TMI Blog2023 (10) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... le. Computation of income of the assessee engaged in the business 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 not with standing sections 28 to 43B and also the provisions relating to the computation of income chargeable under the head Interest on securities , Income from house property , Capital gains or Income from other sources . On perusal of the original order of assessment u/s. 143(3) we notice that the AO in the original assessment has made the disallowance considering the Shareholders Account separately from the Policy Holders Account and the plea of the assessee before the AO was that only for presentation purposes, the assessee prepares 'policyholders account' and 'shareholders account' and that shareholders account cannot be treated as other regular business carried out by the assessee. This issue is no longer res integra in view of the decision of ICICI Prudential Insurance Co. Ltd. [ 2015 (7) TMI 1259 - BOMBAY HIGH COURT ] in terms of section 44 of the Act, such income has to be taxed in accordance with First Schedule as pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents were completed under section 143(3) where the Assessing Officer had made disallowance towards following:- a) Disallowance of amortization of pre-operative expenses; b) Disallowance of amortization of licence fee c) Disallowance of amount of donation d) Transfer Pricing adjustment. 3. The assessee preferred appeals against the aforesaid order of assessment before the CIT(A). In the meantime, notices under section 148 were issued for the following reasons:- On perusal of records, post assessment it came to light that the certified actuary Valuation Report for the year ended 31.03.2003 was filed for the first time in respect of A.Y. 2003-04 during the course of assessment proceedings for A.Y. 2005-06, which in turn was maintained by the assessee company as required in the first Schedule of Rule 2 applicable in the case of assessee being in the business of life insurance. However, the same was not filed with the return of income for A.Y. 2003-04. It was found from the said report that there was surplus (income / profit) as worked out by the Authorised appointed actuary Shri Phoung Chung of Rs. 2,54,50,000/- rather than a loss of Rs. 42,88,54,156/- as reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f life insurance. The assessee objected to the proposed revision proceedings by submitting that the re-assessment order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the revenue. The assessee further submitted that the Assessing Officer has consciously adopted the position that surplus as per Form I should be as it is recorded as total income of the assessee without making any adjustment prescribed under section 28 to 43D of the Act and the Assessing Officer has applied his mind while completing the re-assessment accordingly. Therefore, the assessee submitted that the order is not erroneous merely because the addition for disallowance / additions made during original assessments are not considered. 8. The CIT, after considering the submissions of the assessee held that The matter has been given due consideration but I am afraid I cannot agree with the assessee. The present order is only an extension to section 143(3) order dated 01-08-2006. A reopened assessment u/s. 147 has to start from where one ends in the order u/s. 143(3). It is possible that there may be additions as per the recording of the reasons or part of it, or even n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed denovo after taking due consideration of the disallowance already made u/s. 143(3). 9. The Ld.AR submitted that the revision under section 263 is done for the reason that the Assessing Officer has not incorporated the additions/disallowances made in the original assessment while passing the re-assessment order and has not verified the same. In this connection, the Ld. AR drew our attention to the order passed under section 143(3) r.w.s. 147 wherein the Assessing Officer has given a detailed finding while assessing the income wherein he has taken the surplus declared as per the annual report as the income of the assessee. The Ld.AR further pointed out that the Assessing Officer did not adjust the amount of capital contribution from shareholders fund to policy holders fund by relying on various judicial pronouncements. Therefore, the Ld.AR submitted that the Assessing Officer while completing the reassessment has applied his mind and, therefore, the CIT is not justified in holding that the order is erroneous and prejudicial to the interest of the revenue. Further , the Ld.AR drew our attention to the order of the CIT(A) passed against appeal filed against the original assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000 as against the loss declared by the assessee and that the said report was not filed during the course of original assessment due to which the assessing officer could not know the actual profit arising out of the business. On this premise the assessing officer proceeded to compute the total income of the assessee as per the actuarial report and completed u/s.147 on 07/12/2009. While completing the assessment under section 147 the Assessing Officer computed the income of the assessee by considering the surplus declared as per the actuarial report and did not adjust the amount of capital contribution transferred from shareholders account to policy holders account against the surplus as per the actuary report. Considering the facts and on perusal of the order u/s. 147, we see merit in the contention of the ld AR that the Assessing Officer, during the re-assessment the assessing officer has merged the entire proceedings by assessing the total income of the assessee afresh. It is also noticed that the Assessing Officer has analysed the provisions of section 44 of the Act along with relevant rules, has taken into consideration the various submissions of the assessee and also has r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income from other sources . 14. On perusal of the original order of assessment u/s. 143(3) we notice that the Assessing Officer in the original assessment has made the disallowance considering the Shareholders Account separately from the Policy Holders Account and the plea of the assessee before the Assessing Officer was that only for presentation purposes, the assessee prepares 'policyholders account' and 'shareholders account' and that shareholders account cannot be treated as other regular business carried out by the assessee. This issue is no longer res integra in view of the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. ICICI Prudential Insurance Co. Ltd. [2016] 73 taxmann.com 201 where the issue considered was whether the Tribunal is correct in allowing relief to the assessee by holding that surplus available in Share Holders Account is not to be taxed separately as income from other sources and that surplus from Share Holders Account was only part of income from insurance business arrived at after combining surplus available in Share Holders Account with the surplus available in Policy Holders Account. The Hon'ble Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egregate the share holders fund and policy holders fund and that in the original assessment the assessee's policy holders fund and the share holders fund stood merged and the Assessing Officer in original assessment had made the disallowance out of this combined set of accounts. It was also held by the CIT that Assessing Officer during re-assessment did not consider this and directly proceeded with the surplus as per actuarial report. This finding of the CIT is factually incorrect, since the assessing officer in the original assessment has clearly segregated the Shareholders Account and Policyholders Account and on the basis of this segregation made additions treating income from Shareholders Account as not part of income from life insurance business of the assessee. 17. One more contention of CIT is that the reopened assessment starts from where one ends in the order u/s.143(3). In assessee's case, the assessment was reopened for the reason that the surplus as per the actuarial report has not been taken as the income of the assessee and the assessing officer proceeded to compute the total income of the assessee afresh completely ignoring the way income has been assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 19. Thus, from close scrutiny of the provisions of section 263, it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under section 263 of the Act i.e., firstly, the order of the Assessing Officer is erroneous; and secondly, it is prejudicial to the interests of the revenue on account of error in the order of assessment. The Bombay High Court in the case of Gabriel India Ltd. (1993) 203 ITR 108 has explained as to when an order can be termed as erroneous as follows:- From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an income tax officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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