 to 38 is to be added back while computing profit and gains of the business of the insurance business. The Rule and gains of the business of the insurance business. and gains of the business of the insurance business. 5(b)(i) prescribe that any gain on realization of the investment that any gain on realization of the investment that any gain on realization of the investment is to be added back to the profit and gains if same is not is to be added back to the profit and gains if sa is to be added back to the profit and gains if sa already added. Similarly, any losses if already not deducted already added. Similarly, any losses if already not deducted already added. Similarly, any losses if already not deducted then same has to be deducted while computing profit and gains then same has to be deducted while computing profit and gains then same has to be deducted while computing profit and gains of the business. Rule 5(b)(ii) provides a of the business. Rule 5(b)(ii) provides any provision made for ny provision made for diminution in value for investment which has been debited to value for investment which has been debited to value for investment which has been debited to profit and loss account has to be added back to the profit and profit and loss account has to be added back to the profit and profit and loss account has to be added back to the profit and gains of the business. gains of the business. Further, the Rule 5(c) Rule 5(c) prescribes for allowance of deduction if such amounts are carried offered reserve allowance of deduction if such amounts are carried offered reserve allowance of deduction if such amounts are carried offered reserve for un-expiry risk.

9.8 On perusal of the aforesaid legislative On perusal of the aforesaid legislative history of Rule 5 of the history of Rule 5 of the First Schedule it is observed that the prior to amendment in Rule 5 observed that the prior to amendment in Rule 5 observed that the prior to amendment in Rule 5 of the First Schedule by Finance Act 2010, entire profits on sale of of the First Schedule by Finance Act 2010, entire profits on sale of of the First Schedule by Finance Act 2010, entire profits on sale of securities were not taxable in view of omission of Rule 5(b) of the securities were not taxable in view of omission of Rule 5(b) of the securities were not taxable in view of omission of Rule 5(b) of the First Schedule w.e.f. 1 A First Schedule w.e.f. 1 April 1989 and Explanatory Notes to Finance pril 1989 and Explanatory Notes to Finance Act, 1988 (Circular No. 528 dated 16.12.1988). However, post Act, 1988 (Circular No. 528 dated 16.12.1988). However, post Act, 1988 (Circular No. 528 dated 16.12.1988). However, post amendment, w.e.f. 1 April 2011, only profits on sale of securities amendment, w.e.f. 1 April 2011, only profits on sale of securities amendment, w.e.f. 1 April 2011, only profits on sale of securities held as Investments being long term capital assets which have held as Investments being long term capital assets which have held as Investments being long term capital assets which have ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 27 1681, 1682 & suffered STT are being suffered STT are being claimed as exempt u/s. 10(38) of the Act, as claimed as exempt u/s. 10(38) of the Act, as there is no prohibition in Act which prevent insurance company there is no prohibition in Act which prevent insurance company there is no prohibition in Act which prevent insurance company from claiming exemption under various clauses of section 10 of the from claiming exemption under various clauses of section 10 of the from claiming exemption under various clauses of section 10 of the Act. Recognizing the above, the Company, after the amendment to Recognizing the above, the Company, after the amendment to Recognizing the above, the Company, after the amendment to Rule 5(b) of the First Schedule to the Act with effect from AY 2011 First Schedule to the Act with effect from AY 2011 First Schedule to the Act with effect from AY 2011- 12, has itself acknowledged that such profits on sale of investments 12, has itself acknowledged that such profits on sale of investments 12, has itself acknowledged that such profits on sale of investments are taxable, but claimed an exemption under section 10(38) of the are taxable, but claimed an exemption under section 10(38) of the are taxable, but claimed an exemption under section 10(38) of the Act in respect of the profits on such sale which qualify for such Act in respect of the profits on such sale which qualify for such Act in respect of the profits on such sale which qualify for such exemption (viz. profits on the sale of shares which have been mption (viz. profits on the sale of shares which have been mption (viz. profits on the sale of shares which have been subjected to STT). This would be apparent from the below tabular subjected to STT). This would be apparent from the below tabular subjected to STT). This would be apparent from the below tabular which shows that for AY 2015 which shows that for AY 2015-16 (the present year under Appeal), 16 (the present year under Appeal), the Company has claimed an exemption under section 10(38) of the the Company has claimed an exemption under section 10(38) of the the Company has claimed an exemption under section 10(38) of the Act only in respect of sale of shares which are subject to STT and t only in respect of sale of shares which are subject to STT and t only in respect of sale of shares which are subject to STT and paid tax on the balance as shown in the below table: paid tax on the balance as shown in the below table: paid tax on the balance as shown in the below table: Particulars Reference Amounts (Rs. in 000’s) 4,12,105 Profit on sale of investment as per Profit Profit on sale of investment as per Profit Page no. 364 of the Paper Page no. 364 of the and Loss Account book 20,20,893 Profit on sale of investment as per Profit on sale of investment as per Page no. 365 and 366 of the Page no. 365 and 366 of the Revenue Account Paper book Total Profit on sale of investment 24,32,998 Total Profit on sale of investment 10,63,511 Less: exemption claimed under Section Less: exemption claimed under Section 10(38) of the Act Balance Capital Gains chargeable to tax 13,69,487 Balance Capital Gains and offered to tax. The same practice has been consistently followed by the Company for The same practice has been consistently followed by the Company for The same practice has been consistently followed by the Company for subsequent years also as tabulated in the below tables: subsequent years also as tabulated in the below tables: (Rs. in 000’s) A.Y. Profit on sale of Profit on sale of Amount claimed Balance Capital Gains Balance Capital Gains investment as per investment as per as Exempt under chargeable to tax and chargeable to tax and offered to tax. Profit and Loss Profit and Loss section 10(38) of offered to tax. the Act Account Account and Revenue Account Account

