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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI SHAMIM YAHYA (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against the order dated 20.01.2016 passed by the Commissioner of Income Tax (Appeals) (for short ‘the CIT (A)’)-22, Mumbai, for the assessment year 2011-12, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).
Brief facts of the case are that the assessee company engaged in the business of Life Insurance, filed its return of income for the assessment year under consideration declaring total loss of Rs. 32, 73,48,945/-. Later on the return was revised and the total loss was declared at Rs. 36,55,47,156/-. Since, the case was selected for scrutiny, AO issued notice u/s 143 (2) and 142
(1) to the assessee. In response to the said notices, the authorized 2 Assessment Year: 2011-12 representative (AR) of the assessee attended the proceedings from time to time and submitted the details called for.
On perusal of details, the AO noticed that there is an item showing negative reserve amounting to Rs. 236,10,97,030/-. Accordingly, the assessee was asked to explain the said entry. The authorized representative of the assessee submitted that the assessee’s financial statements including valuation of liabilities are governed by regulations and guidelines issued by Insurance Regulatory and Development Authority (IRDA). The negative reserve is only a disclosure requirement having no impact on surplus as per the insurance. The computation of profits of insurance business is completely governed by the rule in scheduled to the Income Tax Act and the provisions do not leave any scope for making addition or deletion to surplus. The AR relying on the judgment of the Hon’ble Supreme Court in Life Corporation of India Vs. CIT Delhi and Rajasthan 51 ITR 773, submitted that the Assessing Officer has wrongly held that the issue of negative reserve to be taken as zero is specific to the situations mentioned in the regulation and his action in adding negative surplus to the surplus of actual valuation of Life Insurance business of the assessee company is contrary to the provisions of section 44 and first schedule read with Insurance Act, 1938 and the regulations framed by the IRDA. However, the AO rejecting the contention of the assessee, the negative reserve as reported by the assessee made addition of Rs. 226,99,64,630/- after deleting the amount of Rs. 9,11,32,400/- already added by the assessee in the assessment year 2010-11.
The assessee challenged the assessment order before the CIT (A). The Ld. CIT (A) after hearing the assessee deleted the addition by following the decision of the then CIT (A), Mumbai in the assessee’s own appeal for the A.Y. 2009-10 and 2010-11. The revenue is in appeal against the impugned order passed by the Ld. CIT (A).
3 Assessment Year: 2011-12
The revenue has preferred this appeal before the Tribunal on the following effective grounds:- “On the facts and in the circumstances of the case and in law, the CIT (A), Mumbai has erred in deleting the addition made by the AO of Rs. 226,99,64,630/- on account of Negative Reserve to the Surplus Balance of Funds of the assessee company, without appreciating the fact that while computing the Surplus Balance of Funds of the life insurance business, the assessee should not have treated and taken the Negative Reserve of Rs. 226,99,64,630/- at Rs. Nil and excluded the same while computing the Surplus Balance of Funds, in light of the clear provisions of Rule 5(iii) to Schedule II-A of Insurance Regulatory and Development Authority (Assets, Liabilities and Solvency margin of Insurers) Regulations, 2000 which mandates that Negative Reserve to be treated as Zero in only specific purposes and situations as mentioned in section 13, 49, 64V and 64VA of the Insurance Regulatory Act, 1938.”
Before us, the Ld. Departmental Representative (DR) relied on the assessment order, however, fairly conceded that the issue is covered by the assessee’s own case for the assessment year 2009-10 and 2010-11 passed by the Mumbai Bench of the ITAT.
