CHOLAMANDALAM MS GENERAL INSURANCE CO. LTD.,CHENNAI vs. PCIT-4, CHENNAI, CHENNAI

The brief facts of the case emanating from the records are that the assessee is a company engaged in the business of general insurance. For the AY 2022-23, the assessee filed its Return of Income on 24.11.2022 disclosing a total income of Rs.39,04,44,330/- by claiming a refund of Rs.32,09,14,540/-. The return was processed u/s.143(1) of the Act accepting the returned income and subsequently the return was selected for scrutiny. Accordingly, the statutory notices were issued to the assessee by calling for various details and conducted assessment. After going through various submissions filed by the assessee from time to time, the AO passed an order u/s.143(3) of the Act dated 27.02.2024 with ‘Nil’ adjustments.

Pursuant to the aforesaid Assessment Order, the Ld.PCIT, for the first time, invoked the revisionary proceedings by issuing Show Cause Notice (‘SCN’) dated 04.10.2024 and passed an order u/s.263 of the Act dated 20.11.2024 (‘First 263’) by stating that the AO has erred in allowing the deduction of provision for IBNR/IBNER and held that the assessment order was without proper verification. Thereby, the assessment order passed was partly set aside with the direction to the AO to make necessary inquiries in respect of the said issue and pass a fresh order, after providing due opportunity to the Assessee.

Aggrieved by the aforementioned order of ld.PCIT, the assessee filed an appeal before this Tribunal. After hearing the plea of both the parties, the Tribunal in ITA No.3262/Chny/2024 dated 29.04.2025 set-aside the order passed u/s.263 of the Act, holding that the same was passed without jurisdiction.

The Ld.PCIT initiated revisionary proceedings u/s.263 of the Act for the second time by issuing a SCN dated 12.01.2026 (refer Page No. 122 of the Paper Book) in respect of the following issues: i. Deductibility of provision of IBNR/IBNER; ii. Write off of investment; and iii. Expenditure towards club membership fees/ subscriptions.

After considering the submissions filed by the assessee, the Ld.PCIT passed an order u/s.263 of the Act and held as under:

Accordingly, the Ld.PCIT partly set aside the assessment order and directed the AO to conduct fresh enquiries and pass an order afresh after providing an opportunity of being heard to the assessee.

Aggrieved by the order of the ld.PCIT, the assessee is in appeal before us.

The ld.AR for the assessee submitted that Section 263 of the Act makes it clear that the pre-requisite to exercise of jurisdiction by the Ld.PCIT is that the order of the AO is erroneous insofar as it is prejudicial to the interests of the revenue. The Ld.PCIT has to be satisfied of twin conditions, namely,

If any one of the conditions as mentioned above is absent (i.e. if the order of the AO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue), recourse cannot be had as per Section 263 of the Act.

The aforesaid principle has been reinforced in the following judicial precedents:

The ld.AR further argued that the Ld.PCIT in his SCN dated 12.01.2026 stated that the Assessee has claimed deduction on account of write-off of investments of Rs.46.34 Crores which is in respect of securities which are of the category of Held to Maturity (HTM) and therefore the said investment is in capital in nature and not of the nature of stock. Since these investments are of the category HTM, the write off of these investments cannot be claimed as a revenue expenditure.

The assessee is a General Insurance Company covered u/s.44 of the Act, which states that all the Income of Insurance companies shall be treated to be Profit and Gains from Business or Profession and shall be computed in accordance with the Rules contained in the First schedule of the Act. As per Rule 5 of the First Schedule, only those adjustments as mentioned in Sub rule (a), (b) or (c) to Rule 5 of First Schedule of the Act shall be made to the figures in the accounts of the assessee drawn up in accordance with the provisions of First Schedule of the Act and satisfying the requirements of Insurance Act. This proposition is upheld by the Hon’ble Supreme Court in the case of General Insurance Corpn. of India Vs CIT (106 Taxman 389) (Para 17 of the judgement)

Therefore, the ld.AR submitted that there is no concept of capital gain or capital loss qua an insurance company. In other words, Section 45 to 55A of the Act cannot be made applicable to an Insurance Company.