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 28 1681, 1682 & ITA No 1680/MUM/2025

2016-17 34,92,552 7,35,079 27,57.473 34,92,552 2017-18 43,34,300 16,34,578 26,99,722 43,34,300 2018-19 65,07,750 21,07,841 43,99,909 65,07,750 9.9 In view of above In view of above Rule 5(b)(i) any gain arising on sale of the any gain arising on sale of the investment is to be credited to the profit and loss account. Before investment is to be credited to the profit and loss account. Before investment is to be credited to the profit and loss account. Before us, the assessee has submitted that assessee has already credited us, the assessee has submitted that assessee has already credit us, the assessee has submitted that assessee has already credit profit on sale of investment amounting to Rs.24,32,998,000/-. The profit on sale of investment amounting to Rs.24,32,998 profit on sale of investment amounting to Rs.24,32,998 assessee also credited the interest income of Rs.136,28,92,790/- assessee also credited the interest income of Rs.136,28,92,790/ assessee also credited the interest income of Rs.136,28,92,790/ and dividend income of Rs.21,14,67,970/ and dividend income of Rs.21,14,67,970/- to the profit and loss to the profit and loss account. Thus as far as compliance of section 44 and Rule 5(b) is account. Thus as far as compliance of section 44 and Rule account. Thus as far as compliance of section 44 and Rule concerned, the assessee assessee has duly complied.

9.10 Now, the issue which which arises is whether the assessee is entitled the assessee is entitled for benefit of section 10 or not. In our opinion, there is no conflict for benefit of section 10 or not. In our opinion, there is no conflict for benefit of section 10 or not. In our opinion, there is no conflict between the section 44 and section 10 of the Act between the section 44 and section 10 of the Act. The . The section 44 of the Act restrict the chargeability of the gain arisin the Act restrict the chargeability of the gain arising from the sale of g from the sale of investment under the head investment under the head ‘profit and gains of the business profit and gains of the business’ which otherwise should have been taxable under the head ‘capital gain’ otherwise should have been taxable under the head otherwise should have been taxable under the head but due to the special provision of the section 44 of the Act in case but due to the special provision of the section 44 of the Act in case but due to the special provision of the section 44 of the Act in case of the entities engaged in the of the entities engaged in the insurance business, s rance business, such income is included under the head included under the head ‘profit and gains of the business profit and gains of the business’. But once the income is included in the profit and gains of the business and the income is included in the profit and gains of the business and the income is included in the profit and gains of the business and profession, such income is not disentitled from the provision of such income is not disentitled from the provision of such income is not disentitled from the provision of section 10 of the Act. T section 10 of the Act. The non-obstante clause section 44 only lause section 44 only restrict to including the gain on realization of the investment under to including the gain on realization of the investment under to including the gain on realization of the investment under ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 29 1681, 1682 & the head profit and gains which otherwise is liable for charging the head profit and gains which otherwise is liable for charging the head profit and gains which otherwise is liable for charging under capital gain. Thus assessee is entitled for benefit of section under capital gain. Thus assessee is entitled for benefit of section under capital gain. Thus assessee is entitled for benefit of section 10(15) in respect of interest income of Rs.1,36,28,92,790/ pect of interest income of Rs.1,36,28,92,790/ pect of interest income of Rs.1,36,28,92,790/-; dividend income of Rs.21,14,67,970/ dividend income of Rs.21,14,67,970/- and long term capital gain of and long term capital gain of Rs.106,35,11,223/- u/s 10(38) of the Act u/s 10(38) of the Act.

