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TMI Blog2024 (7) TMI 1556X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(a)(i) of the Act, for non-deduction of TDS u/s. 195 of the Act. Thus, we set aside order of the CIT(A) in restricting the claim of the assessee to 15% of payment made to NRRs of other countries and direct the AO to delete the additions made towards disallowance of reinsurance premium ceded to NRRs u/s. 40(a)(i) for the assessment years 2013-14 to 2016-17 - Assessee ground allowed. Disallowance of amortization of premium paid on purchase of securities - HELD THAT:- As in assesse s case for AY 2004-05 [ 2018 (10) TMI 1096 - ITAT CHENNAI] decided the issue against the assessee by following his own order for assessment year 2003-04. Decided against assessee. Disallowance of provision for IBNR and IBNER - provision for claims incurred, but were not reported (IBNR) and claims incurred, which were not enough reported (IBENR) - HELD THAT:- As we find that an identical issue has been considered by the Tribunal in assessee s own case [ 2018 (10) TMI 1096 - ITAT CHENNAI] for relevant assessment years and after considering relevant facts held that provision for IBNR IBNER is not deductible u/s. 37(1) of the Income Tax Act, 1961, because such provision is only on unascertained liability, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serve for unexpired risk and matter is remitted back to the file of the Assessing Officer to decide the issue afresh as per law, after considering entire facts of this case. In the result, appeals filed by the assessee for the assessment years 2014-15 to 2016-17 2018-19 and that of the Revenue for the assessment year 2013-14 on the issue of creation of reserve for unexpired risk are treated as allowed for statistical purposes. Addition to Book Profits u/s 14A - HELD THAT:- As we find that the issue in hand is squarely covered by the decision of Vireet Investments [ 2017 (6) TMI 1124 - ITAT DELHI] wherein the Special Bench has categorically held that provisions of section 14A read with Rule 8D will not apply while computing the book profit u/s. 115JB of the Act. Respectfully following the Special Bench decision cited above, we delete the disallowance made by invoking the provisions of section 14A read with Rule 8D of Income Tax Rules, 1962 while computing book profit u/s. 115JB of the Act. Disallowance of expenditure relatable to exempt income u/s. 14A of the Act by invoking Rule 8D - HELD THAT:- Insurance Companies are liable for taxation within the meaning of section 44 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that there was a delay of 61 days in filing the appeal of the assesse in ITA No.639/Chny/2020, the condonation of which has been sought by counsel for the assesse. We also find that there is delay in filing of appeals by Revenue in the following ITA Nos.:- 1. ITA No. 1670/Chny/2019 3 days delay 2. ITA No. 1671/Chny/2019 3 days delay 3. ITA No. 426/Chny/2021 - 377 days delay 4. ITA No. 128/CHNY/2023 24 days delay 5. ITA No. 129/Chny/2023 33 days delay 6. ITA No. 130/Chny/2023 - 16 days delay 7. ITA No. 1571/Chny/2017 - 8 days delay However, upon considering the petition / affidavit filed by the assesse as well as Revenue for condonation of delay, the Bench deem it fit to condone the delay keeping in view the sufficient cause shown for the period of delay, we condone the delay and admit the appeals for adjudication. ITA No. 1085/Chny/2017 (AY 2013-14): 3. The grounds raised by the assesse read as under:- 1. The Commissioner of Income Tax (Appeals) erred both in law and on the facts of the case in: i) upholding the disallowance upto the extent of 15% of the reinsurance premium ceded by the Appellant to non-resident reinsurers (NRRs) u/s 40(ia)(i) of the Act amounting to Rs. 91,85 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtization cannot be added in the absence of a specific provision to disallow the same. 7. The CIT(A) failed to appreciate that the amortization of premium paid on purchase of securities is neither an expense nor an allowance that can be disallowed under Rule 5 of First Schedule of Act and that the CIT(A) (as per the provisions of Section 44 of the Act) has the power to disallow only the expenses which are not admissible under the provisions of section 30 to 43B of the Act. 8. The Appellant submits while ascertaining the Book Profits: a) The CIT(A) failed to appreciate that the amount debited as Reserve for Unexpired Risk (URR) cannot be treated as a reserve as contemplated in Clause (b) to Explanation 1 to Section 115JB of the Act and the carry forward of Reserve for Unexpired Risk cannot be restricted only to the extent of the premium proportionate