MARKEL CAPITAL LIMITED,LONDON vs. DCIT - INT TAX CIRCLE 3(2)(1), MUMBAI, BANDRA (EAST)

This appeal by the assessee is directed against the final assessment order dated 29.12.2025 passed by the Deputy Commissioner of Income Tax (International Taxation), Circle 3(2)(1), Mumbai under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (“the Act”), pursuant to the directions dated 08.12.2025 issued by the Dispute Resolution Panel-3, Mumbai under section 144C(5) of the Act, for the assessment year 2022-23.

The assessee has raised the following grounds of appeal:

Briefly stated, the assessee is a company incorporated in and a tax resident of the United Kingdom and is engaged in the business of insurance/reinsurance. It filed its return of income on 28.11.2022 declaring total income of Rs.29,28,390/- under the normal provisions of the Act and book profit of Rs.2,76,79,197/- under section 115JB of the Act. During the year, the assessee entered into international transactions with its Associated Enterprises. The Transfer Pricing Officer, by order dated 28.01.2025 passed under section 92CA(3) of the Act, determined the arm’s length price of the payments for support services at NIL and proposed an aggregate adjustment of Rs.13,35,91,039/-, comprising Rs.7,87,99,410/- paid to Markel Services India Private Limited and Rs.5,47,91,629 paid to Markel International Services Limited. The draft assessment order dated 13.03.2025 also proposed an addition of Rs.7,71,90,607/- to the book profit in respect of the Reserve for Unexpired Risks. The DRP rejected the objections and the Assessing Officer thereafter passed the impugned final assessment order assessing the total income at Rs.13,65,19,430/- under the normal provisions and computing book profit at Rs.10,48,69,804/-.

At the outset, the learned Authorised Representative submitted that the assessee has filed an application under Rule 29 of the Income- tax (Appellate Tribunal) Rules, 1963 seeking admission of additional evidence. It was submitted that the additional evidence consists, inter alia, of contemporaneous e-mails concerning regular business operations, business contracts and invoices which substantiate the nature, actual rendition and receipt of the services and the benefit derived therefrom. The learned Authorised Representative explained that the Transfer Pricing Officer issued a show-cause notice on 13.01.2025 requiring a response by 16.01.2025 and, therefore, the assessee was left with only three days to identify and collate the extensive supporting record. It was further submitted that, during the transfer-pricing proceedings, the assessee had primarily focused on the regulatory requirements flowing from the IRDAI (Lloyd’s India) Regulations, 2016 and it was only while preparing the present appeal, upon legal advice, that the necessity of placing the contemporaneous documentary record in its present form was appreciated. The non-production of the evidence before the lower authorities was thus neither deliberate nor attributable to lack of bona fides. He prayed that the evidence be admitted and grounds 3 to 6 relating to the transfer-pricing adjustment be restored to the file of the Assessing Officer/Transfer Pricing Officer for examination afresh. As regards grounds 7 and 8 relating to computation of book profit under section 115JB of the Act, the learned Authorised Representative drew our attention to Explanation 1 to section 115JB and submitted that the Reserve for Unexpired Risks had not been debited to the statement of profit and loss and, therefore, no addition thereof could be made while computing the book profit. He further submitted that an identical issue has been decided by the Tribunal in the assessee’s own case for assessment year 2021-22 and prayed that the Assessing Officer be directed to decide the issue in conformity with the said decision.

The learned Departmental Representative relied upon the order of the Transfer Pricing Officer, the directions of the DRP and the final assessment order. He opposed the admission of the additional evidence. Without prejudice, he submitted that, if the additional evidence is admitted, the same requires verification by the Assessing Officer/Transfer Pricing Officer and no finding on its merits may be recorded at this stage. As regards the issue under section 115JB of the Act, he submitted that the matter may be examined by the Assessing Officer in accordance with law.

