HDFC Standard Life Insurance Company Ltd. Vs DCIT (ITAT Mumbai)

Income Tax Appellate Tribunal (ITAT) Mumbai ruled on cross-appeals filed by HDFC Standard Life Insurance Company Ltd. and the Assessing Officer (AO) concerning multiple assessment years. The primary issues revolved around the taxability of profits from the life insurance business, treatment of transfers between shareholders’ and policyholders’ accounts, disallowances under Section 14A, and computation methods under Rule 2 of the First Schedule to the Income Tax Act. The tribunal treated the assessment year (AY) 2008-09 as the lead case, as subsequent assessments were largely based on its findings.

One key contention was the computation of taxable surplus from the life insurance business. The assessee argued that the assessment was not in accordance with Section 44 and Rule 2, which should be based on Form I of the Fourth Schedule of the Insurance Act, 1938, prior to its amendment in 2002. The tribunal examined the impact of actuarial valuation adjustments and rejected the AO’s method of treating incremental negative reserves as taxable surplus. Similar rulings have been made in prior cases such as Life Insurance Corporation of India v. CIT (2011), reinforcing that taxation of life insurers must follow prescribed actuarial methods.

Another critical aspect was the tax treatment of funds transferred from the shareholders’ account to the policyholders’ account. The AO taxed ₹29.62 crore under “Income from Other Sources,” but the assessee contended that such transfers did not constitute taxable income. ITAT ruled in favor of the assessee, emphasizing that these transactions should be considered under insurance-specific provisions and not as general business income. Additionally, the tribunal partially addressed concerns related to disallowances under Section 14A and Rule 8D, which pertain to expenditure incurred for earning exempt income.

Regarding procedural aspects, the AO’s appeal included concerns over expenses of ₹53 lakh incurred in the shareholders’ account, arguing that they should be deducted from taxable income. The tribunal held that this issue became academic since a prior ground had already been ruled in favor of the assessee. As a result, the tribunal partly allowed the assessee’s appeal and dismissed the AO’s appeal, following precedents from earlier years.

The ruling clarifies key aspects of insurance taxation, reinforcing the established interpretation of Section 44 and actuarial valuation principles. It highlights ITAT’s consistent approach in similar cases and provides important insights for the taxation of life insurance companies. The order was pronounced in the open court on September 20, 2013.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

Cross appeals have been filed by the Assessing officer(AO)and the assessee-company for various Assessment Years(AYs.),raising similar ground or almost similar grounds of appeal. There are one/two separate grounds also in a particular AY.Assessee has also filed additional grounds of appeal, that have been admitted. For sake of convenience we are passing a common order for all the AYs. We find that the order for the AY.2008-09 is main order and orders for other AYs. are based on it. Therefore, first we will decide the grounds raised in the said appeal. We find that re­opening of the earlier years’ assessment largely is based on the finding given in the order for the AY.2008-09.Ground of appeal filed by the assessee for the that AY.(ITA/3004/ Mum/2012)read as under:

“The Appellant submits the following grounds of appeal which are independent and without prejudice to one another:

Ground No. 1: Taxation of profits from life insurance business

On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the assessment order passed by the Deputy Commissioner of Income-tax-1(1)(‘DCIT’) which was not in accordance with section 44 of, read with Rule 2 in the First Schedule to, the Act. He ought to have held that the Appellant should be assessed on a total income of Rs. 239,95,21,874 (loss).

Ground No.2: Basis of computing surplus/deficit as per Rule 2

The Appellant prays that for the purposes of computing the surplus deficit disclosed by the actuarial valuation as per Rule 2 of the First Schedule, the surplus deficit should be computed based on Form I in the Fourth Schedule to the Insurance Act, 1938, prior to its amendment by the Insurance (Amendment) Act,2002.

Ground No.3: Determination of taxable income from life insurance business

Without prejudice to the above and in any event on the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the DCIT in taxing an amount of Rs.138,17, 60,756 as the income of the Appellant from life insurance business and separately, an amount of Rs.29,62,42,000 determined as profit in the Shareholders’ Account as ‘Income from other sources’.

Ground No.4: Transfer of funds

The CIT(A) ought to have held that the transfer from the Shareholders’ Account of Rs. 324,82, 08,266 to the Policyholders’ Account does not result in income chargeable to tax.

Ground No. 5: Set off of deficit in the Shareholders’ Account

Without prejudice to ground no. 4 above and in any event any deficit in the Shareholders’ Account ought to be set off against the Policyholders’ surplus.

Ground No.6:Adjustment of earlier years’ surplus The CIT(A) erred in upholding the determination of profits and gains of business based on the surplus deficit disclosed by the actuarial valuation as on March 31,2008, without excluding there from the surplus deficit disclosed by the actuarial valuation as on March 31,2007.

Ground No. 7: Taxability of income in the Shareholders’ Account

On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the DCIT in taxing an amount of Rs. 29,62,42,000 out of the amounts disclosed in the Shareholders’ Account, as income under the head ‘Income from other sources’.The CIT(A) ought to have held that the Appellant was  taxable only under section 44 of the Act.

Ground No. 8: Disallowance under section 14A

On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the DCIT in making a disallowance under section 14A of the Act.

Ground No. 9. Disallowance as per Rule 8D

On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the DCIT   of computing the disallowance at Rs. 1,51,62,912 under section 14A applying Rule 8D of the Income-tax Rules,1962.

Ground No. 10: Amount of disallowance under section 14A

On the facts and Circumstances of the case and in law, the CIT(A) erred in confirming the action of the DCIT in not allowing disallowance under section 14A of the Act at Rs. 58,72,778 as offered by the Appellant, instead of directing the DCIT to compute the same.

Ground No. 11: Disallowance of liability towards employee retirement benefits

On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the DCIT of not allowing deduction for provision made as per the applicable accounting standard (‘AS-15’) towards incremental liability of Rs. 270,32,488 on account of employee retirement benefits pertaining to earlier years.

Ground No.12: Set off of brought forward business losses and unabsorbed depreciation allowance

On the facts and circumstances of the case and in law, the CIT(A) ought to have directed the DCIT to set off brought forward business losses and unabsorbed depreciation allowance of earlier years,as assessed in the relevant years, while computing the total income of the Appellant.

Ground No.13: Applicable rate of tax

On the facts and circumstances of the case and in law, the CIT(A) ought to have held that the income of the Appellant is taxable as per the provisions of clause (i) in sub-section (i) of section 115B of the Act.

Ground No.14: Interest under section 234B of the Act

On the facts and circumstances of the case and in law, the CIT(A) ought to have held that the Appellant was not liable to pay interest under section 234B of the Act.

Ground No.15: Interest under section 234D of the Act

On the facts and circumstances of the case and in law, the CIT(A) ought to have held that the Appellant was not liable to pay interest under section 234D of the Act.”

ITA No.3004/Mum/2012-AY.2008-09:

AO has filed following grounds of appeal:

“Whether on the facts and in the circumstances of the caswe, and in law, the Ld. CIT(A) is right in trading the incremental negative reserves of Rs. 1038,00,23,000/- (represented in new Form I submitted with IRDA) as not forming part of taxable surplus and in holding that the action of A.O. is not in accordance with Schedule-I of the I.T.Act, 1961?” .

The appellant craves leave to add to amend or withdraw the aforesaid ground of appeal.

Additional ground of appeal filed by the assessee for the AY.2002-03 read as under:

ADDITIONAL GROUND OF APPEAL

“The Appellant submits the following additional ground of appeal which is independent of the other grounds of appeal.The appellant craves leave to add to amend or withdraw the aforesaid ground of appeal

On the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) -1, Mumbai, failed to appreciate that the jurisdictional pre-conditions necessary for assuming jurisdiction under section 147 of the Income-tax Act, 1961, were not satisfied and therefore, the reassessment order was illegal and bad in law.

The Appellant craves leave to add or to alter, by deletion, substitution or otherwise, any or all of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”

For the AYs.2003-04 to 2005-06 reopening has been challenged as under (in ground no.1):

On the facts and circumstances of the case and in law,the Commissioner of Income-tax(Appeals) –1 [‘CIT(A)’life insurance business failed to appreciate that the jurisdictional pre-conditions necessary for assuming jurisdiction under section 147 of the Income-tax Act, 1961 (‘the Act’), were not satisfied and therefore, the reassessment order was illegal and bad in law.

