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2016 (8) TMI 326 - ITAT KOLKATA

2016 (8) TMI 326 - ITAT KOLKATA - TMI - Addition made on account of provision for IBNR as ascertained liability - whether the the same need not be added back to book profits computed u/s 115JB? - Held that:- We find that the ld CITA had given a categorical finding that the provision made for liabilities incurred but not reported (IBNR) made by the assessee as per the regulations framed by Insurance Regulatory Development Authority (IRDA) based on a scientific calculation with a proper rationale .....

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or third party claim as ascertained liability - whether the the same need not be added back to book profits computed u/s 115JB? - Held that:- The provision created on account of unidentified Motor Third Party claim will not fall under sub section 115JB(2)-Explanation 1 (c) of the Act. Therefore, no addition is required while computing the tax liability u/s 115JB of the Act. Hence, we set aside the orders of the revenue authorities on this issue and direct the Assessing Officer not to make any ad .....

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nce tax, he would be nevertheless asked to pay interest in terms of section 234B and section 234C of the Act for default in making payment of tax in advance which was physically impossible.- Decided in favour of assessee. - Disallowance of Employees Contribution to Provident Fund - Held that:- As decided in assessee’s own case for Asst Year 2001-02 we are of the view that since the assessee has credited both employees’ as well as employers’ contributions to the individual accounts of the emp .....

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‘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 is clear that the disallowance of amortised premium paid on investments made by the ld AO is not in accordance with the prescribed specific procedure in the assessee’s case. The ld CITA duly appreciated the contentions of the assessee deleted the dis allowance correctly. SEE case of General Insurance Corporatio .....

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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 .....

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xpired risk u/s 115JB - Held that:- We find that the ld CITA had dealt this issue very elaborately and had given proper finding that the reserve created for unexpired risk need not be added back for the purpose of computation of book profits u/s 115JB of the Act. The revenue was not able to controvert the findings of the ld CITA before us. Hence we find no infirmity in the order passed by the ld CITA in this regard - Decided in favour of assessee. - I.T.A No. 674/Kol/2012, I.T.A No. 982/Kol/20 .....

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ed separately by DCIT, Circle-6, Kolkata u/s. 143(3) & 115WE(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for AYs.2005-06, 2007-08 & 2008-09 vide his orders dated 31.12.2007, 31.12.2009 and 29.12.2010. Since some of the grounds are common and facts are identical, we dispose of all these appeals by this consolidated order. 2. At the outset, there was a delay of 2 days in filing the appeal for the Asst Year 2007- 08 and 11 days for the Asst Year 2005-06 by the reven .....

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ct. 3.1. The brief facts of this issue is that the ld AO observed that the assessee disclosed that provision is made in the accounts in respect of claims received or likely to be received after the end of the year but relating to the relevant accounting year. This provision for liability is made as per valuations carried out by actuaries and is shown under the head liabilities incurred but not reported . The assessee claimed that such provisioning is made as per guidelines issued by the IRDA. Si .....

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the basis of reports and communications received from different branches as regards the claims made by various persons who had taken Insurance policies with the assessee, provision on account of Outstanding Claims are accounted for on actual basis in respect of claims received up to the fixed cut off date viz., the end of the relevant accounting year. A separate provision is also made in the Accounts in respect of claims received or likely to be received after the end of the year but relating to .....

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this provision, viz., IBNR, is in accordance with the guidelines issued by the Insurance Regulatory and Development Authority (IRDA) as well as the Institute of Chartered Accountants of India (ICAI). It was submitted that this provisioning is being made only in relation to the claims which are relating to the relevant accounting year but whose reporting are made subsequently. The assessee submitted that the ld AO should have appreciated that there cannot arise any question of assuming any uncert .....

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rovision for IBNR amounting to ₹ 16,18,00,000 through an order of re-assessment u/s 147/143(3) which was subsequently modified by an order of rectification dated 15-01-2010 passed u/s 154/147/143(3). In the assessee s appeal against the addition of Provision of IBNR, the ld CITA- VI, Kolkata, vide his Appellate Order dated 31-03-2010 [IT. Appeal No.988/CIT(A)-VI/09-10/Cir.-6/Kol] held that Provision for IBNR could not be termed as a Provision made to meet any unascertained liability. The l .....

