DEPUTY COMMISSIONER OF INCOMETAX , CHENNAI vs. CHOLAMANDALAM MS GENERAL INSURANCE COMPANY LIMITED, CHENNAI

आदेश / O R D E R

PER ABY T. VARKEY, JM:

2008-09 & 2011-12; and appeal preferred by the assessee for AY 2009- 10.

2. First we will deal with the cross-appeals for AY 2008-09.

3. Grounds of appeal raised by the assessee are as under:-

Part A-Issues on Jurisdiction

Issue 1-Reopening of assessment

1. The Learned CIT(A) has erred in confirming the reassessment which is without jurisdiction and time barred since the same was initiated after four years from the end of the relevant Assessment Year and there has been no failure on the part of the Appellant to disclose fully and truly any material record information during the course of original assessment.

2. The Learned CIT(A) has erred in confirming the reassessment, which was framed on the basis of change of opinion on the same set of facts as were available at the time of the scrutiny assessment, thereby acting against the well settled law that change of opinion cannot be a basis of reassessment:

i) The Learned AO erred in reopening the assessment though the information pertaining to IBNR/ IBNER was available in the financials submitted in the course of original assessment ii) The Learned AO erred in reopening the assessment for disallowing the unexpired risk reserve in respect of Third Party Motor Pool while the necessary information on the same was provided during Scrutiny proceedings, post consideration of which it was disallowed for MAT purposes and allowed for normal tax purposes in the course of original assessment.

& 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. :: 4 ::

Part B-Issues under Normal Provisions of the Income-tax Act, 1961 ('the Act')

Issue 2 Disallowance of Reserve for Unexpired Risk ('URR') pertaining to Third Party Motor Pool

3. The Learned CIT(A) has erred in law and facts by disallowing the URR pertaining to Indian Motor Third Party Insurance Pool ('IMTPIP'), without appreciating the fact that the same is allowable under Rule 6E of the Income- tax Rules, 1962 (the Rules').

Part C-Issues under Provisions of Section 115JB of the Act

Issue 3-Applicability of MAT Provisions under section 115JB of the Act to insurance Companies

4. The Learned CIT(A) ought to have appreciated that the provisions of section 115JB are not applicable to the Appellant being an Insurance Company.

5. The Learned CIT(A) has erred in not considering the favourable decision of Hon'ble Madras High Court ('HC') in the Appellant's own case for AY 2009-10 vide TCA No. 93 to 100 of 2019 dated 28 January 2019 wherein it was held that the provisions of sec 115JB are not applicable to the appellant

6. The Learned CIT(A) has erred in not considering the recent favourable order of Commissioner of Income-tax Appeals [CITTA'] in the Appellant's own case for AY 2012-13 in Appeal No. CIT (A), Chennai 17/ 10039/ 2016-17 dated 29 December 2023, wherein the Learned predecessor has considered the above judgment of the Hon'ble HC and have held the issue in favour of the appellant

The Appellant craves leave to add, after, vary, omit, substitute or amend the above grounds of appeal, before commencement of/during proceedings before Tribunal.

4. Grounds of appeal raised by the Revenue are as under:

1. The order of the learned Commissioner of Income Tax (Appeals) in dated 07/03/2024for the Assessment year 2008-09 is erroneous in law, facts and circumstances of the case.

2. The learned Commissioner of Income Tax (Appeals) erred granting relief on the disallowance made of Rs.8,78,92,000/- representing the IBNR and IBNER claims on the ground that liability had crystallized during the relevant Financial Year without appreciating that in the assessee's own case on this very issue for the AYs:2010-11, 2013-14, 2014-15, the Hon'ble ITAT has directed the AO to disallow the provisions made on account of IBNR/IBNER and allow them on actual payment basis.

3. The learned CIT(A) has erred in deleting the disallowance made u/s 40(a)(ia) in respect of payment towards claim settlement under cashless scheme to Third Party Administrators (TPAs) without appreciating that the & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. assessee was mandatorily required to make TDS on the payments made to the TPAs which was not made and therefore disallowable u/s 40(a)(ia).

4. The learned CIT(A) has erred in holding that the provisions of Section 115JB are not applicable to insurance companies without appreciating that the provision of section 115JB do not allow any specific exemption for computation and taxation of book profits to insurance companies.