We would like to tabulate the grounds of appeal for the remaining AYs.for better understanding of the issues involved:

GOA. AY 2008-09	Issue	AY. 02-03	AY. 03-04	AY. 04-05	AY. 05-06	AY. 06-07	AY. 07-08	AY. 09-10
1.	Method of Taxation of Life Insurance business, rate of tax and items to be included while computing income u/s. 44 of the Act	GOA 1to8,	GOA 2to8 and10	GOA 2to8 and 12to13	GOA 2to8 and 1	GOA 1to6 and 10,12	GOA 1to6	GOA 1to8 and 13
2.
3.
4.
5.
6.
7.
11
13
8.	Disallowan ce u/s. 14Aof the Act.	–	–	GOA9to11	GOA 9to11	GOA 7to9	GOA 7to9	GOA 9to11
9.		–	–
10.		–	–
12.	C/f of	GOA	GOA	GOA	GOA	GOA	GOA	GOA
	losses etc. of earlier years.	9	9	15	12	11	10	12
14.	234 Interest	GOA 10	GOA 11	GOA 16	GOA 14	GOA 13	GOA 11	GOA 14,15
15.
–	–	GOA 11	GOA 1	GOA 1	GOA 1	–	–	–
		Reope ning	Reope ning	Reope ning	Reop ening

2.Assessee-company,engaged in the business of Life Insurance. We would like to tabulate details of dates of filing of returns, incomes returned, dates of assessment, assessed incomes, and dates of orders of the CIT(A),for all the AYs. involved, except for the AY.2008-09:

AY.	Dt.of filing of Return	Returned Income (Rs.)	Date of assessment	Assessed Income	Dt.of   ordersof  CIT(A)
2002-03	31.10.2002	(-) 21,24,32,066/-	30.12.2009	38,50,68,890/-	27.02.2012
2003-04	28.11.2003	(-) 52,52,19,573/-	24.12.2010	35,53,78,120/-	24.02.2012
2004-05	30.10.2004	(-) 26,08,48,080/-	30.12.2009	128,71,69,520/-	28.02.2012
2005-06	31.10.2005	(-) 36,06,38,799/-	24.12.2010	2,78,57,89,140/-	27.02.2012
2006-07	27.11.2006	(-) 58,65,27,766/-	29.12.2008	498,30,11,000/-	31.03.2011
2007-08	30.10.2007	(-) 55,40,79,184/-	30.12.2009	505,56,35,100/-	31.03.2011
2009-10	30.09.2009	(-) 305,91,29,505/-	30.12.2011	1750,83,79,300/-	26.06.2012

Now,we would like to take up the appeal filed by the Assessee-company for the AY.2008-09. From the analysis of the grounds of appeal filed by the assessee, for the AY under considerati – on,it becomes clear that though there are 15 grounds,but effective grounds are only four-First and most important ground is about taxing of income of insurance business carried out by the assessee. Grounds no.1-7 and Ground 11,13 are basically about how the income of the assessee should be calculated and at what rate.In other words,which items of income should be treated as part of the income of the assessee.Thus,9 grounds (1-7,11,13)pertain to one issue only.Next effective ground of appeal is about disallowance to be made under section 14A of the Act. Grounds no.8-10,deal with disallowance to be under the said section.In Grounds no.14 and 15 issue to be decided is interest to be charged u/s.234 of the Act. Last effective ground is about set off and carry forward of losses and unabsorbed depreciation.

Facts of the case:

2.1.Assessee-company filed its return of income on 30.09.2008 declaring income of Rs. NIL. Later on a revised return of income was filed on 31.03.2010 declaring a total loss of Rs. 23.99 Crores. AO finalised the assessment on 24.12.2010 u/s. 143(3) of the Act determining the total income of the assessee at Rs.11,77,15,34,240/-.During the assessment proceedings, AO asked the assessee to file its submission so as to explain the difference in the taxable income as per the original return and as per the revised return.AO also directed the assessee to put forward its submission on the additions made by the AO for the two erarlier assessment years i.e.2006-07 and 2007-08.After considering the submiss -ion of the assessee, AO held that stand taken by it on the issue of treating the Share-holders’ income as income from insurance business and on additions to be made of Incremental Negative Result (INR)were not acceptable.  He further held that as per the provisions of section 44 of the Act income of life insurance business alone was taxable on the basis of actuarial surplus, that the income of life insurance was accounted by the assessee in Form A-RA, that the actuarial report in the case of the assessee was prepared on the basis of assets in Policy-holders’ accounts only, that the taxation of surplus as per the actuarial report was taxation of income of the assessee from the business of life insurance only, that the assessee was earning income from the activities other than the life insurance business i.e.f rom account of share-holders, that the income from the Share-holders’ account had to be taxed separately, that the assessee was not permitted to do any business activity other than the life insurance, that the income in Share-holders’ account had to be taxed as income from other sources. He found that assessee had gross income from investments amounting to Rs. 30.88 Crores, that the expenditure incurred for earning this income was of Rs. 1.25 Crores, that the Net income in this account was Rs. 29.62 Crores, that the said income was earned by the assessee in Share-holders’ account, that the assessee had prepared two Profit & Loss Accounts, that the first was Policy-holders’account (technical account-Form A-RA),that the second account was Share-holders’account (non-technical account-Form A-PL),that the income from Policy-holders’account was the income from life insurance business and was taxable as the provisions of section 44 of the Act r.w. Rule 2 of schedule 1,that the income from Share-holders’ account was not the income of the assessee from life insurance business, that it was the income of the assessee from the investment of funds available to it in the Share-holders’ account ,that in balance-sheet the funds in Share-holders’ accounts were maintained separately and distinctly from t he funds in the policy holders account, that the income earned by it from policy-holders alone was taxable u/s. 44,that the income of the assessee-company earned in Share-holders’ account was different and distinct from the income in the Policy holders’-account, that the same had to be taxed separately and under normal provisions of the Act and not u/s. 44of the Act. Accordingly, income of the assessee as per Share-holders’ account was taxed as income from other sources by him at the normal rate. He held that income from life insurance business in other account i.e. policy-holders’ account was taxable as per actuarial surplus as disclosed in Form I.As a result, income from the Share-holders’ account ,amounting to Rs.29,62, 42,000/-,was classified as income from other sources and was taxed under the normal provisions of the Act. In other words while taxing the income from Share-holders’ account, he applied tax rate of 30% to such profit, instead of the tax rate of 12.5% as applicable to the profits from life insurance business.

2.2.Assessee preferred an appeal before the First Appellate Authority (FAA).After considering the submissions of the assessee and the assessment order,he held that taxability of insurance business was governed by the provisions of section 44 of the Act,that section itself laid down that the profit and gains of insurance business could be computed in accordance with the Rules contained in the 1st schedule,that the provisions of Rule 2 of the 1^st schedule of the Act provided that the profits and gains of life insurance business could be taken together as annual average of the surplus arrived at by adjusting the surplus for deficit disclosed by the actuarial valuation made in accordance with Insurance Act,that the main controversy was whether the surplus of Rs. 138.17 Crores as declared in Form I (IRDA) Regulation 2000) should be adopted as the surplus or only the incremental surplus disclosed by the valuation balance sheet,that the assessee had not given any explanation to the AO for not adopting the surplus at Rs.138.17Crores.Referring the Regulation No.8 of the IRDA Guidelines, he, held that the revenue account relating to policy holder as on 31.03.2008 in Form A-RA revealed a surplus on Rs. 164.81 Crores, that the P&L Account also called Share-holders’ account in Form A-Prevailed investment income of Rs. 30.88 Crores and expenditure of Rs. 1.26 Crores, that there was a surplus of Rs.29.62 Crores, that the life insurance companies were mandated to prepare the accounts as per Form A-RA and A-PL besides the balance sheet in form A-BS, that the Hon’ble Apex Court in the case of LIC(51 ITR773)did not postulate any adjustment in assets created by transfer from other account.  He directed the assessee the explain as why the surplus on previous year ought to be reduced from the surplus as on 31.03.2008.As per FAA, assessee did not file any explanation in this regard. He also observed that it did not file any submission as what was the correlation between the Rule surplus and the surplus as per Form A-RA.He held that it was strange to accept that the same entity had disclosed surplus of Rs.164.81 Crores for the year whereas the actuarial calculation had shown Net surplus at Rs. 36.42 Crores only for the year under consideration. Referring to the case of General Insurance Corporation of India(106 TAXMAN389 -SC),he held that the method prescribed by IRDA in relation to insurance business and in line with the insurance act was made sacrosanct by Hon’ble Apex Court ,that despite his repeated request it was not explained by the assessee as to why the surplus of the previous year ought to be reduced from the surplus as on 31.03.2008,that it was also not explained what was the correlation between the actual surplus and the surplus as per Form A-RA, that It would be rather strange that the same entity had disclose surplus of Rs.164.81 Crores for the year whereas the acturial calculation had show net of Rs.36. 42 Crores during the year, that the surplus in Policy-holders’ account included the transfer from share-holders’ account, that such a transfer was irreversible in nature as per IRDA guidelines, that same was in the nature of income for Policy-holders’ account, that in the cash flow statement assessee has generated cash of Rs. 3340.33 Crores from operating activity, that there was out go of Rs.3668.37 Crores in investing activities, that to meet the deficit the assessee had issued shares of Rs.441 Crores during the year, that the share capital issued was the main source of fund for transfer from share-holders’ account to policy holders account, that the transfer of Rs.324.82Crores was actually a drawdown of capital, that same was menitoned below the line appropriation entry in the share-holders’ account though it was shown as expenditure, that drawdown from capital could not be adjusted against the income of that in profit and loss account-as one was a revenue and the other was a capital item, that such adjustment was not permitted by the IRDA regulation, that there was no provision in the IRDA Act to reduce the funds transferred from share-holderd’ account to Policy-holder’s account to determine the surplus of the Insurance Company. Finally he endorsed the views of the AO that surplus of Rs.138.17 Crores was to be adopted as the taxable surplus.  With regard to basis of comp -uting surplus/deficit as per Rule 2 (ground no.2.),he held that the income of the assessee had to be assessed as per the provisions of section 44 of the IT Act from life insurance business on the basis of surplus/deficit determined as per actuarial report submitted before IRDA, that the it had derived income of Rs.Rs.29.62 Crores on investment from activities other than life insurance business,that Section 115B provided that the gains from life insurance business were taxable at 12.5%whereas the other income was taxable at the corporate rate,that the income from share holder account had to be treated as income from business other than life insurance,that same was taxable at 30%.