The ld.AR placed a reliance in this regard on the below judicial precedents:

The ld.AR further submitted that the very same issue of write off of investments was subject matter of revisionary proceedings for another AY 2020-21. On further appeal, this Tribunal in asseessee’s own case for the AY 2020-21 in ITA No.3261/Chny/2024 dated 18.02.2026, quashed the order of 263 of the Act and inter-alia held that the write of investment is an allowable expenditure. In light of the same, the ld.AR submitted that since no addition in relation to write off of investment is warranted as per CBDT Circular (supra), the action of Ld.PCIT invoking revisionary proceedings u/s.263 of the Act is not tenable and the assessment order cannot be held to be erroneous and prejudicial to the interest of the revenue. Both of the ingredients, don’t get satisfied.

With respect to the expenditure incurred towards club subscription, the ld.AR submitted that during the impugned AY, the assessee has incurred an amount of Rs.13,75,270/- towards club subscription for its directors and senior employees. The said expenditure was incurred wholly and exclusively for the purposes of business, inter alia, for business development, interaction with existing and prospective clients, fostering business relationships and facilitating smooth conduct of business operations. The expenditure does not partake the character of any personal expense. Further, the Club subscription was disclosed under Sl. No.21(a) – “Expenditure incurred at clubs being entrance fees and subscriptions” of the Tax Audit report (Page no 139 of the Paperbook).

The ld.AR relied on the decision of the Hon’ble Supreme Court in case of CIT vs. United Glass Manufacturing Co. Ltd., in Civil Appeal Nos. 6447-6449 of 2012 dated 12.09.2012 [28 Taxmann 429 (SC)] (Page 189 of the Paperbook), wherein the Hon’ble court has recognised that club membership fees payable by the Assessee for the benefit of its employees/directors, when incurred wholly and exclusively for business purposes, constitute an allowable business expenditure u/s.37(1) of the Act. The Hon’ble Apex Court took note of the consistent judicial view of various High Courts holding that club membership expenses incurred for business purposes are allowable revenue expenditure and, observing that none of those decisions were challenged by the Revenue, dismissed the Civil Appeals filed by the Department. Thus, the Hon’ble Supreme Court has accorded finality to the legal position that such expenditure is deductible in nature.

Further, the ld.AR submitted that it is pertinent to note that the Ld.PCIT has not disputed the legal position regarding the allowability of club membership fees and subscriptions. On the contrary, the Ld.PCIT has expressly accepted that such expenditure is allowable in light of the decision of the Hon’ble Supreme Court in United Glass Manufacturing Co. Ltd. However, it was directed to AO to examine and disallow if the expenditure is personal in nature. Therefore, the ld.AR drew our attention to the following para of the order of ld.PCIT:

In view of the above, the ld.AR reiterated that it is evident that the allowability of expenditure towards club membership fees and subscriptions stands accepted even by the Ld.PCIT. Therefore, the assessment order passed by the AO cannot be regarded as erroneous and prejudicial to the interests of the Revenue, particularly when the view adopted by the AO is fully supported by the binding decision of the Hon’ble Supreme Court.

In light of the above, the ld.AR submitted that since no addition in relation to club membership fees and subscriptions is warranted as per the decision of Apex Court, the action of Ld.PCIT invoking revisionary proceedings u/s.263 of the Act is not tenable and the assessment order cannot be held to be erroneous and prejudicial to the interest of the revenue. Both of the ingredients, don’t get satisfied.

Further, the ld.AR argued that the Ld.PCIT cannot remand for verification by the AO by invoking the revisionary power u/s.263 of the Act and has to give categorical finding on the issue under revisionary proceedings u/s.263 of the Act.

