TMI Blog2018 (1) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... f the policy holder or the assignee. As the term “on behalf of” implies agency relationship and when the benefits are assigned to third parties, insurance company acts as agent of the policy holder. Even otherwise, if we go to the explanatory note as given under para 40.2 of the Circular 202, according to this bonus paid to the policy holder will also be taxed but that is not the case of the Revenue. The Revenue has only contested the bonus declared and the incremental FFA. 89. We also noted that no such disallowance has been made by the Revenue in the earlier assessment years i.e. up to A.Y.2009-10 and it is for the first time that the CIT(A) has enhanced the assessment. Even on the ground of consistency, the Revenue cannot discard the consistent and regular method followed for determining the taxable income without there being any change or otherwise, the bonus declared and the incremental FFA has been allowed as deduction by the Revenue. Addition considering Funds for Future Appropriation (“FFA”) as part of the actuarial surplus - Held that:- We even noted upto Assessment Year 2009-10, the Revenue has consistently excluded amount appropriated for FFA out of the available sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee has incurred these expenses eligible for deduction under section 35CCA, 35CCB, 35CCC or 35CCD so that we have taken a view that while computing the income from insurance business, in view of specific provisions of section 44 no disallowance could have been made. Thus while deleting the enhancement made by CIT(A) in respect of provision for doubtful debts we also delete the disallowance of 2,500/- taken in ground no. 8 as the assessee derived income from life insurance business only and the computation of the income from life insurance business, in view of S. 44 of the Income Tax Act, has to be made in accordance with Rule 2 of First Schedule of the Income Tax Act which debars Revenue to apply provision of S. 28 to 43B of the Income Tax Act. Thus ground no. 8 stand allowed. Re-compute the losses assessed in earlier AYs for the purpose of allowing setoff thereof u/s 72 - Held that:- CIT(A) although allowed assessee to setoff of losses u/s 72 of AY 2002-03 & other earlier years but directed Assessing Officer to grant setoff on the basis of actuarial report, annual report, statement of income and additions pertaining to shareholders a/c made/ sustained in assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has duly been shown by assessee under the head ‘income from investment’ and is duly included in the gross receipt of ₹ 1,43,19,19,000/- and loss of ₹ 20,91,40,000/- has been arrived at after considering said income. Therefore we find that CIT(A) has correctly observed that this is a double addition in income of assessee and he has rightly deleted the said addition. We do not find any illegality or infirmity in the order of CIT(A) while deleting the said addition. Thus the cross objection filed by Revenue stands dismissed. - ITA No.142/Del/2017, CO No. 123/Del/2017 And ITA No.142/Del/2017 - - - Dated:- 5-1-2018 - Shri P K Bansal, Vice President And Smt Beena A Pillai, Judicial Member For The Appellant : Shri Ajay Vohra Shri Himanshu Sinha And Ms. Vrinda Tulsian For The Cross-Objector : Shri Vijay Varma ORDER Per P K Bansal, Vice - President : This appeal by the assessee and cross-objections by the Revenue are directed against the very same order of the CIT(A) -22, Delhi, dated 07.11.2016 pertaining to A.Y. 2010-11. 2. The assessee has raised the following grounds of appeal: 1 . That on the facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Ld . CIT ( A ) 7 . That on the facts and circumstances of the case and in law . the Ld . CIT ( A ) erred in upholding disallowance of Rs . 2,50,00,000 made by the Ld . AO on account of donation / made by the Appellant . 8 . That on the facts and circumstances of the case and in law . the Ld . CIT ( A ) erred in upholding the addition of Rs . 2,500 made by the Ld . AO on account of disallowance of share issue expense incurred by the Appellant by erroneously concluding that section 44 of the Act read with the First Schedule thereto does not apply to the profits in the Shareholders' Account . 9 . That on the facts and circumstances of the case and in law the CIT ( A ) exceeded jurisdiction in directing the Ld . AO to re - compute the losses assessed in earlier assessment years for purposes of allowing set off thereof under section 72 of the Act . Each of the above grounds are independent and without prejudice to the other grounds of appeal preferred by the appellant . 3. The assessee, vide letter dated 13.12.2017 has taken the following additional ground of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ultratech Cement Ltd. (supra), which has been relied on by the learned DR. We have gone through that decision and find that the Hon ble High Court did not admit the additional ground as they found additional ground taken by the assessee is not a pure question of law but would depend upon the satisfaction of the authority as to the facts existing in the subject assessment year for allowing the benefit of section 80IA of the Act. The Hon ble High Court gave a clear finding this ground has been raised for the first time before the Tribunal without relevant evidence being on record. In view of this fact the High Court took the view that the additional ground could not be admitted. From para 27 of the said order of the Bombay High Court, it is apparent that the High Court has clearly laid down where only a pure question of law arises from facts which are already on record, then there is no reason why the appellate authority should not consider the question of law so as to determine the correct tax liability of an assessee in accordance with law. In the impugned case, the fact that the assessee has earned dividend income is apparent from the material available on record of the authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance addition of ₹ 2,50,00,000/-, ₹ 1,64,000/- and ₹ 2,500/-. Against the enhancement and the additions sustained by the CIT(A), the assessee has come in appeal by taking the grounds enumerated above. While the Revenue has filed the cross-objections taking the following two grounds: 1 . That the Id . CIT ( A ) erred in deleting the addition of Rs . 7,10,43,000 /- made by the AO on account of 'profit from sale of investment' on the ground of double addition whilst the interest of Revenue demanded that the same should have been sustained separately . Without prejudice, the addition should have been sustained separately on protective basis . 1 . 1 That in appeals filed by the assessee for AY 2007 - 08, 2008 - 09 and 2009 - 10, the addition on profit from sale of investment has been decided by the First Appellate Authority in favour of the Department . Therefore, this establishes that addition made by the Assessing Officer is in conformity with the provisions of the Act . 8. The learned AR before us contended that the assessee company was incorporated on 11.07.2000 as public limited company registered under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RDA Act, 1999 for presentation of insurance accounts. According to the new Regulations formulated by the IRDA, the surplus of a company in the business of life insurance is required to be determined on an annual basis. Such surplus is to be determined, interalia, by taking into consideration the actuarial liability towards unexpired policies. The audited copies of such accounts are required to be filed with the IRDA on an annual basis. The change in the reporting format for companies carrying on life insurance business pursuant to change in the regulatory framework and pursuant to enactment by IRDA of Regulations, 2000 and Regulations, 2002 was duly noted by Hon ble Bombay High Court in ICICI Prudential Life Insurance Co. Ltd. vs. ACIT 325 ITR 471. In this regard our attention was invited to page 474 -476 of the said decision. 10. It was further argued that the taxable profits of an insurance company are required to be computed under the provisions of Section 44 of the Act read with the First Schedule which is a self-contained code for computation of such taxable profits. Rule 2 of the First Schedule to the Act states that the actuarial surplus or deficit shall be deemed to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clared for policyholders; and (iii) amounts appropriated as Funds for Future Appropriation is correct and in accordance with law. In respect of aggregation of policyholders' and shareholders' accounts, it was submitted that as per section 2 (7A) of the Insurance Act 1938, an Indian insurance company has been defined as company whose sole purpose is to carry on life insurance or general insurance or reinsurance business. Reference was drawn in this regard on sections 2(11), 3(4)(h), 11, 13, 27, 27A, 56 57 of the Insurance Act 1938 to demonstrate that Indian insurance companies are not allowed to carry any business other than life insurance business and shareholders' funds are part of such business only. Shareholders funds are maintained in business as per IRDAI directive to maintain specific level of solvency and risk capital. IRDAI has also specified manner in which such shareholders funds have to be invested. Shareholders account includes income from investment of shareholders funds and certain expenses associated therewith, such as board meeting expenses, etc., and is part of Life Insurance Business. 13. In respect of Ground No. 2 3 the learned AR contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance Co. Ltd. 242 Taxman 97. 16. It was further submitted that the matter can be looked at from another angle, too. The CIT(A) in his order dated 7.11.2016, for assessment year 2010-11, has noted that players in the life insurance business follow different approaches as enumerated on pages 25-26 of that order. We noted that the CIT(A) has observed as under: i ) Approach based on financial statements and A - RA in which A - PL are considered part of one single business of life insurance . Aggregation of results of both A - RA and A - PL ( after nullifying effect of transfer between accounts ) and offering for tax the combined profit for tax as profit of company from life insurance business taxable at special rate is done under this approach . ii ) Approach based on financial statements but A - RA and A - PL are considered separate business and profits of each account are calculated independent of other . Then only A - RA represents profits of life insurance business taxable at special rate while A - PL income ( after nullifying effect of transfer between accounts ) is to be taxed as Income from other business at normal rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances . If this were permitted, litigation would have no end, except when legal ingenuity is exhausted . It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle . Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the Plaintiff and traversable by the Defendant, has not been traversed . In that case also a Defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken . 17. Further, it was also pointed out that the principle of consistency was reiterated by the Supreme Court in Shasun Chemicals Drugs Ltd. vs. CIT 388 ITR 1 and CIT vs. Excel Industries Ltd. 358 ITR 295. In Excel Industries (supra), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable for the first two Policy years . Thereafter, a bonus as declared by the Company, will be paid, from the surplus arising from the actuarial valuation of the participating life insurance fund . The amount of bonus to be paid will be as determined by the Company's Appointed Actuary from time to time . 19 Further, attention was also drawn towards the IRDA (Distribution Of Surplus) Regulations, 2002 in respect of the procedure for distribution of surplus in the following terms: 4 Procedure for distribution of surplus . - A life insurer may, on the advice of his appointed actuary, reserve a part of the actuarial surplus ( also referred to as valuation surplus ) arising out of a valuation of assets and liabilities made for a financial year in accordance with Insurance Regulatory and Development Authority ( Actuarial Report and Abstract ) Regulations, 2000, to its shareholders, which shall be :- ( a ) one hundred per cent in case of a life fund maintained for non - participating policyholders; ( b ) one - ninth of the surplus allocated to policyholders in case of a life fund maintained for participating policyholders : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t policy holders to make claims against their insurance policies . Insurance companies need to make sure that the money they are charging and collecting from policy holders is adequate to cover the costs of certain claims that might beneficially be made by policy holders as well as their other expenses, hi fact, the work that actuaries perform is crucial to an insurance company's ability to remain in business . Actuaries are involved at all stages in product development and in the pricing risk assessment and marketing of the products . Their job involves making estimates of ultimate out - come of insurable events . In the business of insurance the product cost is an abstraction, depending on the timing issues, variability issues and risk parameters . One 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 . .... .... The surplus or deficit arrived at by the actuary in his valuation for the inter valuation period has to be taken into consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a manner so as to take away the right of an assessee carrying on life insurance business to treat bonus declared as an actuarial liability. Furthermore, the scheme of taxation has undergone complete change with the current provisions providing for actuarial valuation of the surplus /deficit. It is to be noted that prior to the amendment in 1976 such a limitation was provided in the erstwhile Rule 3 which limited the allowability of deduction pertaining to amounts set aside for the benefit of policyholders to 80%. After the amendment, no such limitation exists. For this our attention was drawn towards Rule 3, which was omitted by Finance Act 1976. The limitation was in Rule 3 because the old Rule 2 provided for two alternate tax bases (Higher of the Net Income and Actuarial Surplus). Under the Net Income method, deduction could be claimed and a limitation for the same was provided. In the case of actuarial surplus, there was no such thing as deduction because any liability recognized by the actuary was to be reduced from the income to arrive at the surplus/deficit. As presently, there is nothing in the Act which states that while arriving at actuarial surplus , liabilities ascert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is view represents provision for a definite and ascertained liability, which is a necessary charge on the profits of the life insurance business. Reliance was placed in this regard on the decision of the Hon ble Apex Court in the case of Bharat Earth Movers vs. CIT 245 ITR 428 where the question whether provision for leave encashment to employees was allowable deduction while computing profits of the business, was allowable deduction or not. It was submitted that the facts involved in this case were: .. , . ..... The company has floated beneficial schemes for its employees for encashment of leave . The officers are entitled to earned leave calculated at the rate of 2 . 5 days per month, i . e . , 30 days per year . The staff ( other than officers ) is entitled to vacation leave calculated at the rate of 1 . 5 days per month, i . e . , 18 days in a year . The earned leave can be accumulated upto 240 days maximum while the vacation leave can be accumulated upto 126 days maximum . The earned leave / vacation leave can be encashed subject to the ceiling on accumulation . The officers may at their option avail the accumulated leave or in lieu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid conclusion, the Court took note of the principles laid down in the case of Metal Box Co. of India Ltd. Vs. Their Workmen 73 ITR 53 wherein the Apex Court allowed provision for gratuity payable on termination of employees service due to retirement / death or termination, worked out on an actuarial basis and Calcutta Co. Ltd. Vs. CIT 37 ITR 1. Reference was also made to the judgment of Hon ble Delhi High Court in the case of CIT vs. Triveni Engineering Industries Ltd. 336 ITR 374 wherein it has held that where the contract receipts, including unbilled revenue for which invoices have been raised in the succeeding year, were brought into tax in entirety in the relevant previous year, deduction had to be allowed in respect of provision for foreseeable losses towards completion of the contract. 23. Reliance was also placed in this regard in the case Rotork Controls India (P) Ltd. vs. CIT : 314 ITR 62 wherein the issue for consideration was allowability of provision for warranty. Allowing the appeal of the assessee, the Hon ble Apex Court made the following observations: .....Under the matching concept, if revenue is recognized the cost incurred to earn that revenue incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuses and its smoothening satisfies all the four parameters above, inasmuch as the obligation to make available future benefits arises out of preexisting contracts of insurance in respect of which premiums have been collected by the assessee; the benefits are payable in terms of binding and legally enforceable contacts of insurance; the payment of benefit would involve outflow of resources and lastly, the same is capable of actuarial valuation. Thus, it was contended that the participating surplus earned is embedded with the obligation to provide various benefits to the participating policy holders, inter alia, death benefit to surviving nominees, survival benefits, cash or reversionary bonuses and other payouts / benefits linked to the happening of a future uncertain events. The income earned by the assessee is thus impressed with the obligation to make available such benefits in future, in terms of the legally binding covenants under the contract of insurance. Further, as per the Insurance Regulatory and Development Authority (Distribution of Surplus) Regulations, 2002, the shareholders are not entitled to any amount in excess of 10% of the actuarial surplus. Therefore, 90% of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the recent judgment of the Hon'ble Supreme Court decision in the case of CIT vs. Modipon 87 taxmann.com 275 (SC) wherein it was clarified that amounts deposited in the Personal Ledger Account ( PLA ) towards likely excise duty liability, to be discharged in future represented expenditure accrued and actually paid considering that the assessee had no control over the amount once deposited and the assessee was not entitled to withdraw any amount therefrom. It was further submitted that the issue whether funds for future appropriation are allowed in one year or the other, is revenue neutral, considering that the same are held by the assessee company in fiduciary capacity, for and on behalf of the participating policyholders and the said amount cannot be diverted in favour of the shareholders (except to the extent of 10% of the surplus as and when declared, in view of the binding IRDA Regulations). Reliance in this regard is placed upon the judgment of the Bombay High Court in CIT vs. Nagri Mills 33 ITR 681 (Bom), especially to the observations at pg 684 of the judgment, which reads as under: We have often wondered why the Income - tax authorities, in a matter such as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaration of (future) bonuses, would not result in the FFA representing provision for future payouts to policyholders being treated as part of income of the assessee, when there is a legal antecedent obligation to spend such amounts for payment to policyholders, both, in terms of the contract of insurance and the extant Regulations. In other words, an amount that is statutorily mandated to be kept aside for the benefit of policyholders (FFA) for future distribution, cannot form part of actuarial surplus. Accordingly, FFA would thus have to be taken into account in determining actuarial surplus. 30. Ground No. 9: relates to the claim of the assessee in respect of the direction given by the CIT(A) for re-computing the assessed carried forward losses of AY 2002-03 and other earlier years for the purpose of allowing set off u/s. 72 of the Income tax Act. The learned AR in this regard submitted that the CIT(A) directed the Assessing Officer to recompute carry forward losses of the A.Y. 2002-03 and other earlier years. This direction amounts to order of remand and reopening of assessments of the prior years. Such an action is ex facie illegal and manifestly in violation of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by two methods a) Investment Income - Allowable Expenses = Net Income b) Investment Income + Premium Income + Miscellaneous Income - Allowable Management Expenses - Payments to Policy Holders - Increase in liability = Valuation Surplus Thus, it was contended that a life insurance company incurs a liability whenever a policy is issued and an additional liability when renewal premium is received. This liability is estimated by actuarial techniques using appropriate discounts and probability factors. In case of a new company, Net Income will be negative for a long period. However, valuation surplus may be positive after few years as the company matures and the Net Income start exceeding the Valuation Surplus. Before 1918, the life insurance companies in India, were being assessed on profits like other trading companies. The procedure had evolved departmentally. 