2.3. Before us,Authorised representative(AR) submitted that basic question was how to compute income of the assessee and while computing the income from life insurance business what treatment should be given to certain items,that for computing surplus or deficit should have been computed as per Form I in the Fourth Schedule to the Insurance Act,1938 prior to its amendment by the Insurance (Amendment)Act,2002,that FAA had wrongly confirmed the decision of the AO of taxing Rs.138.17 Crores as income under the head income from business and Rs.29.62 Crores under the provisions of section 56 of the Act, that transfer of funds amounting to Rs.324.82 Crores from Share-holders’ account to Policy-holders’ Account did not result in earning or accruing of income,that any deficit in the Share-holders ’account had to be set off against the Policy-holders’ Account,that FAA did not consider the surplus appearing on 31.03.2007 while determining the surplus of the year under consideration, that amount of Rs.29.62 Crores was not taxable under the head income from other sources, that same had to be taxed u/s.44 of the Act, that AO/FAA had no power to disturb the actuarial surplus, that AS-15 were applicable in the case of insurance companies, that income of the assessee was to be taxed as per the provisions of section 115B(1)(i)of the Act, that issues raised by the assessee-company have been decided by the various judicial authorities. He referred to the decisions of ICICI Prudential Life Insurance Co Ltd.(IPLIC)delivered by the Mumbai Tribunal(14 ITD 41).He also relied upon decisions of Kotak Mahindra Old Mutual Fund Life Insurance Ltd.(ITA.2552/Mum/2010-Mumbai Tribunal),Life Insurance Corporation (51 ITR 773-SC),ICICI Prudential Life Insurance Co. Ltd( 325 ITR 471-Bombay HC).Departmental Representative relied upon the orders of the FAA.

2.5.We have heard the rival submission and perused the material before us.First we would like to take the issue of assessment of life insurance business.It is a well known fact that Life insurance business was monopoly of LIC till the year 2000when insurance sector was opened for private players and Insurance Regulatory and Development Authority(IRDA)was constituted. IRDA brought substantive changes in accounting and reporting of life insurance business. Changes intro – duced by the regulatory authority prescribed separate method of preparing profit and loss account in particular format.AO and FAA were of the opinion that treatment given to certain items in the new format had to be taken as part of taxable income or taxable at higher rate. As stated earlier,issues raised in Grounds no.2-7 are basically about the treatment to be given to certain item of the P&L A/c. prepared by the assessee.

2.5.1.So,we would like to decide the issue of computing surplus/deficit disclosed by the actuarial valuation as per rule 2 of the First Schedule.As per the assessee, surplus/deficit had to be calculat -ed in form I of the fourth schedule to the Insurance Act,1938 prior to its amendment by the Insurance(Amendment)Act,2002.We find that similar issue had arisen in the case IPLIC (supra). Deciding the matter Mumbai Bench of the Tribunals has dealt the issue 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 Act, 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 Part-B of the first schedule with reference to ‘other insurance business’ did incorporate the IRDA and its Regulations as amended by the Finance Act 2009 w.e.f. 1.4.2011 which is as under:

“B- Other Insurance Business:

Computation of profits and gains of other insurance business.

5.  The profits and gains of any business of insurance other than life insurance shall be taken to be the profit before tax and appropriations as disclosed in the Profit & Loss A/c prepared in accordance with the provisions of the Insurance Act, 1938 (4 of 1938) or the rules made thereunder or the provisions of the Insurance Regulatory and Development Authority Act, 1999 (4 of 1999) or the Regulations made thereunder subject to the following adjustments:-

(a) subject to the other provisions of this rule, any expenditure or allowance including any amount debited to the profit and loss account either by way of a provision for any tax, dividend, reserve or any other provision as may be prescribed which is not admissible under the provisions of section 30 to 43B in computing the profits and gains of a business shall be added back:

(b) (i) any gain or loss on realization of investments shall be added or deducted, as the case may be, if such gain or loss is not credited or debited to the Profit & Loss A/c ;

(c) such amount carried over to a reserve for unexpired risks as may be prescribed in this behalf shall be allowed as a deduction”. (emphasis supplied)

This indicates that the legislature consciously omitted incorporating the provisions of IRDA or the Regulations made there under in Rule 2 which still refers to the Insurance Act 1938 only.

28. Further, we also notice that the Insurance Act itself was amended along with the introduction of IRDA Act 1999. Along with the said IRDA Act, there are various amendments proposed in the Insurance Act in tune with IRDA Act by amending the relevant provisions of Insurance Act 1938. However, since the Rule 5 was amended in the First schedule by specifically referring to the IRDA Act 1999 or the Regulations made there under, we are of the opinion that the legislature intended not to modify or amend the Rule-2. This indicates the intention of legislature that the actuarial valuation has to be made in accordance with the unamended Insurance Act, 1938. 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.

30.The First to Fourth Schedule of the Insurance Act 1938 was omitted by the Insurance Amendment Act 2002 after incorporation of the relevant schedules in the IRDA Act. Even though the said schedules were omitted from the Insurance Act, 1938, we are of the opinion that as far as Rule-2 is concerned by the principle of ‘Legislation by incorporation’ unamended Insurance Act, 1938 is applicable and the actuarial valuation has to be made in accordance with the then existing Part-I of the Fourth Schedule and in conformity with the requirements of Part-II of that schedule. Therefore, assessee’s contention that the IRDA Regulations even though are applicable to assessee since it has commenced business after the commencement of the IRDA Act, 1999, for the purpose of Rule-2, the actuarial valuation has to be done in accordance with the Regulations contained in erstwhile Fourth schedule Part-I and Part-II. This is what assessee is contending and merging the accounts of Policy-holders’ and Share-holders’ account and arriving at the actuarial deficit, without taking into consideration the transfer of funds from the Share-holders’ account to Policy­holders’ account.”

Respectfully, following the same we hold that the actuarial valuation has to be done in accordance with the Regulations contained in erstwhile Fourth schedule Part-I and Part-II. Grounds no. 1and 2 are decided in favour of the assessee.

2.5.2.Next Ground of appeal is about determination of taxable income from life insurance.AO had taxed Rs.138.17Crores under the head income from business and Rs.29.62 Crores under the head income from other sources.We find that similar issue was decided by the Tribunal in the case of IPLIC-(supra) as under :

“………… IRDA Regulations specifically require to maintain the Policy-holders’ account and the Share-holders’ account separately and permits transfer of funds from Share-holders’ account to Policy-holders’ account as and when there is a deficit in Policy-holders’ account. As rightly noted by the Hon’bleBombay High Court, as a policy, company is transferring funds/assets from share – holder’s account to Policy-holders’ account even during the year periodically as and when the actuarial valuation was arrived at in Policy-holders’ account. Most of the companies are required to submit quarterly accounts under the Company Law, there is requirement of actuarial valuation report periodically and accordingly assessee was transferring funds from the Share-holders’ account to Policy-holders’ account. Since the insurance business will not yield the required profits in the initial 7 to 10 years, lot of capital has to be infused so as to balance the deficit in the policy – holder’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 Share-holders’ account to Policy-holders’ account. Since assessee is having only one business of life insurance,the entire transactions both under the Policy-holders’ and Share-holders’ 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-2as per provisions of section 44.Therefore,there is a valid argument raised by assessee that both the Policy-holders’ & Share-holders’ 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 Share-holders’ account to the Policy-holders’ account at the gross level while ignoring such transfer in Share-holders’ account, while bringing to tax only the incomes declared in the Share-holders’ account that too under the head ‘other sources of income’. In fact while giving the finding that assessee is in the life insurance business only and incomes are to be treated as income from life insurance business,the CIT (A) surprisingly in subsequent assessment years appeals accepted AO’s contention that surplus in Share-holders’ account is to be taxed as other sources of income. But once the provisions of section 44 of IT Act are invoked anything contained in the heads of income like income from other sources, capital gains, house property or even interest on securities does not come into play and only first schedule has to be invoked to arrive at the profit. Therefore, in our opinion both the Policy-holders’ and Share- holders’ account has to be consolidated for the purpose of arriving at the deficit or surplus……..

……… We have heard the rival contentions. As briefly discussed while deciding the issue of taxing surplus, assessee is in life Insurance business and it is not permitted to do any other business. All activities carried out by assessee are for furtherance of Life Insurance business. Maintaining adequate capital is necessary to comply with IRDA (Assets, Liabilities and Solvency margin of insurers) Regulations,2000.Income earned on capital infused in business is integral part of Life Insurance business. The LD. CIT(A) gives a finding that assessee is exclusively in Life Insurance business. However, since he gave primacy to Form I proforma he concluded that other incomes are not of Life Insurance business. We have already considered and decided that assessee was mandated to maintain separate accounts by IRDA Regulations. Just because separate accounts are maintained the incomes in Share-holders’ account does not become separate from Life insurance business. As per Insurance Act 1938 all incomes are part of one business only and these incomes are considered as part of same business. Therefore, the incomes in Share-holders’ account are to be considered as arising out of Life insurance business only. More over Sec 44 mandates that only First Schedule will apply for computing incomes and excludes other heads of income like, Interest on Securities, income from house property, Capital gains or Income from other sources. Being non-obstante clause, sec.44 mandates that the profits and gains of insurance business shall be computed in accordance with the rules contained in First Schedule. Therefore, the incomes in Share-holders’ account are to be taxed as part of life insurance business only, as they are part of same business and investments are made as part of solvency ratio of same business. The grounds are allowed. AO is directed to treat them as part of Life Insurance Business and tax them u/s 115B.

