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IDBI Federal Life Insurance Company 2 1488/Mum/2013 ORDER PER N.K. PRADHAN, A.M. The captioned cross appeals- one by the assessee and the one by the Revenue – are directed against the order of the Commissioner of Income Tax (Appeals)-14, Mumbai and arise out of the assessment completed u/s 143(3) of the Income Tax Act 1961 (the ‘Act’). As common issues are involved, we are proceeding to dispose them off by this consolidated order for the sake of convenience. Assessment Year: 2008-09 2. The grounds of appeal filed by the Revenue read as under:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the order of the ITAT in the case of ICICI Prudential Life Insurance Co. Ltd for A.Y. 2005-06 to A.Y. 2008-09, in interpreting the provisions of Section 44 of the I T. Act read with Rule 2 of the First Schedule along with provisions of Insurance Act 1938, Insurance Regulatory and Development Authority Act 1999 and regulations there under and accordingly allowing adjustment from the "actuarial valuation'' [and as shown by the assesses in Form-I] in violation of the ratio of the Apex Court in the case of LIC vs CIT
51. ITR 778, without appreciating the fact that this decision of the ITAT was not accepted by the Department and appeal u/s 260A of the Income Tax Act. 1961 has been filed.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the order of the ITAT in the case of ICICI Prudential Life Insurance Co Ltd for A.Y. 2005-06 to A.Y. 2008-09, in concluding that transfer between Share Holders Account and Policy Holder's Account is tax neutral and not taxable u/s.44 of the Act r.w. Rule 2 of the First Schedule,
IDBI Federal Life Insurance Company 3 1488/Mum/2013 without appreciating the fact that this decision of the ITA T was not accepted by the Department and appeal u/s 260A of the Income Tax Act, 1961 has been filed. 3 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the order of the ITAT the case of ICICI Prudential Life Insurance Co Ltd A.Y. 2005-06 to A Y 2008-09,in interpreting Section 44 r.w. Rule 2 of the First Schedule that the Legislature consciously omitted incorporation of the provision of Insurance Regulatory and Development Authority Act 1999 and Regulations made there under in Rule 2 of the First Schedule which 'refers' only to un-amended Insurance Act 1938 and Regulations made there under, without appreciating the fact that this decision of the ITAT was not accepted by the Department and appeal u/s. 260A of the Income Tax Act. 1961 has been filed. 4 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the order of the ITAT in the case of ICICI Prudential Life Insurance Co Ltd AY 2005-06 to A Y 2008-09 and failed to appreciate the provisions of Section 28 of Insurance Regulatory and Development Authority Act 1999 which clarifies that provisions of IRDA Act are in addition and not in derogation of Insurance Act 1938, thereby implying adoption of IRDA Act and its regulation as “legislation by reference" in Section 44 of the I.T Act r.w. Rule 2 of the First Schedule, without appreciating the fact that this decision of the ITAT was not accepted by the Department and appeal u/s. 260A of the Income Tax Act 1961 has been filed. 5 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the order of the ITAT in the case of ICICI Prudential Life Insurance Co Ltd for A.Y. 2005-06 to A.Y. 2008-09 in allowing relief to the assesses by holding that surplus available in Share Holders Account is not to be taxed separately as "income from other sources" and at the normal corporate rate and holding that surplus from Share Holders Account was only part of income from insurance business arrived at after "combining"