As argued by the ld.AR supra, the Ld.PCIT has merely directed the AO to verify whether the expenditure incurred towards club membership fees/subscriptions includes any element of personal expenditure. The impugned order does not record any finding that the expenditure claimed by the assessee is personal in nature and inadmissible under the Act. Thus, it can be seen that the ld.PCIT failed to establish that the Assessment order is erroneous and prejudicial to the interest of the revenue. Having accepted the legal position that club membership fees incurred for business purposes are allowable, the Ld.PCIT could not have remanded the matter to the AO merely for further

In respect of the above arguments the ld.AR placed reliance on the below judicial precedents wherein the above principle is upheld:

The ld.AR also contended that Ld.PCIT has invoked revisionary jurisdiction for the second time on the basis of the very same records, impermissible and without jurisdiction. He submitted that the Ld.PCIT has

The relevant extract of section 263 of the Act is reproduced below:

The ld.AR brought to our attention, a snapshot of the SCN issued in the First 263 proceedings is reproduced below:

A snapshot of the SCN issued in the impugned second revisionary proceedings u/s.263 of the Act is reproduced below:

In light of the above, the ld.AR submitted that it can be seen that the Ld.PCIT has relied upon and examined the very same records for initiating both of the revision proceedings. No fresh material, information or evidence has been brought on record or relied upon by the Ld.PCIT while assuming jurisdiction for the second time u/s.263 of the Act.

As the Ld.PCIT during the First 263 has already examined the records, it means that he has examined the entire record and came to a conclusion that the assessment order dated 27.02.2024 is erroneous only for the reason stated in the SCN of First 263. In the absence of any fresh material, the impugned proceedings constitute nothing but a reconsideration of the same record and amount, in substance, to a review of the earlier decision of Ld.PCIT, a power not vested in the ld.PCIT u/s.263 of the Act.

Further, the he submitted that in assessee’s own case, the Hon'ble Madras High Court, in order dated 09.01.2026 in TCA No.193 of 2023 inter alia observed that once the Ld.PCIT involved revisionary proceedings on specified issues and confines the proceedings thereto, it means that that the ld.PCIT did not believe it necessary to advert other issues. This, in turn, indicates the Ld.PCIT's satisfaction that issues other than those specified in the SCN did not render the assessment order erroneous insofar as it was prejudicial to the interests of the Revenue. In this regard, reliance is placed on paragraphs 31, 47 and 50 of the judgment in TCA No.193 of 2023.

Further, in this regard, the ld.AR contended that, in the assessee’s own case for AY 2020-21, the Ld.PCIT had initiated proceedings u/s.263 of the Act vide SCN dated 27.09.2024 on the following issues:

Thereafter, for the subject AY 2022-23, the same Ld.PCIT initiated revisionary proceedings u/s.263 of the Act vide SCN dated 04.10.2024, restricting the proposed revision only to the issue relating to the deductibility of the IBNR/IBNER provision. Further, the proceedings for both the AYs are

In view of the above facts, the ld.AR stated that it is evident that the Ld.PCIT had the complete assessment records before him at the time of initiation of the First 263 for AY 2022-23. Despite being fully aware of all relevant facts and having specifically examined similar issues in the assessee’s case for AY 2020-21, the Ld.PCIT consciously chose not to invoke section 263 on the issues of write-off of investments or club subscription expenses while initiating the first round of revisionary proceedings for AY 2022-23.

Having decided to restrict the scope of the First 263 proceedings only to the issue of IBNR/IBNER, the ld.AR argued that it was not open to the Ld.PCIT to subsequently initiate a second round of revisionary proceedings on other issues arising from the very same assessment records.

He further submitted that the expenditure towards club membership fees and subscriptions was duly disclosed in the Tax Audit Report. Likewise, the details relating to the write-off of investments was disclosed in the financial statements, formed part of the assessment records available before the Ld.PCIT at the time of the first revisionary proceedings. Therefore, there was no fresh material or subsequent information warranting a second invocation of revisionary jurisdiction on these issues. In these circumstances, the initiation of a second revisionary proceeding u/s.263 of the Act on issues that were already available for examination during the first revisionary proceedings is contrary to the principles of finality and causes undue prejudice and hardship to the assessee. Accordingly, the impugned order of ld.PCIT u/s.263 of the Act liable to be quashed.

The ld.AR placed reliance on the following judicial precedents, wherein on similar issues the matter was decided in favour of the assessee:

In view of the above arguments, submissions and judicial precedents cited, the ld.AR prayed that the Impugned Order passed u/s.263 of the Act is without Jurisdiction and is liable to be quashed.