6. The appellant craves leave to add or amend any ground of appeal before it is finally disposed off.

5. By raising ground No.1 (issue no.1), the assessee has challenged the jurisdiction of the AO to have reopened the assessment, after four years from the end of the relevant assessment year, without satisfying the additional condition precedent as provided for under the first proviso to section 147 of the Income-tax Act, 1961 (hereinafter in short “the Act”) i.e. without satisfying that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. queries, which were replied with supporting material, and the assessment was completed on 28.12.2011; and subsequently revised u/s. 154 of the Act on 07.02.2012 and the income was assessed at Rs.73,31,81,227/-.

Thereafter, the AO is noted to have issued the impugned reopening notice on 26.03.2015 u/s.148 of the Act; and pursuant to which, assessee filed return on 16.04.2015, and requested for the reasons for reopening which was given to the assessee, contents of which are reproduced as under:

Vide the reference cited, the assessee requested for the reason for reopening the assessment, hence the same is given below.

As per clause 5(a) of First Schedule - "Subject to the other provisions of this rule, any expenditure or allowance (including any amount debited to the profit and loss account either by way of a provision for any tax, dividend, reserve or any other provision as may be prescribed) which is not admissible under the provisions of sections 30 to 438 in computing the profits and gains of a business shall be added back".

Therefore, such reserve based on assumptions without specifying the requirement of crystallization of the liability cannot be allowed as a & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. deduction against the profits of the year and therefore the amount of Rs.8,78,92,000 is to be disallowed.

7. The objections raised by the assessee against the reopening of assessment and particularly that the essential conditions precedent for invoking the jurisdiction to reopen was disposed off by the AO; and the AO thereafter issued requisitions u/s. 143(2) & 142(1) of the Act, inter alia, calling for the information pertaining to IBNR/IBNER as well as the details about the unexpired risk reserve in respect of third party motor pool and made addition of, inter alia, provision for IBNR/IBNER and reserve for unexpired risk payable to IMTPIP and re-assessed business income at Rs.87,91,42,980/- under normal provisions and re-assessed book profit by adding provision for IBNR/IBNER to the tune of Rs.8,78,92,000/- and re-assessed book profit at Rs.19,23,80,807/- by passing the re-assessment order on 31.03.2016.

8. Aggrieved, the assessee filed appeal before the Ld.CIT(A) and brought to his notice that the two issues which were raised by the AO in & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. his ‘reasons recorded’ for re-opening the assessment were arising from the details submitted by the assessee during the original assessment proceedings, and that without any fresh tangible material in his possession, the AO ought not to have resorted to re-opening of the assessment and inter alia cited the decision of the Hon’ble Supreme Court in the case of CIT Vs. Kelvinator of India Limited reported in [2010] 320 ITR 561 (SC). However, the Ld.CIT(A) rejected the legal issue and on merits, he gave partial relief to the assessee. Therefore, the assessee as well as the revenue are before us assailing the action of the Ld.CIT(A) on the grounds of appeal as reproduced (supra); and as noted supra, since the assessee has raised the legal issue against re-opening the assessment, we will deal with it first.

9. Assailing the action of the Ld.CIT(A), the Ld. AR submitted that the Ld. CIT(A) didn’t appreciate the contentions raised objecting to reopening of the regular/original assessment under Section 147 of the Act. He submitted that in the present case, the original assessment was passed after scrutiny u/s143(3), and the proceedings u/s.147 were initiated after the expiry of four years from the end of the relevant assessment year.

The Ld.AR therefore argued that for valid initiation of proceedings u/s.147 it was necessary for the AO to show that while recording the reasons u/s 148, he was prima facie satisfied that the escapement of the income & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. chargeable to tax for the relevant assessment year was as a result of the failure on the part of the assessee to disclose truly and fully, all material facts necessary for assessment. He submitted that from the recorded reasons itself, such satisfaction should have been discernible; and in this case, it is absent and to buttress such a point, drew our attention to the reasons recorded (supra) [copy of which is found placed at Page Nos. 78 & 79 of the Paper Book]. The Ld.AR pointed out that the reasons recorded by AO to reopen the assessment, starts with expression “On verification of various provisions of liability debited in the profit and loss account, it is observed that ………….” which shows that there was no fresh/tangible material on the basis of which the AO has restored to reopen the assessment. This admission of the AO itself shows that the assessee has fully disclosed all the material facts necessary for the assessment. The Ld.AR therefore submitted that besides there being no tangible material available with the AO, the reopening of assessment was based only on material available on the records given by assessee during original assessment; and hence, proceedings u/s.147 suffered from incurable infirmity.

