UNITED INDIA INSURANCE CO. LIMITED,CHENNAI vs. ACIT, CHENNAI

4. Even assuming but not admitting, that the reinsurance premium ceded by the Appellant is taxable in India, the CIT(A) failed to appreciate the basic principle in insurance is that the reinsurers' results would be in the same pattern of the original insurer and in the Appellant's case (the original insurer) there has been a loss in its insurance operations and therefore there is no income that can be taxed in India. 5.The CIT(A) failed to appreciate that in respect of investments for which amortization of premium has been claimed: (a) related interest is offered to income; (b) the amortization of premium is directly linked to the interest - therefore the expenses are revenue in nature, 6.The CIT(A) erred in not appreciating the fact that the amortization of premium paid on purchase of securities was made as per the guidelines of the regulations of the Insurance Regulatory Authority of India (IRDA) and that such amortization cannot be added in the absence of a specific provision to disallow the same. 7.The CIT(A) failed to appreciate that the amortization of premium paid on purchase of securities is neither an expense nor an allowance that can be disallowed under Rule 5 of First Schedule of Act and that the CIT(A) (as per the provisions of Section 44 of the Act) has the power to disallow only the expenses which are not admissible under the provisions of section 30 to 43B of the Act. 8.The Appellant submits while ascertaining the Book Profits: a)The CIT(A) failed to appreciate that the amount debited as Reserve for Unexpired Risk (URR) cannot be treated as a "reserve" as contemplated in Clause (b) to Explanation 1 to Section 115JB of the Act and the carry forward of Reserve for Unexpired Risk cannot be restricted only to the extent of the premium proportionate to the risk period of subsequent year. b.The CIT(A) erred in not appreciating the fact that the aforesaid change in the accounting treatment of URR would result in 'change in accounting policy' adopted by the Appellant and such changes are not in line with provisions of Section ll5JB of the Act. c.The CIT(A) erred in upholding the addition to the Book Profits (u/s 115JB of the Act) to the extent of the amount disallowed u/s 14A by the Appellant under the normal computation of the Act, even though the exempt income in the computation of Book Profits is lower than the amount under the normal provisions of the Act. 9.The Appellant therefore prays that: i) the disallowance of the reinsurance premium ceded to NRRs be deleted; ii.the disallowance of amortization of premium paid on purchase of securities be deleted; iii.no addition to book profits be made in respect of URR; and iv.addition to Book Profits u/s 14A of the Act be deleted.”

Aggrieved, the assesse preferred an appeal before the Ld.CIT(A), who partly allowed the appeal of the assesse against which the assesse is in appeal before us.

5. The first and foremost common issue raised by the assesse in its appeals for our consideration relevant to assessment years 2013-14 to 2016-17 and by the Revenue for the assessment years 2017-18 to 2019-20 is against disallowance upto the extent of 15% of the reinsurance premium ceded by the Appellant to non-resident reinsurers (NRRs) u/s 40(a)(i) of the Act. At the outset, the learned counsel for the assesse submitted that an identical ground has been raised by the Revenue in assesses own case for the assessment year 2007-08 and the co-ordinate Bench of this Tribunal in dated 28.06.2023 has considered the issue at length as per directions of the Hon’ble High Court of Madras, since the assesse preferred an appeal before the Hon’ble High Court, in favour of the assesse and dismissed the ground raised by the revenue by following the earlier decision of the Tribunal in ITA Nos.1673, 1688, 1689, 1691/Chny/2011 dated 26.08.2022 in assesses own case for assessment years 2003-04 to 2006-07 and 2008-09 to 2010-11.

The Learned Sr.Standing Counsel for the Revenue also fairly agreed that this issue is covered in favour of the assesse by the decision of this Tribunal in assessee’s own case for earlier assessment years.