We further find that the decision of the IPLIC(supra)was later on followed by the Mumbai Tribunal in the case Kotak Mahindra old Mutual Life Insurance Ltd.(KMOMLIL) while deciding Appeal no.ITA/2551/Mum/2010).Respectfully following the orders of IPLIC and KMOMLIL (supra),we decide ground no.3 in favour of the assessee.

2.5.3.Ground of appeal no.4 is about transfer of Rs.324.82 Crores from Share-holders’ account to the Policy-holders’ account. We find that similar issue has been adjudicated by ITAT Mumbai in the case of IPLIC(supra).Holding that transfer of funds from Share-holders’ account to the Policy -holders’ account did not result in income chargeable to tax, Tribnal, in the matter of IPLIC, (supra), held as under:

“….As seen from the orders of the authorities, the ‘Total surplus’ prepared under Regulation 8 was taken as basis ignoring the Form-I of Regulation 4. While accepting the Ld.CIT DR argument that for the purposes of Life insurance business the act provides for surplus of valuation to be taxed at lesser rate, we cannot accept the argument that surplus is Total surplus including Transfers from share holder’s account. Basically transfers are tax neutral as a credit in one account gets cancelled by debit in other account when accounts are consolidated. What the Rule.2 prescribed was only ‘average surplus’ arrived by adjusting the surplus disclosed in the actuarial valuation made with regard to the Insurance Act, 1938 in respect of inter valuation period. Assessee in the course of the assessment proceedings has furnished general balance sheet in Form-A….

…..In our opinion what assessee has done in reconciling the IRDA format with that of old Insurance Form is correct and accordingly the loss disclosed in the computation of income is according to the actuarial surplus/deficit under the Insurance Act, 1938 prescribed under Rule 2 of the first schedule part-A. In view of this, we are of the opinion that insistence by AO to bring to tax the entire amount shown under the new Regulations including transfer from Share-holders’ account is not correct. Instead of AO in taking the surplus at Regulation 8(1)(a) which is the actuarial surplus / deficit for the year took the amount as disclosed at Regulation 8 (1) (f) (total surplus after transfer from Share-holders’ account) which is not at all correct.”

Respectfully following the order of the IPLCI(supra)we decide ground no.4 in favour of the assessee.

2.5.4.Fifth Ground is about setoff of deficit in Share-holder’s account.We find that identical issue had arisen in the case of IPLCI(supra).Deciding the issue in favour of the assessee, Tribunal held that IRDA Regulations specifically required to maintain the Policy-holders’ account and the Share-holders’ account separately and permitted transfer of funds from Share-holders’ account to Policy -holders’ account as and when there was a deficit in Policy-holders’ account,that Hon’ble Bombay High Court had held that as a policy, company was transferring funds/assets from Share­holders’ account to Policy-holders’ account even during the year periodically as and when the actuarial valuation was arrived at in Policy-holders’ account, that most of the companies were required to submit quarterly accounts under the Company Law, that there was requirement of actuarial valuation report periodically and accordingly assessee was transferring funds from the Share-holders’ account to Policy-holders’ account, that the insurance business would not yield the required profits in the initial 7 to 10 years,that lot of capital had to be infused so as to balance the deficit in the policy holder’s account,that the assessee had issued fresh capital to the extent of Rs.250 crores and transferred funds to the extent of Rs.233 crores from the Share-holders’ account to Policy-holders’ account in that year, that assessee was having only one business of life insurance, that the entire transactions both under the Policy-holders’ and Share-holders’ account pertained to the life insurance business only, that the assessee was not permitted to do any other business ,that once assessee was in the life insurance business the computation had to be made in accordance with the Rule-2 as per provisions of section 44,that both the Policy-holders’ and Share -holder’s account had to be consolidated into one and transfer from one account to another was tax neutral, that the AO had taxed the surplus after the funds had been transferred from Share -holder’s account to the Policy-holders’ account at the gross level while ignoring such transfer in share holder’s account, that as per the provisions of section 44 of Act heads of income like income from other sources, capital gains, house property or even interest on securities did not come into play and only first schedule had to be invoked to arrive at the profit, that both accounts-the Policy­holders’ and Share-holders’ account- had to be consolidated for the purpose of arriving at the deficit or surplus. We further find that the Hon’ble Bombay Court in the case of IPLIC has also dealt with issue as has held that any deficit in the Share-holder’s account ought to be set off against the Policy-holder’s account.

Respectfully following the above,we decide ground no.5 in favour of the assessee.

2.5.5.Sixth Ground of appeal is about adjustment of earlier years’surplus. While completing the assess -ment for the year under consideration, the AO assessed entire surplus appearing in the books of accounts as on 31.03.2008 without excluding the surplus determined as on the last day of the previous financial year i.e. on 31.03.2007.Adjustment of earlier year’s surplus, while computing income of a particular year was dealt by the Tribunal in the case of IPLCI as under:

“Rule-2 is the main computation provision which is applicable to the life insurance business. As per Rule-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,in respect of the last inter valuation period so as to exclude any surplus or deficit included therein which was made in any inter valuation period.According to the rule the surplus or deficit between two valuation periods can only be taken as income or loss of the period. Thus if there is a surplus in earlier valuation of ‘Y’ amount and surplus in the later valuation at ‘X’ amount, the difference between X & Y will be the income of the inter valuation period for the purpose of Rule 2.Therefore, actuarial evaluation done in respective periods has importance. Before the IRDA Act, only Life Insurance Corporation was permitted to involve itself in life insurance business. The actuarial valuation was not undertaken every year but once in three years. Therefore, the rule provides for only average of the surplus to arrive between two inter valuation periods. However, with the enactment of IRDA Act 1999 and Regulations therein not only the private participants were permitted to do business but presentation of accounts and reports were modified…

…. 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,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.”

Respectfully following the above ground no.6 is decided in favour of the assessee.

2.5.6.Last ground of appeal, related with life insurance business(Ground no.7) is about taxability of income in Share-holder’s account. While deciding the Ground no.3 we have held that amount disclosed in Share-holder’s account (Rs.29.62 Crores) is not to be taxed under the head ‘income from other sources’ ,but same has to be assessed under the head income from business and profession. We are of the opinion that business carried out by the assessee is governed by the provisions of section 44 of the Act.Therefore,Rs.29.62 appearing in Share-holder’s account has to be assessed as business income.

Ground no.7 is decided in favour of the assessee.

2.5.7.Grounds. no 11 and 13 are also related with the life insurance business of the assessee.First we would take ground no.11.During the assessment proceedings AO found that the assessee had made provision during the year in the Share-holders’ Account for the incremental liability of Rs. 2,70,32,488/- towards employee retirement benefits pertaining to earlier years as per Accounting Standard 15 and had claimed that incremental liability as deduction in its original as well as revised return of income filed.AO did not allow deduction of such incremental liability while computing the taxable income of the appellant,

2.5.7.a.In appellate proceedings FAA held that in the shareholders account below the line assessee had claimed liability for prior period for employees benefit, that Share-holders’ account was profit and loss account prepared as per accounting standards, that under the Act no unascertained liabilities or prior period items were allowable as expenditure, that same treatment existed in Rule 5 in 1^st schedule, that the said schedule mentioned that any amount debited to P & L a/c. by way of provision,  not admissible u/s.30 to 43B of the Act, was to be added back to the profit and gains, that the assessee had itself taken such provision in appropriation and had not established that non claim of prior period expenditure was for reasons beyond the control of the appellant or the liability actually crystallised during the year.He dismissed the ground filed by the assessee.

Before us,AR submitted that AO had considered only selective items of income/expenditure while computing the income in Share-holder’s accounts, that without assigning any reason AO disallowed the amount in question,that the FAA had confirmed disallowance by relying on Rule 5 of 1^st Schedule of the Act,that Rule 5of the Schedule did not apply to Life Insurance business, that disallowance made by the AO resulted in disturbing the actuarial surplus, that AO was not authori -sed to disturb the actuarial surplus,that the assessee had made provision in the Share-holders’ account for liability towards employee retirement benefits pertaining to earlier years, that said provision was made as per the requirement of Accounting Standard AS-15,that vide Circular 55/IRDA/F&A/ Feb-07dtd.21.02. 2007 IRDA had provided that AS-15 was applicable to insuran -ce companies from the FY.2007-08.He relied upon the judgment of the Hon’ble Supreme Court delivered in the case of Life Insurance Corporation of India (51 ITR 773).

2.5.7.b.We have heard the rival submissions and perused the material on record. While deciding ground no.1 to7,we have held that income of the assessee doing the business of life insurance has to be assessed u/s.44 of the Act r.w. Schedule I of the Act. As the effective ground of computation of income of life insurance has been decided in favour of the assessee. So,issue before us is held to be academic in nature. We are of the opinion that AOs are not allowed to disturb the actuarial valuation, as held by the Hon’ble Apex Court in the case of Life Insurance Corporation of India (supra).Therefore, ground no.11 is allowed in favour of the assessee for statistical purposes.

