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TMI Blog2018 (1) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... 07 (5) TMI 193 - SUPREME Court), wherein it was held that the AO had no general power to make any adjustment in the accounts of a general insurance company. We further find that the revenue was not able to controvert the detailed findings of the CIT-A. - Revenue appeal dismissed. - I.T.A No. 1825/Kol/2014 And I.T.A No. 1826/Kol/2014 - - - Dated:- 23-8-2017 - Shri J. Sudhakar Reddy, Accountant Member And Shri S.S. Viswanethra Ravi, Judicial Member For The Appellant : Shri Goulean Hangshing, CIT, ld.DR For The Respondent : Shri Sanjay Bhattacharya, FCA, ld.AR ORDER Shri S.S.Viswanethra Ravi, JM: These two appeals by the Revenue are directed against the orders of the Commissioner of Income Tax (Appeals)-VI, Kolkata both dt. 07-07-2014 for the A.Ys 2007-08 and 2010-11. 2. There is a delay of 07 days in filing both the appeals. The appellant Revenue filed an application for condonation of delay of 7 days each. We have gone through the petition filed for condonation of delay which is supported by way of an affidavit. We are convinced that the appellant Revenue had sufficient cause in not filing both the appeal(s) in time. Hence, we condone the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely 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 or a Reserve for Unexpired Risk in accordance with Section 64V(1)(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee'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 fail 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the A.Ys 2000-01, 02-03 and 04-05 the CIT-A having his jurisdiction deleted the disallowance made on investment written off. 14. Heard rival submissions and perused the material on record. We find that the issue is squarely covered by order dt. 05-08-2016 supra as rightly been pointed out by the ld.AR of the assessee. We further find that the ld. DR could not controvert the findings of the CIT-A given for the A.Ys 2002-01, 02-03 and 04-05. The Tribunal considering the same, deleted the said addition made on account of investment written off for the A.Ys 2005-06, 07-08 and 08-09 in assessee s own case vide order dt. 05-08-2016. Relevant portion of such order dt. 05-08-2016 supra is reproduced herein below:- 9. Disallowance of Investment written off The brief facts of this issue is that the assessee wrote off ₹ 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 ₹ 4,22,26,000/-. The assessee submitted that the sum of ₹ 4,22,26,000/- which had been debited to the Profit Loss Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 then in respect of the Assessment Year 200:2-03 (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 ₹ 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 CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 ₹ 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. CIT(A) before us. Hence we find no infirmity in the order of the ld. CIT(A) 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. 15. In view of above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance 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) 29 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er expense' or allowance or 'provision'. lt 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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