“6. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in the assessee’s own case in 1688, 1689, 1691/Chny/2011 for AYs 2003-04, 2004-05, 2005-06, 2006-07, order dated 26.08.2022, and after considering relevant facts held that reinsurance premium ceded to NRRs, is not taxable in India under the Income Tax Act, 1961 or under DTAA between India and respective countries, where the NRRs are tax residents, and thus, reinsurance premium cannot be disallowed u/s.40(a)(i) of the Act, for non-deduction of TDS u/s.195 of the Act. The relevant findings of the Tribunal are as under: 10. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The assessee is an insurance company engaged in the business in General insurance in terms of IRDAI regulations and Insurance Act, 1938. The business of the assessee is regulated by IRDAI through various regulations. All the insurance companies which are carrying on insurance business in India have to necessarily comply with provisions of the Insurance Act, 1938 as amended and rules there under. The contract of insurance and contract of reinsurance are two separate and distinct contracts. The reinsurance contract is completely independent of contract of insurance between insured and insurer. The term ‘reinsurance’ was not defined under the Insurance Act, 1938 until 2015. However, by Insurance Laws (Amendment) Act, 2015, definition of term ‘reinsurance’ was inserted in the Insurance Act, 1938. As per which, the term ‘reinsurance’ means insurance of part of one insurer’s risk by another insurer, who accepts risk for mutually acceptable premium. Therefore, the assessee being in general insurance business as part of their strategy has taken reinsurance policy with reinsurance companies. Further, every insurance company in India has to place their reinsurance program 45 days prior to commencement of financial year before the IRDAI in terms of para 3.4 of IRDAI (General insurance, Reinsurance) Regulation, 2000, and within 30 days of commencement of the financial year, every insurance company has to file reinsurance treaty slips with IRDAI in terms of para 3.5 of IRDAI (General insurance, Reinsurance) Regulation, 2000. As per IRDAI Regulation, 2000, the insurance companies in India have to mandatorily reinsure with the Indian reinsurer being General Insurance Corporation (GIC). However, over and above specified percentage of reinsurance, general insurance companies in India can have their reinsurance arrangement with foreign reinsurer in terms of para 3.7 of said regulations. In this case, there is no dispute with regard to fact that the assessee has complied with provisions of Insurance Act, 1938 and regulations made there under by the IRDAI. In fact, the Assessing Officer has accepted fact that the assessee has complied with reinsurance regulations by taking required percentage of reinsurance contract with General Insurance Corporation of India. But disputed reinsurance premium ceded to non-resident reinsurer companies. In the earlier round of litigation, the Tribunal had discussed the issue of payments made to non-resident reinsurer, in light of provisions of section Insurance Act, 1938 and IRDAI Regulations on reinsurance and concluded that the assessee has violated provisions of Insurance Act, 1938 and consequently, reinsurance premium ceded to NRRI is not deductible u/s.37 (1) Of the Income Tax Act, 1961. The matter travelled to the Hon’ble High Court of Madras and the Hon’ble High Court has remanded the issue back to the Tribunal and directed the Tribunal to decide the issue on three points:- i) Whether the Assessing Officer was right in disallowing reinsurance premium u/s.40(a)(i) of the Act; ii) Whether the CIT(A) was right in rejecting partially the appeal filed by the assessee; & iii) Whether the CIT(A) was justified in restricting claim of the assessee to 15% instead of confirming order passed by the Assessing Officer.

The Hon'ble High Court of Madras also observed that the Tribunal shall decide above questions alone and nothing more and decision shall be taken based on the available material and the assessee& the Revenue are not entitled to place any fresh materials before the Tribunal so as to enable the Tribunal to take decision. Therefore, from the above, it is very clear that controversy with regard non-compliance with provisions of Insurance Act, 1938 and regulations made there under by the IRDAI is put to rest by the Hon'ble High Court and the Tribunal does not have power to examine legality or otherwise of payment made by the assessee to non-resident reinsurance companies. Therefore, issue on hand should be decided only in the context of payment made by the assessee to NRRI in light of provisions of Income Tax Act, 1961, and relevant DTAA between India and other contracting States………………………………………………………………………………………………………… …………………………………………………………………………………………………………..

7. In this view of the matter and consistent with view taken by the coordinate Bench in the assessee’s own case, we are inclined to uphold the findings of the Ld.CIT(A) and direct the AO to delete the disallowance of reinsurance premium paid to NRRs u/s.40(a)(i) of the Act, for failure to deduct TDS u/s.195 of the Act.”

Pertinently, in in assesse’s case for AY 2004-05, the co-ordinate Bench of this Tribunal has observed as under:-

“37. The next issue arises for consideration is amortization of premium on securities. This issue arises for consideration in the assessee's appeals for assessment years 2004-05 to 2013-14.

by the assessee on this issue of amortization of premium paid on purchase of securities for the assessment years 2013-14, 2014-15, 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20 is dismissed.

10. The next common issue that came up for our consideration in the appeals of the assessee for the assessment years 2014- 15, 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20 is disallowance of provision for IBNR and IBNER.

What is reported to the assessee is damage/ loss caused to the insured persons. According to the Sr. Standing Counsel, the assessee is yet to assess loss and determine amount to be compensated. Therefore, it is unascertained liability and same cannot be allowed as deduction. The Sr. Standing Counsel further submitted that this issue is covered by the decision of the ITAT., Chennai in assessee’s own case for earlier assessment years, where the Tribunal has held that provision made for IBNR and IBNER is not deductible, because merely incident happened during the year which is basis for making claim, that cannot be a reason for allowing compensation payable by the assessee in the subsequent financial years.