1918 and 1922 Acts gave statutory recognition of these procedures. Later, till 1939, taxation of life insurance companies was governed by the Income Tax Act 1932 and Rules 25 and 35, and the Average Annual Gross Valuation Surplus (Valuation Surplus with certain adjustments) was taxed as Profits and Gains of life insur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion surplus was to be taxed @ 12.6%. Therefore, in other words Net Valuation Surplus was to be taxed at 52.5 % OR the Gross Valuation Surplus was to be taxed at 12.6 %. This was the rationale of withdrawing deduction of allocation of surplus to policy holders, while reducing tax rate to 12.5 %. The CBDT circular No. 202 dated 5.7.1976, para 40.2 removed any ambiguity in this regard. It was a fair deal as even after reduction of corporate tax rates, if the original condition that X% of Valuation Surplus should not be less than the tax at corporate rate on higher of Net Income or Net Surplus is applied, the value of 'X' would be higher than 12.5% even today as when a company grows, rate of growth of Net Income is higher than rate of growth of Net Surplus. Though, the First Schedule talks of average surplus, that is no longer relevant as actuarial valuation is now done every year as against once in three to five years earlier. 36. As regards Ground No. 3, reliance was placed on CIT(A) order and contended that it has been demonstrated in the order of CIT(A), that this issue is Infructuous as the issue is not of old and new forms but of deduction of surplus allocated to polic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de-novo assessment. The powers to set aside an issue to the Assessing Officer for de-novo assessment by the Tribunal is well settled. However, if CIT (A) cannot enhance, it would restrict the powers of Hon'ble ITAT to set aside the matter to Assessing Officer for de-novo assessment which may lead to enhancement. That cannot be the correct interpretation. 38. With regard to ground 9 relating to section 72 i.e. setting aside the brought forward losses, it was pointed out that an order u/s 154 was also been passed by CIT(A) on 07.02.17(the copy of which was placed before us during the course of hearing), rejecting the assessee's application on this issue and further clarifying the issue. As per First Schedule, Profits and Gains of life insurance business are to be taken at Gross Valuation Surplus after excluding the Surplus/Deficit of earlier years and this Profits and Gains is to be taxed u/s 115B(1)(i) at 12.5 %. So question of Set Off of loss of earlier years does not arise as far as Income Taxable u/s 115 B(1)(i) and corresponding tax liability is concerned. Otherwise section 115B(1)(i) will become redundant. It was further submitted any interpretation which makes a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'A' Bench ITAT) which deal with the issue of binding nature of decisions. All the decisions relied upon by the assessee are Sub-Silentio as far as the issues involved in this appeal are concerned. Some decisions are in fact PerIncuriam. 41. It was further submitted that IRDA Act 1999 forms part of Insurance Act 1938 (4 of 1938) only. In fact, section 30, read with First Schedule of IRDA Act 1999 deals with the amendments in Insurance Act 1938 (4 of 1938) only. It substitutes Controller of Insurance with Chairperson of Authority at various places in the Insurance Act 1938 (4 of 1938) and makes IRDA Act/Regulations integral part of Insurance Act 1938 (4 of 1938). A copy of corresponding amendments was filed and referred to. Therefore, it was contended that Rule 2 to First Schedule to Income Tax Act does not include Actuary Report as per IRDA Act/Regulations is against the express the provisions of the Act and it makes the First Schedule of Income Tax redundant. Even otherwise with no Controller of Insurance as per old Act and corresponding amendments incorporating IRDA Act/Regulations in Insurance Act 1938 (4 of 1938), it is not understood, how the parallel accounts as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tments for unexpired risk and disallowances under section 30 to Section 43B. The Insurance Act, 1938 was amended in 1999 and the Insurance Regulatory Development Authority (IRDA) was created. In the financial year 2001-02, IRDA introduced IRDA (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002 . According to these changed norms, a nonlife insurance company had to include profit or loss on realization/sale of investment in the profit and loss account. Due to this, the Act had been amended to provide that any increase in respect of any amount taken credit for in the accounts on account of appreciation of or gains on realization of investments in accordance with the regulations prescribed by IRDA, should be treated as income and included in the computation of the total income. Similarly, deduction should be allowed in respect of any amount either written off or provided in the accounts to meet diminution in or loss on realization of investments in accordance with the regulations prescribed by IRDA. Thus, it was contended that the amendment was in totally different context. Moreover, even the Old Insurance Rules have not been specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of FFA and surplus allocated to policy holders is concerned ). Thus, it was contended that except issue in above para ( d ) which is relevant only for ground no . 2 ( legal ) , ground no . 6 ( Rs . 2,41,83,000 ) , ground no 7 . ( Rs . 2,50,00, 000 ) and ground no 8 ( Rs . 2,500 ) , no other issue is relevant . 47 . Without prejudice to the above, learned DR referred to the decision of ITAT in the case of assessee wherein it has held that Transfer Pricing Provisions are applicable in the case of assessee, as only section 28 to 43B are excluded, as far as Profits and Gains of life insurance business are concerned . Section 14A also falls outside section 28 to 43B . The same view will apply to section 80G also . 48 . With regard to the issue of applicability of section 44 to Share Holder's Account, it was submitted that IRDA Act came into force in 1999 and Insurance Act, 1938 ( 4 of 1938 ) was also amended . IRDA regulations came subsequently . Earlier there were Insurance Rules 1939 . As per assessee accounts are to be maintained, presented and business is to be regulated as per a non - existe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, which have been reproduced in the order of CIT ( A ) also, for ready reference, though the same could have been filed during the course of hearing also . So, it does not contain any factual evidence in the form of any statement, document or any other paper and does not fall under the definition of Paper Book under ITAT Rules . 51 . Subsequently, the learned DR made following written submissions dated 12 . 12 . 2017 : 1 . At the outset, the Revenue wishes to submit that assessee raised following specific grounds related to section 44 of the IT Act before the CIT ( A ) The learned AO failed to appreciate : 2 . 3 That Section 44 of the Act read with the First Schedule is a self - contained code in the Act for computing income of assessee engaged in Life Insurance business and overrides other provisions of the Act which are contrary to the provisions of Section 44 of the Act . 3 . The learned AO has erred in law and in facts, in making addition of Rs . 2,160,000 /- on account of disallowance of provision for bad debts and disregarding the provisions of Section 44 of the Act which prohibit any adjustment und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance companies needs to be explained first . The taxation of life insurance companies in India has gone through several changes over the last hundred years . Globally, there are two methods of assessing taxable income of life insurance business . In life Insurance companies, these are two funds, the shareholder's fund and the policyholder's fund . Unlike in other industries share holder's fund does not play an active role in running the business and remains invested . The profits and gains from life insurance business can be computed by two methods . 3 . 1 In the first method, the profits and gains of life Insurance business is defined as income minus expenses or net income . The income here means, the investment income only . Not all the expenses are allowed as deduction . 3 . 2 In the second method, the taxable income of life insurance business is defined as income minus outgo minus increase in liability . In this method, the income is the sum of premium income, investment income and any other miscellaneous income in policyholder's account . The outgo is the sum of payments to policyholders and allowable management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Y . 1977 - 78 the profits and gains of life insurance business were taxed at 52 . 5 % ( excluding surcharge ). The profits and gains of life insurance business were taken a greater of the Net Income ( First Method ) and Valuation Surplus ( Second Method ). While computing valuation surplus a deduction of 80 % of valuation surplus allocated to policy holders was also allowed Regarding other expenses also ceiling was prescribed . The allowable deduction of valuation surplus allocated to policy holders was 50 % earlier . Income Tax Investigation Commission appointed in 1948 had rejected the demand of industry for raising the limit of deduction of valuation surplus allocated to policy holders from 50 % to 100 %. However, Income Tax Act 1961 [ Rule 2 ( 1 ) of first schedule ] raised it to 80 %. 3 . 7 The rate of 52 . 5 % was lower than corporate rate of taxation of 55 % at that time and LIC of India was the only company in this business . As per LIC Act, 95 % of its valuation surplus was allocated to policyholders . This meant that {100 - 80 % of 95} % of valuation surplus was taxed whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o shareholders . It contains CBDT circular No . 202 dated 5 - 7 - 1976 as well which clarities that after introduction of section 115B, Bonus to policy holders is not an allowable deduction . 3 . 9 A paper by R . Ramakrishnan, Consultant Actuary published in The Actuary India October 2008 also explains the history of taxation of Life Insurance Business in India . Relevant pages of that are also enclosed for reference . 4 . For the year under appeal, the taxation of insurance companies is governed by section 44, read with First Schedule of the Income Tax Act . As per the same, the profits and gains shall be the valuation surplus at the end of the year after excluding from it any surplus or deficit included therein of earlier assessment years . Thought, the First Schedule talks of average surplus, that is no longer relevant as actuarial valuation is now done every year as against once in three to five years earlier . 4 . 1 The Apex Court in the case of Life Insurance Corporation of India, reported in 51 ITR 773 held that ITO has no power to make any adjustment in actuarial valuation, except u / r 3 ( b ) with the permis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ..................................... , ....... Provided also that every insurer on or after the commencement of the Insurance Regulatory and Development Authority Act, 1999, shall cause an abstract of the report of the actuary fo be made in the manner specified by the regulations made by the Authority . 4 . 4 So the actuary report as per new regulations has to form basis of taxation . However, as explained from para 7 . 1 onwards of the order of CIT ( A ) , and more particularly para 9 . 