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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 ..... ic procedure in the assessee s case. CIT-A duly appreciated the contentions of the assessee deleted the dis allowance correctly. SEE case of General Insurance Corporation of India vs CIT 1999 (9) TMI 3 - SUPREME COURT] and CIT vs Oriental Fire General Insurance Co Ltd [ 2007 (5) TMI 193 - SUPREME COURT] - Decided in favour of assessee. Disallowance u/s 14A r.w.s. 8D - HELD THAT:- ld. CIT(Appeals) by relying, inter alia, on the decision of the Tribunal in the case of REI Agro Limited vs.- DCIT [ 2013 (9) TMI 156 - ITAT KOLKATA] has directed the AO 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 [ 2013 (9) TMI 156 - ITAT KOLKATA] has been upheld by the Hon ble Calcutta High Court and three is no other decision of the Hon ble Jurisdictional High Court or the Hon ble Supreme Court cited by the ld. D.R. taking a contrary view, we uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee. Addition towards Reserve created for Unexpired risk u/s 115JB - HELD T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 450,02,000/-, being disallowance of written off depreciated investments, be deleted following the decision of CIT(Appeals) AY. 2007-08 and 2008-09. 2. Whether on the facts and in the circumstances of the case, and in law the Ld. CIT(A) has erred on the facts of the case and in law in directing that a sum of ₹ 5,78,44,000/-, being amortization 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 ₹ 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 , 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 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 abovementioned 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 no 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missible deduction and accordingly disallowed the same. The assessee submitted that it has been carrying on the business of insurance other than life insurance and accordingly its income tax assessments were required to be made in accordance with the provisions of section 44 read with Rule 5 of the First Schedule to the Income Tax Act. According to the aforesaid provisions, the profits and gains of the insurance business other than life insurance shall be taken to be the balance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and will not be reflecting the true and fair view of the company as per the assessee. It was further submitted that 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 Rule 5 of First Schedule to the Income Tax Act, 1961, the ld AO is empowered to make additions / disallowances only in accordance with the above mentioned Rule 5. Any sum which has been amortised cannot be considered as either expense or allowance 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Rule 8D as per the judicial pronouncement of ITAT, Kolkata, it is observed that the assessee during the year under consideration had received income of ₹ 930.09 crores, which was exempt from tax. During the course of assessment proceedings, it was noticed by the Assessing Officer that the average investment made by the assessee during the year under consideration in the corresponding investment was ₹ 10,709.96 crores. According to the Assessing Officer, disallowance under section 14A read with Rule 8D thus was required to be made to the extent of ₹ 53,44,98,000/- being 0.5% of such average investment. In this regard, it was submitted by the assessee before the Assessing Officer that even though disallowance of ₹ 16,40,60,000/- was made in the computation of total income under section 14A, the actual expenditure incurred in relation to the exempt income was only ₹ 8,21,40,421/-. 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 As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Premium Income not relating to that particular accounting period in which the said Premium has been received, is separately 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 of a Reserve for Unexpired Risk in accordance 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peculiar facts of the general insurance business carried out by the assessee. In the assessee'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 fall in the category of those reserves which have been specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 14A. Since the disallowance under section 14A as per Rule 8D was worked out by the Assessing Officer at ₹ 53,54,98,000/- while computing the total income of the asseessee as per the normal provisions of the Act, the Assessing Officer adopted the said computation and made a further addition of ₹ 37,14,38,000/- (₹ 53,54,98,000/- minus ₹ 16,40,60,000/-) while computing the book profit of the assessee under section 115JB. 7. On appeal, the ld. CIT(Appeals) deleted the said addition made by the Assessing Officer by relying, inter alia, on the decision of this Tribunal in the case of M/s. Philips Electronics India Limited vs.- DCIT (ITA No. 1815/KOL/2008 dated 03.02.2016), wherein it was held that computation of disallowance under Rule 8D could be used only for computation of income under normal provisions of the Act and not for book profits under section 115JB of the Act. It was further held that unless an item is debited in the profit loss account, the same could not be the subject matter of addition to book profits under clause (f) of Explanation to section 115JB of the Act. Since this view taken by the Division Bench of the Tribunal ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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