TMI Blog2016 (7) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... os are that assessee engaged in life-insurance business had filed its return declaring loss of ₹ 2,75,96,87,000/- . Assessment was completed by the AO on 15.03.2013 u/s.143(3) of the Act, accepting the loss returned by the assessee, after seeking and obtaining explanations of the assessee on various aspects of the return filed. Thereafter on 22.04.2014, a show-cause notice was issued by the CIT requiring the assessee to explain why the assessment ought not be considered as preducial and erroneous to the interests of Revenue. As per the CIT, assessee had mixed up provisions of Section 44 of the Act applicable to insurance company with normal provisions of the Act and in the process availed ineligible benefits. CIT noted that as per Section 115B of the Act, income from insurance business was required to be taxed at 12.5%, whereas balance of the total income was to be taxed at normal rates. As per the CIT, profits and gains of life-insurance business had to be carved out of the total income of the assessee which was not done by the AO. As per the CIT profits and gains of life-insurance business could alone be taxed at the concessional rate of 12.5%, whereas the balance of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudice would still result to the Revenue. Thus according to it there was no error in the order of the AO and no prejudice caused to the Revenue. 4. However, the CIT was not impressed by the above reply. According to him, eventhough assessee was a single entity, its income had to be divided into profits from the business of insurance and profits pertaining to shareholders account. He was of the opinion that the entire issue required fresh consideration by the AO. He set aside the order of the AO with a direction to the AO to redo the assessment afresh. 5. Now before us, Ld. AR submitted that all the required particulars regarding computation of income was asked for by the AO during the course of assessment proceedings and furnished by the assessee. According to him the division of profit and loss account into two viz., revenue account and shareholders account was to comply with IRDA regulations. Relying on the regulations issued by IRDA on 30.03.2002. placed at paper book pages 2 to 4, Ld. AR submitted that a person carrying on life-insurance business was required to comply with Schedule 'A' of the said regulations. According to him, Part-V of the said schedule stip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which were used for other purposes. The profits from latter, as per the Ld. DR, was not eligible for any beneficial tax treatment. In any case, as per the Ld. DR, AO had not verified correctly the basis on which the assessee had prepared its revenue account nor verified the deficits. Vis-a-vis, contention of the Ld. AR that no prejudice would be caused since the loss in revenue account could be set off against the profits in shareholders account, Ld. DR submitted that this went against section 115B of the Act which required different treatment for both types of income. 7. We have perused the material on record and heard the rival contentions. CIT had considered the assessment order to be erroneous and prejudicial to the interests of Revenue for the following reasons : The AO s order is erroneous and prejudicial to the revenue due to the fact that, the income from shareholders account amounting to ₹ 24,31,68,000/- has been failed to be taxed. Therefore, revisionary proceedings u/s.263 are initiated in this case. As per the CIT though assessee was a single entity, total income of the entity having been divided into profits of shareholders and profits from investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account to policyholder s account even during the year periodically as and when the actuarial valuation was arrived at in policyholder s account. Most of the companies are required to submit quarterly accounts under the Company Law, there is requirement of actuarial valuation report periodically and accordingly assessee was transferring funds from the shareholder s account to policyholder s account. Since the insurance business will not yield the required profits in the initial 7 to 10 years, lot of capital has to be infused so as to balance the deficit in the policyholder s account. During the year as already stated assessee has issued fresh capital to the extent of Rs. .250 crores and transferred funds to the extent of Rs. .233 crores from the shareholder s account to policyholder s account. Since assessee is having only one business of life insurance, the entire transactions both under the policyholder s and shareholder s account do pertain to the life insurance business only as it was not permitted to do any other business. Once assessee is in the life insurance business, the computation has to be made in accordance with the Rule-2 as per provisions of section 44. Therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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