9.11 As far as long term capital gain of Rs.106,35,11,223/ As far as long term capital gain of Rs.106,35,11,223/ As far as long term capital gain of Rs.106,35,11,223/- which has been claimed by the assessee has been claimed by the assessee as exempt u/s 10(38) of the Act is 10(38) of the Act is concerned, we find that section 10(38) reads as under : e find that section 10(38) reads as under : e find that section 10(38) reads as under :

“(38) any income 38 arising from the transfer of a long arising from the transfer of a long-term capital asset, being an term capital asset, being an equity share in a company or a unit of an equity oriented fund equity share in a company or a unit of an equity oriented fund equity share in a company or a unit of an equity oriented fund 39[or a unit of a business trust] where business trust] where- (a) the transaction of sale of such equity share or unit is entered into on or the transaction of sale of such equity share or unit is entered into on or the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 after the date on which Chapter VII of the Finance (No. 2) Act, 2004 after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force comes into force 40; and (b) such transaction is chargeable to securities such transaction is chargeable to securities transac transaction tax under that Chapter : …………………………………….” …………………………………….” 9.12 Thus section 10(38) does not bar the income Thus section 10(38) does not bar the income which which otherwise arising from transfer of long term capital asset being an equity arising from transfer of long term capital asset being arising from transfer of long term capital asset being share in a company. Though income share in a company. Though income from such investment is such investment is included in profit and gains in profit and gains, still if those investment falls in the still if those investment falls in the nature of long term capital asset being equity shares, then assessee nature of long term capital asset being equity shares nature of long term capital asset being equity shares is entitled for the benefit of section 10(38) subject to the fulfillment the benefit of section 10(38) subject to the fulfillment the benefit of section 10(38) subject to the fulfillment of the conditions provided therein. We find that identical issue has of the conditions provided therein. We find that ident of the conditions provided therein. We find that ident been adjudicated by the Co been adjudicated by the Co-ordinate Bench of the Tribunal in the ordinate Bench of the Tribunal in the case of General Insurance Corporation in case of General Insurance Corporation in case of General Insurance Corporation in for assessment year 2011 for assessment year 2011-12 observing as under:

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 30 1681, 1682 & ITA No 1680/MUM/2025