“43. We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee made provision in respect of claims incurred but not reported and in respect of claims incurred but not enough reported. The compensation for making insurance claim arises on the date of loss or damage occurred to the insured property. But, the actual liability to make the payment arises on the date on which the loss or damage was assessed and the amount was determined. In this case, the accident or loss was reported to the assessee but the actual loss or compensation was not determined during the assessment year 2009-10. Therefore, as rightly submitted by the according to the Ld. Sr. Standing Counsel for the Revenue, the liability to make the payment accrues to the assessee only in the year in which the loss or damage was ascertained and compensation payable to insured person is determined. Admittedly, the compensation payable to insured person was not determined during the assessment year 2009-10. Therefore, this Tribunal is of the considered opinion that merely because the incident happened during the year which is the basis for making claim, that cannot be a reason for allowing the compensation payable by the assessee for the assessment year 2009-10. In other words, the compensation payable by the assessee has to be allowed in the year in which the amount of compensation was determined. Since the amount was not determined during the year under consideration, this Tribunal is of the considered opinion that the same cannot be allowed for assessment year 2009-10. Hence, the CIT(Appeals) is not correct in allowing the claim of the assessee. Accordingly, the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored.”

15. The next common issue in these appeals of the assessee for assessment years 2014-15 to 2016-17 and 2018-19 and appeal of the Revenue for assessment year 2013-14 is as regards to disallowance of provision for IBNR and IBNER claimed by the assessee in its return of income while computing book profit u/s.115JB of the Act. The Ld.AO disallowed the claim and the Ld.CIT(A) deleted the additions on this issue and allowed the claim of the assessee for the assessment year 2013-14, against which the Revenue came in appeal. Whereas, in respect of AYs i.e 2014-15 to 2016-17 and 2018-19, the Assessing Officer disallowed provision for IBNR and IBNER claim, and the Ld.CIT(A) following the decision of the Tribunal, upheld the orders of the Assessing Officer on this issue dismissed the claim of the assessee, against which the assessee came in appeal for AYs 2014-15 to 2016-17 and 2018-19. The learned counsel for the assessee submitted that there was no disallowance of provision for IBNR and IBNER claim for the assessment years 2017-18 & 2019-20.

15.1 For this issue of provision towards IBNR and IBNER claim, the assessee has raised the following ground which reads as under:-

“8. The Appellant submits while ascertaining the Book Profits: (a)The CIT(A) failed to appreciate that the amount debited as Reserve for unexpired Risk (URR) cannot be treated as a "reserve" as contemplated in Clause (b) to Explanation to Section 115JB of the Act and the carry forward of Reserve for Unexpired Risk cannot be restricted only to the extent of the premium proportionate to the risk period of subsequent year.” The grounds raised by the assessee in other assessment years is identically worded and facts and circumstances are exactly similar and hence, we take up the facts for consideration from assessment year 2013-14 in and will decide the issue which will apply to other years also.

15.2 At the outset, the learned counsel for the assessee pointed out that the Hon’ble High Court of Madras in Tax Case Appeal Nos.339 & 342 of 2019 dated 08-12-2010 in the assessee’s own case for the assessment year 2013-14 has remanded this issue back to the file of the Tribunal for adjudicating the same on merits by observing in para 7 as under:- “7. Since the provision has been made applicable to the Insurance companies as well with effect from 01.04.2003, the Tribunal has to decide the issue on merits for the assessment order 2013-2014 and decide as to whether the assessing officer was right in computing dis-allowance reserved for unexpired risk provision towards IBNR / IBNER claim and dis- allowance under section 14A read with Rule 8D and the Tribunal to take a decision on merits and in accordance with law, therefore, the matter has to be remanded to the Tribunal for fresh consideration, accordingly, the observations made by the Tribunal in the impugned order in Paragraph Nos. 55 and 56 are set aside, insofar as it relates to assessment year 2013-2014 and the matter is remanded to the Tribunal to decide the issue with regard to the computation under book profit and whether the assessing officer was right in his computation.”

15.3 In term of above, we take up these appeals and heard Shri S.Sundararaman, learned counsel for the assessee and Ms.Pushpa, Ld. Sr.Standing Counsel for the Revenue. The Assessing Officer, while verifying the accounts of the assessee, claimed that the assessee has deducted Rs.266,77,00,000/- in the profit & loss account and created provision towards ‘claim incurred but not reported’ (IBNR) and ‘claims incurred but enough reported’ (IBNER). The assessee was asked to explain as to why said provisions should not be disallowed and added back to the total income of the assessee. The assessee explained before the Assessing Officer the entire genet of the claim by filing a letter, which is reproduced in the order of the Assessing Officer. The Assessing Officer, while adjudicating the issue noted that provision for IBNR / IBNER is to be created considering the date of occurrence of the relevant event and not based on reporting of the event. Hence, the Assessing Officer noted that such provision for these two claims do not seem to be covered entire events that occurred during particular financial year but not reported. The assessee before the Assessing Officer explained this by filing the evidences that the same is based on actuarial valuation and relevant text of the letter reproduced by the Assessing Officer is being reproduced for the sake of clarity as under:-

