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TMI Blog2019 (6) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... tization of premium paid on investments, should be allowed." 3. "Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition u/s l4A Rule8D(2) of the I.T. Act and directed to re-compute the disallowance depending on the judicial pronouncement of Hon'ble ITAT, Kolkata". 4. "Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred on the facts of the case and in law in holding that a sum of Rs. 738,37,27,000/- being the reserve created for unexpired risk should not be considered while computing the Book Profit u/s. l15JB of the I.T. Act." 5. "Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred on the facts of the case and in law in holding that disallowance u/s. 14A should not be added to the total income while computing book profit of the assessee." 2. We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the ld. Representatives of both the sides, the issue involve in Ground No. 1 is squarely covered in favour of the assessee by the decision rendered by this Tribunal in assessee's own case for A.Ys 2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,40,421/-. It was also submitted by the assessee that the average investment as worked out by the Assessing Officer was based on re-valued investment as appearing in the balance-sheet and not on the actual investment. These submissions of the assessee were not found acceptable by the Assessing Officer and he proceeded to make a disallowance of Rs. 37,14,38,000/- (Rs. 53,54,98,000/- minus Rs. 16,40,60,000/-) under section 14A read with Rule 8D. The disallowance of Rs. 37,14,38,000/- made by the Assessing Officer under section 14A read with Rule 8D while computing the total income of the assessee as per the normal provisions of the Act was challenged in the appeal filed by the assessee before the ld. CIT(Appeals) and by relying, inter alia, on the decision of the Tribunal in the case of REI Agro Limited -vs.- DCIT [144 ITD 141], the ld. CIT(Appeals) directed the Assessing Officer to re-compute the disallowance by taking into consideration the value of only those shares, which had yielded dividend income to the assessee during the year under consideration. Since the decision of the Tribunal in the case of REI Agro Limited (supra) has been upheld by the Hon'ble Calcutta High Court and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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