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sessee observed as under :- The provision for IBNR could not be termed as any provision made to meet any unascertained liability and so the addition made for IBNR Provision in computing Book Profit, was directed to be deleted by my Ld. Predecessor. Since the issue in the present Appeal is the same, following my predecessor's Order, the Assessing Officer is directed to delete the addition of ₹ 12,77,00,000/- being provision for IBNR while computing the Book Profit u/s 115JB(2). The appe .....

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rred any appeal against the order of the ld CITA passed for the Asst Year 2004-05 in view of the decision taken by the Committee on Disputes not to prefer further appeal to the tribunal, as per the procedure then prevailing in respect of preferring appeals by the revenue in the case of Public Sector Undertakings and Government Companies. 3.6. We have heard the rival submissions and gone through facts and circumstances of the case. We find that the ld CITA had given a categorical finding that the .....

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. Hence, we find no infirmity in the order of the ld CITA in this regard and accordingly dismiss the Ground No. 1 raised by the revenue. 4. The next issue to be decided in this appeal is as to whether the ld CITA is justified in deleting the addition made on account of provision for unidentified motor third party claim amounting to ₹ 37,69,96,000/- as ascertained liability and thereby holding that the same need not be added back to book profits computed u/s 115JB of the Act. 4.1. The brief .....

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the claim, the company does not make provision for the entire claim made. In accordance with the guidelines framed by the General Insurance Corporation of India, the assessee does not provide for the entire claim but only 1/3rd of the respective claims are provided for. Here also, the provision is made for a liability which has not crystallized. Earlier, the assessee stated that such making of provision is an accepted norm as decided in a meeting dated 23rd/24th April, 1997 of the General Insur .....

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k Profit u/s 115JB(2) of the Act. 4.2. The assessee submitted its business includes, inter alia, Third Party Insurance which arises out of motor accidents. In respect of any motor accident, if covered under any Insurance policy with the assessee, the injured person and/or in the case of death of the injured person, his legal heir, files an application before the Motor Accidents Claims Tribunal through Court, claiming compensation for injury or death, as the case may be. On the basis of the afore .....

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e carried out there may be a possibility of disputing the quantum of the claim, the assessee does not make provision for the entire claim made. In accordance with the guidelines framed by the General Insurance Corporation of India, the assessee does not provide for the entire claim but only 1/3rd of the respective claims are provided for. The assessee submits that the ld AO should have appreciated that though the amount claimed through application of the insured person and/or a legal heir, as co .....

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e same need not be added back u/s 115JB of the Act. It was also stated that similar addition made for the Asst Year 2004-05 was directed to be deleted by the ld CITA vide his order dated 31.3.10. The assessee also submitted a copy of the tribunal order passed for the Asst Year 2001-02 in ITA No. 812/Kol/2009 dated 11.10.2011 on the same issue which was decided in favour of the assessee. Based on these submissions, the ld CITA deleted the addition made by the ld AO. 4.3. Aggrieved, the revenue is .....

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04-05 in view of the decision taken by the Committee on Disputes not to prefer further appeal to the tribunal, as per the procedure then prevailing in respect of preferring appeals by the revenue in the case of Public Sector Undertakings and Government Companies. Apart from that, the issue is also covered by the order of this tribunal in assessee s own case in ITA No. 812/Kol/2009 dated 11.10.2011. 4.5. We have heard the rival submissions. We find that the issue involved is squarely covered by t .....

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iness and also the above referred two decisions of the Supreme Court, the AO's action in disallowing does not appear to be correct. When once this observation has been made by Ld. CIT(A) it is not fair on the part of Ld. CIT(A) to take a contrary view while computing the MAT u/s 115JB of the Act by stating that the claim of assessee is in the nature of ad hoc one working out on specific percentage against anticipated /undetermined liability. It is further observed from the correspondence and .....

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regarding quantification also all the subsidiary companies of the General Insurance Corporation of India along with the assessee company has adopted the same method decided by the holding company i.e General Insurance Corporation of India. 13.1. Keeping in view of the above, we are of the view that the provision created on account of unidentified Motor Third Party claim will not fall under sub section 115JB(2)-Explanation 1 (c) of the Act. Therefore, no addition is required while computing the t .....