“The provision for IBNR and IBNER made by the assessee for the relevant assessment year are based on actuarial valuation by an independent actuary. The valuation is worked based on an approved statistical model (approved by the Actuarial Society of India and IRDA) which takes into account various factors including (a) claims report, (b) claims paid; and (c) claims outstanding details from the Company for the past seven years. The Actuary, using the data furnished by the assessee based on the statistical model approved by Actuarial Society and IRDA, calculates the ultimate loss that will fall on the company under each portfolio (viz. Fire, Marine Cargo, Marine Hull,etc.) and on the so calculated amount reduces the Claims actually paid and also the Claims Outstanding accounted by the assessee to arrive at the shortfall on the ultimate loss. This shortfall will be certified by the Actuary to be the IBNR/IBNER to be accounted by the assessee. A copy of the report of the Actuary is enclosed for your reference (Annexure 3). From a reading of the report, one can appreciate that the Actuary recommended to the assessee to provide the above amount based on his study of the claim reporting pattern and the outstanding liability made in earlier years.”

15.4 According to the Assessing Officer, claim made by the assessee, particularly with regard to third party motor insurance claim, is without any time limitation and hence, claim made on these two items by the assessee is unascertained liability and hence, he disallowed provision created by the assessee by observing that the assessee itself reverses the provision created in an earlier year, in subsequent year and creates new provision based on reporting of the events. The Assessing Officer disallowed this provision and also for similar reasons added back this provision for the purpose of computation of book profit u/s.115JB of the Act. Aggrieved, the assessee preferred appeal before the learned CIT(A). The Ld.CIT(A), by following the earlier year order for assessment year 2003-04 vide para 10.3.3 held as under:-

“10.3.3 In A.Y. 2003-04, in the appellant's own case, my predecessor has made the following observation : "4.2 I have carefully considered the facts of the case and the various submissions made by the ld. AR. I have also gone through the decisions relied on by the ld. AR. I find that the appellant has provided for the above sums based on actuarial valuation which is a scientific basis. It was also submitted that it is the universal practice of all insurance companies to provide for IBNR/ IBNER and it is based on a statutory requirement. Hence, I am of the considered opinion, that the claim of the appellant has to be allowed. The Hon'ble Supreme Court in the case of Rotak Controls India (P) Ltd. (supra), has held as under: "The present value of a contingent liability, like the warranty expense, if properly ascertained and discounted on accrual basis can be an item of deduction under section 37. The principle of estimation of the contingent liability is not the normal rule. It would depend on the nature of the business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting adopted by the assessee. It would also depend upon the historical trend and upon the number of articles produced. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation ; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognised. The principle is that if the historical trend indicates that a large number of sophisticated goods were being manufactured in the past and the facts show that defects existed in some of the items manufactured and sold, then provision made for warranty in respect of such sophisticated goods would be entitled to deduction from the gross receipts under section 37." The ratio of the above decision is applicable to the facts of the appellant. It is further seen that similar claims have been accepted in earlier as well as subsequent assessment years. In view of the above and respectfully following the above decision, the claim of the appellant is allowed. Accordingly, this ground is allowed." 10.3.4 In view of my predecessor's decision on the aforesaid issue, the AO's disallowance of the appellant's claim of provision of IBNR / IBNER amounting to Rs.266,77,00,000/- is deleted and the appellant's ground is allowed.”

15.5 Accordingly, the CIT(A) deleted the disallowance, against which the Revenue is in appeal for AY 2013-14 and for the assessment years 2014-15 to 2016-17 and 2018-19, the CIT(A) by following the order of the Tribunal upheld the orders of the Assessing Officer and thus, the assessee is in further appeal before us.

15.6 The Tribunal in for assessment year 2013-14 has set aside the issue of IBNR/IBNER back to the file of the Assessing Officer to determine as to whether provision created towards IBNR/IBNER is ascertained liability or not. But, the Tribunal has not adjudicated the issue and simplicitor decided the issue on merits. But, as rightly observed by the Hon’ble Madras High Court that the Tribunal has decided the issue of applicability of provisions of section 115JB of the Act upto assessment year 2012-13. This fact is noted by the Hon’ble Madras High Court in its judgement in TCA No. 339 & 342 of 2019 dated 08.12.2019 vide para 4, 5 & 6 as under: 4. It may not be necessary for us to dwell deep into the factual matrix, as we find that the error crept in the order passed by the Tribunal while deciding the issue with regard to addition of reserve for unexpired risk while computing book profit under Section 115JB of the Act. The Tribunal in paragraph No.55 of the impugned Order has noted that this issue arises for consideration in the Revenue's appeal for the assessment years 2003- 2004, 2004-2005, 2007-2008 to 2013-2014 and in the assessee's appeals for the assessment years 2003-2004, 2007-2008 and 2012-2013.

