TMI Blog2019 (11) TMI 1769X X X X Extracts X X X X X X X X Extracts X X X X ..... een followed by the Tribunal in the case of HDFC Standard Life Insurance Co. Ltd. [ 2013 (10) TMI 1072 - ITAT MUMBAI] . Thus, following the same judicial precedence which would apply on the facts of the present case also, we decide the issues raised vide ground no. 1 2 in the department s appeal in favour of the assessee and against the Department. Addition u/s 14A - Reduce the exempt income u/s 10(34) while computing the income of insurance business of the assessee under section 44 - HELD THAT:- As identical issue has been decided by the co-ordinate bench of the Tribunal in assessee s own case wherein it has been held that the provisions of section 14A of the Act are not applicable to life insurance companies. Exemption under section 10(34) is allowable on a net basis - HELD THAT:- We in the case of ACIT vs. Bajaj Finance Ltd. [ 2015 (1) TMI 1383 - ITAT PUNE] has interpreted the provisions of section 143(3) as amended by the Finance Act (2), 1998 w.e.f. 01.10.1998. The co-ordinate bench of the Tribunal has held that the CBDT circular No.549 dated 31.10.1989 and judgment of case of LML [ 1991 (9) TMI 7 - BOMBAY HIGH COURT] were rendered in the context of assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that may be necessary. 5. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the AO restored. 3. The issue raised in ground No.1 is against the order of Ld. CIT(A) holding that surplus disclosed in the actuarial report in form 1 can be charged by way of adjustment whereas the ground No.2 is against the order of Ld. CIT(A) holding that capital contribution of the shareholders account to policy holder account has to be reduced while computing income under section 44 read with 1 schedule of the Act. 4. The Ld. A.R., at the outset, submitted that the identical issue has been decided in assessee s own case in ITA No.1039/M/2011 A.Y. 2006-07 others vide order dated 21.09.2106 by the coordinate bench. The Ld. A.R. submitted that since the issues raised in both the grounds of appeal stood decided by the co-ordinate bench of the Tribunal in favour of the assessee and against the Revenue and accordingly the ground No.1 2 raised by the Revenue may kindly be dismissed. 5. The Ld. D.R., on the other hand, fairly agreed that the issue have been decided in assessee s own case and thus fairly agreeing with the arguments of the Ld. A.R., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Insurance Act 1938. However, since the Rule 5 was amended in the First schedule by specifically referring to the IRDA Act 1999 or the Regulations made there under, we are of the opinion that the legislature intended not to modify or amend the Rule-2. This indicates the intention of legislature that the actuarial valuation has to be made in accordance with the unamended Insurance Act, 1938. We are of the firm opinion that the unamended provisions of Insurance Act 1938 were only incorporated into the Income Tax Act as far as life insurance businesses are concerned. Therefore, AO s action in following the format prescribed under the Regulations of IRDA Act is not in accordance with the spirit of Rule-2 and provisions as made applicable under the Income Tax Act. 29. It is also noticed that the actuarial report and abstracts under the Insurance Act carrying on life insurance business shall, in accordance with the Regulations contained in Part I of the Fourth Schedule and in conformity with the requirements of Part II of that Schedule. 30. The First to Fourth Schedule of the Insurance Act 1938 was omitted by the Insurance Amendment Act 2002 after incorporation of the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e big function actuaries provide is making reserves to insure that insurance companies keep enough money on their balance sheets to make good of all the claims they will have to pay. This involves arriving at actuarial surplus or deficit depending on various factors. In order to ensure a fair play in the business, the IRDA prescribed regulations according to which various norms were prescribed in order to ensure that Life Insurance business (even other insurance business) are done according to healthy business practices. As per the above regulations, Regulation 4 prescribes number of abstracts and statements in respect of (a) linked business; (b) non-linked business and (c) health insurance business. As part of this Regulation 4(2) (d) item no. iv, Form- I was prescribed for the purpose of valuation results and to indicate the surplus or deficit in the life insurance business of a company. Apart from the above regulations, IRDA also prescribed Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor s Report of Insurance Companies) Regulations 2002. The surplus or deficit arrived at by the actuary in his valuation for the inter valuation peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment years appeals accepted AO s contention that surplus in shareholder s account is to be taxed as other sources of income. But once the provisions of section 44 of IT Act are invoked anything contained in the heads of income like income from other sources, capital gains, house property or even interest on securities does not come into play and only first schedule has to be invoked to arrive at the profit. Therefore, in our opinion both the policyholder s and shareholder s account has to be consolidated for the purpose of arriving at the deficit or surplus. Comparison of Forms-I under the Insurance Act and the IRDA Regulations. 33. Whether Assessing Officer s action in adopting Form-I prescribed under the IRDA Regulations same as that of actuarial valuation made in accordance with the Insurance Act 1938. Even though Insurance Act 1938 also refers to Form-I, there is substantial difference in the formats. Both AO and the CIT (A) has given credence to Form I without understanding that the old form-I prescribed under the Insurance Act 1938 is entirely different from new Form-I prescribed under the IRDA Regulations. 