Vildirect: IncomeTax-caselaws-2016-VIL-971-ITAT-KOL

2016-VIL-971-ITAT-KOL

Income Tax Appellate Tribunal KOLKATA

I.T.A No. 674/Kol/2012, I.T.A No. 982/Kol/2012, I.T.A No. 983/Kol/2012

Date: 05.08.2016

DEPUTY COMMISSIONER OF INCOME-TAX

NATIONAL INSURANCE CO. LTD.

For the Appellant : Shri Hari Shankar Lal, CIT
For the Respondent : Shri Sanjay Bhattacharya, FCA

BENCH

Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM

JUDGMENT

Per Shri M. Balaganesh, AM

All these three appeals by revenue are arising out of separate orders of CIT(A) vide appeal Nos. 30/CIT(A)-VI/Cir-6/2010-11/Kol dated 16.01.2012, 884/CIT(A)-VI/Cir-6/09- 10/Kol dated 28.03.2012 and 255/CIT(A)-VI/Cir-6/10-11/Kol dated 29.03.2012. Assessments were framed separately by DCIT, Circle-6, Kolkata u/s. 143(3) & 115WE(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for AYs.2005-06, 2007-08 & 2008-09 vide his orders dated 31.12.2007, 31.12.2009 and 29.12.2010. Since some of the grounds are common and facts are identical, we dispose of all these appeals by this consolidated order.

2. At the outset, there was a delay of 2 days in filing the appeal for the Asst Year 2007- 08 and 11 days for the Asst Year 2005-06 by the revenue. Based on the concession given by the ld AR for condoning the said delay, we hereby condone the delay and admit the appeals for adjudication.

ITA No. 674/Kol/2012 – Asst Year 2005-06

3. The first issue to be decided in this appeal is as to whether the ld CITA is justified in deleting the addition made on account of provision for IBNR amounting to Rs. 12,77,00,000/- as ascertained liability and thereby holding that the same need not be added back to book profits computed u/s 115JB of the Act.

3.1. The brief facts of this issue is that the ld AO observed that the assessee disclosed that provision is made in the accounts in respect of claims received or likely to be received after the end of the year but relating to the relevant accounting year. This provision for liability is made as per valuations carried out by actuaries and is shown under the head liabilities ‘incurred but not reported’. The assessee claimed that such provisioning is made as per guidelines issued by the IRDA. Since Insurance business is a special kind of business, this provisioning may be binding for the assessee as per IRDA guidelines, but there is no scope for allowance of such amount set aside from current year's profit. The amount is clearly in inadmissible in terms of Explanation given below sec. 115JB(2). On the basis of the above, the Assessing Officer added back the provision for IBNR of Rs. 12,77,00,000 while computing the Book Profit u/s. 115JB(2).

3.2. The assessee submitted that on the basis of reports and communications received from different branches as regards the claims made by various persons who had taken Insurance policies with the assessee, provision on account of Outstanding Claims are accounted for on actual basis in respect of claims received up to the fixed cut off date viz., the end of the relevant accounting year. A separate provision is also made in the Accounts in respect of claims received or likely to be received after the end of the year but relating to the relevant accounting year as a liability on the basis of valuations carried out by the actuaries and such provision is shown under the head “Liabilities Incurred But not Reported (IBNR)". As practised all over the world in the General Insurance business, this particular provision, viz., IBNR is made in order to guard against the loss arising from claims that would be subsequently made against the assessee in relation to the relevant accounting year. The assessee submitted that making of this provision, viz., IBNR, is in accordance with the guidelines issued by the Insurance Regulatory and Development Authority (IRDA) as well as the Institute of Chartered Accountants of India (ICAI). It was submitted that this provisioning is being made only in relation to the claims which are relating to the relevant accounting year but whose reporting are made subsequently. The assessee submitted that the ld AO should have appreciated that there cannot arise any question of assuming any uncertainty in relation to this provisioning of IBNR. Hence the assessee submitted that when in the assessment as per normal provisions of the Act, this provision is being considered as an allowable deduction, there should not arise any question of treating this provision as a provision made towards any alleged Unascertained liability while computing book profits u/s 115JB of the Act. The assessee submitted that for the preceding Assessment Year, viz., 2004-05, the ld AO had made similar addition of Provision for IBNR amounting to Rs. 16,18,00,000 through an order of re-assessment u/s 147/143(3) which was subsequently modified by an order of rectification dated 15-01-2010 passed u/s 154/147/143(3). In the assessee’s appeal against the addition of Provision of IBNR, the ld CITA- VI, Kolkata, vide his Appellate Order dated 31-03-2010 [IT. Appeal No.988/CIT(A)-VI/09-10/Cir.-6/Kol] held that Provision for IBNR could not be termed as a Provision made to meet any unascertained liability. The ld CITA directed the ld AO to delete the addition of Rs. 16,18,00,000/- being Provision for IBNR while computing the Book Profit u/s 115JB(2) of the Act. On the basis of the above facts and the ld CITA order referred to above, it was submitted that the ld AO’s action in adding back the Provision for IBNR of Rs. 12,77,00,000 as an alleged Unascertained liability while computing the Book profit u/s 115JB of the Act was unjustified.

3.3. The ld CITA on going through the submissions of the assessee observed as under :-

“The provision for IBNR could not be termed as any provision made to meet any unascertained liability and so the addition made for IBNR Provision in computing Book Profit, was directed to be deleted by my Ld. Predecessor. Since the issue in the present Appeal is the same, following my predecessor's Order, the Assessing Officer is directed to delete the addition of Rs. 12,77,00,000/- being provision for IBNR while computing the Book Profit u/s 115JB(2). The appeal is allowed on this ground.”

3.4. Aggrieved, the revenue is in appeal before us on the following ground:-

“1. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in holding that the provision for IBNR amounting to Rs. 12,77,00,000/- as ascertained liability and should be deducted while computed the Book Profits u/s. 115JB of the Income Tax Act.”

3.5. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR argued that the revenue had not preferred any appeal against the order of the ld CITA passed for the Asst Year 2004-05 in view of the decision taken by the Committee on Disputes not to prefer further appeal to the tribunal, as per the procedure then prevailing in respect of preferring appeals by the revenue in the case of Public Sector Undertakings and Government Companies.

3.6. We have heard the rival submissions and gone through facts and circumstances of the case. We find that the ld CITA had given a categorical finding that the provision made for liabilities incurred but not reported (IBNR) made by the assessee as per the regulations framed by Insurance Regulatory Development Authority (IRDA) based on a scientific calculation with a proper rationale could only be termed as ascertained liability. Hence the same need not be added back by treating the same as an unascertained liability while computing the book profits u/s 115JB of the Act. The revenue was not able to controvert the findings given by the ld CITA before us. Hence, we find no infirmity in the order of the ld CITA in this regard and accordingly dismiss the Ground No. 1 raised by the revenue.

4. The next issue to be decided in this appeal is as to whether the ld CITA is justified in deleting the addition made on account of provision for unidentified motor third party claim amounting to Rs. 37,69,96,000/- as ascertained liability and thereby holding that the same need not be added back to book profits computed u/s 115JB of the Act.

4.1. The brief facts of this issue is that the assessee disclosed that on receipt of any summons of the nature, the assessee company is required to provide for the liability towards claim to be settled. However, if in case of a particular claim it is observed that necessary detailed information as regards the relevant policy are not available in the concerned summons or where the assessee considers that on the basis of the investigations to be carried out there may be a possibility of disputing the quantum of the claim, the company does not make provision for the entire claim made. In accordance with the guidelines framed by the General Insurance Corporation of India, the assessee does not provide for the entire claim but only 1/3rd of the respective claims are provided for. Here also, the provision is made for a liability which has not crystallized. Earlier, the assessee stated that such making of provision is an accepted norm as decided in a meeting dated 23rd/24th April, 1997 of the General Insurance Public Sector Association. When a claim is received which is more than a year old, provision is made even for 100%. This is done as per the convention which is not backed by any IRDA Guidelines or any Accounting Standards. Since Insurance business is a special kind of business, this provisioning may be binding for the assessee . On the basis of the above, the Assessing Officer added back the provision for unidentified Third Party Motor Claim of Rs. 37,69,96,000/- while computing the Book Profit u/s 115JB(2) of the Act.

4.2. The assessee submitted its business includes, inter alia, Third Party Insurance which arises out of motor accidents. In respect of any motor accident, if covered under any Insurance policy with the assessee, the injured person and/or in the case of death of the injured person, his legal heir, files an application before the Motor Accidents Claims Tribunal through Court, claiming compensation for injury or death, as the case may be. On the basis of the aforesaid application filed by a claimant to the Court, summons is issued by the Court to the assessee for settlement of Third Party claim. On receipt of any summons of the above nature, the assessee is required to provide for the liability towards claim to be settled. However, if in case of a particular claim it is observed that necessary detailed information as regards the relevant policy are not available in the concerned summons or where the assessee considers that on the basis of the Survey to be carried out there may be a possibility of disputing the quantum of the claim, the assessee does not make provision for the entire claim made. In accordance with the guidelines framed by the General Insurance Corporation of India, the assessee does not provide for the entire claim but only 1/3rd of the respective claims are provided for. The assessee submits that the ld AO should have appreciated that though the amount claimed through application of the insured person and/or a legal heir, as communicated to the assessee by the Competent Court, is an ascertained liability in the hands of the assessee yet the liability for the entire quantum of claim is not provided for in the accounts but only 1/3rd thereof is considered in the relevant year by way of provision. It shows that, in fact a lesser liability has been provided for.

On the basis of the above facts, the assessee submitted that there is no uncertainity as regards the provisioning made by the assessee for this claim and hence the same need not be added back u/s 115JB of the Act. It was also stated that similar addition made for the Asst Year 2004-05 was directed to be deleted by the ld CITA vide his order dated 31.3.10. The assessee also submitted a copy of the tribunal order passed for the Asst Year 2001-02 in ITA No. 812/Kol/2009 dated 11.10.2011 on the same issue which was decided in favour of the assessee. Based on these submissions, the ld CITA deleted the addition made by the ld AO.

4.3. Aggrieved, the revenue is in appeal before us on the following ground:-

“2. That on the facts and circumstances of the case, ld. CIT(A) erred in law in holding that the provision unidentified Motor third Party Claim is an ascertained liability and should be deducted while computed the Book Profits u/s. 115JB of the Act.”

4.4. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR argued that the revenue had not preferred any appeal against the order of the ld CITA passed for the Asst Year 2004-05 in view of the decision taken by the Committee on Disputes not to prefer further appeal to the tribunal, as per the procedure then prevailing in respect of preferring appeals by the revenue in the case of Public Sector Undertakings and Government Companies. Apart from that, the issue is also covered by the order of this tribunal in assessee’s own case in ITA No. 812/Kol/2009 dated 11.10.2011.