Per contra, the ld.DR for the revenue supported the order of the ld.PCIT and prayed for upholding the same.

We have heard the rival submissions, perused the material available on record and carefully considered the impugned revisionary order passed by the ld.PCIT u/s.263 of the Act. We have also gone through the judicial precedents relied upon by the ld.AR. The controversy before us essentially revolves around the validity of assumption of revisionary jurisdiction by the ld.PCIT in respect of (i) write-off of investments amounting to Rs.46.34 crores and (ii) expenditure of Rs.13,75,270/- towards club membership fees/subscriptions. The issue relating to provision for IBNR/IBNER does not survive for adjudication in the present proceedings, since the ld.PCIT himself has refrained from issuing any further direction on that issue in view of the earlier order of this Tribunal.

Before adverting to the individual issues, it would be appropriate to examine the scope and ambit of section 263 of the Act. It is well settled that exercise of jurisdiction u/s.263 is conditional upon simultaneous satisfaction of

The Hon'ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) has authoritatively laid down that every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. Where the AO adopts one of the courses permissible in law, or where two views are possible and the AO adopts one such view, the order cannot be regarded as erroneous merely because the Commissioner does not agree with the view so adopted. This principle has been reiterated by the Hon'ble Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282 (SC).

Keeping the aforesaid legal principles in view, we shall first examine the issue relating to write-off of investments of Rs.46.34 crores. The case of the ld.PCIT is that the investments in question fall under the Held to Maturity ('HTM') category and, therefore, are capital in nature and their write-off cannot be allowed as revenue expenditure. The assessee, on the other hand, is a general insurance company whose income is governed by the special computation mechanism contained in section 44 read with Rule 5 of the First Schedule to the Act.

Section 44 begins with a non obstante clause and provides a special mechanism for computation of profits and gains of insurance business. In the case of an assessee carrying on general insurance business, the taxable income has to be determined in accordance with Rule 5 of the First Schedule, subject to the adjustments specifically contemplated therein. The significance of this special scheme has been explained by the Hon'ble Supreme Court in General Insurance Corporation of India v. CIT [1999] 240 ITR 139 (SC) / 106

We further find considerable force in the submission of the assessee based upon CBDT Circular No.05/2010 dated 03.06.2010. The Circular, while explaining the amendment applicable from AY 2011-12 onwards, specifically clarifies that deduction shall be allowed in respect of an amount written off or provided in the accounts towards diminution in or loss on realisation of investments in accordance with the regulations prescribed by IRDA. Conversely, appreciation or gains on realisation of investments credited to the accounts are brought to tax. The scheme, therefore, operates symmetrically.

The issue is no longer res integra in the assessee's own case. We find that for AY 2020-21, this very Bench of the Tribunal in Cholamandalam MS General Insurance Co. Ltd. v. PCIT-4, ITA No.3261/Chny/2024, order dated 18.02.2026, considered an identical issue concerning write-off of HTM investments. After examining section 44, Rule 5 of the First Schedule, the decision of the Hon'ble Supreme Court in General Insurance Corporation of India (supra), the decisions in National Insurance Co. Ltd. and Oriental General Insurance Co. Ltd., as well as CBDT Circular No.05/2010, the Tribunal held that the write-off of investments was allowable under the special scheme applicable to general insurance companies and that revision u/s.263 could not be sustained.

In the aforesaid order, the Tribunal specifically held that the computation of profits of an insurance company is governed by section 44 read with Rule 5 of the First Schedule and that additions/disallowances must strictly conform to Rule 5. The Tribunal further held that the allowability of write-off of investments in the case of insurance companies stood supported by the decisions in DCIT v. National Insurance Co. Ltd. [2016] 72 taxmann.com 116 (Kol. Trib.) and DCIT v. Oriental General Insurance Co. Ltd. [2005] 143 Taxman 15 (Delhi Trib.), apart from the CBDT Circular referred to supra.