10. Further, the Ld.AR submitted that both issues raised by AO in his reasons recorded have been duly disclosed and the AO during the original assessment proceedings had applied his mind on these issues before & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. passing the scrutiny assessment 28.12.2011; and drew our attention to the notice issued by the AO dated November, 2011 directing the assessee to give all details called for by him before 14.11.2011 and has asked queries which are given in annexure placed at Page 42 & 43 of PB, wherein the Assessing Officer had asked the assessee to provide the details of working claim and reserve for unexpired risk under Rule 6E of the Income Tax Rules, 1962 (hereinafter ‘the Rules’) in a particular format. Thereafter, referring to Page Nos.32 & 33 of the annual report, the AO asked assessee to provide detailed note and also its impact in the profit and loss account which was furnished by the assessee. The Ld.AR also drew our attention to Page No.40 of PB, wherein the memo of income is found placed expenses underneath sub total expenses allowable under the Act, the reserve for unexpired risk as per Rule 6E – Closing – 31.03.2008 is shown as Rs.16,07,236,766/- (-) Less reserve for unexpired as per Rule 6E – Closing – 31.03.2007 Rs.8,72,859,119/- which comes to Rs.73,43,77,647/- which is the figure shown in reasons records at Para No.2;

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. expenses, reflected in the said schedules had applied his mind while allowing such claims; and the undisputed fact is that the claims of IBNR/IBNER has been specifically disclosed in the financial statement in ‘Scheudle-2 – claims incurred’’, and in support of such contention, he drew our attention to Page No.12 of the Paper Book. Further, he drew our attention to Schdule-16 [Page No.29 of the Paper Book] “not to financial statement at Sl.No.6’’ where the assessee has provided notes on IBNR/IBNER. Thus, according to him, the action of the AO to re-open the assessment for this issue tantamounts to review of the assessment which he is not empowered to. For such a proposition, he cited the decision of the Hon’ble Madras High Court (Division Bench) in the case of M/s.

TANMAC India in TCA No. 1426 of 2017 dated 19.12.2016, wherein even the AO’s action to re-open the assessment, in which case, an intimation u/s.143(1) of the Act was passed, had been struck down, since the re- opening was based on the same material which was disclosed by the assessee in its RoI, and no new material/tangible material was in the possession of the AO to justify re-opening the assessment when the intimation u/s.143(1) was passed for that assessment year. According to the Ld.AR, when compared with the case of TANMAC India, the present assessee’s case stand on a better footing and therefore, the action of the AO to re-open the assessment without any tangible material is bad in law & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. as held by the Hon’ble Delhi High Court in the case of Kelvinator of India Ltd.(supra).

Therefore, according to the Ld.AR, the omission on the part of the AO to make such allegation that assessee failed to disclose material facts necessary for assessment vitiates the impugned reopening of assessment and therefore, is bad in law and prayed to quash it.

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. :: 13 ::

Therefore, the AO has rightly reopened the assessment and therefore, he doesn’t want us to interfere with the impugned action of the AO to have reopened the assessment.

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. jurisdiction or revisional jurisdiction respectively. The legislative history is that in respect to the reopening u/s. 147 of the Act, the Parliament by Direct Tax Laws (Amendment) Act 1987 w.e.f. 01.04.1989 had substituted “for reason to believe escapement of income” to ‘for reasons to be recorded by him in writing, is of the opinion’’ which gave unbridled subjective satisfaction to the AO was later substituted back to ‘reason to believe escapement of income’’, by the Direct Tax Laws (Amendment)

Act, 1989. The Hon’ble Apex Court as well as the Hon’ble jurisdictional High Court as well as other Hon’ble High Courts have already held in plethora of cases the test of a prudent person instructed in law in understanding jurisdictional fact & law (mixed question of fact and law) the reason to believe escapement of income (supra).

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. :: 15 ::

Ganga Saran & Sons P. Ltd. Vs. ITO (1981) 130 ITR 1 (SC) held that the expression “reason to believe” occurring in sec. 147 “is stronger” than the expression “if satisfied” and such requirement has to be met by the AO in the reasons recorded before usurping the jurisdiction u/s. 147 of the Act.