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is appeal is as to whether the ld CITA is justified in directing the ld AO that interest u/s 234B and 234C of the Act should not be charged on account of addition to the total income due to retrospective amendment. 5.1. The brief facts of this issue is that the ld AO made the following additions to the book profits computed u/s 115JB of the Act:- (i) Provision of IBNR 12,77,00,000 (ii) Provision for Unidentified Motor Third Party Claim 37,69,96,000 (iii) Provision for Bad & Doubtful Debts 5, .....

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calculating the advance tax liability. Aggrieved, the revenue is in appeal before us on the following ground:- 3. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in directing that the interest u/s. 234B and 234C of the Act should not be charged on account of addition to the total income due to retrospective amendment. 5.2. The ld DR argued that the charging of interest u/s 234 B and 234C of the Act is mandatory in nature and the retrospective amendment in the statute wit .....

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n of the Hon ble Jurisdictional High Court supra wherein it was held that :- 4. A Division Bench of this Court at the time of admission of this appeal formulated the following substantial questions of law for determination: "(a) Whether on a true and proper interpretation of the relevant provisions of Income- tax Act, 1961, the provisions relating to payment of advance tax are applicable in a case where the book profit is deemed to be the total income under section 115JB. (b) Whether and in .....

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erest of ₹ 44,00,937 under section 234B and ₹ 11,78,960 under section 234C even though the-appellant became liable to pay tax under section 115JB by virtue of a retrospective amendment made long after the due dates for payment of the advance tax installments. " ………… 14. It appears that the learned Tribunal has not at all considered the aforesaid aspect as to the liability of the assessee to make payment of the advance tax on the last day of the Financ .....

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the Act for default in making payment of tax in advance which was physically impossible. 15. We, therefore, partly allow the appeal by answering the first question in the affirmative and against the assessee and the second and the third questions in the negative and against the revenue." Respectfully following the aforesaid decision, we dismiss the Ground No. 3 raised by the revenue. 6. In the result, the appeal of the revenue in ITA No. 674/Kol/2012 for Asst Year 2005-06 is dismissed. ITA .....

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y is not condoned for computation of income as per income Tax Act and is to be considered as Income of the assessee. As such a total sum of ₹ 2,22,78,598/- is added back as assessee's income. 7.1. The assessee stated that Section 2(24)(x) of the Act provides that any sum received by the assessee from his employees as contributions to any Provident Fund or Superannuation Fund or any Fund set up under the provisions of the Employees' State Insurance Act, 1948, or any other Fund for t .....

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clause (va) of section 36(1) of the Act. From the language of the above-referred two sections, viz., 2(24)(x) and 36(1)(va) of the Act, it appears that certain receipt having been considered as an "income" u/s 2(24)(x) of the Act, will be deductible on credit of such receipt to the concerned employee's account within the due date. It was submitted that the receipt by way of Contribution, which is considered as an "income" is actually a liability in the hands of the asses .....

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e of any "expenditure" or "allowance ", the provisions contained in clause (a) of Rule 5 of the First Schedule, should not be considered as applicable in the case of any business of Insurance other than Life Insurance. On the basis of the above observations, it was submitted that there being no question of incurring of any expenditure in the matter of crediting the sum received towards contributions from the employees, there could not be any scope for making any addition unde .....

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may kindly be directed to be deleted. The assessee also made an alternative submission before the Ld. CIT(A) that section 36(1)(va) of the Act requires crediting of the employees' contributions within the "due date" by the employer and the said "due date ", has been clarified by way of an Explanation. Unlike section 43B of the Act, which specifically requires actual payment for being entitled to a specified deduction, in section 36(1)(va) of the Act, the requirement is of .....

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assessee stated that it had totally paid ₹ 50,00,00,000/- comprising of Employees Contribution including Voluntary Provident Fund Contributions and Employers Contribution as against the actual amounts due of ₹ 39,14,29,721/- and accordingly stated that it had in fact actually made excess payment of ₹ 10,85,70,279/-. The assessee also placed reliance on the decision of the co-ordinate bench of this tribunal in ITA No. 812/Kol/2009 dated 11.10.2011 in assessee s own case. The ld .....