to the risk period of subsequent year. b. The CIT(A) erred in not appreciating the fact that the aforesaid change in the accounting treatment of URR would result in 'change in accounting policy' adopted by the Appellant and such changes are not in line with provisions of Section ll5JB of the Act. c. The CIT(A) erred in upholding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal in ITA Nos.1673, 1688, 1689, 1691/Chny/2011 dated 26.08.2022 in assesses own case for assessment years 2003-04 to 2006-07 and 2008-09 to 2010-11. The Learned Sr. Standing Counsel for the Revenue also fairly agreed that this issue is covered in favour of the assesse by the decision of this Tribunal in assessee s own case for earlier assessment years. 6. We find that an identical issue has been dealt with by the co-ordinate Bench of this Tribunal in assessee s own case in ITA No.1692/Chny/2011 dated 28.06.2023 by following the earlier decision of the Tribunal in ITA Nos.1673, 1688, 1689, 1691/Chny/2011 dated 26.08.2022 in assessee s own case came to the conclusion that reinsurance premium ceded to NRRs, is not taxable in India under the Income Tax Act, 1961 or under DTAA between India and respective countries, where the NRRs are tax residents, and thus, reinsurance premium cannot be disallowed u/s. 40(a)(i) of the Act, for non-deduction of TDS u/s. 195 of the Act. The relevant portion of the findings of the Tribunal in para 6 7 of the order in ITA No.1692/Chny/2011 dated 28.06.2023 are extracted herein below:- 6. We have heard both the parties, perused the materials avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andatorily reinsure with the Indian reinsurer being General Insurance Corporation (GIC). However, over and above specified percentage of reinsurance, general insurance companies in India can have their reinsurance arrangement with foreign reinsurer in terms of para 3.7 of said regulations. In this case, there is no dispute with regard to fact that the assessee has complied with provisions of Insurance Act, 1938 and regulations made there under by the IRDAI. In fact, the Assessing Officer has accepted fact that the assessee has complied with reinsurance regulations by taking required percentage of reinsurance contract with General Insurance Corporation of India. But disputed reinsurance premium ceded to non-resident reinsurer companies. In the earlier round of litigation, the Tribunal had discussed the issue of payments made to non-resident reinsurer, in light of provisions of section Insurance Act, 1938 and IRDAI Regulations on reinsurance and concluded that the assessee has violated provisions of Insurance Act, 1938 and consequently, reinsurance premium ceded to NRRI is not deductible u/s. 37 (1) Of the Income Tax Act, 1961. The matter travelled to the Hon ble High Court of Madras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. 7. In view of the above, respectfully following the said decision of the co-ordinate Bench of this Tribunal, we set aside order of the Ld.CIT(A) in restricting the claim of the assessee to 15% of payment made to NRRs of other countries and direct the Assessing Officer to delete the additions made towards disallowance of reinsurance premium ceded to NRRs u/s. 40(a)(i) of the Act for the assessment years 2013-14 to 2016-17. Thus, the ground raised by the assessee on this issue for the assessment years 2013-14 to 2016-17 is allowed and that of the Revenue for the assessment years 2017-18 to 2019-20 is dismissed. 8. The second common ground raised by the assessee is with regard to disallowance towards amortization of premium paid on purchase of securities for the assessment years 2013-14 to 2019-20. The learned counsel for the assessee submitted that similar issue had been raised by the assessee for consideration in the assessment year 2003-04, wherein the Ld.CIT(A) decided the issue against the assessee by following his predecessor s order and on further appeal, the Tribunal confirmed the order of the CIT(A). Even in subsequent assessment years 2004-05 to 2013-14 also, the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aims on the basis of claim lodged by insured persons. According to the learned counsel, date of damage/loss was considered for recognizing the claim in a particular year. In certain circumstances, damages / loss were not reported in the balance sheet of the insurance company and such claims are known as claims incurred, but not reported. Sometimes, damage/loss incurred may be reported, however, it was not enough reported and therefore, the assessee has made provision as per IRDAI guidelines. The liability of the assessee company is determined based on the actual loss / damage. Therefore, such provision is in accordance with guidelines and norms issued by IDRAI and thus, is deductible u/s. 37(1) of the Income Tax Act, 1961. 