15.7 Now, before us, the learned counsel for the assessee argued and admitted that the assessee is an insurance company and it has not disputing applicability of provisions of section 115JB of the Act to it post-amendment to the Finance Act, 2013- 14 i.e AY 2013-14 onwards. He also stated that the Assessing Officer has adjudicated this issue, but the CIT(A) again relying on the earlier year order of the CIT(A) i.e for assessment year 2003-04, allowed the claim of the assessee on merits, but has not adjudicated the issue whether this provision is allowable, while computing book profit u/s.115JB of the Act and has not also determined whether liability is ascertained or unascertained in term of provisions of Explanation 1(c) to section 115JB of the Act.

15.8 The Ld.Senior Standing Counsel for the Revenue has also fairly agreed that this issue is neither adjudicated by the CIT(A) nor the Tribunal, on merits and only some facts are available in the order of the Assessing Officer. Hence, both the sides have agreed that this issue can be remitted back to the file of the Assessing Officer before whom the assessee will place all evidences and will prove whether claim made by the assessee is ascertained liability or unascertained liability. The Assessing Officer will examine the claim and then decide the issue in accordance with law as to whether liability is crystallized or not during the relevant year in the given facts and circumstances of the case.

15.9 After hearing both sides and going through the facts of the case, we agree with the arguments advanced by both sides that facts relating to provision created for IBNR/IBNER relating to relevant assessment years are not available on record and hence, the matter is to be restored back to the file of the Assessing Officer for fresh adjudication for the reason that in case, if the matter is restored to the file of CIT(A), he has to call for remand report and the details cannot be examined at his level. Hence, we remand this issue back to the file of the Assessing Officer for detailed examination of this issue as to whether provision created by the assessee on account of IBNR/IBNER is ascertained liability or unacertained liability for the purpose of computation of book profit u/s.115JB of the Act only.

15.10 Accordingly, impugned orders of the Assessing Officer and that of the CIT(A) on this issue are set aside and matter is remitted back to the file of the Assessing Officer for fresh adjudication in term of above. Consequently, identical issue raised by the assessee for assessment years 2014-15 to 2016- 17 and 2018-19 and that of the Revenue for the assessment year 2013-14 are remitted back to the file of the Assessing Officer for fresh adjudication. Therefore, ground raised by the assessee as well as Revenue on the issue of provision created for IBNR/IBNER for computation of book profit u/s.115JB of the Act in respect of assessment years 2014- 15 to 2016-17 and 2018-19 by the assessee and that of the Revenue for assessment year 2013-14 are treated as allowed for statistical purposes.

8(b) The CIT(A) erred in not appreciating the fact that the aforesaid change in the accounting treatment of URR would result in 'change in accounting policy' adopted by the Appellant and such changes are not in line with provisions of Section 115JB of the Act.”

16.1 The Assessing Officer while framing assessment added reserve for unexpired risk by observing that reason for unexpired risk is nothing but solvency margin created as per guidelines laid down under IRDA Rules as well as Insurance Act and hence, this reserve created is nothing but, amount set aside for making unascertained liabilities. The Assessing Officer, after discussing provisions of section 115JB of the Act and noting that assessee is allowed to make 100% provision for the purpose of unexpired risk in some of the segments of insurance business, i.e., i) Premium received on Marine Hull; ii)Premium allocated for the terrorism pool & iii) Premium received on Fire & Engineering Insurance It means the entire premium received during particular accounting period has been treated as reserve by the assessee and same being reduced in the profit & loss account prepared as

per IRDA guidelines, but, in any way, the same cannot be called as ascertained liabilities. Hence, the Assessing Officer disallowed the reserve created for unexpired risk of Rs.238,13,11,883/- adjusted during the current year from the insurance premium received and added back to the book profit computed u/s.115JB of the Act. Aggrieved, the assessee preferred further appeal before Ld.CIT(A).

16.3 After hearing both the sides and going through records of the case, we noted that the issue has been remanded back to the Tribunal by the Hon’ble Madras High Court vide its order dated 08.12.2020 at para nos. 4 to 6 in Tax Case Appeal Nos.

339 & 342 of 2019 [details are noted above in para 15.9 of this order while dealing with the issue of provision created for IBNR/IBNER] Hence, taking a consistent view as agreed by both learned counsels for assessee as well as Revenue, we remit this issue also back to the file of the Assessing Officer with similar directions to the Assessing Officer mentioned in para No.15.10 of this order.