On the other, the Ld. counsel for the assessee submitted that the ‘E’ Bench of the Mumbai ITAT has decided the identical issue in favour of the assessee in the assessment year 2009-10 and 2010-11 by upholding the findings of the Ld. CIT(A)). The Ld. counsel further submitted that since, the case of the assessee is covered in favour of the assessee by the order of the ITAT aforesaid, there is no merit in the appeal of the revenue. 8. We have heard the rival submissions and also perused the material on record. The only issue raised by the revenue is that the Ld.CIT (A) has wrongly deleted the addition of Rs. 226,99,64,630/- on account of negative reserve to 4 Assessment Year: 2011-12 surplus balance of funds of the assessee company. As pointed out by the Ld. counsel for the assessee, the Ld.CIT (A) has decided the identical issue in favaour of the assessee. The relevant portion of the CIT (A) order reads as under:- “5.5 I have considered the facts and circumstances of the case. I find that this issue was considered by my ld. predecessor in the appeal for A.Y. 2009-10 wherein at paras 4.2 and 4.3 it was held as under:-
“4.2 I have considered the facts and circumstances of the case, submissions of the appellant and case laws relied upon by the appellant. AO during the assessment proceedings had treated the Negative Reserve as reported in the Actuarial valuation report of the life insurance and added Rs. 78,38,270/-.AO treated this negative reserve a surplus reserve from the appellant’s life insurance business and added the amount in the assessment order passed under sec. 143(3) of the Act. For insurance business, assessment has to be passed under sec. 44 of the Act and Rule 2 of the First Schedule which over-rides all the general provisions for computation of income from business contained in the provisions from Sec. 28 to 43B. There is no provision in the Act to add any further addition except as per the rule 2 of the First Scheduled under sec. 44 of the IT Act. Computation of income for this business should be only covered by the above sec. 44 as per rule 2 of the First Schedule. In this case, AO treated Negative Reserve as surplus from the actuarial valuation in insurance business and added the amount. On the same issue and on the same facts, this issue has come into consideration of ICICI Prudential Life Insurance Corporation of India Vs ACIT wherein it has held as under:- “The mathematical reserve is part of Actuarial valuation and the surplus as discussed in Form-I under Regulation 4 takes into consideration this mathematical reserve also. Therefore, the order of the CIT (A) is approved. Moreover, the Assessing Officer has no power to modify the amount after actuarial valuation was done, which was the basis for assessment under Rule 2 of Ist Schedule r.w.s. 44 of the IT Act. The principles laid down by the 5 Assessment Year: 2011-12 Hon’ble Supreme court in LIC Vs CIT 512 ITR 773 about the powers of Assessing Officer also restricts the scope and adjustments by the AO. In view of this, we uphold the order of the CITs (A) and dismiss the Revenue ground.” 4.3 In the above ITAT’s case, in the ICICI Prudential Life Insurance Corporation of India, it is clearly held that Negative Reserve need not be added in the computation of income in the case of insurance business following the Supreme Court decision in the case of Life Insurance Corporation of India Vs CIT Delhi and Rajasthan 51 ITR 773. Respectfully following the decision, addition is deleted and ground of appeal
No. 1 is allowed. Relief granted to the appellant is of Rs. 78,38,270/-. Following the above order, A.O’s addition is deleted. This ground of appeal is allowed.” The issue in the instant appeal being identical with that of the earlier year as decided above by my ld. predecessor by relying on the decisions of the Mumbai Tribunal in the case of ICICI Prudential Insurance Co. Ltd. v ACIT [ITA No. 7765- 7767/Mum/2010] and Supreme Court in Life Insurance Corporation of India vs CIT Delhi and Rajasthan
51. ITR 773, the addition made by the Assessing Officer on account of Negative reserve is deleted. The appellant’s ground of appeal is allowed.”
We notice that the Ld. CIT (A) has deleted the addition in question by following the order of the then CIT(A) passed in assessee’s own case for the assessment years 2009-10 and 2010-11. We further notice that the then CIT(A) has decided the appeals of the assessee for the assessment year 2009-10 and 2010-11 by following the decision of the co-ordinate Bench rendered in the case of ICICI Prudential Insurance Co. Ltd. vs. ACIT (supra) and the decision of the Hon’ble Supreme Court in the case of LIC vs. CIT (supra). We further notice that the coordinate Bench has decided the identical issue in favour of the assessee in the assessee’s case for the assessment years 2009-10 and 2010-11 by upholding the decision of the Ld. CIT(A). Since the coordinate Bench of the Tribunal has decided the identical ground in favour of the assessee in assessee’s own appeals for the assessment year 6 Assessment Year: 2011-12 2009-10 and ITA No 6281/Mum/2013 for the assessment year 2010-11 vide order dated 11.01.2017 and the Ld. DR has not pointed out any difference of facts in the present case, there is no reason to deviate from the view taken by the coordinate Bench in the assessee’s own case. Hence, respectfully following the decision of the coordinate Bench aforesaid, we uphold the findings of the Ld. CIT(A) and dismiss the sole ground of appeal of the revenue.