12. On the other hand, the Ld. Sr. Standing Counsel for the Revenue submitted that the assessee has created provision in anticipation of settlement of claims that were not ascertained. What is reported to the assessee is damage/ loss caused to the insured persons. According to the Sr. Standing Counsel, the assessee is yet to assess loss and determine amount to be compensated. Therefore, it is unascertained liability and same cannot be allowed as deduction. The Sr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the amount of compensation was determined. Since the amount was not determined during the year under consideration, this Tribunal is of the considered opinion that the same cannot be allowed for assessment year 2009-10. Hence, the CIT(Appeals) is not correct in allowing the claim of the assessee. Accordingly, the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored. 14. In this view of the matter and consistent with view taken by the co-ordinate Bench, we are of the considered view that the assessee is not entitled for deduction towards provision created for IBNR IBNER and thus, we uphold the findings of the learned CIT(A) on this issue for the assessment years 2014- 15, 2015-16, 2016-17, 2018-19 2019-20 and reject grounds taken by the assessee. Further, the assessee has also pleaded that with respect to AY 2017-18, the amount disallowable with respect to provisions for IBNR and IBNER claims cannot exceed Rs. 1250.89 crores being the amount debited to the revenue accounts of the assesse. The assesse submitted that the additional amount of Rs. 1582.58 crores being the amount not debited to the profit loss account be deleted. We are in conformity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-14 in ITA No. 1085/Chny/2017 and will decide the issue which will apply to other years also. 15.2 At the outset, the learned counsel for the assessee pointed out that the Hon ble High Court of Madras in Tax Case Appeal Nos.339 342 of 2019 dated 08-12-2010 in the assessee s own case for the assessment year 2013-14 has remanded this issue back to the file of the Tribunal for adjudicating the same on merits by observing in para 7 as under:- 7. Since the provision has been made applicable to the Insurance companies as well with effect from 01.04.2003, the Tribunal has to decide the issue on merits for the assessment order 2013-2014 and decide as to whether the assessing officer was right in computing dis-allowance reserved for unexpired risk provision towards IBNR / IBNER claim and dis- allowance under section 14A read with Rule 8D and the Tribunal to take a decision on merits and in accordance with law, therefore, the matter has to be remanded to the Tribunal for fresh consideration, accordingly, the observations made by the Tribunal in the impugned order in Paragraph Nos. 55 and 56 are set aside, insofar as it relates to assessment year 2013-2014 and the matter is remanded to the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Actuary to be the IBNR/IBNER to be accounted by the assessee. A copy of the report of the Actuary is enclosed for your reference (Annexure 3). From a reading of the report, one can appreciate that the Actuary recommended to the assessee to provide the above amount based on his study of the claim reporting pattern and the outstanding liability made in earlier years. 15.4 According to the Assessing Officer, claim made by the assessee, particularly with regard to third party motor insurance claim, is without any time limitation and hence, claim made on these two items by the assessee is unascertained liability and hence, he disallowed provision created by the assessee by observing that the assessee itself reverses the provision created in an earlier year, in subsequent year and creates new provision based on reporting of the events. The Assessing Officer disallowed this provision and also for similar reasons added back this provision for the purpose of computation of book profit u/s. 115JB of the Act. Aggrieved, the assessee preferred appeal before the learned CIT(A). The Ld.CIT(A), by following the earlier year order for assessment year 2003-04 vide para 10.3.3 held as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of my predecessor's decision on the aforesaid issue, the AO's disallowance of the appellant's claim of provision of IBNR / IBNER amounting to Rs. 266,77,00,000/- is deleted and the appellant's ground is allowed. 