“ 3.13. Hence wherever the specific conditions stipulated u/s 10( 3.13. Hence wherever the specific conditions stipulated u/s 10( 3.13. Hence wherever the specific conditions stipulated u/s 10(38) of the Act were not complied with the assessee, we find that the of the Act were not complied with the assessee, we find that the of the Act were not complied with the assessee, we find that the assessee had duly offered the profits on sale of investments to tax in assessee had duly offered the profits on sale of investments to tax in assessee had duly offered the profits on sale of investments to tax in subsequent asst years as tabulated above, pursuant to the subsequent asst years as tabulated above, pursuant to the subsequent asst years as tabulated above, pursuant to the amendment in Rule 5(b) of First Schedule to the Act. The ld AR amendment in Rule 5(b) of First Schedule to the Act. The amendment in Rule 5(b) of First Schedule to the Act. The further argued that prior to amendment in Rule 5(b) of First Schedule further argued that prior to amendment in Rule 5(b) of First Schedule further argued that prior to amendment in Rule 5(b) of First Schedule to the Act from Asst Year 2011 to the Act from Asst Year 2011-12 (i.e upto Asst Year 2010 12 (i.e upto Asst Year 2010-11) , by drawing specific reference to the relevant page of the factual paper drawing specific reference to the relevant page of the factual paper drawing specific reference to the relevant page of the factual paper book, the assessee’s claim was that enti book, the assessee’s claim was that entire profits on sale of re profits on sale of investments were not subject to tax. Hence it could be seen that the investments were not subject to tax. Hence it could be seen that the investments were not subject to tax. Hence it could be seen that the above treatment of the assessee in respect of profit on sale of above treatment of the assessee in respect of profit on sale of above treatment of the assessee in respect of profit on sale of investments from Asst Year 2011 investments from Asst Year 2011-12 onwards clearly establishes 12 onwards clearly establishes beyond doubt that the amendment with that the amendment with effect from Asst Year effect from Asst Year 2011-12 to Rule 5(b) of the First Schedule to the Act, has in no 12 to Rule 5(b) of the First Schedule to the Act, has in no 12 to Rule 5(b) of the First Schedule to the Act, has in no way been nullified / rendered ineffective / rendered nugatory way been nullified / rendered ineffective / rendered nugatory way been nullified / rendered ineffective / rendered nugatory by the assessee’s claim that it is entitled to the exemption by the assessee’s claim that it is entitled to the exemption by the assessee’s claim that it is entitled to the exemption under Section 10(38) of the Act. (Emphasis su under Section 10(38) of the Act. (Emphasis supplied by us) pplied by us) 3.14. With regard to yet another observation of the lower authorities 3.14. With regard to yet another observation of the lower authorities 3.14. With regard to yet another observation of the lower authorities that the profits on sale of investments would not be construed as long that the profits on sale of investments would not be construed as long that the profits on sale of investments would not be construed as long term capital gains for the assessee and rather the same would be term capital gains for the assessee and rather the same would be term capital gains for the assessee and rather the same would be business income for the assessee business income for the assessee and consequently the provisions of and consequently the provisions of section 44 of the Act would come into operation (which is an section 44 of the Act would come into operation (which is an section 44 of the Act would come into operation (which is an overriding provision), we find that the ld AR argued that Section 44 of overriding provision), we find that the ld AR argued that Section 44 of overriding provision), we find that the ld AR argued that Section 44 of the Act is applicable to insurance business having overriding power the Act is applicable to insurance business having overriding power the Act is applicable to insurance business having overriding power only for the limited only for the limited purpose of computation of income chargeable purpose of computation of income chargeable under that head. The ld AR argued that Section 44 of the Act can under that head. The ld AR argued that Section 44 of the Act can under that head. The ld AR argued that Section 44 of the Act can have no application to incomes enumerated in Section 10 of the Act have no application to incomes enumerated in Section 10 of the Act have no application to incomes enumerated in Section 10 of the Act which are ab initio excluded at source from total income. In other which are ab initio excluded at source from total income. In other which are ab initio excluded at source from total income. In other words, as incomes enumerated in Section 10 of the Act [including incomes enumerated in Section 10 of the Act [including incomes enumerated in Section 10 of the Act [including Section 10(38)] do not enter into the scope of total income at all, they Section 10(38)] do not enter into the scope of total income at all, they Section 10(38)] do not enter into the scope of total income at all, they are not hit by Section 44 of the Act which specifically applies only to are not hit by Section 44 of the Act which specifically applies only to are not hit by Section 44 of the Act which specifically applies only to incomes chargeable under different heads. With regard to shift in incomes chargeable under different heads. With regard t incomes chargeable under different heads. With regard t head of income from capital gains to business income by the lower head of income from capital gains to business income by the lower head of income from capital gains to business income by the lower authorities with regard to profit on sale of investment, the ld AR relied authorities with regard to profit on sale of investment, the ld AR relied authorities with regard to profit on sale of investment, the ld AR relied on the CBDT Circular No. 6/2016 dated 29.2.2016 wherein it was on the CBDT Circular No. 6/2016 dated 29.2.2016 wherein it was on the CBDT Circular No. 6/2016 dated 29.2.2016 wherein it was stated that all investments sold by the a stated that all investments sold by the assessee on which shares that ssessee on which shares that were held for more than 12 months shall be eligible for exemption u/s were held for more than 12 months shall be eligible for exemption u/s were held for more than 12 months shall be eligible for exemption u/s 10(38) of the Act and the same shall not be disturbed by the revenue. 10(38) of the Act and the same shall not be disturbed by the revenue. 10(38) of the Act and the same shall not be disturbed by the revenue. For the sake of convenience, the said CBDT Circular (which is binding For the sake of convenience, the said CBDT Circular (which is binding For the sake of convenience, the said CBDT Circular (which is binding on the department) is reproduced hereunder: ) is reproduced hereunder:- CIRCULAR NO.6/2016 [F.NO.225/12/2016-ITA CIRCULAR NO.6/2016 [F.NO.225/12/2016 ITA-II]