IDBI Federal Life Insurance Company 4 1488/Mum/2013 surplus available in Share Holders Account with the surplus available in Policy Holders Account and then taxing this 'net surplus' arrived at the rates specified u/s 115B of the Act, without appreciating the fact that this decision of the ITAT was not accepted by the Department and appeal u/s. 260A of the Income Tax Act 1961 has been filed. 6 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the order of the ITAT in the case of ICICI Prudential Life Insurance Co Ltd for AY 2005-06 to A Y 2008-09 in allowing the carry forward of losses which is assessed under the head "Income from Other Sources" by treating it as business income from insurance business and allowing set off against the business income in the current year, without appreciating the fact that this decision of the ITAT was not accepted by the Department and appeal u/s 260A of the Income Tax Act. 1961 has been filed. 7 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the order of the ITAT in the case of ICICI Prudential Life Insurance Co. Ltd. for AY 2005-06 to AY 2008-09 in deleting the addition made on account of claim of 100% depreciation ignoring the facts that Actuarial surplus is determined on the basis of the total assets of the company and therefore by not capitalizing the above assets, the assets of the assessee-company are under-stated in the books and thereby it has an impact of reducing the surplus or increase in the deficit and therefore, the assets so written off are also accordingly required to be considered as part of the surplus and taxable under section 44 of the IT Act, without appreciating the fact that this decision of the ITAT was not accepted by the Department and appeal u/s. 260A of the Income Tax Act, 1961 has been filed. 8 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the order of the ITAT in the case of ICICI Prudential Life Insurance Co. Ltd. for AY 2005-06 to AY 2008-09, in failing to appreciate that negative reserve has an impact of reducing the ‘taxable surplus’ as per Form- IDBI Federal Life Insurance Company 5 1488/Mum/2013 I and therefore corresponding adjustment for “negative reserve” need to be made to arrive at “taxable surplus”, without appreciating the fact that this decision of the ITAT was not accepted by the Department and appeal u/s 260A of the Income Tax Act, 1961 has been filed.
We have heard the rival submissions and perused the relevant materials on record. We find that the following grounds of appeal are covered in favour of the assessee by the decision of the ITAT.
Ground No. ITAT Decision in ITAT Decision in ITAT Decision in ITAT Decision in HDFC IDBI Federal Life ICICI Prudential ICICI Prudential Standard Life Insurance Insurance Co. Ltd. Life Insurance Co. Co. Ltd. Co. Ltd. [ITA No. 2207 & [ITA No. 5378 Ltd. [ITA No. [2013]140 ITD 3004/Mum/2012 for AY /Mum/2014 for 1563 Mum/2013 41 (Mumbai) 2008-09] AY 2010-11] for the AY 2009- 10]
Page 5, para 7.1
2. Page 5, Para 7.1 Pages 6 to 8, Page 75, Para 32 Page 12, Para 2.5.3 Paras 12 to 14
3. Page 5, Para 7.1 Pages 6 to 8, Pages 72 to 74, Pages 10 to 11, Para 2.5.1 Paras 12 to 14 Paras 27 to 30
Page 5, Para 7.1 Pages 6 to 8, Pages 72 to 74, Pages 10 to 11, Para 2.5.1 Paras 12 to 14 Paras 27 to 30
5. Page 5, Para 7.1 Pages 6 to 8, Page 75; Para 32 Pages 11 to 12, Para 2.5.2, Paras 12 to 14 Page 95, Para 55 Page 13 Para 2.5.6
7. Page 5, Para 7.1 Pages 6 to 8, Page 98, Para 62 Page 6, Para 8.4 Paras 12 to 14
Page 5, Para 7.1 Pages 6 to 8, Page 98, Para 59 Pages 20-21, Paras 6 to Paras 12 to 14 6.3
IDBI Federal Life Insurance Company 6 1488/Mum/2013 Thus we find that the above grounds of appeal raised by the Revenue are covered in favour of the assessee by the order of the ITAT in the aforementioned cases. The Hon’ble Madhya Pradesh High Court in Agrawal Warehousing and Leasing Ltd. v. CIT 257 ITR 235, by following the judgment of the Supreme Court in UOI v. Kamlakshi Finance Corporation Ltd. AIR 1992 SC 711, 712 has ruled thus: “The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not ‘acceptable’ to the Department - in itself an objectionable phrase – and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessee and chaos in administration of tax laws”. Carrying this principle further, the Hon’ble Gujarat High Court in Sayaji Iron and Engineering Co. v. CIT 253 ITR 749 reiterated that no Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another bench of the same Tribunal on the same facts, and if a bench of a Tribunal on identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. Facts being identical, we follow the decision of the Tribunal mentioned hereinbefore and dismiss the 1st, 2nd,3rd, 4th,5th ,7th,8th ground of appeal filed by the Revenue.