15.5 Accordingly, the CIT(A) deleted the disallowance, against which the Revenue is in appeal for AY 2013-14 and for the assessment years 2014-15 to 2016-17 and 2018-19, the CIT(A) by following the order of the Tribunal upheld the orders of the Assessing Officer and thus, the assessee is in further appeal before us. 15.6 The Tribunal in ITA No.1085/Chny/2017 for assessment year 2013-14 has set aside the issue of IBNR/IBNER back to the file of the Assessing Officer to determine as to whether provision created towards IBNR/IBNER is ascertained liability or not. But, the Tribunal has not adjudicated the issue and simplicitor decided the issue on merits. But, as rightly observed by the Hon ble Madras High Court that the Tribunal has decided the issue of applicability of provisions of section 115JB of the Act upto assessment year 2012-13. This fact is noted by the Hon ble Madras High Court in its judgement in TCA No. 339 342 of 2019 dated 08.12.2019 vide pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Assessing Officer. Hence, both the sides have agreed that this issue can be remitted back to the file of the Assessing Officer before whom the assessee will place all evidences and will prove whether claim made by the assessee is ascertained liability or unascertained liability. The Assessing Officer will examine the claim and then decide the issue in accordance with law as to whether liability is crystallized or not during the relevant year in the given facts and circumstances of the case. 15.9 After hearing both sides and going through the facts of the case, we agree with the arguments advanced by both sides that facts relating to provision created for IBNR/IBNER relating to relevant assessment years are not available on record and hence, the matter is to be restored back to the file of the Assessing Officer for fresh adjudication for the reason that in case, if the matter is restored to the file of CIT(A), he has to call for remand report and the details cannot be examined at his level. Hence, we remand this issue back to the file of the Assessing Officer for detailed examination of this issue as to whether provision created by the assessee on account of IBNR/IB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make 100% provision for the purpose of unexpired risk in some of the segments of insurance business, i.e., i. Premium received on Marine Hull; ii. Premium allocated for the terrorism pool iii. Premium received on Fire Engineering Insurance It means the entire premium received during particular accounting period has been treated as reserve by the assessee and same being reduced in the profit loss account prepared as per IRDA guidelines, but, in any way, the same cannot be called as ascertained liabilities. Hence, the Assessing Officer disallowed the reserve created for unexpired risk of Rs. 238,13,11,883/- adjusted during the current year from the insurance premium received and added back to the book profit computed u/s.115JB of the Act. Aggrieved, the assessee preferred further appeal before Ld.CIT(A). 16.2 The Ld.CIT(A) exactly on identical facts as in the above issue of creation of IBNR/IBNER provision claimed by the assessee observed that provisions of section 115JB of the Act does not apply to insurance companies following the order for assessment year 2003-04. But, the learned counsel for the assessee now before us, stated that the matter has been remanded back by the Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mon issue raised in the appeal of the Revenue for assessment year 2013-14 is as regards to disallowance of exempt income by invoking provisions of section 14A r.w. rule 8D of the Income Tax Rules, 1962, while computing book profit u/s. 115JB of the Act. 17.1 At the outset, learned counsel for the assessee stated that this issue is squarely covered by the decision of Special Bench of the Tribunal in the case of ACIT vs. Vireet Investments (P) Ltd. [2017] 165 ITD 27 (Delhi Trib.) (SB), wherein the Special Bench has considered an identical issue and after considering relevant facts held that computation under clause (f) of Explanation 1 to section 115JB(2) of the Act is to be made without resorting to computation as contemplated u/s. 14A read with Rule 8D of I.T. Rules, 1962. The relevant portion of the decision of Special Bench of this Tribunal in the case of ACIT Vs. Vireet Investments is reproduced as under:- 6.22 In view of above discussion, we answer the question referred to us in favour of assessee by holding that the computation under clause (f) of Explanation I to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer that provisions of section 14A of the Income Tax Act, 1961 does not apply to insurance companies and the assessee relied on catena of judgements and urged that the Ld.CIT(A) has decided the issue in favour of the assessee by placing reliance on order of various