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TMI Blog2024 (7) TMI 1556X X X X Extracts X X X X X X X X Extracts X X X X ..... uite identical in all the years and our adjudication in any one year shall equally apply to the other years also. We take up the assesse appeal in ITA No.1085/Chny/2017 for assessment year 2013-14 as lead year. 2. The learned counsel for the assesse, at the outset submitted that there was a delay of 61 days in filing the appeal of the assesse in ITA No.639/Chny/2020, the condonation of which has been sought by counsel for the assesse. We also find that there is delay in filing of appeals by Revenue in the following ITA Nos.:- 1. ITA No. 1670/Chny/2019 - 3 days delay 2. ITA No. 1671/Chny/2019 - 3 days delay 3. ITA No. 426/Chny/2021 - 377 days delay 4. ITA No. 128/CHNY/2023 - 24 days delay 5. ITA No. 129/Chny/2023 - 33 days delay 6. ITA No. 130/Chny/2023 - 16 days delay 7. ITA No. 1571/Chny/2017 - 8 days delay However, upon considering the petition / affidavit filed by the assesse as well as Revenue for condonation of delay, the Bench deem it fit to condone the delay keeping in view the sufficient cause shown for the period of delay, we condone the delay and admit the appeals for adjudication. ITA No. 1085/Chny/2017 (AY 2013-14): 3. The grounds raised by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly linked to the interest - therefore the expenses are revenue in nature, 6. The CIT(A) erred in not appreciating the fact that the amortization of premium paid on purchase of securities was made as per the guidelines of the regulations of the Insurance Regulatory Authority of India (IRDA) and that such amortization cannot be added in the absence of a specific provision to disallow the same. 7. The CIT(A) failed to appreciate that the amortization of premium paid on purchase of securities is neither an expense nor an allowance that can be disallowed under Rule 5 of First Schedule of Act and that the CIT(A) (as per the provisions of Section 44 of the Act) has the power to disallow only the expenses which are not admissible under the provisions of section 30 to 43B of the Act. 8. The Appellant submits while ascertaining the Book Profits: a) The CIT(A) failed to appreciate that the amount debited as Reserve for Unexpired Risk (URR) cannot be treated as a "reserve" as contemplated in Clause (b) to Explanation 1 to Section 115JB of the Act and the carry forward of Reserve for Unexpired Risk cannot be restricted only to the extent of the premium proportionate to the risk p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -ordinate Bench of this Tribunal in ITA No.1692/Chny/2011 dated 28.06.2023 has considered the issue at length as per directions of the Hon'ble High Court of Madras, since the assesse preferred an appeal before the Hon'ble High Court, in favour of the assesse and dismissed the ground raised by the revenue by following the earlier decision of the Tribunal in ITA Nos.1673, 1688, 1689, 1691/Chny/2011 dated 26.08.2022 in assesses own case for assessment years 2003-04 to 2006-07 and 2008-09 to 2010-11. The Learned Sr. Standing Counsel for the Revenue also fairly agreed that this issue is covered in favour of the assesse by the decision of this Tribunal in assessee's own case for earlier assessment years. 6. We find that an identical issue has been dealt with by the co-ordinate Bench of this Tribunal in assessee's own case in ITA No.1692/Chny/2011 dated 28.06.2023 by following the earlier decision of the Tribunal in ITA Nos.1673, 1688, 1689, 1691/Chny/2011 dated 26.08.2022 in assessee's own case came to the conclusion that reinsurance premium ceded to NRRs, is not taxable in India under the Income Tax Act, 1961 or under DTAA between India and respective countries, where the NRRs are tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of para 3.4 of IRDAI (General insurance, Reinsurance) Regulation, 2000, and within 30 days of commencement of the financial year, every insurance company has to file reinsurance treaty slips with IRDAI in terms of para 3.5 of IRDAI (General insurance, Reinsurance) Regulation, 2000. As per IRDAI Regulation, 2000, the insurance companies in India have to mandatorily reinsure with the Indian reinsurer being General Insurance Corporation (GIC). However, over and above specified percentage of reinsurance, general insurance companies in India can have their reinsurance arrangement with foreign reinsurer in terms of para 3.7 of said regulations. In this case, there is no dispute with regard to fact that the assessee has complied with provisions of Insurance Act, 1938 and regulations made there under by the IRDAI. In fact, the Assessing Officer has accepted fact that the assessee has complied with reinsurance regulations by taking required percentage of reinsurance contract with General Insurance Corporation of India. But disputed reinsurance premium ceded to non-resident reinsurer companies. In the earlier round of litigation, the Tribunal had discussed the issue of payments made to non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not liable to deduct TDS u/s. 195 of the Income Tax Act, 1961. Consequently, payments made to NRR cannot be disallowed u/s. 40(a)(i) of the Act, 1961. Hence, we direct the Assessing Officer to delete additions