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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA & SHRI VIKAS AWASTHY
आदेश / O R D E R �ी �वकास अव�थी, �या�यक सद�य के �वारा PER VIKAS AWASTHY, JM:
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-22, Mumbai [in short ‘the CIT(A)’] dated 28.02.2019 for the assessment year 2013-14.
The Revenue has filed appeal by raising following grounds:-
“ 1. "Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in holding that the surplus of Rs. 48.45 crores in
Shareholders Account has to be treated at par with the income from life insurance business under the policy holders account taxable u/s 44 of the Act?"
"Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the disallowance u/s 14A of the Act made by the Assessing Officer in accordance with the Rule 8D?"
“Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating that negative reserve has an impact of reducing the taxable surplus as per Form-I and therefore, corresponding adjustment for negative reserve need to be made to arrive at taxable surplus?"
"The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal."
"The appellant prays that the order of CIT(A) on the above ground be set-aside and that of the assessing officer he restored."
Shri Farokh V. Irani appearing on behalf of the assessee submitted at the outset that the grounds raised by Revenue in appeal for impugned assessment year are similar to the one raised in earlier assessment years The AO had made additions/ disallowances for identical reasons in the preceding assessment years starting from AY
2007-08 to AY 2012-13 and the same have been decided in favour of the assessee. The learned AR for the assessee contended that the facts in the impugned assessment year are identical to the facts in the preceding assessment years. The learned AR for the assessee filed chart tabulating the details of appeals for earlier assessment years before the Tribunal, wherein these issues have been adjudicated in assessee’s own case.
Shri Neehar Pandey representing the Department, vehemently defended the assessment order. However, the learned DR fairly admitted that the grounds raised by the Revenue in appeal were subject matter of adjudication before the Tribunal in assessee’s own case for preceding AYs.
We have heard the submissions made by rival sides and have examined the orders of the authorities below. We have also considered the decisions of the Tribunal in assessee’s own case in the preceding assessment years wherein identical issues have been adjudicated.
In ground No. 1 of the appeal, the Revenue has assailed the findings of the CIT(A) in holding that the surplus of Rs. 48.45 crores in shareholders account has to be treated at par with the income from Life Insurance Business and is thus, taxable under section 44 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). We find that this issue is perennial. For the first time this issue arose in the assessment year 2007-08. The CIT(A) decided the issue in favour of the assessee. The Revenue carried the issue in appeal before the
Tribunal in ITA No. 2551/Mum/2010. The Tribunal vide order dated 22.03.2013 decided the issue in favour of the assessee by placing reliance on the order of Tribunal in the case of ICCI Prudential Insurance Company Limited Vs. ACIT in ITA No. 6854 to 6856 and 6059/Mum/2010. The co-ordinate Bench of the Tribunal held as under:-
“4. We have carefully considered the rival submissions and perused the orders of the lower authorities and the orders of the Tribunal relied upon by the rival parties. We find that the reliance of the DR on the decision of the Tribunal in assesee’s own case is misplaced inasmuch as during that period, the assessee has not started its insurance business. Therefore, provisions of Sec. 44 and in the first schedule would not be applicable in that year. However, for the year under consideration, we find that the assessee is in the insurance business therefore, the issue is squarely covered by the decision of the Tribunal in the case of ICICI Prudential Insurance Co. Ltd. (supra). We find that the Tribunal has decided this issue at para-55 of its order which is as under:
“We have heard the rival contentions. As briefly discussed while deciding the issue of taxing surplus, assessee is in life Insurance business and it is not permitted to do any other business. All activities carried out by assessee are for furtherance of Life Insurance business. Maintaining adequate capital is necessary to ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench comply with IRDA( Assets, Liabilities and Solvency margin of insurers)Regulations,2000. Income earned on
capital infused in business is integral part of Life Insurance business. The LD. CIT(A) gives a finding that assessee is exclusively in Life Insurance business. However, since he gave primacy to Form I proforma he concluded that other incomes are not of Life Insurance business. We have already considered and decided that assessee was mandated to maintain separate accounts by IRDA Regulations. Just because separate accounts are maintained the incomes in Shareholder's account does not become separate from Life insurance business. As per Insurance Act 1938 all incomes are part of one business only and these incomes are considered as part of same business. Therefore, the incomes in Shareholder's account are to be considered as arising out of Life insurance business only. More over Sec 44 mandates that only First Schedule will apply for computing incomes and excludes other heads of income like, Interest on Securities, income from house property, Capital gains or Income from other sources. Being non-obstante clause, sec. 44 mandates that the profits and gains of insurance business shall be computed in accordance with the rules contained in First Schedule. Therefore, the incomes in Shareholder's account are to be taxed as part of life insurance business only, as they are part of same business and investments are made as part of solvency ratio of same business. The grounds are allowed. AO is directed to treat them as part of Life Insurance Business and tax them u/s 115B.” As facts and issues are identical to the facts and issues in the case of ICICI Prudential Insurance Co. Ltd., (supra), respectfully following the decision of the Tribunal, appeal filed by the Revenue is dismissed.”
Thereafter in, AYs 2008-09 to 2012-13, this issue had come up before the Tribunal in the appeals filed by the Revenue for respective assessment years. The Tribunal has been consistently following the view taken in AY 2007-08 and has dismissed the appeals of the Revenue. No contrary decision has been placed before us by the learned DR. The CIT(A) has granted relief to the assessee by following
the order of Tribunal. We see, no reason to take contrary view. Following the order of Tribunal in the preceding assessment years, the ground no. 1 of the appeal is dismissed.