The facts and legal position for the year under consideration have not been shown to be materially different. The ld.DR has also not brought before us any subsequent binding decision taking a contrary view. Judicial discipline therefore requires us to follow the coordinate Bench decision rendered in the assessee's own case on the identical issue. Once the claim of write-off of investments is supported by the special statutory scheme u/s.44 read with Rule 5 of the First Schedule, the CBDT Circular and the judicial precedents referred to above, the assessment order accepting such claim cannot be regarded as an order which is unsustainable in law. At the very least, the view adopted by the AO constitutes a legally plausible view. It is trite law that the revisionary jurisdiction u/s.263 of the Act cannot be exercised merely because the ld.PCIT entertains a different view on the same issue.

We therefore hold that, in relation to the write-off of investments of Rs.46.34 crores, the first statutory requirement of section 263, namely, existence of an "erroneous" order, is not satisfied. Once the expenditure is otherwise allowable in accordance with the special provisions governing general insurance business, no prejudice to the interests of the Revenue, within the meaning contemplated by section 263 of the Act, can be said to arise merely because the AO accepted the claim.

Coming to the second issue, the assessee had incurred expenditure of Rs.13,75,270/- towards club membership fees/subscriptions in respect of its directors and senior employees. The expenditure was duly disclosed in the Tax Audit Report under Sl.No.21(a) as "Expenditure incurred at clubs being entrance fees and subscriptions". The case of the assessee is that the expenditure was incurred wholly and exclusively for business purposes, including business development, interaction with existing and prospective clients and fostering business relationships. Significantly, the ld.PCIT himself has accepted in paragraph 7.1 of the impugned order that, in view of the judgment of the Hon'ble Supreme Court in CIT v. United Glass Manufacturing Co. Ltd. [2012] 28 taxmann.com 429 (SC), expenses towards club membership fees/subscriptions incurred for promoting the business interests of a company are allowable business expenditure. The ld.PCIT, however, directed the AO to examine whether the entire expenditure of Rs.13,75,270/- represented membership/subscription fees and to identify and disallow expenditure, if any, which might be personal in nature.

In our considered view, this direction itself demonstrates the fundamental infirmity in the assumption of jurisdiction. The ld.PCIT has not recorded any categorical finding that any part of the impugned expenditure was actually personal in nature. No particular voucher, payment, supporting document or component of expenditure has been identified by him as being unrelated to the assessee's business. The revision has therefore been ordered merely to ascertain whether an error might possibly be discovered upon further verification.

Section 263 does not contemplate revision of an assessment merely for conducting a roving or fishing enquiry. The jurisdictional condition is not the possibility that an assessment order may turn out to be erroneous upon further investigation; the Commissioner must himself be satisfied, on the basis of the

The Hon'ble Delhi High Court in CIT v. DG Housing Projects Ltd. [2012] 343 ITR 329 (Delhi) has lucidly explained this distinction. In cases of alleged inadequate enquiry, the Commissioner is required to conduct necessary verification and record a finding that the assessment order is erroneous. He cannot simply set aside the assessment and direct the AO to decide whether the order originally passed was erroneous. An order of remand cannot substitute the statutory finding of error which is a condition precedent for exercise of jurisdiction u/s.263 of the Act.

The aforesaid principle assumes greater significance in the present case because the ld.PCIT has himself accepted the governing legal proposition laid down by the Hon'ble Supreme Court in United Glass Manufacturing Co. Ltd. (supra). Once club membership and subscription expenses incurred for business purposes are legally allowable and no material has been brought on record to establish the existence of personal expenditure, the assessment order cannot be branded as erroneous merely on the basis of a suspicion that some personal element may possibly exist.

We may also usefully refer to the recent order of the Hon'ble Supreme Court in PCIT v. V-Con Integrated Solutions Pvt. Ltd., SLP (C) Diary No.13205/2025, dated 04.04.2025. The Hon'ble Supreme Court, while affirming the decision of the Hon'ble Punjab & Haryana High Court and the Tribunal, noticed the distinction between a case involving failure of the AO to conduct an investigation and a case where enquiries had been made but, according to the Revenue, the AO erred in not making an addition. The latter circumstance by itself does not justify revision merely for re-examination of the issue.