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 31 1681, 1682 & SECTION 45, READ WITH SECTION 28( SECTION 45, READ WITH SECTION 28(i), OF THE INCOME-TAX ACT, 1961 TAX ACT, 1961 - CAPITAL GAINS, CHARGEABLE AS - ISSUE OF TAXABILITY OF SURPLUS ON CAPITAL GAINS, CHARGEABLE AS ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHARES AND SECURITIES SALE OF SHARES AND SECURITIES - CAPITAL GAINS OR BUSINESS INCOME BUSINESS INCOME - INSTRUCTIONS IN ORDER TO REDUCE LITIGATION INSTRUCTIONS IN ORDER TO REDUCE LITIGATION INSTRUCTIONS IN ORDER TO REDUCE LITIGATION CIRCULAR NO.6/2016 [F.NO.225/12/2016 NO.6/2016 [F.NO.225/12/2016-ITA-II], DATED 29 DATED 29-2-2016 Sub-section (14) of section 2 of the Income section (14) of section 2 of the Income-tax Act, 1961 ('Act') defines the term tax Act, 1961 ('Act') defines the term "capital asset" to include property of any kind "capital asset" to include property of any kind held by an assessee, whether or held by an assessee, whether or not connected with his business or profession, but does not include any stock-in- not connected with his business or profession, but does not include any stock not connected with his business or profession, but does not include any stock trade or personal assets subject to certain exceptions. As regards shares and trade or personal assets subject to certain exceptions. As regards shares and trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be held either as capital assets or stock-in- other securities, the same can be held either as capital assets o other securities, the same can be held either as capital assets o trade/trading assets or both. Determination of the character of a particular trade/trading assets or both. Determination of the character of a particular trade/trading assets or both. Determination of the character of a particular investment in shares or other securities, whether the same is in the nature of a investment in shares or other securities, whether the same is in the nature of a investment in shares or other securities, whether the same is in the nature of a capital asset or stock capital asset or stock-in-trade, is essentially a fact-specific determination and has specific determination and has led to a lot of uncertainty and litigation in the past. ed to a lot of uncertainty and litigation in the past.

3. Disputes, however, continue to exist on the application of these principles to wever, continue to exist on the application of these principles to wever, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the the facts of an individual case since the taxpayers find it difficult to prove the the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this background, while intention in acquiring such shares/securities. In this background, while intention in acquiring such shares/securities. In this background, while recognizing that no universal pri recognizing that no universal principal in absolute terms can be laid down to ncipal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. whether the decide the character of income from sale of shares and securities (i.e. whether the decide the character of income from sale of shares and securities (i.e. whether the same is in the nature of capital gain or business income), CBDT realizing that same is in the nature of capital gain or business income), CBDT realizing that same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions tak major part of shares/securities transactions takes place in respect of the listed es place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial ones and with a view to reduce litigation and uncertainty in the matter, in partial ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid modification to the aforesaid Circulars, further instructs that the Assessing Circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or Officers in holding whether the surplus generated from sale Officers in holding whether the surplus generated from sale other securities would be treated as Capital Gain or Business Income, shall take other securities would be treated as Capital Gain or Business Income, shall take other securities would be treated as Capital Gain or Business Income, shall take into account the following into account the following— (a) Where the assessee itself, irrespective of the period of holding the listed Where the assessee itself, irrespective of the period of holding the listed Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as shares and securities, opts to treat them as stock-in-trade, the income arising trade, the income arising from transfer of such shares/securities would be treated as its business from transfer of such shares/securities would be treated as its business from transfer of such shares/securities would be treated as its business income, (b) In respect of listed shares and securities held for a period of more than 12 In respect of listed shares and securities held for a period of more than 12 In respect of listed shares and securities held for a period of more than 12

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 32 1681, 1682 & months immediately preceding the date of its transfer, months immediately preceding the date of its transfer, if the assessee desires if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same to treat the income arising from the transfer thereof as Capital Gain, the same to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once shall not be put to dispute by the Assessing Officer. However, this stand, once shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain taken by the assessee in a particular Assessment Year, shall remain taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not icable in subsequent Assessment Years also and the taxpayers shall not icable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent be allowed to adopt a different/contrary stand in this regard in subsequent be allowed to adopt a different/contrary stand in this regard in subsequent years; (c) In all other cases, the nature of transaction (i.e. whether the same is in the In all other cases, the nature of transaction (i.e. whether the same is in the In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping l gain or business income) shall continue to be decided keeping l gain or business income) shall continue to be decided keeping in view the aforesaid in view the aforesaid Circulars issued by the CBDT.