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. chargeable to tax for that assessment year has escaped assessment. And, if the AO intends to re-open an assessment [scrutinized u/s 143(3)] after four years from the relevant assessment year, then an additional condition needs to be satisfied viz escapement of income was due to fault of the assessee, in not fully and truly disclosing all the material facts necessary at the time of original assessment. If the conditions stipulated by statute are not satisfied at the first place, then it cannot be said that AO has validly assumed jurisdiction u/s.147 of the Act. Therefore, the question for consideration is whether on the basis of the reasons recorded by the AO, he could have validly reopened the assessment. For that it has to be seen as to whether the AO on the basis of whatever material before him, [which he had indicated in his “reasons recorded”] had reasons warrant holding a belief that income chargeable to tax has escaped assessment. At this stage, it is also important to bear in mind that the reasons recorded by AO to reopen has to be evaluated on a stand-alone basis and no addition/extrapolation can be made or assumed, while adjudicating the legal issue of AO’s usurpation of jurisdiction u/s. 147 of the Act. The Hon’ble Bombay High Court, in the case of Hindustan Lever Ltd. vs. R.B. Wadkar [(2004) 268 ITR 332], has, inter alia, observed that "………. It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is ITA No.1279 & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded. It is for the AO to disclose and open his mind through the reasons recorded by him.

He has to speak through the reasons."Their Lordships added that "The reasons recorded should be self-explanatory and should not keep the assessee guessing for reasons. Reasons provide link between conclusion and the evidence….". Therefore, the reasons are to be examined only as they were recorded by the AO before the issue of the notice.

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. tune of Rs 8,78,92,000/- & the second issue is in respect of claim of IMTPIP to the tune of Rs 19,57,26,000/-. Both the issues, we find to have been duly disclosed by the assessee during the first round of original assessment which got completed in December 2016, which fact gets strengthened by the undisputed fact that the assessee had filed the very same material/evidence during the re-assessment proceedings. In this regard, it is noted that during original assessment, the assessee is noted to have filed the relevant evidences i.e. its books, balance sheet, income & expenditure, audit report, financials; From the evidence placed on record, it clearly shows that the assessee had produced the aforesaid documents as well as the annual report for AY 2008-09, tax audit report (Form no.3D with all relevant enclosures) along with other statutory auditor certificate against additional report, statement of income & expenditure which facts are discernible from the notice of the AO during original assessment proceedings dated 01.06.2010 and reply of assessee dated 11.06.2010 which are found placed (at page 1 & 2 respectively of Paper Book); and a perusal of the balance sheet as on 31.03.2008, clearly shows that as on that date (refer page 8 of PB) assessee has shown, provision of Rs.1,68,80,21,000/-; and at page 10 of PB schedule 2 claims incurred [net] has been clearly shown; at page 12, schedule 2 claims incurred [net] including the estimate of IBNR and IBNER at the end of the ITA No.1279 & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. year, which is shown as Rs.1,74,900,000/- and estimate of IBNR and IBNER at the beginning of the year Rs.87,008,000/- (i.e. Rs.17.4 crores minus Rs.8.7 crores) is Rs.8,78,92,000/-, (refer para one of the reasons recorded) which is the exact figure given in the impugned reasoning for reopening and perusal of Schedule 16 “ Notes to finanancial statements”

(refer page 29 PB) at serial number six (6), the assessee had provided a detailed note on IBNR & IBNER ; Coming to the next issue raised in Para No.2 of the reasons recorded i.e. in respect of IMTPIP, it is noted that Page No.14 of PB – Pool management expenses has been clearly shown and a perusal of Page No.23 of PB reveals the reserve for unexpired risk including the sum of Rs.19,57,26,000/- in respect of IMTPIP which figure of Rs.19,57,26,000/- is found mentioned in the reasons recorded.

Further it is noted that AO had issued notice dated November, 2011 directing the assessee to give all details called for by him before 14.11.2011 and has asked queries which are given in annexure placed at Page 42 & 43 of PB, wherein the Assessing Officer had asked the assessee to provide detailed working for claim of reserve for unexpired risk under Rule 6E of the Income Tax Rules, 1962 (hereinafter in short ‘the Rules’) in a particular format. Thereafter, referring to Page Nos.32 & 33 of the annual report, the AO asked assessee on 21 November 2011 to provide detailed note relating to IMTPIP and also its impact in the profit and loss & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. account which reply was furnished by the assessee (refer page 48 PB).