35. The department is asked to explain what the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with the Insurance Act, 1938, therefore, it cannot be stated that assessee returned income is not in accordance with the Insurance Act, 1938. There is no basis for AO to take Form-I total surplus as surplus of the Life insurance business ignoring transfer from shareholder s account. 39. It is also on record that assessee followed the IRDA recommendations and accordingly prepared the actuarial valuation report including the surplus or deficit. However, Rule-2 prescribes only actuarial valuation in accordance with the Insurance Act, 1938. Therefore, AO is duty bound to insist on actuarial valuation in accordance with the Insurance Act, 1938, so as to bring to tax the surplus or deficit. What we notice is that AO, ignoring Rule-2, has relied on the actuarial valuation report prescribed under the IRDA recommendations under Regulation 8 that too at Total surplus , which is at variance with the Insurance Act, 1938. Since no amendment was brought to Rule-2 to incorporate IRDA recommendations, we are of the opinion that the action of AO in relying on the IRDA Regulations is not according to the law. Assessee had submitted its accounts as stated above, which are in acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s incorporated above and accordingly, respectfully following the same, we uphold the order of the CIT(A) and dismissed the ground raised by the Department. Since the facts of the issues raised by the revenue are identical as decided by the coordinate bench in the order as stated reproduced above, accordingly the ground no. 1 and 2 raised by the revenue are dismissed and the order of ld. CIT(A) is upeld. 7. The issue raised in ground No.3 by the Revenue is against the order of Ld. CIT(A) directing the AO to reduce the exempt income under section 10(34) of the Act while computing the income of insurance business of the assessee under section 44of the Act. 8. The Ld. A.R. at the outset submitted that the identical issue has been decided by the co-ordinate bench of the Tribunal in ITA No.1039/M/2011 (supra) in assessee s own case wherein it has been held that the provisions of section 14A of the Act are not applicable to life insurance companies. The Ld. A.R. prayed that the ground raised by the Revenue may kindly be dismissed in the light of the said decision of the coordinate bench. 9. The Ld. D.R., on the other hand, fairly agreed that the issue has been decided in as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance on the CBDT Circular no 549 dated 31 October 1989, the learned CIT(A) erred in disregarding the revised claim under section 10(34) and section 10(23AAB) of the Act amounting to Rs 1,065,553,682 and Rs 317,696,000 respectively on the basis that the deduction would reduce the assessed income below the income disclosed in the revised return of income. 13. The assessee has also raised following additional grounds which is as under : The CIT(A) erred in holding the exemption under section 10(34) is allowable on a net basis. 14. The facts in brief are that the AO while passing the order held that method of computing of business income of life insurance company are to be computed as per the provision of section 44 of the Act read with rule 2 of the 1st schedule. The AO after verifying the actuarial report for the year ended 31.03.2014 observed that there is a surplus of Rs.594,13,20,000/- whereas the corresponding surplus for the preceding year ended 31.03.2013 was Rs.582,16,24,000/-. The AO thus concluded that profitable income for the year as per rule 2 of schedule 1 of the Act would be adjusted for Rs.11,96,96,000/- which was calculated by subtracting the surplus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -10-1989 has held that the assessed income cannot be lower than the returned income. In light of the above, I hold that total income is to be restricted to the income as per revised return of income filed by the Appellant. The AO is hereby directed to compute the total income as per the revised return of income filed by the Appellant on 28 March 2016. This ground Is accordingly partly allowed. 16. The Ld. A.R. vehemently submitted before the Bench that the order passed by the Ld. CIT(A) on this issue is not as per the provisions of the Act. The Ld. A.R. submitted that the assessee has challenged the observations of the Ld. CIT(A) in which the Ld. CIT(A) has held that in view of the decision of the Hon ble Bombay High Court in the case of LML Ltd. (1994) 204 ITR 585 (Bom. HC) relying on the CBDT circular No.449 dated 31.10.1999 has held that income assessed can not be lower than the returned income. The Ld. A.R. submitted that identical issue arose in the case of ACIT vs. Bajaj Finance Ltd. in ITA No.288 to 291/PN/2014 A.Y. 2006-07 to 2008-09 wherein the co-ordinate bench of the Tribunal has held that post amendment to section 143(3) of the Act by the Finance Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are 2006-07 onwards, which pertain to period after section 143(3) of the Act was amended by the Finance Act (No.2) 1998 w.e.f. 01.10.1998. As per the amendment, the assessment under section 143(3) of the Act, inter-alia, envisages the Assessing Officer to grant refund of any amount due to the assessee consequent to the assessment and therefore, the Assessing Officer is statutorily empowered to determine the revised income which can be lower than the returned income. Therefore, in our view, the objection raised by the Revenue to the impugned order of CIT(A) is untenable in the eyes of the law, as it stood for the period under consideration. It is apparent from the above that post amendment to section 143(3) of the Act by Finance Act (2), 1998 w.e.f. 01.10.1998, the AO has the power to determine the revised income which can be lower than the returned income. Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO accordingly. The issue raised by the assessee in ground No.1 2 are allowed. 19. The assessee has also raised additional ground which is reproduced as under: The CIT(A) erred in holding the exemption under section 10(34) is allowable o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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