High Courts in support of its claim. The learned counsel for the assessee argued that there is no satisfaction from the Assessing Officer as required u/s. 14A(2) of the Act having regard to books of account of the assessee that suo motu disallowance made is not correct. The assessee relied upon ITAT., Pune Bench in the case of M/s. Bajaj Alliance General Insurance Company (ITA No. 1578/Pune/2008). The assessee has also placed reliance on a plethora of judgements on the matter of various Tribunals and High Courts viz., ITAT Delhi: DCIT vs. Oriental Insurance Co. Ltd (2015-TIOL-139- ITAT-DEL), Oriental Insurance Co. Ltd v s. ACIT (2009-TIOL- 172-ITAT-DEL), ITAT Mumbai in the case of DCIT v. ICICI Prudential Life Insurance Co. Ltd (2015 (1) TMI 9), ICICI Lombard General Insurance Co. Ltd vs. ACIT (ITA No. 4287/Mum/2009), Reliance General Insurance Co. Ltd vs. DCIT (2010-TIOL-473-ITAT-MUM), Birla Sun Life Insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue is dismissed for the assessment year 2017-18. 20. The next common issue that came up for our consideration from the Revenue appeals for the assessment years 2014-15 to 2019-20 is in regard to disallowance of commission paid to non- residents u/s. 40(a)(i) of the Act amounting to Rs. 9.88 crores for assessment year 2014-15. Briefly stated the facts are that the Assessing Officer, while completing the assessment noticed that the assessee debited commission payments in the profit loss account made to non-resident agents for receipt of reinsurance premium during the year under consideration. During the course of assessment proceedings, the assessee was required to show-cause as to why payments made to foreign agents should not be disallowed for non-deduction of TDS u/s. 195 of the Act. Though the assessee furnished reply, the Assessing Officer was not convinced with the same and proceeded to disallow commission expenses paid to foreign agents for non-deduction of TDS under section 195 of the Acton account of the fact that said commission has arisen and accrued to non-residents only in India and there is also there is business connection between the assessee and non-resident insura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidents. u/s. 40(a)(ia) of the Act amounting to Rs. 22,85,363/- for assessment year 2014-15. 21.1 The Ld.Senior Standing Counsel contended that the assessee has paid survey fees for the purpose of quantification of claim for making payment on the insurance claim which was incurred outside India and said payments were made without deducting TDS. When the Ld.AO required the assessee to furnish details of survey fees paid outside India, the assessee submitted that provisions of section 195 is not applicable on the survey fees paid to non-residents. Therefore, not satisfied with the reply filed by the assessee, the Ld.AO rightly estimated the disallowance @ Rs. 10,415/- for every claim of Rs. 1 crore towards marine insurance and disallowed Rs. 22.85 Lacs observing that though amount of survey fees was reimbursed to the claimant since survey has been done on behalf of Indian insurer, said payment of fees was made by the assessee to non- resident surveyors. 21.2. The learned counsel for the assessee, on the other hand, submitted that whenever there was damage or claim, surveyors examined the insured property and estimated damages and entire services were outside India and the non-residen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble High Court of Madras dated 21.06.2019, we confirm the order of the CIT(A) on the issue of infra payments made by the assessee to motor car dealers and reject the grounds raised by the Revenue in assessment years 2014-15 to 2019-20. 23. The next issues that came up for our consideration from the assessee appeals is non-adjudication of following issues raised by the assessee before CIT(A). i) Taxes paid u/s. 115O of the Act amounting to Rs. 13,61,70,020/- not given credit for AY 2017-18; ii) Levy of interest u/s.115P of the Act to be restricted to Rs. 5,58,29,709/- for AY 2017-18, iii) Addition of an amount of Rs. 1,85,41,38,188/- under the head profits and gains from business in tax computation sheet annexed with assessment order for AY 2019-20, iv) Non-credit u/s. 115JAA of Rs. 7,44,96,34,633/- for AY 2018-19. v) Non-credit of TDS Rs. 40,09,467/- for AY 2018-19. 23.1 The assessee also filed an additional ground in ITA 13/Chny/2023 seeking permission to adjudicate the issue of credit for TDS amounting to Rs. 2,29,99,898/- for AY 2017-18 and submitted that though the said ground was raised before the Ld.CIT(A), which was omitted to be adjudicated by the Ld.CIT(A). The Ld. Seni ..... 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