Thus, we note that the AO has asked relevant queries and after going through the replies and materials in support to it, has duly applied his mind to the entire financials submitted by the assessee and thereafter has framed the original assessment in December 2011. Therefore, the AO’s action to reopen the assessment on issues [i.e. two issues referred supra in the reasons recorded] which were duly disclosed/subject matter of inquiry of original assessment, is not permissible, after four years from the end of the relevant assessment year, unless the AO has made an allegation that the assessee failed to disclose fully and truly all relevant material for the assessment and spells out what was not fully & truly not disclosed by assessee during the original assessment. And since, we find that the assessee during the original assessment itself had disclosed all the relevant facts, including the issues flagged by AO in order to reopen viz claim of IBNR/IBNER & claim of IMTPIP under Rule 6E, which were necessary for assessment of insurance business, therefore, the AO didn’t satisfy the requisite/requirement of law to re-open the assessment after four (4) years from the end of the assessment year

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. fully all material facts for its assessment. On the contrary, the opening sentences of the reasons recorded reveals that he has obtained these information from perusal of the profit & loss account filed by the assessee/memo of income statement. Therefore, according to us, when the assessee had undergone scrutiny assessment u/s.143(3) for AY 2008- 09 by order dated 28.12.2011, re-opening after four (4) years can be done only if the AO is successful in showing that assessee failed to disclose the relevant material during first round of assessment itself.

Thus, we find that the twin conditions embedded in section 147 were not fulfilled in this case. In such a scenario, the initiation of reassessment would have been permissible only if the AO was having in his possession fresh & tangible material which came in his possession, [subsequent to passing of the order u/s 143(3)] and its (tangible material) relation with formation of belief in respect of escapement of income should have been spelt out in the reasons recorded to justify reopening. According to us, the AO had miserably failed to demonstrate the foregoing in the recorded reasons which vitiated the usurpation of reopening jurisdiction for AY 2008-09. Therefore, assessee succeeds on legal issue and we therefore quash the notice dated 26.03.2015 u/s 148 of the Act and the reassessment order dated 31.03.2016 is held to be null in the eyes of law. & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. :: 22 ::

ITA No.1280/Chny/2024 for AY 2009-10:

Issue 1 - Reopening of assessment

1. The Learned CIT(A) has erred in approving the reassessment which was framed by forming a different opinion on the same set of facts submitted to the learned AO during the course of original assessment and thereby acting against the well settled law that change of opinion cannot be a basis for reassessment

Issue 2 - Disallowance of Contingency Reserve for Unexpired Risks ('CRR') (Adjustment amount-INR 5,60,67,997)

2 The Learned CIT(A) has erred in disallowing the amount relating to CRR without appreciating the fact that the same is a permissible expenditure under Rule 6E of the Income-tax Rules, 1962 ('the Rules') and has been transferred in accordance with the IRDA Circular No. IRDA/F&NCIR/49/ Mar-09 dated 24 March 2009.

3. The Learned CIT(A) has erred in not appreciating the fact that the deduction of UPR at the rates prescribed in Rule 6E includes the amount carried to CRR as it represents 'any amount carried to any such additional reserve.

4. Without prejudice to the above, the Learned CIT(A) failed to appreciate that the amount claimed as CRR in AY 2009-10, was credited and included in the taxable income declared for the AY 2010- 11 & 2011-12 and therefore disallowance of CRR in AY 2009-10 results in double disallowance of the same amount.

The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, before commencement of/during proceedings before Tribunal.

& 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. :: 23 ::

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. information is there, still, there must be reason warrant holding a belief that income chargeable to tax has escaped assessment. At this juncture, we would like to note that pursuant to notice u/s.148 of the Act dated 28.03.2014, the assessee filed a letter dated 08.05.2014 seeking reason for reopening of the assessment (refer page 141 of PB). According to Ld.AR, the AO did not furnish copy of the reasons recorded, but replied vide letter dated 06.05.2014 asking the assessee file electronically the return of income as per the provisions of section 148 of the Act and pursuant to it, the assessee filed a letter dated 08.05.2024 and digitally signed original return of income for AY 2009-10 u/s.148 of the Act electronically through online and again requested for reasons recorded for reopening of assessment. According to Ld.AR, then also the AO didn’t give copy of the reasons recorded as such, but issued notice on 08.08.2024 calling for the explanation/details on two (2) issues (i) excess claim of Rs.5.60 Cr. by transferring it to Contingency Risk Reserve (CRR) without crediting it to Reserve for unexpired risks and (ii) depreciation claim @50% on new motor vehicles put to use after 01.01.2009, as under:-