We have heard the rival submissions and perused the material available on record. The additional evidence sought to be produced comprises contemporaneous primary documents and bears directly upon the controversy whether the services were actually rendered and received, whether the assessee derived benefit therefrom and whether the payments satisfy the arm’s length standard. The adjustment was made principally for want of complete and sufficient evidence concerning the need, rendition and benefit of the services and the underlying costs. The short interval of three days between the show-cause notice and the date fixed for reply, read with the explanation that the assessee had concentrated upon the regulatory framework during the proceedings, constitutes a reasonable explanation for its inability to place the complete documentary record before the Transfer Pricing Officer. We also find that the evidence is relevant and its examination is necessary for a proper adjudication of the issues. In these circumstances, and in the interest of substantial justice, the additional evidence is admitted under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.

At the time of hearing, the learned Authorised Representative did not advance any arguments in support of grounds 1 and 2. Accordingly, these grounds are not adjudicated and are left open.

Grounds 3 to 6 relate to the transfer-pricing adjustment. Since the additional evidence has not been examined by the lower authorities, adjudicating its probative value for the first time at the appellate stage would deprive the Revenue of an effective opportunity of verification. We therefore set aside the findings of the lower authorities on these grounds and restore grounds 3 to 6 to the file of the Assessing Officer/Transfer Pricing Officer for fresh adjudication in accordance with law. The assessee shall file the complete additional evidence and such further material as may be called for. The Transfer Pricing Officer shall examine the agreements, invoices, contemporaneous correspondence, evidence of rendition and receipt of services, benefit, cost base, allocation keys and mark-up, and determine the arm’s length price by applying the most appropriate method in accordance with law. Needless to state, adequate opportunity of being heard shall be afforded to the assessee. All contentions on these grounds are kept open and we have expressed no opinion on their merits. Accordingly, grounds 3 to 6 are allowed for statistical purposes.

Grounds 7 and 8 relate to the addition of Rs.7,71,90,607/- on account of Reserve for Unexpired Risks while computing book profit under section 115JB of the Act. The learned Authorised Representative submitted that clause (b) of Explanation 1 to section 115JB applies only where an amount carried to a reserve has been debited to the statement of profit and loss. According to him, the Reserve for Unexpired Risks was not debited to the statement of profit and loss and, therefore, the foundational condition for making an addition under the said clause was absent. He further submitted that the very same issue in the assessee’s own case for assessment years 2020-21 and 2021-22 has been decided by the Coordinate Bench in ITA Nos.3407 and 4710/Mum/2023, by consolidated order dated 14.08.2024. The Coordinate Bench, following the decision in DCIT v. National Insurance Co. Ltd., held that the Reserve for Unexpired Risks cannot be added while computing book profit under section 115JB and directed deletion of the disallowance. The learned Departmental Representative relied upon the directions of the DRP and the final assessment order.

We have considered the rival submissions and perused the material available on record. In paragraph 8.3.1 of its directions, the DRP itself has recorded that the issue is recurring and that similar objections had arisen in assessment years 2020-21 and 2021-22. The DRP nevertheless followed its directions for assessment year 2020-21 and sustained the addition, observing that there was no material change in the facts. However, the directions of the DRP for assessment year 2020-21, on which the impugned directions are founded, were subsequently considered by the Coordinate Bench in the assessee’s own case in ITA Nos.3407 and 4710/Mum/2023, order dated 14.08.2024. The Tribunal decided the identical issue in favour of the assessee by relying, inter alia, upon the decision of the Co-ordinate Bench in DCIT v. National Insurance Co. Ltd., wherein it was held that the reserve for unexpired risks, not having been debited to the statement of profit and loss, does not fall within clause (b) of Explanation 1 to section 115JB and is not liable to be added while computing book profit. Thus, the very basis adopted by the DRP does not survive in view of the binding decision of the Coordinate Bench in the assessee’s own case.

Since grounds 3 to 6 relating to the transfer-pricing adjustment have been restored to the Assessing Officer/Transfer Pricing Officer and a fresh assessment order is required to be passed, grounds 7 and 8 are also restored to the file of the Assessing Officer with a direction to pass the consequential order on this issue in accordance with the decision of the Tribunal in the assessee’s own case for assessment year 2020-21 in ITA No.3407/Mum/2023, forming part of the consolidated order dated 14.08.2024. The Assessing Officer shall afford adequate opportunity of being heard to the assessee. Accordingly, grounds 7 and 8 are allowed for statistical purposes.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes.