2015 (9) TMI 488 - AT - Income Tax

Reopening of assessment - as per section 115B the tax rate of 12.5% should have been applied only to the income earned from insurance business and for the other income, the tax at the rate of 35% should have been applied - Held that - Since, the AO inadvertently, had applied lower tax rate of 12.5% on the entire income, hence, the AO had reasonable belief that the income of the assessee has escaped assessment. We find that this issue has been unsuccessfully contested by the assessee in appeal before the Ld. CIT(A). However, before us, the assessee has not raised any ground of appeal relating to rejection of his contention by the Ld. CIT(A) on this issue. Hence, it can be safely said that the belief of the AO regarding escapement of income in relation to the rate of tax leviable on income other than insurance income was correct and bonafide. Second reason relating to the escapement of income because of the assessee offering negative reserves at zero , had not come into the knowledge of the AO and no discussion had taken place in this respect. The AO was under bonafide belief that the assessee had wrongly adopted the value of negative reserves at zero . It was therefore not a case of change of opinion. The case law cited by the assessee is, thus, not applicable to the present facts and circumstances of the case. We therefore, do not find any infirmity in the order of the Ld. CIT(A) so far the issue of reopening of the assessment is concerned. - Decided against the assessee. Addition of negative reserves to the actuarial surplus for determining the profit from business of Life Insurance - Held that - Issue restored the matter to the file of the AO for fresh adjudication considering the decision of the Tribunal in the cases of ICICI Prudential Co. Ltd. (2012 (11) TMI 13 - ITAT MUMBAI ) and LIC 1963 (12) TMI 5 - SUPREME Court wherein held the Surplus has to be determined as per the report of the appointed Actuary as per the provisions of the Insurance Act. The AO has no power to make any adjustment against Actuarial surplus determined as per Insurance Act while making computation of total income - Decided in favour of assessee for statistical purposes. Applicability of provisions of section 14A while determining the income of the Life Insurance Company - Held that - n view of the special provisions applicable to the insurance companies as provided under section 44 of the Act, the provisions of section 14A would not be applicable to the insurance companies. Respectfully, following the decision of the Tribunal in the own case of the assessee for subsequent assessment year, this issue is accordingly decided in favour of the assessee.

Summary

Issues:
1. Reopening of assessment under section 147 of the Income Tax Act.
2. Addition of negative reserves to actuarial surplus for determining profit from life insurance business.
3. Applicability of Section 14A while determining income of a Life Insurance Company.

Issue 1: Reopening of assessment under section 147:
The appellant contested the reopening of assessment under section 147, arguing that all relevant details were provided during the original assessment. The Assessing Officer (AO) believed there was an escapement of income due to the treatment of negative reserves. The appellant cited legal precedents to challenge the reopening. The CIT(A) upheld the reopening, stating it was to correct the total income assessment. The Tribunal found the AO's belief regarding income escapement valid, as the treatment of negative reserves was not discussed earlier. The Tribunal ruled against the appellant on this issue.

Issue 2: Addition of negative reserves to actuarial surplus:
The AO added negative reserves to the actuarial surplus, impacting taxable surplus. The CIT(A) upheld this addition, stating that negative reserves should be valued as per actual value for tax purposes. The Tribunal referred to previous decisions and restored the matter to the AO for fresh adjudication, considering directions given for a subsequent assessment year. The Tribunal allowed this ground for statistical purposes.

Issue 3: Applicability of Section 14A:
The appellant challenged the applicability of Section 14A while determining income for a Life Insurance Company. Citing Tribunal decisions for a subsequent assessment year, the appellant argued that Section 14A did not apply to insurance companies due to special provisions under Section 44 of the Act. The Tribunal, following its own precedent, decided in favor of the appellant on this issue.

In conclusion, the Tribunal partially allowed the appeals, ruling against the appellant on the reopening of assessment under section 147 for both assessment years. The Tribunal restored the issue of adding negative reserves to actuarial surplus for fresh adjudication by the AO based on previous directions. The Tribunal decided in favor of the appellant regarding the applicability of Section 14A to determine income for a Life Insurance Company, following its own precedent.