2.5.8.Ground no.13 also pertains to the business of Life Insurance. It is about rate of tax applicable in the case of assessee. During the assessment proceedings, as stated earlier, AO held that income under the head Share-holder’s Account had to be taxed at the 30% and not at 12,5%.Assessee filed an appeal before the FAA. Referring to the provisions of section 115B of the Act, FAA held that the total taxable income in the case of a life insurance company could be taken as the sum of the investment income, net of expenses, in the Shareholders’ fund taxable @30% and the surplus emerging from the Policy -holders’ fund taxable @ 12.5%,that Sec.115 B of the Act was quite clear and unambiguous that the net investment income in the shareholders’ fund was to be taxed at 30%.

2.5.8.a.Before us,  AR submitted that income of the assessee, being the Life Insurance Company was taxable as per the provisions of clause (i) of section 115B(1) of the Act.DR supported the order of the FAA. We find that issue of applicable rate of tax in case of an Insurance Company has been dealt by ITAT, Mumbai in the case of IPLCI(supra).

“We have heard the rival contentions. As briefly discussed while deciding the issue of taxing surplus, assessee is in life Insurance business and it is not permitted to do any other business. All activities carried out by assessee are for furtherance of Life Insurance business. Maintaining adequate capital is necessary to comply with IRDA (Assets, Liabilities and Solvency margin of insurers) Regulations, 2000. Income earned on capital infused in business is integral part of Life Insurance business. The LD. CIT(A) gives a finding that assessee is exclusively in Life Insurance business. However, since he gave primacy to Form I proforma he concluded that other incomes are not of Life Insurance business. We have already considered and decided that assessee was mandated to maintain separate accounts by IRDA Regulations. Just because separate accounts are maintained the incomes in Share-holders’ account does not become separate from Life insurance business. As per Insurance Act 1938 all incomes are part of one business only and these incomes are considered as part of same business. Therefore, the incomes in Share-holders’ account are to be considered as arising out of Life insurance business only. More over Sec 44 mandates that only First Schedule will apply for computing incomes and excludes other heads of income like, Interest on Securities, income from house property, Capital gains or Income from other sources. Being non-obstante clause, sec. 44 mandates that the profits and gains of insurance business shall be computed in accordance with the rules contained in First Schedule. Therefore, the incomes in Share-holders’ account are to be taxed as part of life insurance business only, as they are part of same business and investments are made as part of solvency ratio of same business. The grounds are allowed. AO is directed to treat them as part of Life Insurance Business and tax them u/s 115B.”

Respectfully, following the order of the Tribunal, ground no.13 is decided in favour of the assessee-company.

As a result ,all the grounds related with life insurance business of the asseessee-Grounds no.1-7, 11,13(total 9 grounds)are decided in its favour.

3.Second effective ground of appeal(Grounds no.8-10)is about disallowance to be made u/s.14A of the Act. During the year under consideration, AO found that assessee had received exempt dividend income of Rs.30.16 Crores, that the assessee had not made any disallowance as per the provisions of section 14A of the Act. He called for an explanation from the assessee in this regard. After considering the submissions of the assessee, AO held that assessee-company was claiming exemption of dividend income, that as per section 14A of the Act no deduction was allowable for the expenditure incurred in relation to the income not includible in total income, that the expenditure incurred in relation to dividend income needed to be disallowed. He proposed to calculate the expenses inadmissible to section 14A of the Act by following Rule 8D of Income Tax Rules,1962(Rules).Finally, he determined inadmissible expenses at Rs.1,51, 62, 912/-.

3.1.In appellate proceedings, FAA held that in the share-holders’ account there was dividend income which was claimed as exempt income u/s.10 of the Act ,that section 14A mandated that expenditure incurred in relation to exempt income would not be allowed, that a conjoint reading of section10 and section 14A and also the fact that the share holder account reflected gains from activities other than life insurance business suggested that the disallowance u/s. 14A of the Act would be called for,that in the preceding year the appellant had suo-moto disallowed Rs. 49, 40, 402/-as expenditure attributable to earning exempt income. that for the year under consideration no amount was added back though the nature of business and the activities have remained identical, that there were expenses incurred against dividend income was also recognised by CBDT Circular dated 17-6-1964 which laid down a method to work out the such expenditure, that although the circular was in the context of exemption from super tax in case of general insurance companies but the principle would be relevant to case in hand.He upheld the disallowance made by the AO.

3.2.Before us,AR submitted that the onus was cast on the AO to determine the expenditure as per Rule 8D,that same had to be based on his satisfaction about the correctness or otherwise of the claim of the assessee,that said Rule could be invoked in the cases where AO is not satisfied about the correctness of the claim. relied upon the following cases:

Birla Sun life Insurance Co. Ltd (ITA No. 602/Mum/2009),Oriental Insurance Co. Ltd [130TTJ 388 -Delhi),Bajaj Allianz General Insurance Co.Ltd (1307TTJ 398),Reliance General Insurance Co.(ITA Nos. 1520 & 62/Mum/2 008).DR supported orders of the FAA.

3.3.We find that similar issue had arisen in the case of IPLCI(supra)also. We would like to reproduce the ground raised before the tribunal :

“AO and the CIT (A) erred in invoking the provisions of section 14A of the Income Tax Act 1961 and disallowing expenses attributable to earning exempted income, without appreciating the fact that the provisions of section 14A are not applicable to Insurance Companies”.

Deciding the issue in favour of the assessee Tribunal held as under :

“This issue is already decided by the Coordinate Benches in various cases.For the sake of record, the order in the case of General Insurance Corporation of India (supra) vide Para 9 is as under:

9. “Issue No.6 Non applicability of provisions of section 14A. (Modified Ground of Appeal No.3.1 to 3.4 – Original Ground of Appeal No.3.1 to 3.5). The issue is with reference to the applicability of section 14A and disallowance of expenditure in respect of sale of investment which are not taxed. We have heard the rival contentions. We also note that this issue is also considered by the Coordinate Bench in assessee’s own case for 2006-07 vide Para 7 to 9:

7. Grounds of appeal no.4 regarding the expenditure under section 14A.

8.We have heard the rival contentions and perused the relevant record. We note that this issue has been considered and decided by the Pune Bench of this Tribunal in the case of Bajaj Allianz General Insurance Company limited v. Addl. CIT in ITA No.1447/PN/2007 for the assessment year 2003-04 order dated 31.08.2009. This Tribunal in the case of JCIT v. M/s Reliance General Insurance co. in ITA No.3085/Mum/2008 for the assessment year 2005-06 vide order dated 26.2.2010 has considered this issue and decided in favour of the assessee. This order was followed by this Tribunal while deciding the issue in ITA No.781/Mum/2007 vide order dated 30.4.2010.Thus, this issue has been consistently decided in favour of the assessee and against the revenue by this Tribunal. The Pune Bench of this Tribunal in the case of Bajaj Allianz General Insurance Company limited v. Addl. CIT (supra ) has decided this issue in paragraphs 17 to 20 as under:

“17. Finally the quest ion to be answered is about the applicability of s. 14A in respect of sale of investment which is not taxed under the special circumstances of deletion of a sub-rule from the statute.It is not questioned that the impugned profit was non-taxable per se rather the accepted legal position is that the impugned profit was very much taxable in the past. Now it has been informed that this controversy in respect of insurance company set at rest by a decision of Tribunal, Delhi Bench verdict in the case of Oriental Insurance Co. Ltd. (ITA Nos. 5462 & 5463/ Del/2003)asst. yrs. 2000-01 and 2001-02 order dt. 27th Feb. 2009 [reported as Oriental Insurance Co. Ltd. v. Asstt. CIT [2010life insurance business 130 TTJ (Delhi)388 : [2010life insurance business 38 DTR (Delhi ) 225-Ed.life insurance business. Therefore considering the vehement reliance of learned Authorized Representative it is worth to mention at the outset itself that the issue now stood resolved by this latest decision of Delhi, Tribunal in the case of Oriental Insurance Co. Ltd. (supra), the relevant portion reproduced below:

“17. We have heard rival submissions of the parties and have gone through the material available on record.Identical issue arose in assessee’s own case for asst. yr. 1985-86.The Tribunal accepted the plea of the assessee and in fact the issue went up to the Hon’ble Delhi High Court in asst . yrs. 1986-87 to 1988-89, which is reported as CIT v. Oriental Insurance Co. Ltd. [2003life insurance business 179 CTR (Delhi) 85 : [2002life insurance business 125 Taxman 1094 (Delhi), decided the issue in favour of the assessee by holding that s. 44 of the Act is a special provision dealing with the computation of profits and gains of business of insurance. It being a non obstinate provision, has to prevail over other provisions in the Act. It clearly provides that income from insurance business has to be computed in accordance with the rule contained in the First Schedule. It is not the case of the Revenue that the assessee has not computed the profits and gains of its insurance business in accordance with the said rules. Reliance was placed on the scope of s. 14A, as held in the case of General Insurance Corporation of India v.CIT [1999life insurance business 156 CTR(SC) 425 :[1999life insurance business240 ITR 139 (SC), where -in their Lordships of the apex Court have categorically held that the provisions of s. 44 being a special provision govern computation of taxable income earned from business of insurance. It mandates the tax authorities to compute the taxable income in respect of insurance business in accordance with the provisions of the First Schedule to the Act. In the light of these, their Lordships of Delhi High Court have held that no quest ion of law, much less a substantial question of law survives for their consideration. In other words, order of the Tribunal has been affirmed. Following the same reasoning, addition made by the AO is deleted.