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 33 1681, 1682 & law, as reiterated by the Hon’ble Supreme Court in as reiterated by the Hon’ble Supreme Court in UCO Bank v. CIT UCO Bank v. CIT (237 ITR 889) that CBDT circulars issued under section 119 of the that CBDT circulars issued under section 119 of the that CBDT circulars issued under section 119 of the Act are binding on the Revenue authorities so long as they are not Act are binding on the Revenue authorities so long as they are not Act are binding on the Revenue authorities so long as they are not contrary to the provisions of law. Thus, the Revenu contrary to the provisions of law. Thus, the Revenue cannot now be e cannot now be permitted to contend to the contrary. permitted to contend to the contrary.

9.14 The Revenue’s argument that with the reintroduction of Rule The Revenue’s argument that with the reintroduction of Rule The Revenue’s argument that with the reintroduction of Rule 5(b) by the Finance (No. 2) Act, 2009 and the Finance Act, 2010, 5(b) by the Finance (No. 2) Act, 2009 and the Finance Act, 2010, 5(b) by the Finance (No. 2) Act, 2009 and the Finance Act, 2010, profits on sale of investments are wholly taxable, is not persuasive. profits on sale of investments are wholly taxable, is not persuasive. profits on sale of investments are wholly taxable, is not persuasive. The reintroduced Rule 5(b) merely brings to tax profits on sale of The reintroduced Rule 5(b) merely brings to tax profits on s The reintroduced Rule 5(b) merely brings to tax profits on s investments as part of business profits; it does not operate to nullify investments as part of business profits; it does not operate to nullify investments as part of business profits; it does not operate to nullify or exclude the operation of section 10(38) which independently or exclude the operation of section 10(38) which independently or exclude the operation of section 10(38) which independently grants exemption to long grants exemption to long-term capital gains on sale of securities term capital gains on sale of securities subject to levy of STT. As a matter of settled p subject to levy of STT. As a matter of settled principle, a charging rinciple, a charging provision and an exemption provision must be harmoniously provision and an exemption provision must be harmoniously provision and an exemption provision must be harmoniously construed, unless the statute expressly provides otherwise. The construed, unless the statute expressly provides otherwise. The construed, unless the statute expressly provides otherwise. The legislature, despite being cognizant of the exemption in section legislature, despite being cognizant of the exemption in section legislature, despite being cognizant of the exemption in section 10(38), did not insert any proviso to deny such 10(38), did not insert any proviso to deny such benefit to insurance benefit to insurance companies.

9.15 Viewed thus, the correct position in law is that while section Viewed thus, the correct position in law is that while section Viewed thus, the correct position in law is that while section 44 read with Rule 5 regulates the mode of computation of the 44 read with Rule 5 regulates the mode of computation of the 44 read with Rule 5 regulates the mode of computation of the income of a general insurance company, the exemption under income of a general insurance company, the exempt income of a general insurance company, the exempt section 10 continues to be available continues to be available to it, provided the statutory to it, provided the statutory conditions are fulfilled. The assessee, in the present case, has conditions are fulfilled. The assessee, in the present case, has conditions are fulfilled. The assessee, in the present case, has ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 34 1681, 1682 & demonstrated compliance with such conditions, having offered its demonstrated compliance with such conditions, having offered its demonstrated compliance with such conditions, having offered its entire profits from sale of investments to tax in the accounts, and entire profits from sale of investments to tax in the accounts, and entire profits from sale of investments to tax in the accounts, and claimed exemption only in r claimed exemption only in respect of Rs.10,63,511/ espect of Rs.10,63,511/- which represents long-term capital gains on STT term capital gains on STT-paid securities. paid securities.

9.16 We also find merit in the submission that the learned CIT(A) We also find merit in the submission that the learned CIT(A) We also find merit in the submission that the learned CIT(A) erred in mechanically following the decisions for earlier assessment erred in mechanically following the decisions for earlier assessment erred in mechanically following the decisions for earlier assessment years, when Rule 5(b) was not o years, when Rule 5(b) was not on the statute book. Judicial n the statute book. Judicial discipline requires that authorities must have regard to the discipline requires that authorities must have regard to the discipline requires that authorities must have regard to the statutory amendments in force for the relevant assessment year, statutory amendments in force for the relevant assessment year, statutory amendments in force for the relevant assessment year, and apply the law as it then stood. Reliance on inapplicable and apply the law as it then stood. Reliance on inapplicable and apply the law as it then stood. Reliance on inapplicable precedents vitiates the reasoning. precedents vitiates the reasoning.

