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TMI Blog2016 (8) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... eld 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. - Decided in favour of assessee. Interest u/s 234B and 234C of the Act - whether interest should not be charged on account of addition to the total income due to retrospective amendment? - Held that:- 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.- Decided in favour of assessee. Disallowance of Employees Contribution to Provident Fund - Held that:- As decided in assessee’s own case for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at:- 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. - Decided in favour of assessee. Addition towards Reserve created for Unexpired risk u/s 115JB - Held that:- 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 - Decided in favour of assessee. - I.T.A No. 674/Kol/2012, I.T.A No. 982/Kol/2012, I.T.A No. 983/Kol/2012 - - - Dated:- 5-8-2016 - Shri N. V. Vasudevan, JM Shri M. Balaganesh, AM For the Appellant : Shri Hari Shankar Lal, CIT For the Respondent : Shri Sanjay Bhattacharya, FCA ORDER 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 28.03.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andatory 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation of income as per income Tax Act and is to be considered as Income of the assessee. As such a total sum of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned 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 ₹ 50,00,00,000/- comprising of Employees Contribution including Voluntary Provident Fund Contributions and Employers Contribution as against the actual amounts due of ₹ 39,14,29,721/- and accordingly stated that it had in fact actually made excess payment of ₹ 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 ₹ 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance 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 ₹ 6,02,18,000/- made by the ld AO. Aggrieved, the revenue is in appeal before us on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon'ble Supreme Court as reported in 240 ITR 139 (SC) and he disallowed the sum of ₹ 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 , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther 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 cat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 5,12,36,000/- was disallowed by the ld AO. 10.1. It was submitted that the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Mercant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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 ₹ 169,45,00,000/- being reserve created for Unexpired Risk, was not in accordance with the relevant provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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