4.5. We have heard the rival submissions. We find that the issue involved is squarely covered by the decision of this tribunal in ITA No. 812/Kol/2009 dated 11.10.2011 wherein it was held that :-

“13. After hearing the rival submissions and on careful perusal of materials available on record it is observed that Ld.CIT(A) has deleted the addition of disallowance of Rs. 3.17 lakhs while computing the regular taxable income by observing that keeping in mind of the specific provisions contained in the Act as regards the procedure for assessment of an assessee carrying on general insurance business and also the above referred two decisions of the Supreme Court, the AO's action in disallowing does not appear to be correct. When once this observation has been made by Ld. CIT(A) it is not fair on the part of Ld. CIT(A) to take a contrary view while computing the MAT u/s 115JB of the Act by stating that the claim of assessee is in the nature of ad hoc one working out on specific percentage against anticipated /undetermined liability. It is further observed from the correspondence and minutes of observations held by the assessee company with General Insurance Corpn. of India and other subsidiaries in respect of unidentified Motor Third Party Claim which were placed at pages 31 to 34 of the paper book that assessee's liability towards unidentified motor Third Party claim cannot be stated as unascertained liability. In our considered opinion the liability on account of unidentified Motor Third Party claim is certain. However, the quantification is not certain. However, as regarding quantification also all the subsidiary companies of the General Insurance Corporation of India along with the assessee company has adopted the same method decided by the holding company i.e General Insurance Corporation of India.

13.1. Keeping in view of the above, we are of the view that the provision created on account of unidentified Motor Third Party claim will not fall under sub section 115JB(2)-Explanation 1 (c) of the Act. Therefore, no addition is required while computing the tax liability u/s 115JB of the Act. Hence, we set aside the orders of the revenue authorities on this issue and direct the Assessing Officer not to make any adjustment on account of the provision under unidentified Motor Third Party claim while computing the tax liability u/s 115JB of the Act. This ground of the assessee is allowed."

Respectfully following the co-ordinate bench decision of this tribunal, we dismiss the Ground No. 2 raised by the revenue.

5. The last issue to be decided in this appeal is as to whether the ld CITA is justified in directing the ld AO that interest u/s 234B and 234C of the Act should not be charged on account of addition to the total income due to retrospective amendment.

5.1. The brief facts of this issue is that the ld AO made the following additions to the book profits computed u/s 115JB of the Act:-

(i) Provision of IBNR	12,77,00,000
(ii) Provision for Unidentified Motor Third Party Claim	37,69,96,000
(iii) Provision for Bad & Doubtful Debts	5,50,91,000
(iv) Provision for Diminution in Value of Investments	1,96,09,000
	57,93,96,000

The ld CITA by placing reliance on the decision of the Jurisdictional High Court in the case of Emami Ltd vs CIT reported in 200 Taxman 326 (Cal) directed the ld AO not to charge interest u/s 234 B and 234C of the Act as the same is levied only for non-payment of advance tax liability and deferment of the same and the retrospective amendment in the statute could not have been envisaged by the assessee while calculating the advance tax liability. Aggrieved, the revenue is in appeal before us on the following ground:-

“3. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in directing that the interest u/s. 234B and 234C of the Act should not be charged on account of addition to the total income due to retrospective amendment.”

5.2. The ld DR argued that the charging of interest u/s 234 B and 234C of the Act is mandatory in nature and the retrospective amendment in the statute with regard to item (iii) and (iv) above was for computation of income u/s 115JB of the Act and the income so determined had to obviously suffer tax and mandatory interest as per the Act. In response to this , the ld AR placed reliance on the decision of the Jurisdictional High Court in the case of Emami Ltd vs CIT reported in 200 Taxman 326 (Cal).

5.2. We have heard the rival submissions and gone through facts and circumstances of the case. We find that the issue is squarely covered by the decision of the Hon’ble Jurisdictional High Court supra wherein it was held that :-

“4. A Division Bench of this Court at the time of admission of this appeal formulated the following substantial questions of law for determination:

"(a) Whether on a true and proper interpretation of the relevant provisions of Income- tax Act, 1961, the provisions relating to payment of advance tax are applicable in a case where the book profit is deemed to be the total income under section 115JB.

(b) Whether and in any event, on a true and proper interpretation of the relevant provisions of the Income-tax Act, 1961, the provisions of sections 234B and 234C are attracted in a case where there was no liability to pay any advance tax under section 208 on any of the due dates for payment of the advance tax installments and there is retrospective amendment of the law long after the close of the financial year imposing liability for tax.

(c) Whether the Tribunal was justified in law in upholding the levy of interest of Rs. 44,00,937 under section 234B and Rs. 11,78,960 under section 234C even though the-appellant became liable to pay tax under section 115JB by virtue of a retrospective amendment made long after the due dates for payment of the advance tax installments. "

…………

14. It appears that the learned Tribunal has not at all considered the aforesaid aspect as to the liability of the assessee to make payment of the advance tax on the last day of the Financial Year, i.e., 31-3-2001 when its book profit was nil according to the then law of the land. The various decisions of the other High Courts and the Tribunals relied upon by the Tribunal did not effectively consider the question whether even in a case like the present one where on the last date of the Financial Year preceding the relevant assessment year, the assessee had no liability to pay advance tax, he would be nevertheless asked to pay interest in terms of section 234B and section 234C of the Act for default in making payment of tax in advance which was physically impossible.

15. We, therefore, partly allow the appeal by answering the first question in the affirmative and against the assessee and the second and the third questions in the negative and against the revenue."

Respectfully following the aforesaid decision, we dismiss the Ground No. 3 raised by the revenue.

6. In the result, the appeal of the revenue in ITA No. 674/Kol/2012 for Asst Year 2005-06 is dismissed.

ITA Nos. 982/Kol/2012 & 983/Kol/2012 – Asst Years 2007-08 & 2008-09

7. Disallowance of Employees Contribution to Provident Fund – Rs. 2,22,78,598/- The Assessing Officer in his Assessment Order, observed as under:

“As per TAR (clause 16B, Annx. C) the assessee delayed deposit of contribution received from employees towards PF beyond the statutory date including the relaxation period for the collection made for the month of July, 2006. As per sec.36(i)(va) read with sec. 2(24)(x) such delay is not condoned for computation of income as per income Tax Act and is to be considered as Income of the assessee. As such a total sum of Rs. 2,22,78,598/- is added back as assessee's income.”

7.1. The assessee stated that Section 2(24)(x) of the Act provides that any sum received by the assessee from his employees as contributions to any Provident Fund or Superannuation Fund or any Fund set up under the provisions of the Employees' State Insurance Act, 1948, or any other Fund for the welfare of such employees, should be included in the definition of "income" of the assessee. Section 36(1)(va) of the Act provides that deduction should be allowed in respect of the sum received by the assessee from any of its employees to which the provisions of section 2(24)(x) of the Act apply, if such sum is credited by the assessee to the employee's account in the relevant fund on or before the due date. The term 'due date' has been defined through an Explanation to clause (va) of section 36(1) of the Act. From the language of the above-referred two sections, viz., 2(24)(x) and 36(1)(va) of the Act, it appears that certain receipt having been considered as an "income" u/s 2(24)(x) of the Act, will be deductible on credit of such receipt to the concerned employee's account within the due date. It was submitted that the receipt by way of Contribution, which is considered as an "income" is actually a liability in the hands of the assessee and on crediting the relevant receipted sum to the credit of the concerned employee the said liability is discharged. Hence, it was submitted that crediting of the employee's contribution to his individual account in the Provident Fund, should not be considered as any "expenditure" or "allowance" as referred to in clause (a) of Rule 5 of the First Schedule to the Act. It was further submitted that the crediting of the employee's contribution being not of the nature of any "expenditure" or "allowance ", the provisions contained in clause (a) of Rule 5 of the First Schedule, should not be considered as applicable in the case of any business of Insurance other than Life Insurance.

On the basis of the above observations, it was submitted that there being no question of incurring of any expenditure in the matter of crediting the sum received towards contributions from the employees, there could not be any scope for making any addition under clause (a) of Rule 5 of the First Schedule in the case of the assessee who has been carrying on the business of Insurance other than Life Insurance. Accordingly, it was submitted that there could not be any applicability of section 36(1)(va) read with section 2(24)(x) of the Act in view of the same not being covered by Rule 5(a) of the First Schedule. On the basis of the above facts it was submitted that the disallowance of Rs. 2,22,78,598/- by application of section 36(1)(va) of the Act, may kindly be directed to be deleted.

The assessee also made an alternative submission before the Ld. CIT(A) that section 36(1)(va) of the Act requires crediting of the employees' contributions within the "due date" by the employer and the said "due date ", has been clarified by way of an Explanation. Unlike section 43B of the Act, which specifically requires actual payment for being entitled to a specified deduction, in section 36(1)(va) of the Act, the requirement is of "credit" only. Hence, it was submitted that for being entitled to a deduction in relation to the "income" arising because of section 2(24)(x) of the Act, the requirement is of "credit" of the concerned sum [deemed to be an "income" u/s 2(24)(x)] to the concerned employee's account maintained under the Provident Fund and 'actual payment' of the sum before the 'due date' is not a mandatory requirement.

In addition to these arguments, the assessee stated that it had totally paid Rs. 50,00,00,000/- comprising of Employees Contribution including Voluntary Provident Fund Contributions and Employers Contribution as against the actual amounts due of Rs. 39,14,29,721/- and accordingly stated that it had in fact actually made excess payment of Rs. 10,85,70,279/-. The assessee also placed reliance on the decision of the co-ordinate bench of this tribunal in ITA No. 812/Kol/2009 dated 11.10.2011 in assessee’s own case. The ld CITA appreciated all the contentions of the assessee and deleted the disallowance made by the ld AO. Aggrieved, the revenue is in appeal before us on the following ground:-

“1. The CIT(a) erred on the facts of the case and in law in holding that Provident Fund contribution of Rs. 2,22,78,598 though admitted to not having been paid in time but still held that the same is not to be treated as income of the assessee under section 2(24)(x) read with section 36(1)(va) of the Income tax Act.”

7.2. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA.

7.3. We have heard the rival submissions. We find that the assessee had remitted the provident fund for the month of July 2006 with a delay of 15 days. We find that the issue is covered by the decision of this tribunal in assessee’s own case in ITA No. 812/Kol/2009 dated 11.10.2011 for Asst Year 2001-02 wherein it was held that :-

“7. After hearing the rival submissions and on careful perusal of the materials available on record, specially the individual accounts of the employees as on 31.03.2001 which was placed at page 2 of the paper book and the statement showing the amounts due and paid on account of contribution of the employees’ and employers’ contribution during the financial year 2000-01 which was placed at page 3 of the paper book and copy of the rules and regulations of the assessee’s provident fund rules placed at pages 4-30 of the paper book, we are of the view that since the assessee has credited both employees’ as well as employers’ contributions to the individual accounts of the employees on the date of recovery of the provident fund in our opinion assessee fulfils the requirements mentioned u/s. 36(1)(va). Therefore we set aside the orders of the revenue authorities on this issue and direct AO to give relief of Rs. 8,67,57,956/-.”

Respectfully following the same, we dismiss the Ground No. 1 raised by the revenue.

8. Disallowance of Amortisation of Premium paid on Purchase of Investments

The brief facts of this issue is that the assessee claimed Rs. 6,02,18,000/- towards amortization of premium paid on investments. Without assigning any reason, the ld AO stated in his order that the said claim of amortization could allegedly not be allowed as admissible deduction and accordingly disallowed the same. The assessee submitted that it has been carrying on the business of insurance other than life insurance and accordingly its income tax assessments were required to be made in accordance with the provisions of section 44 read with Rule 5 of the First Schedule to the Income Tax Act. According to the aforesaid provisions, the profits and gains of the insurance business other than life insurance shall be taken to be the balance of profits disclosed by the Profit & Loss Account copy of which are required under the Insurance Act, 1938 to be furnished to the Comptroller of Insurance subject to the following adjustments :-

a) Any expenditure or allowance which is not admissible under the provisions of section 30 to 43B shall be added back.

b) Amount carried over to a reserve for any unexpired risks as prescribed in this behalf shall be allowed as a deduction.

The assessee also submitted that the Hon’ble Supreme Court in the case of General Insurance Corporation of India vs CIT reported in (1999) 240 ITR 139 (SC) had held that the Assessing Officer had no general power to make any adjustment in the accounts of a general insurance company. The assessee also submitted that the Hon’ble Supreme Court in the case of CIT vs Oriental Fire & General Insurance Co Ltd reported in (2007) 291 ITR 370 (SC) had held that provisions made towards income tax and bad and doubtful debts , not being of the nature of expenditure, could not be added back by the Assessing Officer while computing the business income of an assessee carrying on general insurance business covered u/s 44 of the Income Tax Act. The assessee further submitted that as per the above referred section 44 of the Income Tax Act , all classes of income of the assessee are required to be assessed under the head ‘Profits and Gains of Business or Profession’ . Hence the Assessing Officer should have appreciated that all expenses and / or adjustments made in the assessee’s accounts were to be considered as having direct nexus to the assessee’s business of insurance. The assessee further submitted that since there does not exist any specific provision in the Act for disallowance of premium paid on investments, the ld AO should not have made the disallowance of Rs. 6,02,18,000/- as per Rule 5 of the 1^st Schedule to the Income Tax Act, 1961. Accordingly, the assessee submitted that the ld AO should have held that premium paid on investments by the assessee could not be disallowed and his action in making the disallowance should be considered as unjustified. It was also submitted that the transactions in investments being a part of the business of the assessee, the amortization of premium paid on investments should be considered as deductible for the purpose of computing the business income of the assessee. It was submitted further that this was the first year in which such disallowance has been made. The assessee buys the Government Securities on Premium. The premium amount is amortised and is being charged to profit & loss account on pro rata basis depending on the number of years when the securities will be paid back. The purchasing of the securities at premium is compulsory as per the guidelines of the Government of India and there is no choice with assessee for not to buy the same. The assessee distributes the premium paid over a period of holding rather than debiting the same in the year of purchase which will give a distorted look to the Profit & Loss Account and will not be reflecting the true and fair view of the company as per the assessee.

It was further submitted that since the assessee has been carrying on the General Insurance business and consequently its assessment is required to be made in accordance with the provisions of section 44 read with Rule 5 of First Schedule to the Income Tax Act, 1961, the ld AO is empowered to make additions / disallowances only in accordance with the above mentioned Rule 5. Any sum which has been amortised cannot be considered as either ‘expense’ or ‘allowance’ or ‘provision’. It was submitted that in the above referred Rule 5 of the First Schedule, it has been mentioned that certain expenditure or allowance or provision can be added back only if the same is not admissible u/s 30 to 43B of the Act and there is no specific mentioning of adding back of any amount amortised in relation to premium paid on investments. From the above referred Supreme Court decisions, it is clear that if the particular item of dispute (debit entry made in the profit and loss account) falls under the category of ‘expenditure’ or ‘allowance’ or ‘provision’ and the same is not admissible under the Act, only then the concerned item can be added back in computing the income from general insurance business. From the above facts, it is clear that the disallowance of amortised premium paid on investments made by the ld AO is not in accordance with the prescribed specific procedure in the assessee’s case. The ld CITA duly appreciated the contentions of the assessee and by following the ratio decidendi of the two Supreme Court decisions supra, deleted the disallowance of Rs. 6,02,18,000/- made by the ld AO. Aggrieved, the revenue is in appeal before us on the following ground:-

“2. The CIT(A) erred on the facts of the case and in law in holding that a sum of Rs. 6,02,18,000/- being amortization of premium paid on purchase of investments is an allowable deduction while computing the income.”

8.1. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA.

8.2. We have heard the rival submissions and perused the materials available on record. We find that the revenue was not able to controvert the detailed findings of the ld CITA before us. We also find that the ld CITA had granted relief to the assessee after elaborately discussing the facts of the case and by placing reliance on the two supreme court judgments supra. Respectfully following the same, we find no infirmity in the order of the ld CITA in this regard. Accordingly, the Ground No. 2 raised by the revenue for the Asst Years 2007- 08 and 2008-09 are dismissed. The decision taken in Asst Year 2007-08 with regard to this ground would apply with equal force to Asst Year 2008-09 as similar disallowance was made in Asst Year 2008-09 except with variance in figures.

9. Disallowance of Investments written off

The brief facts of this issue is that the assessee wrote off Rs. 4,22,26,000/- out of Investments by charging the said sum to its Profit & Loss Account. The ld AO held that the above-mentioned write off could allegedly not be allowed as admissible deduction and he disallowed Rs. 4,22,26,000/-. The assessee submitted that the sum of Rs. 4,22,26,000/- which had been debited to the Profit & Loss Account had represented the amount of investment written off and the sum was neither an expenditure nor an allowance. Since the aforesaid sum had not been of the nature of any expenditure or allowance, the same could not be added back as per the provisions of section 44 read with Rule 5 of the First Schedule to the Income-tax Act, 1961. The assessee also submits that the ld AO had the power to add back only that expenditure or allowance or a provision which was not admissible under the provisions of sections 30 to 43B. The appellant had brought to the attention of the ld AO of the facts and the decision of the Hon'ble Supreme Court reported in 240 ITR 139 (SC). However, while making the assessment the ld AO had not considered the assessee’s reference made to the decision of the Hon'ble Supreme Court as reported in 240 ITR 139 (SC) and he disallowed the sum of Rs. 4,22,26,000/-. The assessee further submitted that as per the facts and the decision of the Hon’ble Supreme Court in the case of CIT v. Oriental Fire & General Insurance Co. Ltd. [2007] 291 ITR 371(SC), any amount having been written off, cannot be considered as an expenditure or allowance which could be added back as per the provisions of section 44 read with Rule 5 of the First Schedule.

Without prejudice to the submission made hereinabove, the assessee submitted that as per the provisions of section 44 read with Rule 5 of the First Schedule all the incomes of the assessee were to be considered as assessable under the head "Profits and gains of business or profession ". As per the relevant provisions of the Act, there is no provision for assessment of any income of the assessee under any head other than under the head "Profits and gains of business or profession ". Hence, all the assets of the assessee were to be considered as assets utilised for the assessee’s business. Though in the Balance Sheet some of the assets are being shown under the head "Investments ", still those are also to be considered as business or trading assets of the assessee. Any writing off of Investments which have been considered as bad, should be treated as writing off of Bad Debts. Hence, the assessee submitted that writing off of Investments should have been considered by the ld AO as writing off of Bad Debts which were allowable u/s. 36(1)(vii). The ld AO should have appreciated that income from those investments had always been shown under the head "Business income" and, therefore, the requirement of section 36(2) should have been considered as having been fulfilled by the assessee. The assessee further submitted that in respect of the Assessment Year 2002-03 (Ground No. 1) the ld CIT(A) vide his Appellate order dated 24-01-2007 (Paragraph No. 7) deleted the disallowance in respect of the Bad Debts being Investment Written Off. On the basis of the above facts, the above-referred two decisions of the Hon'ble Supreme Court as well as the Appellate decision in the assessee's own assessment for the Assessment Year 2002-03, as referred to above, the assessee submitted that the disallowance of Rs. 4,22,26,000/- in respect of Investments Written off, may kindly be deleted.

It was also submitted that the ld CITA had deleted the disallowances on Investments written off for the Asst Years 2000-01 , 2002-03 and 2004-05 vide orders dated 30.1.2009 , 24.1.2007 and 15.6.2009 respectively. The ld CITA deleted the disallowance made by the ld AO. Aggrieved, the revenue is in appeal before us on the following ground:-

“3. The CIT(A) erred on the facts of the case and in law in holding that a sum of Rs. 4,22,26,000/- being the investments written off is an allowable deduction.”

9.1. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA.

9.2. We have heard the rival submissions and perused the materials available on record. We find that the ld CITA had deleted the disallowance by observing as under:-

“23. I have carefully considered the observations of the Assessing Officer in the assessment order and submissions of the appellant and both the decisions referred to above of Hon'ble Supreme Court and the copies of the Appellate Orders for the Assessment Years 2000-01, 2002-03 and 2004-05 of the CIT(A)-VI, Kolkata. The Authorised Representative further submitted that the transactions in investments being a part of business of the assessee, the writing off of investments should be considered as deductible for the purpose of computing the business income of assessee. Since the assessee has been carrying on the General Insurance business and consequently its assessment is required to be made in accordance with the provisions of section 44 read with the Rule 5 of the First Schedule to the Income-tax Act, 1961, the Assessing Officer is empowered to make additions/disallowances only in accordance with the above-mentioned Rule 5. Any sum which has been written off cannot be considered as either "expense" or "allowance" or "provision".

24. It is observed that in the above-referred Rule 5 of the First Schedule it has been mentioned that certain expenditure or allowance or provision can be added back only if the same is not admissible under sections 30 to 438 of the Act and there is no specific mentioning of adding back of any amount written off out of investments. From the above-referred Supreme Court decisions it is clear that if the particular item of dispute (debit entry made in the Profit & Loss Account) falls under the category of "expenditure" or "allowance" or "provision", and the same is not admissible under the Act, only then the concerned item can be added back in computing the income from general insurance business. From the above facts it appears that the disallowance of the writing off of investments, made by the Assessing Officer is not in accordance with the prescribed specific procedure in the appellant's case.

25. Respectfully following the above-referred two Supreme Court decisions, submissions of the appellant and the Appellate Orders for the Assessment Years 2000-01, 2002-03 and 2004-05 of the CIT(A)-VI, Kolkata and in the facts and circumstances of the case as mentioned hereinabove, it is held that because of the restrictions contained in section 44 read with Rule 5 of the First Schedule, there could not be any disallowance of the amount written off out of investments and, accordingly, the disallowance of Rs. 4,22,26,000/- is deleted. Hence, Ground No.5 is allowed.”

We find that the revenue was not able to controvert the detailed findings of the ld CITA before us. Hence we find no infirmity in the order of the ld CITA in this regard. Accordingly, the Ground No. 3 raised by the revenue for the Asst Years 2007-08 and 2008- 09 are dismissed. The decision taken in Asst Year 2007-08 with regard to this ground would apply with equal force to Asst Year 2008-09 as similar disallowance was made in Asst Year 2008-09 except with variance in figures.

10. Disallowance of Provision for Bad & Doubtful Debts

The brief facts of this issue is that the assessee made provision for doubtful debts in the sum of Rs. 5,12,36,000/-. The ld AO observed that the Hon’ble Apex Court in the case of CIT vs Oriental Fire & General Insurance Co Ltd reported in (2007) 291 ITR 370 (SC) had held that such provision is not to be held as a provision for an expenditure and distinguishing the earlier decision of the Apex Court delivered in the case of State Bank of Patiala reported in 219 ITR 706 (SC) , held that it cannot be disallowed in case of a insurance business where a special provision for taxation is given u/s 44 read with Rule 5 of Part B of 1st Schedule to the Act. The position in respect of National Insurance company is slightly different. In its appeal proceedings before the ld CITA for Asst Year 2000-01, the assessee company on its own submitted before the ld CITA that it is a Public Financial Institution within the meaning of section 4A of the Companies Act, 1956 and thus provisions of section 36(1)(viia)(c) of the IT Act is applicable in its case. Thus, as per assessee’s own submission, the allowable provision for bad and doubtful debts made in the books will be restricted to the allowable limit u/s 36(1)(viia)(c) of the Act. Since the provision of this sub-clause is within the ambit given in Sub Rule (a) of Rule 5 of Part B of 1st schedule , any excess provision made in the accounts over the limit suggested in the referred sub clause section 36(1)(viia)(c) is required to be disallowed. The working for the eligible amount of deduction u/s 36(1)(viia)(c) can be made only after working of total income for the year before charging of deduction under this clause, and any deduction allowable under Chapter VIA. Considering the total loss for the year, total income, even before charging this deduction is found ‘Nil’. Thus, allowable deduction becomes ‘Nil’. Therefore, inspite of Apex Court’s ruling, provision for doubtful debts made in the accounts for Rs. 5,12,36,000/- was disallowed by the ld AO.

10.1. It was submitted that the ld AO ought to have followed the judgment of the Hon’ble Supreme Court in the case of General Insurance Corporation of India vs CIT reported in (1999) 240 ITR 139 (SC) and CIT vs Oriental Fire & General Insurance Co. Ltd reported in (2007) 291 ITR 370 (SC) and ought not to have made any disallowance on this count. It was also submitted that the ld CITA in Appeal No. 320 /CIT(A)-VI/07-08/Cir/6 dated 21.12.2011 for Asst Year 2005-06 and in Appeal No. 560/CIT(A)-VI/Cir.6/2008-09/Kol dated 16.1.2012 for Asst Year 2006-07 had upheld this addition made by the ld AO. Based on this, the ld CITA confirmed the addition made by the ld AO.

10.2. The revenue had raised the following ground before us :-

“1. The CIT(A) erred on the facts of the case and in law in directing that a sum of Rs. 51236000/- being provisions of Bad & Doubtful Debts be deleted. The order of CIT(A) should be cancelled and the order of the AO should be restored.”

10.3. We have heard the rival submissions. We find that strangely the revenue had preferred an appeal against this ground which is not warranted when the issue was decided by the ld CITA in favour of the revenue. Hence we dismiss the Ground No. 1 raised by the revenue for Asst Year 2008-09.

11. Addition towards Reserve created for Unexpired risk u/s 115JB of the Act

The brief facts of this issue is that while computing the Book Profit u/s. 115JB of the Act for the purpose of MAT, the ld AO considered a sum of Rs. 169,45,00,000/- being the Reserve for Unexpired Risk created as per the requirement of law, as allegedly required to be added back. The ld AO added back the aforesaid sum of Rs. 169,45,00,000/- in computing the Book profit. The assessee submitted that as per the Insurance Act, 1938, in case of an Insurance Company carrying on General Insurance business, Premium is recognised as income over the contract period or the period of risk, whichever is appropriate. Premium received in advance which represents Premium Income not relating to that particular accounting period in which the said Premium has been received, is separately disclosed in the Financial Statements of an Insurance Company. That part of income which is attributable to the succeeding accounting period or periods is reduced from the total Premiums received during an accounting period by way of creation of a Reserve for Unexpired Risk in accordance with Section 64V(l)(ii)(b) of the Insurance Act, 1938. The aforesaid Reserve is to be created for a minimum amount as prescribed under the above mentioned section. Appreciating the special nature of the Insurance Business, the Law makers prescribed special procedure for Computation of Total Income of an Insurance Company carrying on Business of Insurance other than Life Insurance which are to be found in Rule 5 of the First Schedule to the Income-tax Act, 1961 read with Rule 6E of the Income-tax Rules, 1962. This particular procedure has to be mandatorily complied with in making the assessment for Income-tax purposes.

Every year adjustments are made to the existing Reserve for Unexpired Risk by way of crediting or debiting by the amount of difference between the Reserve created in the immediate preceding year and the Reserve required to be credited during the current accounting year. This cannot be considered as any alleged "Amount carried to any Reserve" debited to the Profit & Loss Account, but it should be appreciated that this Reserve represents that part of Premium Income which does not relate to the current accounting period. It must be appreciated that as per the Mercantile System of accounting, it is only that Income/Expenditure which relate to the current accounting period, should find places in 'the Revenue/Profit & Loss Account of the year. Hence it was submitted that in case of an Insurance Company (carrying on General Insurance Business), the creation of "Reserve for Unexpired Risk" cannot be considered to be similar to those "Reserves" which have been referred to in Clause (b) of Explanation (1) to Section 115JB(2). It may also be appreciated that the "Reserve for Unexpired Risk" can, in any case, not be considered as any provision made for meeting liabilities, other than ascertained liabilities as referred to in Clause(c) of Explanation (1) to Section 115JB(2).

On the basis of the above facts it may kindly be appreciated that there has not been any requirement to add back any sum in relation to the "Reserve for Unexpired Risk" while computing "Book Profit" u/s.115JB(2) for the Assessment Year 2008-09. Accordingly, the assessee submitted that the "Reserve for Unexpired Risks" not being of the nature as specified in clause (b) of Explanation 1 to section 115JB(2), the action of the ld AO in making an addition of such Reserve should be held as unjustified. Hence, the assessee submitted that the ld AO may kindly be directed to delete the addition of Rs. 169,45,00,000/- made by him in computing the Book profit u/s 115JB of the Act.

11.1. The ld CITA observed that the provisions contained in Rule 6E of the Income-tax Rules, 1962 has also been considered. Section 115JB(2)- Explanation (1)(b) requires increasing "the amounts carried to any reserve, by whatever name called, other than a reserve specified u/s 33AC" if such amount is debited to the Profit & Loss Account. It is held that the Reserve for Unexpired Risk has not been debited in the Profit & Loss account at any point of time, therefore explanation 1 to sub-section 2 of section115JB is not applicable in the peculiar facts of the general insurance business carried out by the assessee. In the assessee's case, firstly the concerned reserve for Unexpired Risk has not been created through any debit entry made in the Profit & Loss Account. The reserve has been created in accordance with the relevant provisions of the Insurance Act, 1938, by way of debiting the premium received for adjusting the amount of premium that may be related to future year or years. It is noted that Rule 5 of the First Schedule of the Income-tax Act, 1961, which specifies the procedure to be followed for computing the business income of a General Insurance business, specifically allows deduction for reserve carried over for Unexpired Risk and Rule 6E of the Income-tax Rules, 1962 provides that such deduction will be allowed to the maximum extent of 50% of the net premium received during the relevant year. Hence, this creation of reserve out of the premium received during the year, is a statutory requirement and the same is duly recognised by the Income-tax Act/Rules. As already mentioned hereinabove, this particular reserve does not fall in the category of those reserves which have been specified in Explanation 1 (b) to section 115JB(2). Therefore, this reserve viz., the reserve for Unexpired Risk in the case of a General Insurance business, should not be added back for the purpose of computation of Book Profit u/s. 115JB(2) for MAT purposes. On the basis of this observation, it was held that the ld AO’s action in adding back a sum of Rs. 169,45,00,000/- being reserve created for Unexpired Risk, was not in accordance with the relevant provisions of the Income-tax Act, 1961 and accordingly deleted the addition.

11.2. Aggrieved, the revenue is in appeal before us on the following ground:-

“4. The CIT(A) erred on the facts of the case and in law in holding the sum of Rs. 1694500000 being the reserve created for unexpired risk should be considered as reserve for computing the Book Profit under section 115JB of the Income-tax Act.”

11.3. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA.

11.4. We have heard the rival submissions. We find that the ld CITA had dealt this issue very elaborately and had given proper finding that the reserve created for unexpired risk need not be added back for the purpose of computation of book profits u/s 115JB of the Act. The revenue was not able to controvert the findings of the ld CITA before us. Hence we find no infirmity in the order passed by the ld CITA in this regard. Accordingly, the Ground No. 4 raised by the revenue for Asst Year 2008-09 is dismissed.

12. The last issue to be decided in this appeal for the Asst Year 2008-09 is with regard to chargeability of interest u/s 234B and 234C of the Act. The revenue had raised the following ground before us :–

“5. The CIT(A) erred on the facts of the case in holding that interest under section 234B & 234C should not be deleted.”

12.1. We have already held this issue in favour of the assessee vide Ground No. 3 for Asst Year 2005-06 by placing reliance on the decision of the Hon’ble Jurisdictional High Court in the case of Emami Ltd vs CIT reported in (2011) 200 Taxman 326 (Cal). Hence the same decision would hold good for Asst Year 2008-09 also. Accordingly, the Ground No. 5 raised by the revenue is dismissed.

13. In the result, all the appeals of the revenue are dismissed.

Order pronounced in the open court on 05.08.2016.

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