made towards disallowance of reinsurance premium ceded to NRRs u/s 40(a)(i) of the Act. 7. In this view of the matter and consistent with view taken by the coordinate Bench in the assessee's own case, we are inclined to uphold the findings of the Ld.CIT(A) and direct the AO to delete the disallowance of reinsurance premium paid to NRRs u/s. 40(a)(i) of the Act, for failure to deduct TDS u/s. 195 of the Act." 7. In view of the above, respectfully following the said decision of the co-ordinate Bench of this Tribunal, we set aside order of the Ld.CIT(A) in restricting the claim of the assessee to 15% of payment made to NRRs of other countries and direct the Assessing Officer to delete the additions made towards disallowance of reinsurance premium ceded to NRRs u/s. 40(a)(i) of the Act for the assessment years 2013-14 to 2016-17. Thus, the ground raised by the assessee on this issue for the assessment years 2013-14 to 2016-17 is allowed and that of the Revenue for the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase of securities for the assessment years 2013-14, 2014-15, 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20 is dismissed. 10. The next common issue that came up for our consideration in the appeals of the assessee for the assessment years 2014- 15, 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20 is disallowance of provision for IBNR and IBNER. 11. The learned counsel for the assessee submitted that during the relevant assessment years, the assessee has made provision for claims incurred, but were not reported (IBNR) and claims incurred, which were not enough reported (IBENR) and such provision has been made for all unsettled claims on the basis of claim lodged by insured persons. According to the learned counsel, date of damage/loss was considered for recognizing the claim in a particular year. In certain circumstances, damages / loss were not reported in the balance sheet of the insurance company and such claims are known as claims incurred, but not reported. Sometimes, damage/loss incurred may be reported, however, it was not enough reported and therefore, the assessee has made provision as per IRDAI guidelines. The liability of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to the Ld. Sr. Standing Counsel for the Revenue, the liability to make the payment accrues to the assessee only in the year in which the loss or damage was ascertained and compensation payable to insured person is determined. Admittedly, the compensation payable to insured person was not determined during the assessment year 2009-10. Therefore, this Tribunal is of the considered opinion that merely because the incident happened during the year which is the basis for making claim, that cannot be a reason for allowing the compensation payable by the assessee for the assessment year 2009-10. In other words, the compensation payable by the assessee has to be allowed in the year in which the amount of compensation was determined. Since the amount was not determined during the year under consideration, this Tribunal is of the considered opinion that the same cannot be allowed for assessment year 2009-10. Hence, the CIT(Appeals) is not correct in allowing the claim of the assessee. Accordingly, the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored." 14. In this view of the matter and consistent with view taken by the co-ordinate Bench, we are of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d IBNER claim, the assessee has raised the following ground which reads as under:- "8. The Appellant submits while ascertaining the Book Profits: (a)The CIT(A) failed to appreciate that the amount debited as Reserve for unexpired Risk (URR) cannot be treated as a "reserve" as contemplated in Clause (b) to Explanation to Section 115JB of the Act and the carry forward of Reserve for Unexpired Risk cannot be restricted only to the extent of the premium proportionate to the risk period of subsequent year." The grounds raised by the assessee in other assessment years is identically worded and facts and circumstances are exactly similar and hence, we take up the facts for consideration from assessment year 2013-14 in ITA No. 1085/Chny/2017 and will decide the issue which will apply to other years also. 15.2 At the outset, the learned counsel for the assessee pointed out that the Hon'ble High Court of Madras in Tax Case Appeal Nos.339 & 342 of 2019 dated 08-12-2010 in the assessee's own case for the assessment year 2013-14 has remanded this issue back to the file of the Tribunal for adjudicating the same on merits by observing in para 7 as under:- "7. Since the provision has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The valuation is worked based on an approved statistical model (approved by the Actuarial Society of India and IRDA) which takes into account various factors including (a) claims report, (b) claims paid; and (c) claims outstanding details from the Company for the past seven years. The Actuary, using the data furnished by the assessee based on the statistical model approved by Actuarial Society and IRDA, calculates the ultimate loss that will fall on the company under each portfolio (viz. Fire, Marine Cargo, Marine Hull,etc.) and on the so calculated amount reduces the Claims actually paid and also the Claims Outstanding accounted by the assessee to arrive at the shortfall on the ultimate loss. This shortfall will be certified by the Actuary to be the IBNR/IBNER to be accounted by the assessee. A copy of the report of the Actuary is enclosed for your reference (Annexure 3). From a reading of the report, one can appreciate that the Actuary recommended to the assessee to provide the above amount based on his study of the claim reporting pattern and the outstanding liability made in earlier years." 