16.4 Here, it is pertinent to note one fact as argued by the learned counsel for the assessee that earlier there was no decision available on the issue of reserve for unexpired risk, but now, the ITAT., Kolkata Benches of this Tribunal in the case of DCIT Vs National Insurance Co. Ltd. in has categorically held that reserve created for unexpired risk need not be added back for the purpose of computation of book profit u/s.115JB of the Act. The Assessing Officer, while doing fresh adjudication can consider the decision of ITAT., Kolkata Benches of this Tribunal in the case of DCIT Vs National Insurance Co. Ltd. in ITA No.983/Kol/2012 and then decide the issue in accordance with law.

16.5 In term of above, the impugned orders of the Assessing Officer and CIT(A) are set aside for the assessment years 2014- 15 to 2016-17 & 2018-19 raised by the assessee and that of the Revenue for the assessment year 2013-14 on the issue of creation of reserve for unexpired risk and matter is remitted back to the file of the Assessing Officer to decide the issue afresh as

per law, after considering entire facts of this case. In the result, appeals filed by the assessee for the assessment years 2014-15 to 2016-17 & 2018-19 and that of the Revenue for the assessment year 2013-14 on the issue of creation of reserve for unexpired risk are treated as allowed for statistical purposes.

17. Similarly, the next common issue raised in the appeal of the Revenue for assessment year 2013-14 is as regards to disallowance of exempt income by invoking provisions of section 14A r.w.rule 8D of the Income Tax Rules, 1962, while computing book profit u/s.115JB of the Act.

17.1 At the outset, learned counsel for the assessee stated that this issue is squarely covered by the decision of Special Bench of the Tribunal in the case of ACIT vs. Vireet Investments (P)

Ltd. [2017] 165 ITD 27 (Delhi – Trib.) (SB), wherein the Special Bench has considered an identical issue and after considering relevant facts held that computation under clause (f) of Explanation 1 to section 115JB(2) of the Act is to be made without resorting to computation as contemplated u/s.14A read with Rule 8D of I.T. Rules, 1962.The relevant portion of the decision of Special Bench of this Tribunal in the case of ACIT Vs. Vireet Investments is reproduced as under:-

"6.22 In view of above discussion, we answer the question referred to us in favour of assessee by holding that the computation under clause (f) of Explanation I to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income-tax Rules, 1962.”

17.2 For this proposition, the learned Sr.Standing Counsel could not controvert the above position and could not bring any contrary decision before us on this issue.

17.3 After hearing both the sides and going through the records of this case, we find that the issue in hand is squarely covered by the decision of the Special Bench of the Tribunal in the case of ACIT Vs. Vireet Investments ( supra), wherein the Special Bench has categorically held that provisions of section 14A read with Rule 8D will not apply while computing the book profit u/s.115JB of the Act. Respectfully following the Special Bench decision cited above, we delete the disallowance made by invoking the provisions of section 14A read with Rule 8D of Income Tax Rules, 1962 while computing book profit u/s.115JB of the Act.

We, therefore, affirm the impugned order of Ld.CIT(A) on this issue and allow the claim of the assessee for assessment year 2013-14 and reject the grounds taken by the Revenue for the assessment year 2013-14. In the result, the ground raised by the Revenue for assessment year 2013-14 on the issue of disallowance by invoking the provisions of section 14A read with Rule 8D of Income Tax Rules, 1962 while computing book profit u/s.115JB of the Act is dismissed.

18.1 During the previous year relevant to assessment years under consideration, the assessee has earned exempt income, and made suomotu disallowance voluntarily towards expenditure relatable to exempt income u/s.14A. The Assessing Officer has disallowed expenditure relatable to exempt income u/s.14A of the Act by invoking Rule 8D of Income Tax Rules, 1962, as substantial amount of investments in equities and mutual funds have been made by the assessee and part of remuneration and other expenses attributable to top executives are linked to this exempt income that would be earned out of such investments and the assessee has also earned tax free income. It was explanation of the assessee before the Assessing Officer that provisions of section 14A of the Income Tax Act, 1961 does not apply to insurance companies and the assessee relied on catena of judgements and urged that the Ld.CIT(A) has decided the issue in favour of the assessee by placing reliance on order of various High Courts in support of its claim. The learned counsel for the assessee argued that there is no satisfaction from the Assessing Officer as required u/s.14A(2) of the Act having regard to books of account of the assessee that suo motu disallowance made is not correct. The assessee relied upon ITAT., Pune Bench in the case of M/s. Bajaj Alliance General Insurance Company (ITA No. 1578/Pune/2008). The assessee has also placed reliance on a plethora of judgements on the matter of various Tribunals and High Courts viz., ITAT Delhi: DCIT vs. Oriental Insurance Co. Ltd (2015-TIOL-139- ITAT-DEL), Oriental Insurance Co. Ltd v s. ACIT (2009-TIOL- 172-ITAT-DEL), ITAT Mumbai in the case of DCIT v. ICICI Prudential Life Insurance Co. Ltd (2015 (1) TMI 9), ICICI Lombard General Insurance Co. Ltd vs. ACIT (ITA No. 4287/Mum/2009), Reliance General Insurance Co. Ltd vs. DCIT (2010-TIOL-473-ITAT-MUM), Birla Sun Life Insurance Co. Ltd vs. DCIT (2010-TIOL-535-ITAT-MUM), the Hon’ble Delhi High Court in the case of Oriental Insurance Co. Ltd. In of 2020 dated 04.03.2020 and other cases mandating that provision of section 14A were not applicable in the case of insurance companies which were taxed under the provisions of section 44 of the Act. It was also submitted that the department has accepted the order of the Ld.CIT(A) and not filed any appeal before any appellate authority. The Ld. Sr. Standing Counsel, however relied upon the order of the Assessing Officer on this issue.