"The assessee company is engaged in the business of general insurance. As per Rule 6E of Income Tax Rules, 1962, Unexpired Risk Reserve (UPR) in respect of Health Business was to be created at 50% of NWP. The Insurance Regulatory and Development Authority (RDA), vide its Circular No. IRDA/F&A/CIR/49/Mar-09 dated 24-Mar-2009, gave the option to the General Insurance Companies to maintain UPR under 1/365 method in & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. respect of health business, subject to transfer of an amount equivalent to the difference between the UPR amount calculated @ 50% and calculated under 1/365 method, subject to availability of profits. This amount was to be an appropriation of profits and could be transferred to General Reserve at the end of the succeeding year.

Accordingly, the company transferred an amount of Rs.5,60,67,997 to Contingency Risk Reserve (CRR) towards appropriation. However, the assessee company claimed deduction under rule 6E of the IT Rules including this amount of Rs.5,60,67,997.

The excess amount of Rs.5,60,67,997 as shown above, was not credited in the Reserve for unexpired risks and was credited only in the Contingency Reserve directly this amount credited to the Contingency Reserve Unlike the Reserve for Unexpired Risks, this could be utilised at any future date only with prior approval of the regulatory authority. Further, this amount is to be transferred to General Reserve at the end of the Succeeding year. Hence, this amount is different from the Reserve for Unexpired Risks as prescribed under Rule 6E and the same is not eligible for deduction under Rule 6E of the IT Rules" The assessee provided with an opportunity to showcause the taxability of the same.

In respect of depreciation claimed as per IT Rules, please furnish the detailed information in support of the rate of depreciation claim. It is observed that the depreciation on new motor vehicles put to use after 1.1.2009 was claimed @ 50%. Please clarify whether the said vehicles were involved in the business of running on hire. If not, please showcause why the depreciation claim should not be restricted to 15%.

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. as a general insurer company, its annual accounts prepared in the format prescribed by IRDA regulations, and clarifying that Income Tax Return (ITR) doesn’t have suitable heads to show the major claim of expenses/provisions related to general insurance companies and drawing his attention, inter alia, to balance sheet schedule profit & loss account schedules and Schedule BP – “Reserve for Unexpired Risks to the tune of Rs.54.38 crores”, wherein, inter-alia, it has been clearly shown that Rs.54.38 crores being reserve for unexpired risks computed as per Rule 6E of the Income Tax Rules, 1962 has been shown as deduction which amount includes Rs.5.61 crores of reserve for unexpired risks which was the issue which was flagged by the AO in his reasons recorded and thus, according to the Ld.AR, the relevant fact has been clearly brought out during the original assessment proceedings. Further the Ld.AR drew our attention to Page 3 of PB, wherein the AO had issued notice u/s.142(1) of the Act directing from the assessee to provide detailed working on the claim of reserve for unexpired risks under Rule 6E of the Income Tax Rules by giving a particular format also which fact is discernable from perusal of Page 5 of PB, item No.17 wherein assessee had been asked to explain why the deduction claimed on UPS under the head ‘computer’ should not be treated as plant & machinery as done in the earlier assessment year and depreciation claimed @50% not allowed, which is ITA No.1279 & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. noted to be second issue, which has been flagged by the AO in the reasons recorded for reopening the assessment.

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. :: 28 ::

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. :: 29 ::