15.4 According to the Assessing Officer, claim made by the assessee, particularly with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not met, no provision can be recognised. The principle is that if the historical trend indicates that a large number of sophisticated goods were being manufactured in the past and the facts show that defects existed in some of the items manufactured and sold, then provision made for warranty in respect of such sophisticated goods would be entitled to deduction from the gross receipts under section 37." The ratio of the above decision is applicable to the facts of the appellant. It is further seen that similar claims have been accepted in earlier as well as subsequent assessment years. In view of the above and respectfully following the above decision, the claim of the appellant is allowed. Accordingly, this ground is allowed." 10.3.4 In view of my predecessor's decision on the aforesaid issue, the AO's disallowance of the appellant's claim of provision of IBNR / IBNER amounting to Rs. 266,77,00,000/- is deleted and the appellant's ground is allowed." 15.5 Accordingly, the CIT(A) deleted the disallowance, against which the Revenue is in appeal for AY 2013-14 and for the assessment years 2014-15 to 2016-17 and 2018-19, the CIT(A) by following the order of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 115JB of the Act to it post-amendment to the Finance Act, 2013- 14 i.e AY 2013-14 onwards. He also stated that the Assessing Officer has adjudicated this issue, but the CIT(A) again relying on the earlier year order of the CIT(A) i.e for assessment year 2003-04, allowed the claim of the assessee on merits, but has not adjudicated the issue whether this provision is allowable, while computing book profit u/s. 115JB of the Act and has not also determined whether liability is ascertained or unascertained in term of provisions of Explanation 1(c) to section 115JB of the Act. 15.8 The Ld.Senior Standing Counsel for the Revenue has also fairly agreed that this issue is neither adjudicated by the CIT(A) nor the Tribunal, on merits and only some facts are available in the order of the Assessing Officer. Hence, both the sides have agreed that this issue can be remitted back to the file of the Assessing Officer before whom the assessee will place all evidences and will prove whether claim made by the assessee is ascertained liability or unascertained liability. The Assessing Officer will examine the claim and then decide the issue in accordance with law as to whether l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115JB of the Act. For this, the assessee has raised following ground 8(b):- 8(b) The CIT(A) erred in not appreciating the fact that the aforesaid change in the accounting treatment of URR would result in 'change in accounting policy' adopted by the Appellant and such changes are not in line with provisions of Section 115JB of the Act." 16.1 The Assessing Officer while framing assessment added reserve for unexpired risk by observing that reason for unexpired risk is nothing but solvency margin created as per guidelines laid down under IRDA Rules as well as Insurance Act and hence, this reserve created is nothing but, amount set aside for making unascertained liabilities. The Assessing Officer, after discussing provisions of section 115JB of the Act and noting that assessee is allowed to make 100% provision for the purpose of unexpired risk in some of the segments of insurance business, i.e., i. Premium received on Marine Hull; ii. Premium allocated for the terrorism pool & iii. Premium received on Fire & Engineering Insurance It means the entire premium received during particular accounting period has been treated as reserve by the assessee and same being reduced i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DCIT Vs National Insurance Co. Ltd. in ITA No.983/Kol/2012 and then decide the issue in accordance with law. 16.5 In term of above, the impugned orders of the Assessing Officer and CIT(A) are set aside for the assessment years 2014- 15 to 2016-17 & 2018-19 raised by the assessee and that of the Revenue for the assessment year 2013-14 on the issue of creation of reserve for unexpired risk and matter is remitted back to the file of the Assessing Officer to decide the issue afresh as per law, after considering entire facts of this case. In the result, appeals filed by the assessee for the assessment years 2014-15 to 2016-17 & 2018-19 and that of the Revenue for the assessment year 2013-14 on the issue of creation of reserve for unexpired risk are treated as allowed for statistical purposes. 