18.2. We have heard the rival submissions in the light of materials available on records. Insurance Companies are liable for taxation within the meaning of section 44 of the Act. The said section begins with a non-obstante clause thus precluding application of computation of income u/s.28 to 43 which has bearing with section 14A . Accordingly, we concur with the findings of the Hon’ble Tribunals cited supra as well as the Hon’ble High Court of Delhi and hold that no interference can be made to the assesse’s income by provisions of section 14A.

Accordingly, the grounds of appeal raised by the Revenue for AY 2014-15 to 2016-17 and 2018-19 are therefore dismissed and thus, the Ld.AO is directed to delete additions made.

19. The next issue that came up for our consideration from the assessee appeal for the assessment year 2017-18 is disallowance of Rs.17.25 crores u/s.36(1)(va). The Ld.AO disallowed a sum of Rs.17,25,27,756/- on account of failure to deposit Employees’ contribution to PF before due date as specified under the Act. On appeal, the Ld. CIT(A) confirmed the disallowance of Employee’s Contribution made by the Assessing Officer, as said late payments are not covered u/s.43B and by following the latest decision of the Hon'ble Supreme Court in the case of M/s.Checkmate Services dated 12.01.2022. Aggrieved by the order of Ld.CIT(A), the assessee is in further appeal before us.

19.1 Heard both sides and perused materials available on record. Since the Ld.CIT(A) has followed binding judicial precedent in the case of M/s.Checkmate Services dated 12.01.2022 by the Hon'ble Supreme Court, on the issue disallowance of Employee’s Contribution to PF and confirmed order of the Assessing Officer, the same do not require any interference on our part. Thus, the ground raised by the assessee on this issue is dismissed for the assessment year 2017-18.

Though the assessee furnished reply, the Assessing Officer was not convinced with the same and proceeded to disallow commission expenses paid to foreign agents for non-deduction of TDS under section 195 of the Acton account of the fact that said commission has arisen and accrued to non-residents only in India and there is also there is business connection between the assessee and non-resident insurance companies. However, on appeal, the Ld.CIT(A) by following decision of the Tribunal in assessee’s own case in to 1610/Chny/2011 &Ors dated 28.08.2018 for assessment years 2007-08 to 2013-14 allowed the claim of the assessee holding that amounts have been paid to non-residents, who do not have any permanent establishment or any distinct business activities in India and further, amounts paid to non-residents were liable for taxation for the respective foreign countries and thus, provision of section 195 is not attracted in the present case. The learned counsel for the assessee submitted that this has been decided against the Revenue by the Hon’ble High Court of Madras in TCA No.323 of 2019 in assessee’s own case and a copy of which is placed on record as Annexure-3 at pages 162 to 173 of the paper book filed by the assessee. In the impugned order, the Hon’ble jurisdictional High Court, relying upon their own decision in the case of M/s. Royal Sundaram Alliance Insurance Company Ltd. In TCA No.41 of 2019, held that assessee is not liable to deduct tax at source, qua, payments made to overseas surveyors. The Ld.Sr. Standing Counsel has fairly agreed that the issue is decided against the Revenue.

20.1 Heard rival submissions and perused materials available on record. It emerges from record that assessee is not paying any commission to insurance companies and such commission was deducted by respective insurance companies themselves from reinsurance premium. Therefore, when the assessee is not making payment, the assessee is not liable to deduct tax. We find that the Ld.CIT(A) has rightly allowed the claim of the assesseeby following the decision of this Tribunal in assessee’s own case for assessment year 2007-08 to 2013-14. Further, the order of the Tribunal dated 28.08.2018 on the issue of commission paid for receipt of re-insurance premium in assessee’s own case was affirmed by the Hon’ble High Court of Madras in TCA No.323 of 2019 dated 14.06.2019. Thus, respectfully following the said judgement, we confirm the order of the CIT(A) on this issue and reject the grounds raised by the Revenue in assessment years 2014-15 to 2019- 20.