IDBI Federal Life Insurance Company 7 1488/Mum/2013 3.1 As regards the 6th ground of appeal
, we find that the Ld. CIT(A) has directed the AO to assessee the total income of the assessee in accordance with the order of the ITAT in ICICI Prudential Life Insurance Co. Ltd. and then give effect to the provisions of section 72 of the Act in respect of carry forward of losses. As the above direction of the Ld. CIT(A) is based on facts and law, we uphold the same. Accordingly, we dismiss the 6th ground of appeal.
4. In the result, the appeal filed by the Revenue is dismissed. ITA No. 1488/MUM/2013 Assessment Year: 2008-09
5. The grounds of appeal filed by the assessee read as under :
1. On the facts and circumstances of the ease and in law, the Commissioner of Income-lax (Appeals)-14, Mumbai ['the CIT(A)'], was not justified in not adjudicating on ground no. 1 raised before- him by holding that this ground of appeal is general in nature.
2. On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the assessment order passed by the Assistant Commissioner of Income-tax – 6(1), Mumbai ('the ACIT'), to the extent it was not in accordance with section 44 of, read with Rule 2 in the First Schedule to, the Income-tax Act, 1961 (the Act'). He ought to have held that the Appellant's assessment should have been determined at a business loss of Rs.25,58,77,304/- and that the Appellant was eligible to carry forward such loss to future years and set off the loss against the Appellant's income in those years.
3. Without prejudice to ground nos. 4 to 6 below, on the facts and circumstances of the case and in law the CIT(A) erred in not expressly rejecting the action of the ACIT of including an amount of IDBI Federal Life Insurance Company 8 1488/Mum/2013 Rs.15,22,30,000/- in the computation of the Appellant's total income, as representing the loss in the Shareholders' Account, when the ACIT himself had computed the 'Income from other sources' at loss of Rs.25,40,90,000/-.
4. On the facts and circumstances of the ease and in law, the CIT(A), having himself allowed ground nos. 3 and 4 raised before him, ought to have decided on the relief himself, and directed the ACIT to assess the total income of the appellant based thereon, without the necessity of any further verification of facts.
5. Without prejudice to ground nos. 2 to 4 above, on the facts and circumstances of the case and in law, the CIT(A) ought to have held that an amount of Rs.10,18,60,000/- which was transferred from the Shareholders' Account and formed part of the surplus computed by the ACIT, was allowable as a deduction in computing the loss in the Shareholders' 6. Without prejudice to ground nos. 2 to 5 above, the CIT(A) ought to have held that the transfer from the Shareholders' Account of Rs.10,18,60,000/- to the Policyholders' Account, does not result in income chargeable to tax.
7. On the facts and circumstances of the case and in law, the CIT(A), having himself allowed ground no. 5 raised before him, ought to have directed the ACIT to assess the total income of the Appellant on the basis that the income in the Shareholders' Account was assessable under the head 'Profits and gains from business or profession' and not under the head income from other sources', without the necessity of any further verification of facts. The CIT(A) ought to have expressly held that the Appellant’s Income was taxable only as per section 44 of the Act.
IDBI Federal Life Insurance Company 9 1488/Mum/2013 8. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the ACIT of not considering an amount of Rs.7,69,438/- pertaining to ‘Provision for taxes (FBT/wealth tax’) as an expense while computing the income in the Shareholders’ Account.
Without prejudice to ground no. 7 above, on the facts and circumstances of the case and in law, the CIT(A) ought to have expressly held that the appellant was entitled to carry forward the loss incurred by it, u/s 72 of the Act, for set off against the income of subsequent years.
We have heard the rival submissions and perused the relevant materials on record. We find that the following grounds of appeal are covered in favour of the assessee by the decision of the ITAT.
