ORIENTAL INSURANCE CO` vs. COMMISSIONER OF INCOME TAX

I % 03.06.2011 Present: Ms. Mahua Kaltra, Advocate for the appellant. #2 \ Mr. M.P. Singh, Standing Counsel for Commissioner of lncome Tax. + CM No.11453/2O11 in ITA 8OO/2O11 * The delay in re-filing the appeal is condoned because of the reason stated in the application. The application is disposed of. rrA 800/2011 The appellant, which is an insurance company, had made provision for diminution in the value of investment at 17,42,06,000/- which was disallowed by the Assessing Officer taking note of the fact that the appellant had creaied a provision of t19,28,01,000/- as against immediately preceding year wherein provision was made to the extent of T11,85,95,000/-. The Assessing Officer was of the view that such a provision was not necessary and was in respect of unascertained liability which was incurred on investment under Section 115J8 of the Income Tax Act. This view has been upheld by the CIT(A) as well as ITAT. The ITAT has made following observations in this rega rd: "On a careful consideration of the issue, we are of the considered opinion that the provision made by the assessee for notional losses on revaluation of investment is in fact a reserve irrespective of the nomenclature given by the assessee. We are also t' 2011:DHC:14800-DB

{ V of the considered opinion that the substance ofz- the claim is to be considered and not the nomenclature. The provision in question made by the assessee in substance is a reserve for meeting future losses, if any, on account of diminution in the value of its investments and is covered within the scope of amended provisions of Rule 5(a) of the First Schedule of the l.T, Act, With due respect the decisions cited by the ld. counsel are of no hetp to the assessee in view of the retrospective amendment of Rule 5(a) of the First Schedute of the LT. Act. lt is also observed that the Ld. C\T(A) has also held that the provision in question being an unascertained liability was required to be added back while computing the deemed income of the assessee company u/s 775 JB of the t.T. Act. ln our considered opinion, thte assessee has not sold the investments in question during the relevant accounting period and notwithstanding the guidelines given by the IRDA to reflect the true position of assets and liabilities in the relevant balance sheet of the assessee, the notional /osses claimed only on the basis of prevaiting market price could not be allowed against the actual business profits of the relevant accounting period. It is also observed that the speciat provisions for payment of tax u/s 775J8 are applicabte notwithstanding anything contained in any other provision of the lncome Tax Act, inctuding sec. 44 r.w. Schedule 7 of the LT. Act for computing the income from "lnsurance 2011:DHC:14800-DB

Business". As per the provisions of sec, 775J8(2), the assessee company is required to prepare its profit and loss account in accordance with the provision of parts ll and lll of Schedule VI of the Companies Act. lt is clear from the perusal of the relevant provisions that the c[aim of loss not actually incurred on the investments which have neither been sold nor transferred otherwise, is only a provision for unascertained liability and cannot be allowed to be reduced from the income of the assessee. " We do not find that any substantial question of law arises in the aforesa id ci rcumsta nces. The appeal is dismissed. p---<-4-L) JUNE 03, 2011 acm M.L. MEHTA, J. ] .K. SlKRl, J. 2011:DHC:14800-DB