17. Similarly, the next common issue raised in the appeal of the Revenue for assessment year 2013-14 is as regards to disallowance of exempt income by invoking provisions of section 14A r.w. rule 8D of the Income Tax Rules, 1962, while computing book profit u/s. 115JB of the Act. 17.1 At the outset, learned counsel for the assessee stated that this issue is squarely covered by the decision of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 2017-18 & 2019-20, no disallowance was made by the Assessing Officer u/s. 14A read with Rule 8D of the Income Tax Rules, 1962. 18.1 During the previous year relevant to assessment years under consideration, the assessee has earned exempt income, and made suomotu disallowance voluntarily towards expenditure relatable to exempt income u/s. 14A. The Assessing Officer has disallowed expenditure relatable to exempt income u/s. 14A of the Act by invoking Rule 8D of Income Tax Rules, 1962, as substantial amount of investments in equities and mutual funds have been made by the assessee and part of remuneration and other expenses attributable to top executives are linked to this exempt income that would be earned out of such investments and the assessee has also earned tax free income. It was explanation of the assessee before the Assessing Officer that provisions of section 14A of the Income Tax Act, 1961 does not apply to insurance companies and the assessee relied on catena of judgements and urged that the Ld.CIT(A) has decided the issue in favour of the assessee by placing reliance on order of various High Courts in support of its claim. The learned counsel for the assessee argued th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bution to PF before due date as specified under the Act. On appeal, the Ld. CIT(A) confirmed the disallowance of Employee's Contribution made by the Assessing Officer, as said late payments are not covered u/s. 43B and by following the latest decision of the Hon'ble Supreme Court in the case of M/s.Checkmate Services dated 12.01.2022. Aggrieved by the order of Ld.CIT(A), the assessee is in further appeal before us. 19.1 Heard both sides and perused materials available on record. Since the Ld.CIT(A) has followed binding judicial precedent in the case of M/s.Checkmate Services dated 12.01.2022 by the Hon'ble Supreme Court, on the issue disallowance of Employee's Contribution to PF and confirmed order of the Assessing Officer, the same do not require any interference on our part. Thus, the ground raised by the assessee on this issue is dismissed for the assessment year 2017-18. 20. The next common issue that came up for our consideration from the Revenue appeals for the assessment years 2014-15 to 2019-20 is in regard to disallowance of commission paid to non- residents u/s. 40(a)(i) of the Act amounting to Rs. 9.88 crores for assessment year 2014-15. Briefly stated the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is not liable to deduct tax. We find that the Ld.CIT(A) has rightly allowed the claim of the assesseeby following the decision of this Tribunal in assessee's own case for assessment year 2007-08 to 2013-14. Further, the order of the Tribunal dated 28.08.2018 on the issue of commission paid for receipt of re-insurance premium in assessee's own case was affirmed by the Hon'ble High Court of Madras in TCA No.323 of 2019 dated 14.06.2019. Thus, respectfully following the said judgement, we confirm the order of the CIT(A) on this issue and reject the grounds raised by the Revenue in assessment years 2014-15 to 2019- 20. 21. The next issue that came up for our consideration from the Revenue appeals for the assessment years 2014-15 to 2019-20 is in regard to disallowance of expenditure incurred for the purpose of survey fees paid to non-residents. u/s. 40(a)(ia) of the Act amounting to Rs. 22,85,363/- for assessment year 2014-15. 21.1 The Ld.Senior Standing Counsel contended that the assessee has paid survey fees for the purpose of quantification of claim for making payment on the insurance claim which was incurred outside India and said payments were made without deducting TDS. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2013-14, which was affirmed by the Hon'ble High Court of Madras in TCA No.339 to 342 of 2019 vide order dated 21.06.2019 and a copy of which is placed on record as Annexure-4 at pages 174 to 181 of the paper book filed by the assessee. The Ld. Senior Standing Counsel fairly agreed that the issue is decided against the Revenue. 22.2 Heard rival submissions and perused materials placed on record. In the judgement of the Hon'ble High Court of Madras dated 21.06.2019, it was observed that the addition was made as sequel to information received from the service tax department whose own enquires had not reached finality. The Hon'ble High Court laid down that the Revenue would be free to exercise its authority under the Act in the event of Service tax department holding against the assesse. Respectfully following the said judgement of the Hon'ble High Court of Madras dated 21.06.2019, we confirm the order of the CIT(A) on the issue of infra payments made by the assessee to motor car dealers and reject the grounds raised by the Revenue in assessment years 2014-15 to 2019-20. 23. The next issues that came up for our consideration from the assessee appeals is non-adjudication o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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