Act dated 30.11.2012, directing the assessee to provide detailed working on the claim of reserve for unexpired risks under Rule 6E of the Income Tax Rules by giving a particular format, and pursuant to it, the assessee’s reply dated 20.12.2012 is found placed at page 6 PB, wherein assessee has given details of the claim of reserve for unexpired risks under Rule 6E of the Income Tax Rules, copy of which is found at Annexure – 1 at page 9 of the PB; and at page 9 of the PB, the calculation of unexpired risk reserved as per Rule 6E is found placed, wherein the reserve for contingency risk reserve as per IRDS circular to the tune of Rs.5,60,68,000/-, was filed before AO vide letter dated 20.12.2012, details of which is found placed at page 179 of the PB. And further the AO is noted to have asked assessee about the next issue i.e. higher depreciation claim on new motor vehicles vide notice u/s 142(1), [copy of which is found placed at Page 5 of PB, refer item No.17], to explain why the deduction claimed on UPS under the head ‘computer’ should not be treated as plant & machinery as done in the earlier assessment year and depreciation claimed @50% not allowed, and the depreciation claimed on UPS has also been given at Annexure – 10 is found placed at page 63 of the PB. Thus, we find that both the issues, (i)Contingency Reserve for Unexpired Risk; and (ii) higher depreciation claim on new motor vehicles has been enquired into by the AO during the original assessment, & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. therefore the impugned action of the AO again to reopen the assessment for examining the very same issues tantamount to review of the assessment order, which is impermissible and therefore, we quash the impugned notice u/s.148 dated 28.03.2014 for re-opening of assessment for AY 2009-10. Since the legal issue is answered in favour of the assessee, other issues are academic and therefore not adjudicated.

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

, 1488 & 1489/Chny/2024 for AY 2011-12:

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. for AY 2011-12 are no longer res integra. Therefore, we take up the issues on merits which are arising from these appeals.

However, the AO included the Software license in the block of “Intangible Assets” rather than “Computer” for the purpose of computing depreciation as per the Act and restricted the depreciation @ 25%, on the reason that the assessee has shown the same as intangible assets and consequently, disallowed Rs.77,70,000/-.

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. justified its claim of depreciation @60%. However, the Ld CIT(A)dismissed the ground of appeal, by confirming the action of AO.

11.0 We now proceed to take up the remaining issues raised in the appeal of the revenue save those adjudicated herein above. The first issue raised by the revenue is regarding depreciation on computer software raised vide 492, 494, 495 & 496 /Chny/2018 for AYs: 2008-09, 2010-11, 2012- 13, 2013-14, 2014-15. As regards for AY-2008-09 is concerned the Assessment order per se which is based upon proceedings u/s 147 / 148 has been found to be barred by limitation on account of suffering from incurable deficiencies. The appeal of the revenue for impugned year vide ITA No. 491 for AY-2008-09 is therefore dismissed in limine.

11.1 The issue seminal to all the remaining 494, 495 & 496 / Chny / 2018 for AYs: 2010-11, 2012-13, 2013-14, 2014-15 contested by the appellate revenue is regarding allowance of depreciation on computer software. It is the case of the revenue that the assessee is eligible for claim of depreciation @ 25% on computer software since the license to use software is an intangible asset and that therefore the action of Ld. CIT(A) is erroneous in allowing depreciation @ 60%. For the purposes of this appeal the figures for the AY-2010-11 are taken. The Ld. AO had noted the fixed asset schedule of the assessee showed that for the “block computers” depreciation has been claimed at 60% and that the same included an amount of Rs.3,25,90,355/- being on account of computer software. The Ld. AO subscribed to the view that a computer software is an intangible asset for which permissible depreciation was @ 25%. The Ld. AO observed that in the present case the assessee company was not the owner of the software but had merely acquired license to use and therefore admissible for 25% depreciation. Before the Ld.AO the assessee had argued that within the meanings of AS 26 or accounting standard 26 – intangible asset, it was eligible for depreciation @ 60%. The Ld CIT(A) held that that within meanings of new appendix to Rule 5 of Income Tax Rules , computors including computer software are eligible for depreciation @ 60%. Consequently he allowed depreciation @ 60%. While doing so he relied upon the decision of Hon’ble coordinate bench of this & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. tribunal in the case of TNQ books and journals private limited at . In appeal of the revenue , the Ld Departmental Standing Counsel relied upon the orders of the Ld AO.

11.2 We have heard rival submissions in the light of material available on records . We have also noted decision in the case of TNQ books and journals private limited supra as under, which is on nearly identical facts:-

“…….The Revenue has raised sole substantive ground that the Commissioner of Income Tax (Appeals) erred in allowing depreciation for software license at the rate of 60% instead of 25% allowable as per Income Tax Rules and further erred on relying on the judicial decisions which are not relevant to the assessee’s case.

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. bench of ITAT, Delhi in the case of AMYWAY India Enterprises vs. DCIT Circle 1(1) New Delhi wherein the Hon’ble ITAT held that computer software has been classified as tangible asset under heading plant and would be entitled to depreciation at the rate of 60% w.e.f. 01.04.2013 (111 ITD 112 Delhi SB). Hence, the disallowance made by the Assessing Officer is deleted and the ground is allowed. and deleted the addition of excess claim of depreciation and allowed the appeal. Aggrieved by the Commissioner of Income Tax (Appeals) order, the Revenue has assailed an appeal before Tribunal.