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The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA. 7.3. We have heard the rival submissions. We find that the assessee had remitted the provident fund for the month of July 2006 with a delay of 15 days. We find that the issue is covered by the decision of this tribunal in assessee s own case in ITA No. 812/Kol/2009 dated 11.10.2011 for Asst Year 2001-02 wherein it was held that :- 7. After hearing the rival submiss .....

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are of the view that since the assessee has credited both employees as well as employers contributions to the individual accounts of the employees on the date of recovery of the provident fund in our opinion assessee fulfils the requirements mentioned u/s. 36(1)(va). Therefore we set aside the orders of the revenue authorities on this issue and direct AO to give relief of ₹ 8,67,57,956/-. Respectfully following the same, we dismiss the Ground No. 1 raised by the revenue. 8. Disallowance of .....

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ts 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 adjustmen .....

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f a general insurance company. The assessee also submitted that the Hon ble Supreme Court in the case of CIT vs Oriental Fire & General Insurance Co Ltd reported in (2007) 291 ITR 370 (SC) had held that provisions made towards income tax and bad and doubtful debts , not being of the nature of expenditure, could not be added back by the Assessing Officer while computing the business income of an assessee carrying on general insurance business covered u/s 44 of the Income Tax Act. The assessee .....

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vision in the Act for disallowance of premium paid on investments, the ld AO should not have made the disallowance of ₹ 6,02,18,000/- as per Rule 5 of the 1st Schedule to the Income Tax Act, 1961. Accordingly, the assessee submitted that the ld AO should have held that premium paid on investments by the assessee could not be disallowed and his action in making the disallowance should be considered as unjustified. It was also submitted that the transactions in investments being a part of th .....

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The purchasing of the securities at premium is compulsory as per the guidelines of the Government of India and there is no choice with assessee for not to buy the same. The assessee distributes the premium paid over a period of holding rather than debiting the same in the year of purchase which will give a distorted look to the Profit & Loss Account 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 .....

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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 .....

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377; 6,02,18,000/- made by the ld AO. Aggrieved, the revenue is in appeal before us on the following ground:- 2. The CIT(A) erred on the facts of the case and in law in holding that a sum of ₹ 6,02,18,000/- being amortization of premium paid on purchase of investments is an allowable deduction while computing the income. 8.1. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA. 8.2. We have heard the rival subm .....

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Years 2007- 08 and 2008-09 are dismissed. The decision taken in Asst Year 2007-08 with regard to this ground would apply with equal force to Asst Year 2008-09 as similar disallowance was made in Asst Year 2008-09 except with variance in figures. 9. Disallowance of Investments written off The brief facts of this issue is that the assessee wrote off ₹ 4,22,26,000/- out of Investments by charging the said sum to its Profit & Loss Account. The ld AO held that the above-mentioned write off .....

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First Schedule to the Income-tax Act, 1961. The assessee also submits that the ld AO had the power to add back only that expenditure or allowance or a provision which was not admissible under the provisions of sections 30 to 43B. The appellant had brought to the attention of the ld AO of the facts and the decision of the Hon'ble Supreme Court reported in 240 ITR 139 (SC). However, while making the assessment the ld AO had not considered the assessee s reference made to the decision of the Ho .....

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ejudice 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 ". Hen .....

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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, therefore, the requirement of section 36(2) should have been considered as having been fulfilled by the assessee. The assessee further submitted that in respect of the Assessment Year 2002-03 (Ground No. 1) the ld CIT(A) vide his Appellate order dated 24-01-2007 (Paragraph No. 7) dele .....

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nces on Investments written off for the Asst Years 2000-01 , 2002-03 and 2004-05 vide orders dated 30.1.2009 , 24.1.2007 and 15.6.2009 respectively. The ld CITA deleted the disallowance made by the ld AO. Aggrieved, the revenue is in appeal before us on the following ground:- 3. The CIT(A) erred on the facts of the case and in law in holding that a sum of ₹ 4,22,26,000/- being the investments written off is an allowable deduction. 9.1. The ld DR vehemently relied on the order of the ld AO. .....

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ent Years 2000-01, 2002-03 and 2004-05 of the CIT(A)-VI, Kolkata. The Authorised Representative further submitted that the transactions in investments being a part of business of the assessee, the writing off of investments should be considered as deductible for the purpose of computing the business income of assessee. 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 .....

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same is not 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 b .....