Ground No. ITAT Decision in ITAT Decision in ITAT Decision in ITAT Decision in HDFC IDBI Federal Life ICICI Prudential ICICI Prudential Standard Life Insurance Insurance Co. Ltd. Life Insurance Co. Co.Ltd. Co. Ltd. [ITA No. 2207 & [ITA No. Ltd. [ITA No. [2013]140 ITD 3004/Mum/2012 for AY 6282/Mum/2012 1563 Mum/2013 41 (Mumbai) 2008-09] for AY 2009-10] for the AY 2009- & [ITA No. 10] 5378/Mum/2014 for AY 2010-11]
Page 6, Para 8.2 Pages 6 to 8, Page 75, Para 32, Pages 10 to 11, Para 2.5.1 and 10 Paras 12 to 14 Page 95, Para 55
3. Page 5, Para 7.1 Pages 6 to 8, Page 75, Para 32 Page 12, Para 2.5.3 Paras 12 to 14
Page 5, Para 7.1 Pages 6 to 8, Page 75, Para 32 Page 12, Para 2.5.3 Paras 12 to 14 6.
Page 5, Para 7.1 Pages 6 to 8, Page 75, Para 32, Pages 11 to 12, Para 2.5.2 Paras 12 to 14 Page 95, Para 55 Page 13, Para 2.5.6
IDBI Federal Life Insurance Company 10 1488/Mum/2013 Facts being identical, we follow the order of the ITAT in the abovementioned cases and allow the 2nd, 3rd, 5th, 6th, and 7th ground of appeal filed by the assessee. The 1st ground of appeal, being general in nature, is thus covered also. Regarding the 4th ground of appeal raised by the assessee, we may say that the Ld. CIT(A) has directed the AO to compute, after verification, the total income of the assessee in accordance with the order passed by the ITAT, Mumbai Bench in the case of ICICI Prudential Life Insurance Co. Ltd. As he has directed the AO to follow the above order of the Co- ordinate Bench, we do not find any infirmity therein. Therefore, we dismiss the 4th ground of appeal. Now we come to the 8th ground of appeal. It relates to deduction of provision for fringe benefit tax/wealth tax. Before the Ld. CIT(A), the assessee pleaded that the AO while determining the income in the Shareholder’s Account(SHA), added back the amount of Rs.7,69,438/- being provision for fringe benefit tax/wealth tax. The Ld. CIT(A) observed from the assessment order that no such amount has been added by the AO, while computing the total income of the assessee. He also held that during the course of appellate proceedings before him, the assessee has not demonstrated the same. Therefore, the Ld. CIT(A) dismissed the above ground of appeal filed before him. We have heard the rival submissions and perused the relevant materials on record. The contention of the assessee is that the AO while determining income in SHA has ignored expenses of Rs.7,69,438/- pertaining to provision for fringe benefit tax/wealth tax. At the cost of IDBI Federal Life Insurance Company 11 1488/Mum/2013 repetition, we may say that the assessee is governed by provisions of section 44 r.w. Rule 2 of the Act and both Policyholders’ Account (‘PHA’) and SHA form part of life insurance business of the assessee. The assessee has offered its income including results in SHA while determining income as per section 44 r.w. Rule 2 of First Schedule to the Act. Thus, the provision made towards fringe benefit tax/wealth tax of Rs.7,69,438/- is an allowable expense while determining the assessee’s income from life insurance business. We direct the AO to allow Rs.7,69,438/- as an allowable expense while determining income/(loss) in SHA. Facts being similar, we follow our decision at para 3.1 hereinbefore for the 9th ground of appeal
7. In the result, the appeal filed by the assessee is partly allowed.
8. To sum up, the appeal filed by the Revenue is dismissed whereas the appeal filed by the assessee is partly allowed. Order pronounced in the open Court on 25/01/2018. Sd/- Sd/- (C.N. PRASAD) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 25/01/2018 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to :
1. The Appellant 2. The Respondent. 3. The CIT(A)-