9.17 In light of the foregoing discussion, supported by binding n light of the foregoing discussion, supported by binding n light of the foregoing discussion, supported by binding judicial authority and CBDT clarification, we hold that the assessee judicial authority and CBDT clarification, we hold that the assessee judicial authority and CBDT clarification, we hold that the assessee is entitled to claim exemption) in respect of interest income of m exemption) in respect of interest income of m exemption) in respect of interest income of Rs.1,36,28,92,790/- under section 10(15); dividend income of under section 10(15); dividend income of Rs.21,14,67,970/- u/s 10(34/35) and long term capital gain of u/s 10(34/35) and long term capital gain of u/s 10(34/35) and long term capital gain of Rs.106,35,11,223/- u/s 10(38) of the Act. u/s 10(38) of the Act. The order of the learned The order of the learned CIT(A) to the contrary is unsustainable and is accordingly set aside CIT(A) to the contrary is unsustainable and is accordingly set aside CIT(A) to the contrary is unsustainable and is accordingly set aside on this issue.

9.18 In view of aforesaid discussion, the cla In view of aforesaid discussion, the claim of exemption of the im of exemption of the assessee of income of Rs.263,78,17,983/ assessee of income of Rs.263,78,17,983/- is allowed. is allowed.

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 35 1681, 1682 & ITA No 1680/MUM/2025

10. The second issue raised by the Revenue, he second issue raised by the Revenue, is is whether any disallowance under section 14A of the Act can be made in respect of disallowance under section 14A of the Act can be made in respect of disallowance under section 14A of the Act can be made in respect of exempted income, which was part of income under section 44 of the , which was part of income under section 44 of the , which was part of income under section 44 of the Act, but taken separately by the assessee claiming eligibility under Act, but taken separately by the assessee claiming eligibility under Act, but taken separately by the assessee claiming eligibility under section 10 of the Act. section 10 of the Act.

10.1 Section 14A of the Act was inserted by the Finance Act, 2001 Section 14A of the Act was inserted by the Finance Act, 2001 Section 14A of the Act was inserted by the Finance Act, 2001 with retrospective effect from 01.04.1962, wit with retrospective effect from 01.04.1962, with a view to disallow h a view to disallow expenditure incurred in relation to income not forming part of the expenditure incurred in relation to income not forming part of the expenditure incurred in relation to income not forming part of the total income. While the section applies generally to all assessees, total income. While the section applies generally to all assessees, total income. While the section applies generally to all assessees, the question arises whether the same can be invoked in the case of the question arises whether the same can be invoked in the case of the question arises whether the same can be invoked in the case of insurance companies whose income insurance companies whose income is governed by the special code is governed by the special code contained in section 44 read with the First Schedule. contained in section 44 read with the First Schedule. contained in section 44 read with the First Schedule.

10.2 Section 44, as noticed earlier, begins with a non obstante Section 44, as noticed earlier, begins with a non obstante Section 44, as noticed earlier, begins with a non obstante clause and provides that notwithstanding anything to the contrary clause and provides that notwithstanding anything to the contrary clause and provides that notwithstanding anything to the contrary contained in the other provisions of th contained in the other provisions of the Act relating to computation e Act relating to computation of income under the head “Profits and gains of business or of income under the head “Profits and gains of business or of income under the head “Profits and gains of business or profession” or “Income from other sources,” the profits and gains of profession” or “Income from other sources,” the profits and gains of profession” or “Income from other sources,” the profits and gains of insurance business shall be computed in accordance with the rules insurance business shall be computed in accordance with the rules insurance business shall be computed in accordance with the rules contained in the First Schedule. contained in the First Schedule.