Therefore, on the issue of club membership fees/subscriptions also, the ld.PCIT has failed to establish the existence of an error in the assessment order which has caused prejudice to the interests of the Revenue. His direction to the AO to undertake further verification, without himself recording a finding of inadmissibility, cannot sustain the exercise of jurisdiction u/s.263 of the Act.

There is yet another important jurisdictional aspect which requires consideration. The assessment order sought to be revised is dated 27.02.2024. The ld.PCIT had already called for and examined the record of the very same assessment proceedings and initiated revisionary proceedings by issuing show- cause notice dated 04.10.2024. In that proceeding, he chose to revise the assessment only on the issue of deduction of provision for IBNR/IBNER and passed the first order under section 263 on 20.11.2024. The said first revisionary order was subsequently quashed by this Tribunal in ITA No.3262/Chny/2024 vide order dated 29.04.2025 on the ground that the revisionary order was passed without jurisdiction. Thereafter, the ld.PCIT once again called into question the same assessment order dated 27.02.2024 by issuing the second show-cause notice dated 12.01.2026, this time proposing revision not only on IBNR/IBNER but also on write-off of investments and club membership fees/subscriptions.

It is an admitted position emerging from the record that the write-off of investments was disclosed in the financial statements and the club membership/subscription expenditure was disclosed in the Tax Audit Report. Thus, the material relating to both issues formed part of the assessment record which was already available when the ld.PCIT called for and examined the record for the purpose of the first revisionary proceedings. The assessee has further pointed out that the very same ld.PCIT was simultaneously dealing with the revisionary proceedings for AY 2020-21 wherein write-off of investments itself was one of the issues specifically raised. This circumstance assumes

Section 263 empowers the Principal Commissioner to "call for and examine the record" of any proceeding. It is a power of revision and cannot be converted into an unrestricted power of review whereby the same assessment record is repeatedly reopened merely because, upon a subsequent reconsideration, another issue is perceived as requiring enquiry. Finality of proceedings is an important facet of tax administration and successive exercise of revisionary jurisdiction on the same assessment order and on the basis of the same material cannot be sustained merely to enable a fresh examination of matters which were already part of the record.

In this context, the assessee has placed reliance upon the judgment of the Hon'ble Madras High Court in the assessee's own case in TCA No.193 of 2023 dated 09.01.2026, particularly paragraphs 31, 47 and 50 thereof. As pointed out before us, the Hon'ble jurisdictional High Court has observed that where the revisionary authority invokes section 263 of the Act on specified issues and confines the proceedings thereto, it indicates that the authority did not consider it necessary to advert to the other issues available on the record. Such conduct assumes relevance while examining a subsequent attempt to revise the same assessment on issues which were already apparent from the very same record.

Reliance was also placed upon PCIT v. Padma Kumar Jain [2023] 455 ITR 679 (Jharkhand). Though the factual matrix therein involved successive assessment/revision proceedings, the decision reinforces the principle that revisionary jurisdiction cannot be repeatedly employed to subject issues already

Similarly, the Hon'ble Delhi High Court in CIT v. Honda Siel Power Products Ltd., ITA Nos.1376 & 1382 of 2009, dated 05.07.2010, has reiterated that where the AO has taken a possible view consistent with the legal position prevailing at the relevant point of time, the Commissioner cannot invoke section 263 merely because another view is possible.

In the facts before us, no fresh tangible material, information or subsequent event has been brought on record by the ld.PCIT for initiating the second revisionary proceeding on the issues of write-off of investments and club membership expenditure. Both claims were apparent from the records available when the assessment record was originally called for and examined in 2024. The second exercise is therefore, in substance, a reconsideration of the very same assessment record with a view to discovering additional grounds on which the original assessment might be revised.

Be that as it may, even without resting our conclusion exclusively on the ground of successive revision, the impugned order cannot survive on merits because the jurisdictional requirements of section 263 have not been satisfied in respect of either of the two surviving issues.

In view of the foregoing discussion in the present facts and respectfully following the ratio laid down by the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT, CIT v. Max India Ltd., General Insurance Corporation of India v. CIT, CIT v. United Glass Manufacturing Co. Ltd. and PCIT v. V-Con

In the result, the appeal filed by the assessee is allowed.