2 . 1 onwards, there is no fundamental difference in old and new reports in the sense that both lead to same results . 4 . 5 Without prejudice to the same Para 11 of the order of CIT ( A ) is also reproduced herein under; For reference para I . I of appellants reply dated 05 . 10 . 2016 is reproduced here is under :- 1 . 1 it is respectfully submitted that the taxable income of a life insurance company since 1976 is to be determined on the basis of the earlier Revenue Account and Valuation Balance Sheet ( erstwhile Insurance Act, 1938 ) which account for all incomes and outgoings of the life insurance company including premiums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000) Investment income 398160(000) Misc. Income in share holder A/C 299(000) Total 2732059(000) Less Expenses in share holder A/c 1078063(000) Balance 1653996(000) Less: Provisions (-)23204(000) Balance 1677200(000) Less:- 10(23AAB)Profit 8211(000) Add: Royalty for use of Broad License 617857(000) Balance 2286846(000) 13 . 3 Now, we may examine the reconciliation of above figures with that shown by the appellant . (Rs) Income worked-out in the above table 2286846(000) Less : Surplus Allocated to policy holders 1432862(000) 853984(000) Less: Incremental FFA 457 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taxable income as under A.Y. 10-11 Share Holder's account (Non Technical Account) In Rs. (000) Transfer from Policyholder's account 1033460 Income from investments 398160 Misc Income 299 Total- A 1431919 Less Expenses other than directly related to insurance business 1078063 Contribution to policyholder's account 586200 Provisions (-) 23204 Total B 1641059 Profit (A-B) in Share Holder's Account A-PL (-)209140 Less -Adjustments in computation of income U/s 10(23AABj for surplus of Linked and Non linked pension policies 8211 Add- Royalty for use of brand licence disallowed suo moto 617857 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f earlier years had already been appropriated / allocated and not included in above REVENUE ACCOUNT (POLICY HOLDER'S ACCOUNT) All figures are in thousand rupees PREMIUMS RECEIVED (NET) 48605388 RE INSURANCE CEDED (-)596797 INCOME FROM INVESTMENTS 19896451 CONTRIBNITION FROM SHAREHOLDERS ACCOUNT 586200 MISC INCOME 4629 TOTAL RECEIPTS 19890483 EXPENSES COMMISSION 4212087 OPERATING EXPENSES OF INSURANCE BUSINESS 15048109 BENEFITS PAID 5891741 CHANGE IN VALUTAION OF LIABILITY OF POLICIES 41962018 Amount ceded in reinsurance (-)105022 SURPLUS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y earlier intervaluation period . This essentially precludes carry forward of losses . The set off of carried forward losses under section 72 is a part of computation of income under the head business or profession The provision of Section 72, are of general nature and since the special provisions in the legislation always override the general provisions, the provisions of the First Schedule would override the provisions of section 72 so far as life insurance business is concerned . 6 . 3 An illustration of impact of deficit in actuarial valuation is given as under : <!--[endif]----> YEAR 1 CLOSING POSITION <!--![endif]----> Year 1, A Year 1,B Year 2, C Increase in Funds Year 2, D Increase in liabilities Funds 80 40 30 20 Liabilities 40 50 25 30 Surplus 40 (-)10 5 (-)10 YEAR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce . It never mentioned that accounts were to be maintained as per Insurance Act . However it provided for certain adjustments to the said profit . In view of the same and certain adverse court decisions, it had to be amended 4 . As regards Rule 2, it talks of Insurance Act, which has substantive provisions and separation of Share Holder's Account and Policy Holders Account is a part of substantive provisions and not any regulations . Earlier only LIC existed and it provided 95 % of surplus to be paid to policyholders . After privatization, shareholders can use the surplus ( which becomes part of their funds ) for various purposes . Like the assessee has paid royalty and donation . Shareholders funds are now required mainly for maintaining solvency margin . 5 . The concept of Life Insurance Fund and Total Funds of business is different . The returns from investments of Life Insurance funds forms part of actuary surplus whose distribution to policy holders and shareholders is regulated . The return on shareholder's funds does not go as allocation of profit ( or surplus ) to policy holders . So it is not a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same has been admitted by Hon'ble High Court ) , the Revenue submits under rule 27 of ITAT Rules, that even that was not in accordance with express provisions of law . The Hon'ble ITAT has plenary powers u / s 254 ( 1 ) , as held by the Apex court in the case of M / s NTPC Ltd to consider any additional ground which goes onto the root of the matter and courts have held that such a plea can even be raised orally at the time of hearing . A compilation of such case laws is enclosed ( 262 ITR 325, 223 ITR 173, 29 ITR 799, 124 ITD 181 ). Subsequently, on the last date of hearing, the DR filed another set of written submissions in respect of additional ground raised by the assessee, which reads as under: 2 . In view of the same the Revenue submits as under : a ) The Revenue in para - 6 on page 12 of the submission filed on 24 . 10 . 2017 has relied on the decision reported in 36 SOT 128 holding that the issue of set off of carried forward losses is to be examined in the year in which the set off is claimed . b ) In the order u / s 154 of CIT ( A ) dated 7 . 2 . 2017, which merges with the order under appeal, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under Four - fifth of the amounts paid to, OR reserved for OR expended on behalf of policy holders .... As per Standard English and rule of its Grammer it means Paid to ( policy - holders ) OR Reserved for ( policy - holders ) OR Expended on behalf of ( policy - holders ) The circular 202 dated 5 . 7 . 1976 explains the reason for omitting Rule 3 ( a ). So no other interpretation can be given to it . g ) In respect of copies of old Insurance act of 1938 ( before IRDA Act 1999 ) , placed from page 48 to 72 of Annexure to written submissions filed on 11 - 12 - 2017, kind attention is invited to page 59 to 61, which refer to P L Account, P L Appropriation Account and Revenue Account not as synonyms . However, the Revenue submits that after amendment of Insurance Act 1938 by IRDA Act 1999, any reference to or reliance on the said old Act is not required as it does not exist . 53. The learned DR during the course of hearing drew our attention towards Circular 202 dated 05.07.1976 in which under para 40.2, the reason for bringing amendment by Finance Act, 1976 for allowing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fe insurance business. When such estimated liabilities along with other expenses that are incurred during the valuation period are reduced from the income generated from the life insurance business during the valuation period, the surplus/deficit is arrived at and it is deemed to be the income from life insurance business. The actuarial valuation of future liabilities includes: (a) bonus amounts that the policyholders have become entitled to receive but have not received (the same would be distributed in future); and (b) amount set aside for future distribution of bonus for the exclusive benefit of the policyholders (known as Fund for Future Appropriation). Though Income-tax Act does not provide any definition or guidance regarding the term actuarial valuation , IRDA Regulations stipulated that actuarial valuation would take into account amount set aside for bonus payments to policyholders in future. 55. Our attention was invited towards the Preparation of Financial Statements and Auditor's Report of Insurance Companies Regulations, 2000 especially to Clause 6 thereof, which has been reproduced herein above, pointing out Liability for life insurance policies in force includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bonuses in future and the company is legally obliged to ascertain the same and provide for its future discharge. This liability is determined by the actuary based on scientific principles. 56. Attention was also drawn towards the written submissions of the learned DR, wherein it has been stated that unlike in other industries, in life insurance business, shareholders' fund does not play an active role in running of business and remains invested. On this it was submitted that this is factually incorrect as shareholders' funds are regularly used to meet the regular expenses of life insurance business and to meet the deficit in policyholders' account, if any. The shareholders funds are basically required to maintain solvency margins stipulated by IRDA. 57. With regard to the old Rule 2 of Schedule 1, brought in by Finance Act 1976, it was contended, that profits and gains of life insurance business were taken greater of Net Income (First Method) and Valuation Surplus (Second Method) and Rule 3 restricted the deduction to 80% of bonus paid to or reserved for or expended on behalf of policyholders. From 01.04.1976, the first method was deleted from Rule 2 and, thus, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in the case of ICICI Prudential Insurance Co. Ltd. vs. ACIT140 ITD 41 (supra), wherein it was held that actuarial surplus or deficit has to be determined in the manner provided in Old Forms G,H and I. Therefore, any amount which is recognized as an actuarial liability has to be necessarily reduced while arriving at the surplus. Under the new method of presentation, IRDA has stipulated that Shareholders Accounts and Policy Holders Accounts are to be shown separately though a consolidated balance sheet would be required to be drawn up. New Forms require the detailed disclosure but the norms regarding actuarial valuation have not been altered to negate the recognition of actuarial liabilities by way of bonus allocations to the policyholders. Attention was drawn towards the order of the CIT(A) where he also agreed that in material terms and in substance there is no difference between the old and new forms - they differ only in the manner of presentation. The question therefore relate only to whether there has been any change in the treatment of actuarial liability recognized for future payments of bonus to policyholders. The learned CIT(A) himself contradict the findings in this orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned DR regarding Section 115B that second limb of it will become redundant, it was submitted, life insurance companies cannot carry on any other business. However, they may have income which is not arising from life insurance business such as interest on income tax refund, which is meant to be taxed under Section 115B(ii). 