…………  s. 44 applies notwithstanding anything to the contrary contained within the provisions of the IT Act relating to computation of income chargeable under different heads. We agree with the learned counsel that there is no requirement of head-wise bifurcation called for while computing the income under s. 44 of the Act in the case of an insurance company. The income of the business of insurance is essentially to be at the amount of the balance of profits disclosed by the annual accounts as furnished in the Controller of Insurance. The actual computation of profits and gains of insurance business will have to be computed in accordance with r. 5 of the First Schedule. In the light of these special provisions coupled with non obstante clause the AO is not permitted to travel beyond these provisions.

Sec. 14A contemplates an exception for deductions as allowable under the Act are those contained under ss. 28 to 43B of the Act. Sec. 44 creates special application of these provisions in the cases of insurance companies. We therefore, agree with the assessee and delete the act as according to us, it is not permissible to the AO to travel beyond s. 44 and First Schedule of the IT Act.”

It may not be out of place to mention that the respected Co-ordinate Bench has duly taken the note of an earlier decision of that very Bench decided in the case of that very assessee vide order dt. 29th Sept. 2004 bearing ITA Nos. 7815/Del/1989, 3607 to 3609/Del /1990; 5035/Del / 1998 and 3910/Del /2000 named as Dy. CIT v. Oriental General Insurance Co. Ltd. [2005life insurance business 92 TTJ (Delhi) 300. As seen from the Paras reproduced above on due consideration of the relevant provisions as applicable to resolve this issue a conclusion was drawn that since the Courts have held, s. 44 creates a special provision in the cases of assessment of insurance companies therefore it was not permissible to the AO to travel beyond s. 44 of First Schedule of IT Act.

The next common dispute relates to the order of the CIT (A) in sustaining the act ion of AO in al lowing only 50 per cent of the management expenses by invoking the provisions of s. 14A of the Act. The addition is made by the AO on the plea that the provisions of s.14A was inserted by Finance Act, 2001 w.e.f. 1st April, 1962. It is stated that the investments made by the assessee are both taxable as well as tax free. An estimated disallowance of 50 per cent out of the management expenses incurred and as claimed in the P&L a/c is treated as expenses incur red in connect ion with the looking after tax-free investment.

The learned counsel for the assessee vehemently argued that the income of the assessee is to be computed under s.44 r/w r. 5 of Sch. 1 of the IT Act. Sec. 44 is a non obstinate clause and applies notwithstanding anything to the contrary contained within the provisions of the IT Act relating to computation of income chargeable under different heads, other than the income to be computed under the head ‘Profit and gains of business or profession’. For computation of profits and gains of business or profession the mandate to the AO is to compute the said income in accordance with the provisions of ss. 28 to 43B of the Act.In the case of the computation of profits and gains of any business of insurance, the same shall be done in accordance with the rules prescribed in First Schedule of the Act,meaning thereby ss. 28 to 43B shall not apply. No other provision pertaining to computation of income will become relevant. According to the learned counsel, two presumptions that follow on a combined reading of ss. 14, 14A, 44 and r. 5 of the First Schedule are:

(a) That no head-wise bifurcation is called for.The income, inter alia, of the business of insurance is essentially to be at the amount of the balance of profits disclosed by the annual accounts as furnished to the Controller of Insurance under the Insurance Act, 1938. The said balance of profits is subject only to adjustments there under. The adjustments do not refer to disallowance under s. 14A of the Act.

(b)Profits and gains of business as referred to in (a) above have only to be computed in accordance with r. 5 of the First Schedule.

Sec.44 creates a specific except ion to the applicability of ss. 28 to 43B.Therefore, the purpose, object and purview of s.14A has no applicability to the profits and gains of an insurance business.

The learned Departmental Representative strongly justified the act ion of the AO and that of the CIT(A) in the light of the clear provisions of s. 14A of the Act. Since the view has already been expressed by respected Co-ordinate Bench therefore, we have no reason to take any other view except to follow the same. With the result we hereby accept the argument of learned Authorized Representative to the extent that in the present situation the provisions of s.14A need not to apply while granting exempt ion to an income earned on sale of investment primarily because of the reason of the withdrawal or deletion of sub-r.5(b) to First Schedule of s. 44 of IT Act. Once we have taken this view therefore the enhancement as proposed by learned CIT(A) is reversed and the directions in this regard are set aside. Resultantly ground No. 1 is allowed consequent thereupon ground No. 2 automatically goes in favour of the assessee”.

Accordingly, by following the orders of this Tribunal, we decide this issue in favour of the assessee. Therefore, the ground is allowed”.

Respectfully following the orders of the coordinating benches we decided ground no.8 in favour of the assessee.As the ground no.8 has been decided in faovur of the assessee, so the grounds no.9 and 10 become academic. Both the grounds are decided in favour of the assessee for statistical puoposes.

4.Next effective Ground of appeal(Ground no.12) relates to not allowing the benefit of set off of brought losses and unabsorbed depreciation. During the assessment proceedings AO found that the assessee had made a claim u/s.72 of the Act to carry forward its business losses, other than speculation business losses, for a period up to eight Assessment years for set off against subsequen -t year’s business profits.AO rejected the claim made by the assessee. In appellate proceedings FAA held that the AO had not deliberated the issue in assessment order. He directed the AO to determine the brought forward losses of earlier year as per his record and then allow the same, if admissible in accordance to the respective provisions of law. He allowed ground of appeal for statistical purposes.

4.1.Before us, AR submitted that FAA should have directed the AO to set off brought forward losses and unabsorbed depreciation of earlier years while computing the total income of the assessee. DR submitted that FAA had already directed the AO do needful as per law.

4.2.We are of the opinion that provisions of section 72 of the Act are very clear in this regard. As per the provisions of said section, assessees are entitled to set off of brought forward business losses/ unabsorbed depreciation allowance as finally assessed in relevant assessment years. FAA found that AO had not dealt with the issue and had directed him to pass order as per law. We find that there is no infirmity in the order of the FAA. Therefore,  confirming his orders, we decide ground no.12 against the assessee.

5.As stated ealier, there are two ground about levy of interest u/s.234 of the Act.Issue of charging of interest u/s.234D is consequential ,but question of levy of interest u/s.234B has to be decided on merits.  While finalising the assessment AO levied of interest u/s 234B of Rs.54,76, 19,168/-.In the appellate proceedings FAA held that the provisions of section 234B contained the word assessed tax and the assessed tax was to be arrived at after determining of total income on assessment, reassessment or after giving effect to the appellant orders, that in the case of CIT Vs. Anjum M.H. Ghaswala (252 ITR 1)the Hon’ble Apex court had held that interest u/s. 234B was compensatory and mandatory in nature. Referring to the orders of the Hyderabad Bench of the Tribunal delivered in the case of Navayuga Engineering Company Ltd., Visakhapatnam (18 tax -mann.com 224)and Hon’ble Punj. & Har. High Court in the case of Parkash Agro Industries (316 ITR 149),he directed AO to re-compute interest u/s. 234B.

5.1.Before us, AR submitted that the provisions of section 234B of the Act were attracted in the two circumstances only-either where in any financial year, an assessee who was liable to pay advance tax under section 208 had failed to pay such tax; or where the advance tax paid by such assessee under the provisions of section 210 was less than 90 percent of the assessed tax, that the use of the words such assessee in the second limb showed that the second limb also applied only to an assessee who was liable to pay advance tax under section 208,that the charge of interest under section 234B,under either limb pre-supposed a liability to pay advance tax under section 208, that an assessee who was not so liable could not be called upon to pay interest under section 234B,that under section 208 of the Act an assessee would be liable to pay advance tax only if the amount of advance tax payable by it under Chapter XVII of the Act were to exceed Rs 5,000,that during the year under consideration assessee had estimated, to the best of its judgment, the total income for the purpose of ascertaining advance tax payable, if any, that as per the estimate no income, as computed under section 209(1)(a) of the Act,arose and hence, no advance tax was payable,that section 234B of the Act had no application in the case of the assessee,that once an assessee estimateed bona fide that his income was nil it followed that he was not liable under section 208 and was therefore not liable to pay interest under section 234B of the Act, that the fact that the Appellant acted bona fide in not paying any advance tax was borne out by the return of income filed over the years by the assessee and also by the fact that the initial assessments of the assesseedid not result in any “assessed tax” as defined in section 234B of the Act.He placed reliance on the decision of Mumbai Tribunal in the case of Indian Airlines Ltd. (59ITD 353).He also referred to the judgment of Prime Securities Limited (333ITR464).DR supported the order of the FAA.

5.2.We have heard the rival submissions and perused the material before us.We find that assessee was filing returns of income for last so many years and it was supposed to calculate advance tax on the basis of such returns. If on the basis of past returns and after considering the income for the year under consideration asssessee arrived at a bona fide conclusion that it was not liable for paying advance tax,then interest u/s.234B of the Act. Considering the peculiar facts and circumstances of the matter we decide ground no.14 in favour of the assessee.