21.1 The Ld.Senior Standing Counsel contended that the assessee has paid survey fees for the purpose of quantification of claim for making payment on the insurance claim which was incurred outside India and said payments were made without deducting TDS. When the Ld.AO required the assessee to furnish details of survey fees paid outside India, the assessee submitted that provisions of section 195 is not applicable on the survey fees paid to non-residents. Therefore, not satisfied with the reply filed by the assessee, the Ld.AO rightly estimated the disallowance @ Rs.10,415/- for every claim of Rs.1 crore towards marine insurance and disallowed Rs.22.85 Lacs observing that though amount of survey fees was reimbursed to the claimant since survey has been done on behalf of Indian insurer, said payment of fees was made by the assessee to non- resident surveyors.

21.2. The learned counsel for the assessee, on the other hand, submitted that whenever there was damage or claim, surveyors examined the insured property and estimated damages and entire services were outside India and the non-residents have no business connection in India. Further, the income of the surveyors is not liable for taxation in India, thus, the assessee is not liable to deduct tax, which is nothing but reimbursement of expenditure incurred by surveyors. Therefore, theLd.CIT(A) has rightly allowed the issue in favour of the assessee by following the order of this Tribunal dated 28.08.2018 in assessee’s own case for earlier assessment years 2003-04, 2011-12 to 2013-14.

21.3. Heard rival submissions and perused materials available on record. We find that order of the Tribunal dated 28.08.2018 in assessee’s own case on the issue of survey fees paid to non-residents u/s.40(a)(ia) was affirmed by the Hon’ble High Court of Madras in TCA No.323 of 2019 dated 14.06.2019.

Thus, respectfully following the said judgement, we confirm the order of the CIT(A) on this issue and reject the grounds raised by the Revenue in assessment years 2014-15 to 2019- 20.

22.1 The learned counsel for the assessee, at the outset submitted that this issue of payment made to motor car dealers by the assessee towards infra payment u/s.37(1) of the Act is also covered in favour of the assessee by the earlier decision of this Tribunal dated 28.08.2018 in assessee’s own case for the assessment year 2013-14, which was affirmed by the Hon’ble High Court of Madras in TCA No.339 to 342 of 2019 vide order dated 21.06.2019 and a copy of which is placed on record as Annexure-4 at pages 174 to 181 of the paper book filed by the assessee. The Ld. Senior Standing Counsel fairly agreed that the issue is decided against the Revenue.

22.2 Heard rival submissions and perused materials placed on record. In the judgement of the Hon’ble High Court of Madras dated 21.06.2019, it was observed that the addition was made as sequel to information received from the service tax department whose own enquires had not reached finality. The Hon’ble High Court laid down that the Revenue would be free to exercise its authority under the Act in the event of Service tax department holding against the assesse. Respectfully following the said judgement of the Hon’ble High Court of Madras dated 21.06.2019, we confirm the order of the CIT(A) on the issue of infra payments made by the assessee to motor car dealers and reject the grounds raised by the Revenue in assessment years 2014-15 to 2019-20.

23.1 The assessee also filed an additional ground in ITA 13/Chny/2023 seeking permission to adjudicate the issue of credit for TDS amounting to Rs.2,29,99,898/- for AY 2017-18 and submitted that though the said ground was raised before the Ld.CIT(A), which was omitted to be adjudicated by the Ld.CIT(A).

The Ld. Senior Standing Counsel has no objection to admit the ground for adjudication as the same was non-adjudicated by the Ld.CIT(A).

23.2 The Ld. Counsel for the assessee argued that the AO has made the impugned additions / interference to its returned income by ignoring material facts on the records and/or not providing any basis for the proposed interference. The Ld.CIT(A) omitted to adjudicate the above issues as raised in the respective assessment years. The Ld.AR accordingly argued that the matter may be restored back to the file of Ld.CIT(A) for adjudication.

23.3 We have heard the rival parties and examined material on records. The assessee is legally entitled for all benefits under the Act as long as the facts supports its case. Accordingly, the Ld.CIT(A) is directed to adjudicate the issues raised above which were omitted to have been adjudicated in the light of material placed by the assessee on records and as per law. The Ld..

Senior Standing Counsel did not have any objection to the same.

The assessee is directed to provide all necessary details to the first appellate authority and comply with its notices. To that extent, on the issue non-adjudication of grounds raised by the assessee for AY 2017-18, 2018-19 and 2019-20 [on the issues mentioned above in para 23 and 23.1 of this order] and additional ground of appeal raised by the assessee before us in for assessment year 2017- 18 are remitted back to the file of the Ld.CIT(A) for fresh adjudication. Therefore, these grounds raised by the assessee for the relevant assessment years are allowed for statistical purposes.