62. With regard to the contention of the DR for the set off of losses for which it placed reliance on the judgment of the Hon'ble ITAT in the case of Lodhi Property Co. Ltd. vs. CIT 1 ITR (IT) 1040, it was submitted that the said case has no application since in that case an order was passed by CIT under Section 263 of the Act where the CIT observed that the assessment was completed after the due date. Further, it was held that the computation of loss has to be done in the relevant year itself and only the Assessing Officer dealing with the assessment of the subsequent year in which any claim of set off of loss is made can decide the issue. Thus, it was submitted that the Assessing Officer in the subsequent year cannot re-compute the losses of prior years. 63. With regard to the additional ground pertaining to claim of exemption under Section 10( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eparately . 1 . In the case of a person who carries on or at any time in the previous year carried on life insurance business, the profits and gains of such person from that business shall be computed separately from his profits and gains from any other business . Computation of profits of life insurance business . 2 . The profits and gains of life insurance business shall be taken to be the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938 ( 4 of 1938 ) , in respect of the last inter - valuation period ending before the commencement of the assessment year, so as to exclude from it any surplus or deficit included therein which was made in any earlier inter - valuation period ]. Deductions . 3 . . Adjustment of tax paid by deduction at source . 4 . Where for any year an assessment of the profits of life insurance business is made in accordance with the annual average of a surplus disclosed by a valuation for an inter - valuation period exceeding twelve months, then, in, computing the income - tax pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be made under this sub - section shall be calculated on the income - tax as so reduced . 66. Section 115B was inserted by the Finance Act, 1976 but with effect from 1 June, 1976. It is, therefore, applicable for assessment year 1977-78 and thereafter. At the time of insertion, the section contained only the provisions that were later renumbered as sub-section (1). The scope and effect of the insertion was explained by the Board in a circular as under: Rate of tax on profits and gains of life insurance business New section 115B . 37 . 1 As explained in paragraph 40 of this circular, the Finance Act has substantially modified the basis for determining profits and gains of life insurance business . The rate of income - tax to be charged on the profits and gains of the life insurance business determined on the modified basis has been laid down in new section 115B of the Income - tax Act . Under the new provision, in case of a taxpayer having income from life insurance business, the income - tax payable on the profits and gains of the life insurance business will be calculated at the rate of 12 per cent of such profits and gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ( 2 ) of section 40B of the Insurance Act, 1938 ( IV of 1938 ) , as reduced by any expenditure or allowance which is not deductible under sections 30 to 43 in computing income chargeable under the head Profits and gains of business or profession . ( ii ) Rule 3 was in the following terms : ( a ) four - fifths of the amounts paid to or reserved for or expended on behalf of policy - holders shall be allowed as a deduction : Provided that if any amount so reserved for policy - holders ceases to be so reserved, and is not paid to or expended on behalf of policyholders, that proportion of such amount ( one - half or four - fifths, as the case may be ) if it has been previous allowed as a deduction under this Act or under the Indian Income - tax Act, 1922 ( XI of 1922 ) , shall be treated as part of the surplus for the period in which the said amount ceased to be so reserved; ( b ) any amount either written off or reserved in the accounts or through the actuarial valuation balance sheet to meet depreciation of or loss on the realisation of investments shall be allowed as a deduction, any sums taken credit for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for determining profits and gains of life insurance business . The rate of income - tax to be charged on the profits and gains of the life insurance business determined on the modified basis has been laid down in new section 115B of the Income - tax Act . Under the new provision, in the case of a taxpayer having income from life insurance business, the income - tax payable on the profits and gains of the life insurance business will be calculated at the rate of 12 per cent . of such profits and gains and the remaining income, if any, will be charged to tax at the rates specified in the annual Finance Act . 37 . 2 This amendment has come into force with effect from the 1st June, 1976, and will apply in relation to the assessment year 1977 - 78 and subsequent years . [ Section 20 ( part ) of the Financial Act ]. Revised basis for computation of profits of life insurance business First Schedule . 40 . 1 The Finance Act has amended the First Schedule to the Incometax Act with a view to simplifying the determination of profits from life insurance business . Broadly, the profits and gains of a life insurance business are computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-obstante clause and overriding other provisions of the Act, provides for profits and gains from life insurance business to be computed in accordance with the rules contained in the First Schedule to the Act. As per rule 2 of the First Schedule to the Act, profits and gains of life insurance business has to be taken to be the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938, in respect of the last inter valuation period ending before the commencement of the assessment year, so as to exclude any surplus or deficit included therein, which was made in any earlier inter valuation period. According this rule as is applicable from A.Y.1977-78, the surplus or deficit between two inter valuation periods disclosed by the actuarial valuation made in accordance with Insurance Act,1938, can only be taken as income or loss of the period. The old Rule 2 which was in existence prior to amendment made by Finance Act, 1976 contains two methods of determining profits and gains of the insurance business and greater of these two method was regarded to be the profit and gains of life insur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inter-valuation period had to be deducted as also expenditure allowable under section 10 of the Income Tax Act. This is the basic calculation and they were followed. The Bombay High Court in Life Insurance Corporation of India vs. CIT : [1979] 119 ITR 900 summarised the scope of section 44 of the Act in the following terms:- It is now well known that so far as the life insurance business is concerned, the computation of the profits has to be made not in the matter in which it is normally done in the case of an ordinary assessee but according to the special and artificial mode prescribed in the First Schedule, having regard to the provisions of s . 44 of the I . T . Act, 1961 . The effect of s . 44 of the I . T . Act, 1961, is that the provisions relating to interest on securities, income from house property, capital gains and income from other sources are not made applicable in the case of an insurance company and the profits are to be computed in accordance with rr . 2, 3 and 4 in the First Schedule so far as life insurance business is concerned . Thus, so far as the proceedings regarding assessment to tax under the I . T . Act are c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipts and payments, and revenue account in accordance with the Regulations made by the Authority . Section 13 ( 1 ) provides that every insurer carrying on life insurance business shall, inter alia, in respect of the life insurance business transacted in India, cause an investigation to be made each year by an actuary into the financial condition of the life insurance business carried on by him, including a valuation of his liabilities and shall cause an abstract of the report of such actuary to be made in accordance with the Regulations laid down in Part I of the Fourth Schedule and in conformity with the requirements of Part II of that Schedule . The fifth proviso to section 13 stipulates that on or after the commencement of the IRDA Act, 1999 every insurer shall cause an abstract of the report of the actuary to be made in the manner specified by the Regulations made by the Authority . In exercise of the powers conferred by section 114A of the Insurance Act, 1938, the IRDA notified the Insurance Regulatory and Development Authority ( Actuarial Report and Abstract ) Regulations, 2000 . Regulations 3 and 4 stipulate the procedure for preparation of actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elating to shareholder s operations. The impact of the consolidated revenue account was transferred to the actuary s valuation balance-sheet in Form I which disclosed the surplus/deficit for the year. (ii) The format for presentation of the insurance accounts was amended by the Regulations of 2000 and by the revised format, the impact of the actuarial valuation was transferred to the revenue account relating to the policyholders for the year and the surplus/deficit was disclosed therein; (iii) The profit and loss for shareholders and the surplus/deficit for policyholders are since segregated after the amended Regulations of 2002 Mumbai Bench of the Tribunal in the case of ICICI Prudential Insurance Co. Ltd. Vs. ACIT : 140 ITD 41 (page 72) as relied by learned Senior Advocate discussed these provisions as under:- 27. Respectfully following the above principles and examining the provisions of IT Act, we are of the opinion that the actuarial valuation made in accordance with the Insurance Act6, 1938 do mean that the actuarial valuation done in accordance with the Insurance Act, 1938. In arriving at the above decision we have also taken into consideration that Rule-5 in Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 business is 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 . We also notice that the actuarial report and abstracts under the Insurance Act, 1938 has to be prepared vide section 13 of that Act in accordance with the Regulations contained in Part - I of the Fourth Schedule and in conformity with the requirement of Part - II of that schedule . Section 13 of Insurance Act 1938 ( as amended now ) is as under : 13 . Actuarial report and abstract . ( i ) Every insurer carrying on life insurance business shall, in respect of the life insurance business transacted by him in India, and also in the case of an insurer specified in sub - clause ( a )( ii ) or sub - clause ( b ) of clause ( 9 ) of section 2 in respect of all life instance business transacted by him, ( every year ) cause an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote and ensure orderly growth of insurance industry number of regulations have been prescribed by the IRDA . One such is, Insurance Regulatory and Development Authority ( IRDA ) ( Actuarial Report and Abstract ) Regulations 2000 by which method of preparation of actuaries report and abstracts were prescribed . An actuary is responsible for analysing possible outcomes of the types of events that would potentially cost policy holders to made claims against their insurance policies . Insurance companies need to make sure that the money they are charging and collecting from policy holders is adequate to cover the cost of certain claims that might beneficially be made by policy holders as well as their other expenses . In fact, the work that actuaries perform is crucial to an insurance company s ability to remain in business . Actuaries are involved at all stages in product development and in the pricing risk assessment and marketing of the products . Their job involves making estimates of ultimate out - come of insurable events . In the business of insurance the product cost is an abstraction, depending on the timing issues, variability issues and ris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance 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 shareholders 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, there is a valid argument raised by assessee that both the policyholder s and shareholder s account has to be consolidated into one and transfer from one account to another is tax neutral . What AO has done is to tax the surplus after the funds have been transferred from shareholder s account to the policyholder s account at the gross level while ignoring such transfer in shareholder s account, while bringing to tax only the incomes declared in the shareholder s accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lds that income earned on shareholders amount has to be considered as arising out of Life Insurance Business . Moreover, in terms of Section 44 of the Act, such income has to be taxed in accordance with First Schedule as provided therein . None of the authorities under the Act or even before us is it urged that the assessee is carrying on separate business other than life insurance business . Accordingly, the impugned order holding that the income from shareholder s account is also to be taxed as a part of life insurance business cannot be found fault with in view of the clear mandate of Section 44 of the Act . Accordingly, Question No . 8 also does not raise any substantial question of law . Thus not entertained . 72. The Supreme Court has admitted the special leave petition filed by the Revenue against the judgment of the Bombay High Court, vide decision reported as CIT vs. ICICI Prudential Life Insurance Co. Ltd. 242 Taxman 97 but has not stayed operation of the order of High Court. The learned DR even though tried his best to convince us that we should not follow the decision of Income Tax Appellate Tribunal as approved by Mumbai High Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 151. The learned DR Also relied on the decision of Blue star Ltd. Vs. CIT 217 ITR 514 (Mum) for the proposition of law that a case is only an authority for what is actually decides. In this decision it was held Every judgment must be read as applicable to the particular facts proved or assumed to be proved, since the generally of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are found and a case is only an authority for what it actually decides. In view of these decisions, the learned DR was of the view that the decision of Mumbai bench of this Tribunal should not be followed by this tribunal in the case of ICICI Prudential (supra). We do agree with learned DR that each decision has to be interpreted with the facts and the contents involved there in. We noted that Section 115B(1) (ii) was inserted by Finance Act, 1976 when the condition that life insurance company are not permitted to carry on any other business was reinforced by the provisions of the Section 3(4)(F) of the Insurance Act enabling IRDA to cancel the registration of an insure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licyholders and shareholders account for the purposes of arriving at the deficit/surplus from the life insurance business and this has duly been accepted by the revenue upto financial year 2008-09. On the principle of consistency this method in our view until and unless is held to be illegal cannot be discarded. We have gone through the decisions as relied before us. We noted that Hon ble Supreme court in the case of Radhasoami Satsang Saaomi Bagh vs. CIT 193 ITR 321(SC) 193 ITR 321 referred to the following passage from Hoystead v Commissioner of Taxation 1926 AC 155 (PC) wherein it was observed (page 328) Parties are not permitted to begin fresh litigation because of new view they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances . If this were permitted, litigation would have no end, except when legal ingenuity is exhausted . It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle . Thirdly, the same principle, namely, that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of ICICI Prudential Insurance Co. Ltd (supra), set aside the order of CIT(A) on this issue and direct the assessing officer to take profit shown in shareholders profit and loss account i.e. Form A-PL to be part of the income derived from life insurance business. Thus these grounds are allowed. 76. Since the learned AR has argued ground 5 first, which relates to the enhancement of income by the CIT(A) by a sum of ₹ 141,85,54,000/- in respect of the amount declared and allocated as bonus for the policy holders, we decided to dispose of this issue first instead of ground no.4. Before deciding this ground, in our opinion, it is necessary to reproduce pages 177, 178 and 179 of the paper-book being the profit loss account in Form A-PL and Revenue account in form A-RA for the year ended March 31, 2010, which were referred to during the course of hearing again and again and also forms part of the audited balance-sheet of the company: MAX NEW YORK LIFE INSURANCE COMPANY LIMITED REGISTRATION No . 104; DATE OF REGISTRATION WITH IRDA : NOVEMBER 15, 2000 Profit and Loss Account for the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Employees remuneration and welfare benefits 84,023 47,129 Filing fees, rates and taxes 53,673 19,605 Donations 25,000 24,151 Others - Interest and bank charges 28,128 20,345 - Advertisement and publicity 640,370 508,469 - Travel, conveyance and vehicle running expenses 14,713 - - Training expenses 29,211 - - Consultancy charges 53,877 - - Other miscellaneous expenses 44,269 861 - Depreciation 104,799 1 63 Bad debts written off - - Contribution to the Policyholders Account (Technical Account) - Participating Individ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (10,027,545) (6,097,389) (b) Interim dividends paid during the year - - (c) Proposed final dividend - - (d) Dividend distribution on tax - - (e) Transfer to reserves/other accounts - - Profit /( Loss ) carried forward to the Balance Sheet (10,236,685 (10,027,545) Earning per Share ( Basic and Diluted ) (0.12) (2.76) MAX NEW YORK LIFE INSURANCE COMPANY LIMITED REGISTRATION No . 104; DATE OF REGISTRATION WITH IRDA : NOVEMBER 15, 2000 REVENUE ACCOUNT for the year ended March 31, 2010 FORM A - RA POLICYHOLDERS ACCOUNT ( TECHNICAL ACCOUNT ) ( All amounts in Thousands of Indian Rupees, unless otherwise stated ) Particulars Schedule YEAR ENDED MARCH 31, 2010 Participating Po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,291,325 (e) Amortisation of discount/(premium) 9,202 (328) 775 (10) (298) (513) 15 - 8,843 (f) Appropriation /Expropriation Adjustment Account - - - - - 108,618 6,689 (77) 115,230 Other Income Contribution from the Shareholders Account - - 296,880 128,443 160,877 - - - 586,200 Miscellaneous Income Total (A) 1,136 1 73 1,718 35 1,552 110 4 44,629 14,513,678 119,137 1,190,673 244,930 487,991 48,494,532 3,019, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onuses Paid - - - - - - - - - Change in valuation of liability against life policies in force: (a) Gross 5,038,500 49,105 306,390 (8,243) 267,286 33,627,396 2,310,192 371,402 41,962,018 (b) Amount ceded in Reinsurance (8,588) - 3,165 50 (99,649) - - - (105,022) (c) Amount accepted in Reinsurance - - - - - - - - - Total (C) SURPLUS/(DEFICIT) (D) = (A) (B) (C) Opening balance of funds available for Future Appropriation SURPLUS/(DEFICIT) AVAILABLE FOR APPROPRIATION 7,478,844 76,645 421 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : [(a) + (b) + (c)] 2,032,787 161,545 - - - 883,226 6,759 4,943 3,089,260 77. Revenue Account Form A-RA as reproduced hereinabove shows that the assessee had allocated bonus to the policy holders to the extent of ₹ 141,85,84,000/-. According to the assessee the said amount represent bonus declared for the impugned assessment year on the participating policies. It is not disputed that the taxation of the insurance companies is governed by section 44 read with First Schedule of the Income Tax Act. As per Rule 2 of the First Schedule, profits and gains of life insurance business shall be taken to be the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938, in respect of the last inter valuation period ending before the commencement of the assessment year, so as to exclude any surplus or deficit included therein which was made in any earlier inter valuation period. This Rule talks of annual average surplus on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the impugned assessment year declared bonus for participating policy holders to the extent of ₹ 141,85,84,000/-. The contention of the Revenue is that the assessee is not entitled for the deduction of the said bonus and it will form part of the actuarial surplus. While the contention of the assessee is that it is part of the actuarial liability and as per Rule 2 of First Schedule to the Income tax Act it represents the liability accrued towards the participating policy holders. We noted that the change in the reporting format has duly been acknowledged by the Hon ble Bombay High Court in the case of ICICI Prudential Life Insurance Co. Ltd. vs. ACIT 325 ITR 471, in the following manner: Before 1999, companies engaged in the business of life insurance were required to prepare one consolidated account . Section 11 of the Insurance Act, 1938 was amended so as to include sub - sections ( 1A ) and ( 1B ). Subsection ( 1A ) to section 11 provides that every insurer, on or after the commencement of the IRDA Act, 1999, in respect of insurance business transacted by him and in respect of shareholder s funds, shall, at the expiration of each financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority has also notified the Insurance Regulation and Development Authority ( Preparation of Financial Statements and Auditor s Report of Insurance Companies ) Regulations, 2002 . Part V deals with the provision of financial statements . Every insurer is required to prepare ( i ) a revenue account which is also described as a policyholder s account; and ( ii ) a profit and loss account, which is also described as a shareholder s account, apart from a balancesheet . The statutory forms are prescribed by the Regulations . Form A - RA is prescribed for the preparation of the revenue account or the policyholder s account . Form A - RA reflects the surplus or, as the case may be, the deficit generated in the revenue account for the year ending 31st March . As a result of the Regulations, the petitioner which is engaged in the business of life insurance is required to prepare and maintain two accounts namely, ( i ) a revenue account of policyholders, and ( ii ) a profit and loss account of shareholders . 