Next ground is about levy of interest under section 234D of the Act amounting to Rs. Rs.5,29, 363/-,by the AO.In appellate proceedings,FAA held that the levy of interest under section 234D of the Act was consequential in nature to the additions made and directed the AO to compute the interest,if any,on the basis of issue determined in the appeal.As the issue involved in ground no.15 consequential in nature,it is allowed for statistical purposes.

As a result appeal filed by the assessee -company for the AY 2008-09 is allowed in part.

6.Effective ground of appeal filed by the AO is about INR. While examining the actuarial report for the year ended on 31.03.2008,AO found that assessee was having negative results of 20,97, 81,24,000/-,that for the year ended on 31.03.2007 the figure of negative result was Rs.10, 59,81,01,000/-. AO was of the opinion that INR during the year under consideration was of Rs.103.8Crores.He further found that surplus was ascertained by the assessee as per the actuarial valuation by ignoring the negative result.He called for explanation of the assessee on the issue of INR.After considering the submissions of the assessee, AO held that while making actuarial valuation requirement of result to surplus insurance policy issues was ascertained, that such results were called mathematical result or value of liability, that the results were equal to present value of future benefits payable and future expenses to be incurred less present value of future premium receivable, that when the present value of future premium was more than the present value of future benefits payable and the future expenses to be incurred it was called negative results. He did not agree with the submission of the assessee that policies were not to be treated as assets because it would mean according to AO to treat that negative results had to be eliminated. As per the AO, it was unrealistic pacifistic to eliminate all negative results, that all life insurance policies would not lapse, that if a sophisticated investment/ valuation was made, there was no need to eliminate negative results, that elimination of such negative results gave unrealistic picture and understated the surplus.AO further held that provisions of Sec. 44 r.w. schedule I of the Act provided that surplus worked out by actuarial valuation was to be adopted for computing income from life insurance business, that it did not mean the figure taken by the appointed actuary automa -tically became assessed total income, that schedule I of the Act prescribed that profits and gains of life insurance business would be on the basis of actuarial valuation made in accordance with Insurance Act,1938, that in the case under consideration the actuarial valuation in respect of sum of policies was resulting in mathematical reserve to be negative, that as a conservative method of accounting the same had been taken as Zero, that it had increased the figure of overall mathem – atical reserve and accordingly reduced figure of surplus, that the accounting policy followed by the assessee might be in accordance with the regulation prescribed by IRDA ,that surplus had been understated by the assessee to the extent of INR. Analysing the provisions of IRDA, he held that issue of negative reserves to be taken as Zero was specific to situation mentioned in the regulation Rule 5(ii),that mathematical reserves had to be taken without any modification for the purpose of section 35 of the Insurance Act, that the said section was related to amalgamation and transfer of insurance business, that Rule 5(iii) mandateed to take the mathematical reserves at Zero for the purpose of section 13, 49, 64V and 65VA of the Insurance Act, that section 13(2) of the Insurance Act mentioned that actuarial report as per section 13(1)was made with a view to distribute profit, that various provisions of the Insurance Act clearly indicated that actuarial is not mandated to take negative results at Zero at all situation as claimed by the assessee,that by taking negative reserves at Zero the assessee has shown the surplus less than the real actuarial valuation, that in Income Tax Assessment real income of an assessee had to be taxed, that ignoring of negative reserves was not in accordance with IRDA Regulations, that the assessee’s contention in respect of taking negative reserves at Zero were not tenable. Accordingly, the negative reserves as reported by the actuary was added to the surplus of actuarial valuation of the life insurance business of the company and an addition of Rs.10,38, 00, 23,000/- was made under the head INR.

6.1.Assessee filed an appeal before the FAA. He held that the negative Reserves represented all future probable profits, that such future probable profits might or might not arise, that in terms of the IRDA regulations the negative reserves were to be ignored, that same were to be zeroised for the purpose of determining the actuarially determined policy liabilities of an insurance company called the Mathematical Reserves (MR), that the requirement to zeroise negative reserves was as per the IRDA regulations, that no policy was accounted as an asset within the balance sheet,that IRDA prohibited taking into account future probable profits until they emerged Negative Reserves under column 6 in the Form I,that it was the mandatory requirement of the IRDA regulations. Following his predecessor’s order he decided the ground in favour of the assessee.

6.2.Before us,DR submitted that matter might be decided on merits.AR submitted that AO had disturbed the actuarial surplus by making addition under the head INR,that he was not authorised to do so in light of the judgment of the Hon’ble Apex Court delivered in the case of LIC.(supra). He referred to the case of IPLCI(supra).

6.3.We have heard rival submissions and perused the material before us. We are of the opinion that treatment given to negative reserves by actuary cannot be disturbed by the AO.Here,it would be useful to understand meaning of negative reserve in simple terms.While making actuarial valuation,requirement of reserve to service insurance policies issued is ascertained.Such reserve (called mathematical reserve or value of liability)is equal to present value of future benefits payable and future expenses to be incurred less present value of future premium receivable. When the present value of future premium is more than the present value of future benefits payable and future expenses to be incurred, this amount becomes negative, known as ‘negative reserve’. In simple words, it means that the insurance contracts under consideration do not warrant any provision and is,in fact,an asset.However, in certain circumstances, such as for following IRDA guidelines, insurers may not treat policies as assets and they set any negative reserves to zero.For example,if an insurer had two policies,one with a reserve of 100 and the other with a reserve of – 10,it might think of its liabilities at100 rather than 90 to take into account the eventuality in case the second policy lapsed.This process is called eliminating negative reserves.As mentioned earlier,a policy which has a negative reserve is in nature of an asset.

We find that in the case of ICICI Prudential Insurance Co.(supra),AO had disallowed negative reserve related to Life Insurance business of the assessee. In appellate proceedings FAA allowed the appeal of the assessee.AO challenged the order of the FAA before the Tribunal. We find that AO has raised the following ground of appeal in the appeal filed by him for AY 2006-07.

“On the facts and in the circumstances of the case and in law, the learned CIT(A)erred in not subjecting the negative reserve amounting to Rs.27.27 Crores ignoring the facts that negative reserves has impact of reducing the taxable surplus as per From I.”

Disposing his appeal,Tribunal held as under:

“After considering the rival submissions and examining the method of accounting and the mandate given by regulations to appoint Actuarial on the concept of mathematical reserves we do not see any reason to interfere with the order of the CIT(A).The mathematical reserve is a part of Actuarial valuation and the surplus as discussed in Form-I under Regulation 4 takes in to consideration this mathematical reserve also. Therefore the order of the order of the CIT(A) is approved.Moreover the Assessing Officer has no power to modify the amount after actuarial valuation was done, which was the basis for assessment under Rule 2 of 1^st Schedule r.w.s.44 of the I.T. Act.The principle laid down by the Hon’ble Supreme Court in LIC vs.CIT 51ITR773 about the power of the Assessing Officer also restricted the scope and adjustment by the AO. In view of this uphold the order of the CIT(A) and dismiss the Revenue’s ground.”

Respectfully,following the above we decide effective ground of appeal against the AO.

As a result appeal filed by the assessee is allowed in part and appeal of the AO stands dismissed. ITA No.2203/Mum/2012 & ITA No.3000/Mum/2012(AY.2002-03)

7.Grounds of appeal no.1-7 for the year are identical to the Ground of appeal filed for the AY. 2008-09.Following the orders for the said AY.,we decide ground no.1-7 in favour of the assessee .

Ground no.8 is about apportionment of depreciation allowance.Before us,AR submitted that if ground no.2 was decided in favour of the assessee ,ground no.8 will be academic in nature. As we have already decided ground no.2 in favour of the assessee ,therefore,ground no.8 is allowed for statistical purposes.

Ground no.9 is about set off of brought forward business losses.While deciding the Ground no.12 of for the AY.2008-09 we have adjudicated the said ground against the assessee .Following the same Ground no.9 stands dismissed.

Next Ground pertaining to charging of interest u/s.234 B of the Act has been decided in favour of the assessee for the AY.2008-09.Following the same Ground no.10 is allowed.

Last ground of appeal is about reopening of assessment.Before us,AR submitted that the assessee did not want to press the said ground.Therefore,Ground no.11 stands dismissed as not pressed.

7.1.In the appeal filed by the AO for the year under consideration only issue is INR.Following our order for AY 2008-09 we decide the issue against the AO.

Appeal filed by the assessee is allowed in part and appeal of the AO stands dismissed.

8.Like previous assessment year, assessee did not press issue of reopening of assessment before us. Ground No. 1 stands dismissed as not pressed. Ground No.2-8 are same as grounds no. 1 to 7 filed by the assessee for the AY 2008-09. Following our order in that year, we decide all these grounds in favour of the assessee. Ground No.9 is about set off of brought forward business losses and unabsorbed depreciation. Following our order for the AY 2008-09 same is decided against the assessee. Grounds(grounds no.10 -11)are decided in favour of the assessee, following our orders for the AY 2008-09(Ground No.13 and 14).

Appeal filed by the assessee stands partly allowed.

8.1. Only issue raised by the AO for the year is about capital INR. We have already dismissed the appeal of the AO in earlier year.