In ground no. 2 of the appeal, the Revenue has assailed deleting of disallowance under section 14A of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’). We find that this issue came up for the first time in appeal before the Tribunal, in appeal by the assessee in ITA Nos. 2401/Mum/2010 for AY 2007-08. The Tribunal vide order dated 30.09.2011 held that the provisions of Section 14A of the Act are not attracted in the case of assesee engaged in General Insurance Business. The relevant extract of the findings of Tribunal are reproduced herein below:-
“ 12. Aggrieved the Assessee is on appeal before us. In the case of Bajaj Alliance General Insurance Company Ltd v. Additional Commissioner of Income Tax 38 DTR 282 Pune, it has been held that Section 14A is not applicable in the case of Insurance business, which is governed by specific provisions of 44 and Schedule 1. In the case of Reliance General Insurance Co Ltd v. Deputy Commissioner of Income Tax, Mumbai Bench, similar view has been taken. Similarly in the case of Birla Sunlife Insurance Co Ltd v. Additional Commissioner of Income Tax ITA 2253/M/2006 has held as follows:
We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the Ld. Counsel for the Assessee that the
Assessing Officer after examining the relevant details as discussed in para 5.16 and 5.17 of the assessment order has disallowed the expenses of Rs. 30,18,496/- for earning dividend income, therefore, the plea taken by the Ld. DR that the issue may be set aside to the file of the Assessing Officer is devoid of any merit. This being so, and keeping in view that the Tribunal in Oriental Insurance Co Ltd v. ACIT (2009) TIOL 172 ITAT - DEL after discussing the identical issue at length has held that Section 44 provides for application of special provisions for computation of profits and gains of insurance business in accordance with Rule 5 of Schedule 1 and, therefore, it is not permissible to the Assessing Officer to travel beyond Section 44 and Schedule-I and make disallowance by applying Section 14A of the Act. The above order has consistently been followed by the Tribunal in the above three cases relied on by the Ld. Counsel for the Assessee. In the absence of any distinguishing feature brought on record by the Ld. DR we respectfully, following the consistent view of the Tribunal hold that it is not permissible to the Assessing Officer to travel beyond Section 44 and Schedule-I and make disallowance by applying Section 14A of the Act and accordingly the disallowance of Rs. 30,18,496 made by the Assessing Officer and sustained by the Ld. CIT (A) is deleted. The ground taken by the Assessee is therefore, allowed. Respectfully following the above decisions of the co-ordinate Benches, We delete the entire disallowance made under 14A amounting to Rs. 2,77,69,215 is no expenditure is incurred for earning exemption dividend income”
The AO continue to make disallowance under section 14A of the Act in the case of the assessee for AYs 2008-09 to 2012-13 and the same was deleted by the CIT(A). The Tribunal confirmed the findings of CIT(A) in the respective assessment years. In the impugned
assessment year, we find that the CIT(A) has followed the order of Tribunal in assessee’s own case for AY 2012-13 and has deleted the disallowance made u/s 14A of the Act. We find no infirmity in the order of the CIT(A), hence, the same is upheld. Ground no.2 of appeal by the Revenue is dismissed.
In ground no.3 of the appeal, the Revenue has assailed the findings of CIT(A) on negative reserves of the assessee. We find that this issue came up for consideration before the Tribunal in AY 2010-11 and 2011-12. The co-ordinate Bench of the Tribunal in an appeal by the Revenue in ITA No. 6223/Mum/2014 vide order dated 20.12.2016 decided this issue in favour of the assessee by observing as under:-
“7. The last ground of revenue’s appeal assails deletion of addition on account of Negative reserve of Rs. 399.05 crores by CIT(A). The Assessing Officer added the same in taxable surplus on the premises that negative reserve means the insurance contract under consideration does not warrant any provision and in fact, is an asset. Relying upon Tribunal judgement, CIT(A) deleted the same. The Ld. AR has supported the stand of CIT(A) and drawn our attention to various Tribunal decision in the case of companies carrying on insurance business, which we have perused. We find that Tribunal in ITA No. 6854 & Others/ Mum/ 2010 order dated 14/09/2012 titled as ICICI Prudential Insurance Co. Ltd. Vs. ACIT has concluded that such negative reserve do not give rise to distributable surplus. Similar view has
No distinguishable fact has been brought before us in the impugned assessment year. The CIT(A) has decided the issue in favour of assessee by following the aforesaid order of Tribunal. The findings of the CIT(A) on this issues are in line with the view taken by the co- ordinate Bench of the Tribunal in assessee’s own case. We see no reason to interfere with the same. The ground No. 3 of the appeal by Revenue is dismissed sans merit.
The Ground no. 4 & 5 of the appeal are general in nature, hence, requires no adjudication.
In the result, appeal filed by the Revenue is dismissed.
Order pronounced in the open court on _Friday the _12th_day of March, 2021.
Sd/- Sd/- (�वकास अव�थी / VIKAS AWASTHY) (शमीम याहया/ SHAMIM YAHYA) (लेखा सद�य / ACCOUNTANT MEMBER) (�या�यक सद�य / JUDICIAL MEMBER) मुंबई, �दनांक/ Mumbai, Dated: 12.03.2021 सुद�प सरकार, व. �नजी स�चव/ Sudip Sarkar, Sr.PS
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT(A) 4. आयकर आयु�त / CIT 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai