2017 (8) TMI 1644 - AT - Income Tax

Claim of deduction on account of negative reserve - AO held that the negative reserve was taxable as business income of the assessee and added the same to the total income - HELD THAT - As in case HDFC STANDARD LIFE INSURANCE COMPANY LTD. AND OTHER VERSUS DCIT (OSD) -1 (1) MUMBAI AND OTHERS 2013 (10) TMI 1072 - ITAT MUMBAI allowed the claim of the assessee - examining the method of accounting and the mandate given by regulations to appoint Actuarial on the concept of mathematical reserves we do not see any reason to interfere with the order of the CIT(A).The mathematical reserve is a part of Actuarial valuation and the surplus as discussed in Form-I under Regulation 4 takes in to consideration this mathematical reserve also. Therefore the order of the order of the CIT(A) is approved.Moreover the Assessing Officer has no power to modify the amount after actuarial valuation was done, which was the basis for assessment under Rule 2 of 1st Schedule r.w.s.44 of the I.T. Act.The principle laid down by the Hon'ble Supreme Court in LIC vs.CIT 1963 (12) TMI 5 - SUPREME COURT about the power of the Assessing Officer also restricted the scope and adjustment by the AO. Revised computation of income excluding pension business deficit - assessee had reduced an amount on account of deficit from linked pension scheme in view of the exemption provided in section 10(23AAB) - HELD THAT - As in case HDFC STANDARD LIFE INSURANCE COMPANY LTD. AND OTHER VERSUS DCIT (OSD) -1 (1) MUMBAI AND OTHERS 2013 (10) TMI 1072 - ITAT MUMBAI the object of inserting section 10(23AAB) as per the Board Circular No. 762, dated February 18, 1998 was to enable the assessee to offer attractive terms to the contributors. Thus, the object of inserting section 10 (23 AAB) was not with a view to treat the pension fund like the Jeevan Suraksha Fund outside the purview of insurance business but to promote the insurance business by exempting the income from such fund. Therefore in the facts of the present case, the decision of the Income-tax Appellate Tribunal in holding that even after insertion of section 10(23AAB), the loss incurred from the pension fund like the Jeevan Suraksha Fund had to be excluded while determining the actuarial valuation surplus from the insurance business under section 44 of the Income-tax Act, 1961, cannot be faulted. Accordingly, questions (c) and (d) are answered in the affirmative, that is, in favour of the assessee.

Summary

Issues Involved:
1. Taxability of negative reserves.
2. Setting aside of the case to the Assessing Officer (AO).
3. Direction to AO to adopt revised computation excluding pension business deficit.
4. Carry-forward of losses assessed under "income from other sources".
5. Various grounds of appeal by AO for AY 2010-11.
6. Assessee's grounds of appeal for AY 2009-10 and 2010-11.
7. Rectification order u/s.154 for AY 2009-10.

Detailed Analysis:

1. Taxability of Negative Reserves:
The primary issue was whether the negative reserve amounting to ?50.18 crores should be taxed as business income. The AO added the negative reserve to the total income, but the First Appellate Authority (FAA) deleted the addition. The Tribunal referenced its previous decision in the case of HDFC Standard Life Insurance Company, explaining that negative reserves are essentially assets and should not be taxed. The Tribunal upheld the FAA's decision, deciding the ground against the AO.

2. Setting Aside of the Case to the AO:
Ground No.2 pertained to the FAA's direction to the AO for certain verifications, which the AO had already complied with. The Tribunal found no need for further adjudication as the AO had allowed the claim made by the assessee.

3. Direction to AO to Adopt Revised Computation Excluding Pension Business Deficit:
The AO did not allow the deficit from the pension scheme to be reduced in the computation of income, but the FAA deleted the addition. The Tribunal referred to its previous decisions and the Bombay High Court's ruling in the case of Life Insurance Corporation of India, which supported the assessee's claim for exemption under section 10(23AAB). Consequently, the Tribunal decided this ground against the AO.

4. Carry-Forward of Losses Assessed Under "Income from Other Sources":
This issue was interlinked with Ground No.3 raised by the assessee. The Tribunal decided to address it while adjudicating the appeal filed by the assessee.

5. Various Grounds of Appeal by AO for AY 2010-11:
The AO raised multiple grounds, all of which were covered by previous Tribunal decisions in the cases of ICICI Prudential Life Insurance Co. Ltd. and HDFC Standard Life Insurance Company. The Tribunal found no reason to deviate from these precedents and decided all grounds against the AO.

6. Assessee's Grounds of Appeal for AY 2009-10 and 2010-11:
The assessee raised several grounds, many of which were covered by previous Tribunal decisions. The Tribunal allowed grounds related to the taxation of profits from life insurance business, income in shareholders' account taxable as "income from other sources", disallowance u/s. 14A, disallowance of depreciation on assets costing less than ?20,000, and applicable rate of tax. Grounds related to interest u/s. 234B and 234D were also addressed in favor of the assessee. The Tribunal dismissed the ground related to the initiation of penalty proceedings as premature.

7. Rectification Order u/s.154 for AY 2009-10:
The Tribunal found that all grounds had become infructuous, considering the main appeal's resolution.

Conclusion:
The appeals filed by the AO for AY 2009-10 and 2010-11 were dismissed, and the appeals filed by the assessee were allowed. The rectification appeal was treated as infructuous.