Following the same appeal filed for this year also stands dismissed.
9. During the course of hearing, first ground of appeal, challenging the reopening of assessment was not pressed before us. So, same stands dismissed as not pressed.Grounds no.2-8 and Grounds no.9-11 are same as the grounds no.1-7 and 8-10 for the AY. 2008 -09 respectivley. Following the order for that year, we decide grounds no.2-11 in favour of the assessee .AR submitted that if ground no.3 was decided in favour of the assessee Grounds no.12-14 would be academic in nature. As ground no.3 has been decided in favour of the assessee-company, so grounds no.12-14 stand allowed for statistical purposes. Next ground is about set off of unaborsed losses. Following our decision for AY2008-09(GOA12)we decided the issue against the assessee. Last ground of appeal, charging of interest u/s.234B stands allowed following our main order.

Assessee’s appeal stands partly allowed.

9.1.Only issue, raised by the AO, is about INR and following our order for 2008-09 we decided the issue against him.

Appeal filed by the AO is dismissed.

10. Out of the 14 grounds of appeal first ground of appeal is about reopening and same was not pressed before us, during the course of hearing. We dismiss Ground no.1 as not pressed.Grounds no.2-11 and 13-14 are identical to Grounds of appeal no.1-10 and 13-14 respectively filed by the assessee for the AY 2008-09.Following the order of that year, we decided above 12(10+2) Grounds in favour of the assessee .Ground no.12 is about carry forward of losses. Following the orders of the earlier years GOA.12 is decided against the assessee.

10.1. Following our order for the AY 2008-09,we dismiss the only ground filed by the AO with regard to INR.

Appeal filed by the assessee is allowed in part. AO’s appeal stands dismissed.

11.For the year under consideration, except one ground rest of the grounds are covered in favour of the assessee by our order for the year 2008-09.Following our main order (grounds no.2-10) Grounds no.1-9 for the year under consideration stand allowed. We find that similarly, grounds no.12 and 13 have been decided in favour of the assessee by us, while deciding the appeal for the AY. 2008-09.Therefore,both the grounds regarding applicable rate of tax and charging of interest u/s.234B of the Act stand allowed. Ground no.11,pertains to carry forward of losses of earlier years. Following our decision for Ay2008-09,we decide the said ground against the assessee.

11.1.New ground of appeal (Ground no.10) is about computation of losses from pension. During the assessment proceedings,AO found that assessee had claimed losses from pension in its business income. He added back the amount in question to the income of the assessee. In appellate proceedings, FAA confirmed the order of the AO.

11.2.Before us, AR submitted that AO had added back the disputed amount without discussing anything in the assessment order, that while computing the total income said addition was made, that FAA was not justified in endorsing the views taken by the AO. He relied upon the order of the ICPLI (supra).He also relied upon the order of the Life Insurance Corporation of India (338 ITR 212)delivered by the Hon’ble High Court of Bombay. DR supported the order of the FAA.

11.3.We have heard the rival submissions and perused the material before us.We find that in the case of ICPLI same issue has been decided in favour of the assessee by the Tribunal as under:

“49. In view of the above and respectfully following the same, we hold that assessee is entitled to exemption under section 10. Therefore, we do not see any reason to differ from the order of the CIT (A) where he has allowed assessee’s claim of exemption under section 10(23AAB) of surplus of Participating Pension Business and also dividend under section 10(34). Accordingly Revenue ground on this issue is rejected.”

We further find that the Hon’ble High Court of Bombay has also dealt with the issue,in the case of Life Insurance Corporation of India (supra),as under:

“ As regard questions (c) and (d) are concerned, the dispute is whether the loss incurred by the assessee from the Jeevan Suraksha Fund is liable to be excluded in computing the actuarial valuation surplus in view of the fact that the income from the Jeevan Suraksha Fund is exempt under section 10(23AAB) of the Income-tax Act, 1961.

The argument of the Revenue is that with the insertion of section 10(23AAB) by the Finance (No. 2) Act, 1996, with effect from April 1, 1997, the profits as well as loss arising from the Jeevan Suraksha Fund would not be includible in the total income of the assessee and, therefore, while determining the distributable profits of the assessee, the loss from the Jeevan Suraksha Fund ought not to be allowed to be adjusted against the taxable income.

It is not in dispute that the Jeevan Suraksha Fund is a pension fund approved by the Controller of Insurance appointed by the Central to perform the duties of the Controller of Insurance under the Insurance Act, 1938. The loss incurred in the Jeevan Suraksha Fund has been considered by the actuary as a business loss, as per the valuation report as on the last day of the financial year, allowable under section 44 read with the First Schedule to the Income-tax Act, 1961. The fact that the income from such fund has been exempted under section 10(23AAB) with effect from April 1, 1997, does not mean that the pension fund ceases to be insurance business, so as to fall outside the purview of the insurance busi- ness covered under section 44 of the Income-tax Act, 1961. In other words, the pension fund like the Jeevan Suraksha Fund would continue to be governed by the provisions of section 44 of the Income-tax Act, 1961, irrespective of the fact that the income from such fund are exempted, or not. Therefore, while determining the surplus from the insurance business, the actuary was justified in taking into consideration the loss incurred under the Jeevan Suraksha Fund.The object of inserting section 10(23AAB) as per the Board Circular No. 762, dated February 18, 1998 (see [1998] 230 ITR (St.) 12) was to enable the assessee to offer attractive terms to the contributors. Thus, the object of inserting section 10 (23 AAB) was not with a view to treat the pension fund like the Jeevan Suraksha Fund outside the purview of insurance business but to promote the insurance business by exempting the income from such fund. Therefore, in the facts of the present case, the decision of the Income-tax Appellate Tribunal in holding that even after insertion of section 10(23AAB), the loss incurred from the pension fund like the Jeevan Suraksha Fund had to be excluded while determining the actuarial valuation surplus from the insurance business under section 44 of the Income-tax Act, 1961, cannot be faulted. Accordingly, questions (c) and (d) are answered in the affirmative, that is, in favour of the assessee and against the Revenue.”

Respectfully following the above, ground no.10 is decided in favour of the assessee.

12.First Ground of appeal filed by the AO is about INR. Following our orders for earlier years we decided the issue against him.

13.Ground No.2 is about disallowance made u/s. 14A r.w.r. 8D of the Rules, during the assessment proceedings,AO had made certain additions u/s. 14A that was challenged before the FAA. Dissatisfied with the order of the FAA, AO has submitted that he (FAA) should have restored the order back to the AO to make disallowance as per the decision delivered by the Hon’ble Bombay High Court in the case of Godrej Boyce Manufacturing Company Ltd.(234 ITR-1).

13.1.Before us, DR supported the order of the AO.AR submitted that issue is covered in favour of the assessee by the order of ICPLI. While deciding the appeal for the AY 2008-09, we have held that provisions of section 14A of the Act did not apply to the assessee carrying of insurance business. As the assessee is engaged in the business of Life Insurance so provisions of section 14A r. w.r 8D of Rules (supra) cannot be applied in its case. We have already decided, while adjudica – ting the appeal for the AY 2008-09 that proportionate expenses cannot be disallowed u/s. 14A in case of company doing the business of life insurance. Following the same ground no.2 is decided against the AO.

Like earlier year, appeal of the assessee is allowed in part and the appeal of the AO is dismissed. ITA No.4960 /Mum/2011 & ITA No. 5493/Mum/2011(AY.2007-08)

14.Grounds No.1 to 9,for the year under consideration, are same as grounds no. 2 -10 for the AY. 2008-09.Following our order for that year, grounds no.1 to 9 are allowed in favour of the assessee. Ground no. 10 and 11 filed by the assessee are identical to the grounds of appeal no.12 and 14 for the AY 2008-09.Following our order for the year 2008-09, ground no.11 is decided in favour of the assessee. Ground no.10(ground no.12 for the AY 2008-09),related brought forward of losses, is decided against the assessee.

15.Grounds of appeal no.1and 2 filed by the AO are similar to grounds filed by him for last AY. As we have decided both the grounds against the AO while adjudicating the appeal for that year , so, following the same we dismiss the grounds1-2 filed by him.

16.Ground No. 1 to 7 for the year under consideration are similar to the grounds of appeal filed for the AY 2008-09.Following our order for that year, first seven grounds are decided in favour of the assessee. Ground No. 9-11 are similar to the grounds no. 8 to 10 of the main order. Following the same, effective ground of disallowance u/s. 14A,is decided in favour of the assessee. Grounds No.13to15 are identical to the grounds no. 13 -15 of AY 2008-09.Following the order for that year grounds no. 13 to 15 are decided in favour of the assessee. GOA 12 is about set off of brought forward business losses. We have decided the issues against the assessee for the AY 2008-09. Following the same ground no. 12 is decided against the assessee.

Ground no.8 is a new ground and it pertains to deduction of expenses of Rs.53 lacs incurred for earning income in share-holder’s account. Before us, AR submitted that if ground no.2 was decided in favour of the assessee, ground no.8 would be academic. As GOA-2 has already been decided in favour of the assessee, so ground no.8 stands allowed for statistical purposes.

Appeal filed by the assessee stands partly allowed.

17.Only ground of appeal, filed by the AO, is about INR. The matter is decided against the AO, following our orders of earlier years.

As a result, all the appeals filed by the assessee-company stand partly allowed, whereas appeals filed by the AO stand dismissed.

Order pronounced in the open court on 20^th September,2013.