10.3 As far as disallowance u/s 14A of the Act is concerned we are As far as disallowance u/s 14A of the Act is concerned we are As far as disallowance u/s 14A of the Act is concerned we are of the opinion that once we that once we have held that assessee i held that assessee is entitled for exempted income, then exempted income, then any expenditure incurred for earning the expenditure incurred for earning the same, which is debited into the profit and loss account debited into the profit and loss account debited into the profit and loss account is liable to ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 36 1681, 1682 & be disallowed. The non be disallowed. The non-obstante clause of section 44 in our opinion obstante clause of section 44 in our opinion is restricted only to considering the gain arising from the sale of is restricted only to considering the gain arising from the sale of is restricted only to considering the gain arising from the sale of investment under the head ‘profit and gains of the business’ only investment under the head ‘profit and gains of the business’ investment under the head ‘profit and gains of the business’ and therefore, if any such expenses which and therefore, if any such expenses which are related to sale or are related to sale or purchase of such investment has already been debited into the purchase of such investment has already been debited into the purchase of such investment has already been debited into the profit and gains of the business or profession profit and gains of the business or profession, then in view of then in view of provisions of section 14A of the Act provisions of section 14A of the Act those expenses are liable to be expenses are liable to be disallowed. As assessee is entitled disallowed. As assessee is entitled for benefit of section 10 of the benefit of section 10 of the Act, similarly the assessee is also li similarly the assessee is also liable for section 14A of the Act i able for section 14A of the Act in respect to the expenses incurred in relation to earning of the respect to the expenses incurred in relation to earning of the respect to the expenses incurred in relation to earning of the exempted income. Though, the assessee during the course of exempted income. Though, the assessee during the course of exempted income. Though, the assessee during the course of assessment proceedings has assessment proceedings has without prejudice filed a computation without prejudice filed a computation of the disallowance for cost related to investment in proportion to of the disallowance for cost related to investment in proportion to of the disallowance for cost related to investment in proportion to the exempted income to the total income, t ted income to the total income, the Ld. Assessing Officer he Ld. Assessing Officer invoked Rule 8D of the Income invoked Rule 8D of the Income-tax Rules, 1962 and computed the tax Rules, 1962 and computed the disallowance as unde disallowance as under:

“7.6 Computation of Disallowance: “7.6 Computation of Disallowance: In light of the above satisfaction under section 14A and as per Rule 8D, the In light of the above satisfaction under section 14A and as per Rule 8D, the In light of the above satisfaction under section 14A and as per Rule 8D, the following disallowance is made in casfepf the Assessee: following disallowance is made in casfepf the Assessee: Particulars Amount (in Rs.) Particulars Amount (in Rs.) Any amount of expenditure that is directly Any amount of expenditure that is directly 2,08,80,098 relating to exempt income exempt income Expenditure by way of interest during Expenditure by way of interest during Nil the previous year which is not directly the previous year which is not directly attributable to any particular income or attributable to any particular income or receipt 0.5% x [annual average of opening and 0.5% x [annual average of opening and 11,71,50,457 11,71,50,457 closing balances of investment/income] closing balances of investment/income] [0.5% of (23,43,00,91, 474)] [0.5% of (23,43,00,91, 474)] Total Working 13,80,30,555

ICICI Lombard General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., 37 1681, 1682 & ITA No 1680/MUM/2025

Suo motu Disallowance made by Suo motu Disallowance made by Nil assessee in computation for Expenditure assessee in computation for Expenditure relating to exempt income relating to exempt income Final Disallowance u/s. 14A rw Rule 8D Final Disallowance u/s. 14A rw Rule 8D 13,80,30,555 The disallowance u/s. 14A is an Alternative Assessment, wou u/s. 14A is an Alternative Assessment, would come into effect only when ld come into effect only when Section 10 is held to be outside se. 44 of the Act. 10 is held to be outside se. 44 of the Act. 10.4 As no suo-moto disallowance was made by the assessee in the disallowance was made by the assessee in the return of income and therefore, the Assessing Officer is justified in return of income and therefore, the Assessing Officer is justified return of income and therefore, the Assessing Officer is justified invoking section 14A r.w.r. 8D. Accordingly, the disallowance made invoking section 14A r.w.r. 8D. Accordingly, the disallowance made invoking section 14A r.w.r. 8D. Accordingly, the disallowance made under Rule 8D of the Rule by the Assessing Officer is upheld. The under Rule 8D of the Rule by the Assessing Officer is upheld. The under Rule 8D of the Rule by the Assessing Officer is upheld. The finding of the Ld. CIT(A) on this issue is accordingly reversed. The finding of the Ld. CIT(A) on this issue is accordingly reversed. The finding of the Ld. CIT(A) on this issue is accordingly reversed. The grounds of appeal related to disallowance u/s 14A are accordingly grounds of appeal related to disallowance u/s 14A grounds of appeal related to disallowance u/s 14A allowed.

11. As facts and circumstances in other assessment years i.e. As facts and circumstances in other assessment years i.e. As facts and circumstances in other assessment years i.e. assessment years 2012 assessment years 2012-13, 2016-17 and 2017-18 are identical to 18 are identical to the facts and circumstances in assessment year 2015-16, the facts and circumstances in assessment year 2015 the facts and circumstances in assessment year 2015 accordingly, following our finding in assessment year 2015 following our finding in assessment year 2015-16, the following our finding in assessment year 2015 relevant grounds raised in assessment year 2012 raised in assessment year 2012-13, 2016 13, 2016-17 and 2017-18 are decided 18 are decided mutatis mutandis.