5. Before us, the ld. Departmental Representative reiterated the facts and argued the grounds and relied on the findings of the ld. Assessing Officer were computer and computer software license are different as the software takes the character of tangible asset wereas software license is a intangible asset and depreciation is allowable @25% as per part B of Appendix 1 of depreciation table and the ld. Commissioner of Income Tax (Appeals) has erred in allowing depreciation @60% relying on the judicial decisions not relevant to the facts of the assessee and prayed for allowing the appeal. 6. :- 5 -: ITA No.330/Mds/2016. Contra, the ld. Authorised Representative relied on the orders of Commissioner of Income Tax (Appeals) and the assessee‘s own case for the assessment year 2010-2011 allowed in favour of the assessee on similar issue and submitted judicial decisions and prayed for dismissing the appeal.

11.3 The only issue seminal to the controversy is as to whether computer software taken on lease by an assessee would be eligible for 60% depreciation & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. or not. It has been noted that the Hon’ble Coordinate Bench of this tribunal in the case of TNQ Books and Journal Pvt Ltd supra has comprehensively dealt the subject so as to conclude admissibility of depreciation @ 60% in similar situations. As the facts of the case are identical, we do not find any need to interfere with the findings of the Ld. First Appellate Authority. Accordingly, the decision of Ld. CIT(A) is sustained and grounds of appeal raised by the appellate revenue is dismissed.

40. Therefore, the assessee prays that it may be granted depreciation @60% rather than 25%.

41. Per contra, the Ld.DR supported the action of the Ld.CIT(A)/AO and doesn’t want us to interfere in the action of the Ld.CIT(A).

Therefore, we don’t countenance the impugned action of Ld CIT(A).

Moreover, this Tribunal has also decided the issue in favour of the & 1338/Chny/2024 (AY 2008-09)

(AY 2009-10) 1488 & 1489/Chny/2024 (AY 2011-12) M/s. Cholamandalam MS – General Insurance Co. Ltd. assessee in the case of M/s.Royal Sundaram General Insurance Company Limited (supra). Since no change in facts or law could be pointed out by the Revenue, respectfully following the decision of the Tribunal in the case of M/s.Royal Sundaram General Insurance Company Limited (supra), we direct the AO to grant 60% depreciation on software license claimed by the assessee. The legal issue raised by the assessee is left open, since we have decided the grounds of appeal raised by it on merits.

44.1 The assessee had availed the services of TPAs for processing and finalizing the claims of insurers in respect of various insurance policies.

According to the assessee, the TPAs processes, verify and finalize the claim settlements of the insured. According to the assessee, the claim- settlements made by the TPAs are reimbursed by the assessee company.

However, the AO disallowed the entire amount paid to TPAs u/s.40(a)(ai) of the Act, for non-withholding of TDS and disallowed amount of Rs.8,41,40,328/-. & 1338/Chny/2024 (AY 2008-09)

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44.2 On appeal, the Ld.CIT(A) has relied on the decision of the CBDT Circular No.8/2009 dated 24.11.2009 and this Tribunal orders in the assessee’s own case in dated 26.08.2022 and deleted the additions made by the AO.

44.3 Aggrieved the Revenue is before us.

44.4 We have heard both the parties and perused the records. We note that the assessee company has availed the services of the TPAs who processed, verified and finalized the claim settlement of the insured; and in that process, made payments to Hospital. Such claim settlements, made by the TPAs, were reimbursed by the assessee company, which expenditure was disallowed by the AO, on the ground that the assessee didn’t withhold the TDS and thereby applying sec.40(a)(ai) of the Act, he disallowed the same. The Ld.CIT(A) has deleted the addition by relying on the decision of the CBDT Circular No.8/2009 dated 24.11.2009 as well as this Tribunal order in the assessee’s own case dated 26.08.2022.

Since there is no change in facts or law, which could be pointed out by the Ld.DR, we are of the view that the Ld.CIT(A) has rightly deleted the additions made by the AO on this score. And hence, we dismiss this ground of appeal of the revenue. & 1338/Chny/2024 (AY 2008-09)

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Order pronounced on the 19th day of March, 2025, in Chennai.