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ircumstances of the case as mentioned hereinabove, it is held that because of the restrictions contained in section 44 read with Rule 5 of the First Schedule, there could not be any disallowance of the amount written off out of investments and, accordingly, the disallowance of ₹ 4,22,26,000/- is deleted. Hence, Ground No.5 is allowed. We find that the revenue was not able to controvert the detailed findings of the ld CITA before us. Hence we find no infirmity in the order of the ld CITA in .....

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00/-. The ld AO observed that the Hon ble Apex Court in the case of CIT vs Oriental Fire & General Insurance Co Ltd reported in (2007) 291 ITR 370 (SC) had held that such provision is not to be held as a provision for an expenditure and distinguishing the earlier decision of the Apex Court delivered in the case of State Bank of Patiala reported in 219 ITR 706 (SC) , held that it cannot be disallowed in case of a insurance business where a special provision for taxation is given u/s 44 read w .....

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ovision for bad and doubtful debts made in the books will be restricted to the allowable limit u/s 36(1)(viia)(c) of the Act. Since the provision of this sub-clause is within the ambit given in Sub Rule (a) of Rule 5 of Part B of 1st schedule , any excess provision made in the accounts over the limit suggested in the referred sub clause section 36(1)(viia)(c) is required to be disallowed. The working for the eligible amount of deduction u/s 36(1)(viia)(c) can be made only after working of total .....

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preme Court in the case of General Insurance Corporation of India vs CIT reported in (1999) 240 ITR 139 (SC) and CIT vs Oriental Fire & General Insurance Co. Ltd reported in (2007) 291 ITR 370 (SC) and ought not to have made any disallowance on this count. It was also submitted that the ld CITA in Appeal No. 320 /CIT(A)-VI/07-08/Cir/6 dated 21.12.2011 for Asst Year 2005-06 and in Appeal No. 560/CIT(A)-VI/Cir.6/2008-09/Kol dated 16.1.2012 for Asst Year 2006-07 had upheld this addition made by .....

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s ground which is not warranted when the issue was decided by the ld CITA in favour of the revenue. Hence we dismiss the Ground No. 1 raised by the revenue for Asst Year 2008-09. 11. Addition towards Reserve created for Unexpired risk u/s 115JB of the Act The brief facts of this issue is that while computing the Book Profit u/s. 115JB of the Act for the purpose of MAT, the ld AO considered a sum of ₹ 169,45,00,000/- being the Reserve for Unexpired Risk created as per the requirement of law .....

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aid 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. Ap .....

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xisting Reserve for Unexpired Risk by way of crediting or debiting by the amount of difference between the Reserve created in the immediate preceding year and the Reserve required to be credited during the current accounting year. This cannot be considered as any alleged "Amount carried to any Reserve" debited to the Profit & Loss Account, but it should be appreciated that this Reserve represents that part of Premium Income which does not relate to the current accounting period. It .....

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lanation (1) to Section 115JB(2). It may also be appreciated that the "Reserve for Unexpired Risk" can, in any case, not be considered as any provision made for meeting liabilities, other than ascertained liabilities as referred to in Clause(c) of Explanation (1) to Section 115JB(2). On the basis of the above facts it may kindly be appreciated that there has not been any requirement to add back any sum in relation to the "Reserve for Unexpired Risk" while computing "Book .....

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he Act. 11.1. The ld CITA observed that the provisions contained in Rule 6E of the Income-tax Rules, 1962 has also been considered. Section 115JB(2)- Explanation (1)(b) requires increasing "the amounts carried to any reserve, by whatever name called, other than a reserve specified u/s 33AC" if such amount is debited to the Profit & Loss Account. It is held that the Reserve for Unexpired Risk has not been debited in the Profit & Loss account at any point of time, therefore expla .....

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d 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 .....

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oses. On the basis of this observation, it was held that the ld AO s action in adding back a sum of ₹ 169,45,00,000/- being reserve created for Unexpired Risk, was not in accordance with the relevant provisions of the Income-tax Act, 1961 and accordingly deleted the addition. 11.2. Aggrieved, the revenue is in appeal before us on the following ground:- 4. The CIT(A) erred on the facts of the case and in law in holding the sum of ₹ 1694500000 being the reserve created for unexpired ri .....

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