New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (9) TMI 488 - ITAT MUMBAI

2015 (9) TMI 488 - ITAT MUMBAI - TMI - Reopening of assessment - as per section 115B the tax rate of 12.5% should have been applied only to the income earned from insurance business and for the other income, the tax at the rate of 35% should have been applied - Held that:- Since, the AO inadvertently, had applied lower tax rate of 12.5% on the entire income, hence, the AO had reasonable belief that the income of the assessee has escaped assessment. We find that this issue has been unsuccessfully .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

erves at 'zero', had not come into the knowledge of the AO and no discussion had taken place in this respect. The AO was under bonafide belief that the assessee had wrongly adopted the value of negative reserves at 'zero'. It was therefore not a case of change of opinion. The case law cited by the assessee is, thus, not applicable to the present facts and circumstances of the case. We therefore, do not find any infirmity in the order of the Ld. CIT(A) so far the issue of reopening of the assessm .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ted Actuary as per the provisions of the Insurance Act. The AO has no power to make any adjustment against Actuarial surplus determined as per Insurance Act while making computation of total income - Decided in favour of assessee for statistical purposes.

Applicability of provisions of section 14A while determining the income of the Life Insurance Company - Held that:- n view of the special provisions applicable to the insurance companies as provided under section 44 of the Act, the p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e above titled two appeals relevant to assessment years 2004-05 & 2005-06 have been preferred by the assessee against the orders of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] dated 30.12.2011 and 19.12.2011 respectively. Since the facts and issues involved therein are identical in nature, hence the same are taken together for disposal by this common order. Facts, for the sake of convenience, have been taken from ITA No.1683/M/2012 for A.Y. 2004-05. ITA N .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d CIT (A) has erred in confirming the action of the AO in making addition of negative reserves amounting ₹ 8,28,69,000/- to the actuarial surplus for determining the profit from business of life insurance in disregard of the law laid down by the Supreme Court in the case of LIC v/s CIT 51 ITR 773 for prohibiting any adjustment to the actuarial surplus determined as per the provision of Insurance Act. Ground No 3 (i) The Learned CIT (A) has erred in confirming the action of the AO in applyi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

4 and the assessment was completed under section 143(3) of the Act on 20.11.2006. Subsequently, the Assessing Officer (hereinafter referred to as the AO), during the scrutiny assessment u/s. 143(3) for the A.Y. 2006-07, noticed that the assessee was not offering the incremental negative reserves as a part of surplus arrived as per actuarial valuation for the purpose of computing income from life insurance business. This has resulted in under- assessment of income within the meaning of section 14 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assessee had failed to disclose fully and truly all the material facts. No new fact or tangible material had come into the knowledge of the AO. It was further contended that the belief of escapement of taxable income in relation to taxability of negative reserves, thus, was nothing but change of opinion of the AO. It was therefore contended, while relying upon the decisions of the Hon'ble Supreme Court in the case of "Kelvinator of India Ltd." 2010 320 ITR 561 and further that of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e has reiterated his submissions as were made before the Ld. CIT(A) as observed above. The Ld. D.R. on the other hand, had relied upon the findings of the lower authorities. 6. We have considered the rival contentions of the Ld. Representatives of both the parties and have also gone through the record. A perusal of the reasons recorded for reopening reveals that the reopening was done in relation to escapement of income on two issues. The first reason was that as per section 115B the tax rate of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

round of appeal relating to rejection of his contention by the Ld. CIT(A) on this issue. Hence, it can be safely said that the belief of the AO regarding escapement of income in relation to the rate of tax leviable on income other than insurance income was correct and bonafide. So far as the second reason relating to the escapement of income because of the assessee offering negative reserves at 'zero', had not come into the knowledge of the AO and no discussion had taken place in this re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ound No.2, the assessee has agitated the confirmation of addition of negative reserves amounting to ₹ 8,28,69,000/- to the actuarial surplus for determining the profit from business of Life Insurance. The above said term 'negative reserves' has been explained by the Tribunal in the case of "Life Insurance Corporation of India" ITA No.6221/M/2012 & Others decided vide order dated 03.04.2012 as under: "4.3.1. We are of the opinion that treatment given to negative r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

this amount becomes negative, known as 'negative reserve'. In simple words, it means that the insurance contracts under consideration do not warrant any provision and is, in fact, an asset. However, in certain circumstances, such as for following IRDA guidelines, insurers may not treat policies as assets and they set any negative reserves to 'zero'. For example, if an insurer had two policies, one with a reserve of 100 and the other with a reserve of - '10, it might think of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

serves at 'zero' as per the report of the Actuary given as per Insurance Act. The AO, however, observed that for the purpose of determining the surplus of the assessee company for taxation purposes under the Income Tax Act, the actual value of the negative reserves was required to be taken. He, therefore, brought the income of negative reserves to tax in the reassessment proceedings. 9. In appeal, the Ld. CIT(A), though, observed that as per the provisions of the section 44 of the Act, t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

51 ITR 0773 and observed that as per the law laid down by the Hon'ble Supreme Court, the Surplus has to be determined as per the report of the appointed Actuary as per the provisions of the Insurance Act. The AO has no power to make any adjustment against Actuarial surplus determined as per Insurance Act while making computation of total income. He, however, observed that but in a case where Actuary has erred in applying Insurance Act correctly and properly, which results in understatement o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iness, in which case it has been provided that the mathematical reserves should be taken without any modifications. He therefore held that for determining the income for the purpose of Income Tax Act, the negative reserves should have been taken at actual value and should not have been modified or taken at 'zero' value. He therefore upheld the additions made by the AO. The assessee has, thus, come in appeal before us. 10. Before us, the Ld. A.R. of the assessee has stated that the issue .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

09 decided on 23.05.2014 along with the other appeals of the assessee bearing No.3800/M/2008, 3801/M/2008, 1501/M/2009 and the corresponding cross appeals of the Revenue. The Tribunal while considering the above issue has restored the matter to the file of the AO for fresh adjudication considering the decision of the Tribunal in the cases of "ICICI Prudential Co. Ltd." (supra) and "LIC" (supra). Under such circumstances, for the sake of rule of consistency, we restore this is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version