78. The determinative issue for arriving at the taxable income u/s. 44 read with Rule 2 of the First Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuary or mandated under the insurance laws are not available for the shareholders. The basis of taxation for a life insurance company is the actuarial surplus, which in our view will mean the amount repayable to the policy holders under the contract or under the statute. The amounts set aside for policy holders are in the nature of liability/charge on the income. No doubt under the IRDA Rules in Form A-RA the terms surplus and appropriation cannot be used interchangeable with actuarial surplus and appropriation of income respectively. 80. We have gone through the copy of insurance policy terms especially terms 7.1 and 12, which relates to the benefit to the insured persons detailed as under: Benefits 7.1 Subject to the provisions of section 8 (Suicide Exclusion), on the occurrence of the Insured Event, the Company will pay the following benefits (the Benefits ): (a) the Sum Insured; and (b) the accrued bonus. 12. Policy Holder Bonus and Bonus Options No bonus is payable for the first two Policy years. Thereafter, a bonus as declared by the Company, will be paid, from the surplus arising from the actuarial valuation of the participating life insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holder and the intermediary and shall form part of the policy document . c . The benefit illustration as approved under the File and Use Procedure shall be part of the sales literature and shall be furnished to the prospective policyholder along with the sales literature before concluding the sale . We, also noted that as per clause 43 of the Insurance Regulatory and Development Clause the benefits which are granted to the policy holders should form part of the sales literature and must be furnished to the prospective policy holder along with the sales literature before concluding the sale. We noted that as per clause 6 of Schedule A of the Preparation of Financial Statements and Auditor's Report of Insurance Companies Regulations, 2000, Notification dated 14.08.2000, the Appointed Actuary has to estimate the liability against the life policies in force on the basis of annual investigation of the life insurance business. All these prove that bonus is to be declared in terms of the contract of the insurance and is an inherent right of participating policyholder, enforceable in law to participate in distribution of the surplus arising in the life policy holders fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22,703,230 369,561 1,226,672 9,936 370,689 62,713,231 3,750,430 567,100 91,710,849 83. In our view, the premium received by the assessee are embedded with the obligation to declare bonus to participating policy holders, therefore, it has to be set off against the premium received. Once the bonus is declared, which the assessee is bound to declare as per the terms of the contract of insurance for the participating policies, the assessee in our view cannot reverse the same and once bonus is declared it becomes ascertained liability. Since the bonus is being paid to the insured persons who are not the share holder but customers of the assessee, therefore, when it is declared it becomes ascertained liability towards the customers. No doubt in form A-RA (Actuarial Report and Abstract) Regulations 2000, this forms part of the distribution of the surplus. Section 8 of the said Regulation on Statement of composition of surplus and distribution of surplus in respect of policyholders fund states as under: Composition of surplus as : 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation of income under income tax law has a definite import of application of income, i.e., after income has been earned / accrued, appropriation of surplus under insurance laws means the act of declaring a particular amount as being kept aside for the benefit of the policyholder/ shareholder. Amount that is kept aside or transferred to the shareholders' account is the taxable income whereas the amount that is kept aside or distributed to the policyholders is a liability / charge on the life insurance business, to be discharged in present or in future and is ascertained liability. Any liability which is ascertained by the actuary as a charge/bonus or an amount that is statutorily mandated to be kept aside for the benefit of policyholders (FFA), for future distribution cannot form part of actuarial surplus. The format prescribed under the IRDA Act or for that matter Insurance Act, 1938 cannot determine the quantum of actuarial surplus. These formats have been prescribed by IRDA to protect the interests of the policyholders and to ensure better regulation of the insurance sector. The deductibility of an item while computing taxable income would not be dependent upon treatment / ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prior to amendment of law in 1976 there was limitation in the erstwhile Rule 3, which limited the allowability of the deduction pertaining to the amount set aside for the benefit of policy holders to 80%. Post amendment no such limitation exists. We do not find any provision under the Income tax which states that while arriving at actuarial surplus liability ascertained by the actuary as bonus payable in future or amount set aside for further appropriation for the benefit of the policy holders would not be deductible. Actuarial surplus/deficit is the amount that is computed after providing for liabilities, which includes amount of future bonus payments set aside for the benefit of the policy holders both by way of bonus allocation as well as Funds for Future Appropriation. We noted that the old Form G, H and I prescribed under the Insurance Act 1938 clearly provide for the same. ITAT Bench in the case of ICICI Prudential Insurance Co. Ltd. (supra) has already held that accrual surplus or deficit has to be determined in the manner provided in old Form G, H I. This decision of the co-ordinate Bench is binding on us. Therefore, any amount which is recognized as accrual liability ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the closing balance the funds available for future appropriation amounting to ₹ 622938000/- a sum of ₹ 169460000/- which represented opening balance of Funds for Future Appropriation. The facts are that in the participating policies there was surplus amounting to ₹ 558934000/- and after bringing the opening balance of the funds available for Future Appropriation ₹ 55269000/- total surplus available was ₹ 614203000/- out of which sum of ₹ 137080000 was transferred to the share holders account and the balance funds available were ₹ 477123000/- out of which ₹ 1432862000/- were allocated as bonus to the policy holders including a sum of ₹ 14278000/- participating policiespensions. The CIT(A) while making enhancement treated the said FFA which were added during the year as part of the taxable income pertaining to the life insurance business as it is part of the actuarial surplus, while learned AR contended that it is not a part of actuarial surplus. As we noted from the Form A-RA this is an unallocated surplus relating to the participating policy holder. In fact, this fund has to be used by assessee in future to meet its contracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, participating policyholders has a charge over this amount. These funds are generally kept as participating for FFA for declaring or smoothening bonuses in future. In fact, it represents the reasonable expectation of the future bonus on account of the performance of participating funds over the years. But FFA, in our view, represents the provision of definite and ascertained liability and, therefore, it is a charge on the profit while determining the profit and gains from the life insurance business. The learned AR in this regard relied on the decision of Hon ble Supreme Court in the case of Bharat Earth Movers vs. CIT 245 ITR 428, which relate to the deductibility if provision for leave encashment to employees where the Supreme Court has noted the facts of the case as under . . The company has floated beneficial schemes for its employees for encashment of leave . The officers are entitled to earned leave calculated at the rate of 2 . 5 days per month, i . e . , 30 days per year . The staff ( other than officers ) is entitled to vacation leave calculated at the rate of 1 . 5 days per month, i . e . , 18 days in a year . The earned leave can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a contingent one . The liability is in present though it will be discharged at a future date . It does not make any difference if the future date on which the liability shall have to b e discharged is not certain . 88. We also noted that while holding so the Supreme Court took note of the principles laid down in the earlier judgment in the case of Metal Box Co. of India Ltd. Vs. Their Workmen 73 ITR 53 wherein the Apex Court allowed provision for gratuity payable on termination of employees service due to retirement/death or termination, worked out on an actuarial basis. 89. No doubt in our view, this decision is not strictly applicable to the facts of the case because in this decision, the question was relating to the deductibility of the expenditure towards the provision for leave encashment i.e. for the purpose of computation of profit and gains from business but this decision may assist to the assessee for ascertaining whether the funds earmarked to be distributed to the customers from whom the assessee is getting income by way of premium i.e. whether the amount in FFA a/c is a liability which is deductible while working out acturial surplus. This is an undisp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders. 90. We have also gone through the decision of Bijli cotton Mills as relied by learned AR. This decision of SC in CIT v Bijlee Cotton Mills 116 ITR 60 is on different facts. In that case, dharmada was collected for spending towards charity but in the impugned case, assessee is collecting premiums which are not earmarked to be spent on policyholder, rather, out of the surplus arrived at after meeting the expenses, shareholders are entitled upto 10% of surplus. In the case of ACIT v Mumbai International Airport P Ltd 184 TTJ 229, passenger service fee was being collected to be spent on security agencies, while it is not the case of assessee that all the premiums received have to be earmarked or spent on policyholders. Therefore, these decisions cannot apply to the facts of the assessee s case. Similar is the case in UP Bhoomi Sudhar Nigam 280 ITR 197 (Alld). We have also gone through the decision of CIT v Modipon (SC) 87 Taxmann.com 275. This decision also in our view is not applicable as in that case the assessee has departed the amount towards the excise duty liability which is to be discharged in future but in the case of the assessee amount remains with the assessee. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o exernal aid is required and the legislative intention has to be gathered from the languag employed . Not only this, we noted Hon ble SC in the case of NawabSir Mir Usman AliKhan v CWT 162 ITR 888 while interpreting the word belonging to in the Wealth Tax Act observed in respect of injustice being caused to the assessee as under- The position is that though all statutes including the statute in question should be equitably interpreted, there is no place for equity as such in taxation laws . The concept of reality in implementing a fiscal provision is relevant and the Legislature in this case has not significantly used the expression owner but used the expression belonging to . The property in question legally, however, cannot be said to belong to the vendee . The vendee is in rightful possession only against the vendor . Speaking for myself, I have deliberated long on the question whether in interpreting the expression belonging to in the Act, we should not import the maxim that equity looks upon a thing as done which ought to have been done and though the conveyance had not been executed in favour of the vendee, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surplus for the purpose of ascertaining acturial surplus while computing profit and gains of life insurance business of the assessee. Therefore, following principle of consistency as has been held by Hon ble SC in the case of Radhasaomi Satsang Baug v CIT 193 ITR 321 that of CIT v Excel Industries Ltd 358 ITR 295, we set aside the order of CIT(A) and delete the enhancement made by CIT(A) in this regard. 93. Ground no. 6 relates to enhancing the assessment by making additions for the provision for doubtful debts amounting to ₹ 2,41,83,000/- in shareholders P L a/c. We heard rival submissions and carefully considered the same while disposing of ground no. 2 in the preceding paragraph. We have already held that income in the shareholders a/c also forms part of profit gains from life insurance business of the assessee. Income has to be computed as per Rule 2 of Schedule I r.w.s. 44 of the Income Tax Act. S. 44 debars Revenue to apply the provisions of Sections 28 to 43B of the Income Tax Act while computing profit gains from an insurance company and income has to be computed with the Rules contained in the First Schedule. In view of this specific provision, in our vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is computed under the head Income from business but in view of section 44 these provisions are not to be applied while computing the profit and gains of business of insurance. The learned DR even though vehemently contended that since the donations paid are covered under section 80G, therefore, they have to be disallowed. The provision of section 80G falls under Chapter VI-A and the deduciton u/s 80G has to be allowed out of the gross total income of the assessee. The gross total income arise at after computing income under each head of income and after giving effect to the inclusion of the other persons income as stipulated under Chapter V, under section 60 to 65, whichever is applicable, and after aggregating the income under various heads of income giving effect to the set off or carried forward of the losses. This means applicability of the provisions of Chapter VI-A have not been denied under section 44 while comptuing the income in accordance with Rule 2 contained in the First Schedule. We find force in this regard and agree with the contention of the learned DR as it is not a case that the deduciton of the donations while comptuing the income from insurance business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter adjustment made in statemnet of income and additions made/sustained in assessment order) after excluding transfer to from policyholders a/c accrual deficit arrived at by reducing from surplus as per new Annexure I, amount transferred from shareholders a/c to policyholders a/c in that year and accordingly CIT(A) recomputed the acturial deficit of policyholders a/c for AY 2007-08, 2008-09 2009-10 by holding that opening FFA is to be reduced from these figures to arrive at correct deficit of life insurance business for these years. CIT(A) took the view that similar calculation is to be made for AY 2002-03 also mention that adjustment made in computation of income including adjustment for profit/loss u/s 10 (23AAB) and addition made in assessment order pertaining to the expenses in A-PL have to be made to arrive at correct profit/deficit and accordingly directed AO that AO will therefrom grant setoff u/s 72 on the basis of the acturial report, annual report, statement of income additions pertaining to the shareholders a/c made sustained in assessment order/ Appellate Order of AY 2002-03 other earlier years which in our view implied that CIT(A) directed AO to recompute c/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee s Total Income under the respective head of income. Subsequent to that as per Chapter VI, the income has to be aggregated setoff or carry forward and setoff of the loss as per provisions of S. 70 to 80 has to be allowed and thus income so arrived at after allowing the setoff of b/f losses and after aggregating it under various heads is regarded to be Gross Total Income. Total Taxable income is arrived at after allowing deductions as stipulated under Chapter VIA. This itself proves that setoff of b/f losses u/s 72 has to be allowed prior to the computation of the Gross Total Income. S. 72 allows the c/f of business losses upto 8 assessment years immediately succeeding the assessment year for which the loss was first computed. This itself proves that the year in which loss has been computed and is being carry forward are different from AY in which loss is being setoff. Thus both AYs are different and therefore assessment has to be made separately. If the assessment has been made of earlier year in which loss has been computed and c/f is allowed, the loss cannot be computed of that AY in the AY where setoff of past losses are allowed. Coming to the example given by learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). S . 80 starts with the expression notwithstanding anything contained in this chapter meaning thereby that s . 80 shall apply notwithstanding anything contained in chapter VI, i . e . , aggregation of income and set off or carry forward of loss . S . 72 deals with carry forward and set off of business loss, not being a loss sustained in a speculation business, and it provides that where net result of the computation under the head Profits and gains of business or profession is a loss and such loss cannot be or is not wholly set - off against income under any head of income in accordance with the provisions of s . 71, so much of the loss as has not been so set off shall be carried forward to the following AY and shall be set off against profits and gains, if any, of any business or profession for that AY subject to the provision of Chapter VI . S . 24 ( 3 ) of the Act, 1922, is analogous to s . 157 under which the ITO has to notify to the assessee the amount of loss as computed by him . Therefore, the present AO determining the loss shall only determine the quantum of the loss incurred in the present AY and shall notify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of actuarial report, annual report, statement of income and additions pertaining to shareholders a/c made/ sustained in assessment order/ appellate order of 2002-03 other earlier year. Such direction in our view means the Assessing Officer been directed to recompute the income/ loss of the earlier year. This will tantamount giving the direction of re-assessing income of AY for which no appeal is pending before CIT(A) which is apparently illegal in view of settled position of law on the basis of decision of SC in case of ITO v Murlidhar Bhagwandas 52 ITR 335 (SC). This position of law has also been followed by Delhi HC in case of Maubeni India P Ltd v CIT 328 ITR 306. We, therefore, amend the direction given by CIT(A) under para 16 of its order and accordingly direct AO to grant setoff u/s 72 on basis of income finally assessed in the A.Y. 2002-2003 or earlier year in accordance with provisions of S. 72 of the Income Tax Act. Thus this ground stands allowed. 97. Now coming to the additional ground taken by the assessee which relates to the claim of deduction by the assessee u/ 10 (34) in respect of dividend income, we noted that this issue is duly covered by decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or earning of dividend but the question relates to the applicability of S. 14A, which issue has already been decided by co-ordinate Bench against Revenue in view of discussion under para 46 of the order of this Tribunal Mumbai Bench in case of ICICI Prudential (Supra), in which they have followed the decision of Delhi Bench in case of Oriental Insurance Co Ltd v ACIT 130 TTJ (Delhi) 338. No contrary decision for applicability of S. 10(34) S. 14A was brought to our knowledge. We accordingly allow the additional ground and dismiss the plea of learned DR that directions be given in case exemption is granted u/s 10(34) to disallow be expenditure u/s 14A of the Income Tax Act. Cross objection filed by Revenue : 99. The only issue involved in ground of appeal in cross objection relates to the deletion of the addition of ₹ 7,10,43,000/- made by AO on a/c of profit from sale of investment on a/c of double addition. After hearing rival submissions and going through orders of tax authorities below, we noted Assessing Officer found from audited a/cs furnished by assessee that assessee earned income of ₹ 7,10,43,000/- on sale of investment. Assessing Officer was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whose order appeal has been filed before Tribunal and b ) This ground must be decided against the Respondent . c ) The respondent must support the order of CIT ( A ) on the ground decided against the assessee 101. We noted from the order of CIT(A) that Revenue has not come in appeal before CIT(A). Even no such ground has been taken by the Revenue before CIT(A) about the taxability of ₹ 58,62,00,000/-. On this basis itself, in our view, the plea taken by learned DR cannot be admitted under Rule 27 and is bound to be dismissed. We noted that it is a case where CIT(A) exercised its powers as entrusted on him u/s 251(1)(a) and enhanced the assessment. CIT(A), if taken a decision that in respect of sum of ₹ 58,62,00,000/-, income of assessee cannot be enhanced. This cannot tantamount that CIT(A) has decided ground taken by Revenue before CIT(A) against the Revenue. It is a case where CIT(A) decides to enhance income of assessee in respect of 2 issues relating to allocation of the funds to policyholders and incremental FFA. If CIT(A) has not invoked the enhancement power in respect of sum of ₹ 58,62,00,000/-, it cannot tantamount that CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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