HDFC STANDARAD LIFE INSURANCE CO. LTD, MUMBAI V. DCIT 1(1)(2), MUMBAI

CO 228/MUM/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4467 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-04-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2012-2013
• Appeal Filed On: 26-07-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PERCY PARDIWALALD SR
• Keywords: Capital asset; Business income; Question of law; Reasonable cause; Valuation report; Condonation of delay; Rule 8D
• Section: 143(3); 234B; 14A; 13; 28

Judgement Text

HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 1 IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI , , BEFORE HONBLE SHRI MANOJ KUMAR AGGARWAL, AM AND HONBLE SHRI R AVISH SOOD, JM (HEARING THROUGH VIDEO CONFERENCING MODE) 1 . ./ I TA NO.1917/ MUM/2017 ( / ASSESSMENT YEAR: 2012 - 13) & 2 . ./ I TA NO. 1918/MUM/2017 ( / ASSESSMENT YEAR: 2013 - 14 ) & 3 . ./ ITA NO.5639/MUM/2017 ( / ASSESSMENT YEAR: 2014 - 15) & 4 . ./ I TA NO.1191/MUM/2017 ( / ASSESSMENT YEAR: 2015 - 16) DCIT - 1(1)(2) 579, A AYKAR BHAWAN M.K. ROAD MUMBAI 400 020 . / VS. M/S. HDFC STANDARD LIFE INSURANCE CO. LTD. 12 TH & 13 TH FLOOR, LODHA EX CELUS APPOLLO MILLS COMPOUND, NM JOSHI MARG MAHALAXMI , MUMBAI 400 0 11. ./ ./ PAN/GIR NO. A AACH - 8755 - L ( / APPELLANT ) : ( / RESPONDENT ) & 5 . CROSS OBJECTION NO. 228/MUM/2018 (ARISING OUT OF ITA NO. 1917/MUM/2017 ) (ASSESSMENT YEAR: 2012 - 13) & 6 . CROSS OBJECTION NO. 227/MUM/2018 (ARISING OUT OF ITA NO. 1918/MUM/2017 ) (ASSESSMENT YEAR: 2013 - 14 ) & 7 . CROSS OBJECTION NO. 33/MUM/2017 (ARISING OUT OF ITA NO. 5639/MUM/2017 ) (ASSESSMENT YEAR: 2014 - 15 ) & 8 . CROSS OBJECTION NO. 33/MUM/202 0 (ARISING OUT OF ITA NO. 1191/MUM/2019 ) (ASSESSMENT YEAR : 2015 - 16 ) HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 2 M/S. HDFC STANDARD LIFE INSURANCE CO. LTD. 12 TH & 13 TH FLOOR , LODHA EX CELUS APPOLLO MILLS COMPOUND, NM JOSHI MARG MAHALAXMI, MUMBAI 400 011. / VS. DCIT - 1(1)(2) 579, AAYKAR BHAWAN M.K. ROAD MUMBAI 400 020 . ./ ./ PAN/GIR NO. A AA CH - 8755 - L ( / APPELLANT ) : ( / RESPONDENT ) REVENUE BY : AD VOCATE SHRI CHARANJEEV CHANDRAPAL (LD. SPECIAL COUNSEL) ASSESS EE BY : SHRI PERCY PARDIWALA , LD. SR. COUNSEL / DATE OF HEARING : 01/04/2021 / DATE OF PRONOUNCEMENT : 30/04/2021 / O R D E R PER BENCH 1.1 AFORESAID APPEALS BY REVENUE FOR ASSESSMENT YEARS (AY) 2012 - 13 TO 2015 - 16 CONTEST SE PARATE ORDERS OF LEARNED FIRST APPELLATE AUTHORITY. HOWEVER, THE FACTS AS WELL AS ISSUES, IN ALL THE YEARS, ARE STATED TO BE COMMON AN D THEREFORE, THE APPEALS WERE HEARD TOGETHER AND ARE NOW BEING DISPOSED - OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE AND BREVITY. THE ASSESSEE HAS FILED CROSS - OBJECTIONS FOR ALL THE YEARS WHICH SEEK ALTERNATIVE RELIEF. IN THE ABOVE BACKGROUND, WE PROCEED TO DISPOSE - OFF THE APPEAL FOR AY 2012 - 13. 1.2 THE GROUNDS RAISED BY THE REVENUE READ AS UNDER: - ' 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS CORRECT IN INTERPRETING THE PROVISIONS OF SECTION 44 OF THE I.T. ACT READ WITH RULE 2 OF THE FIRST SCHEDULE AL O NG WITH PROVISIONS OF INSURANCE ACT, 1938, INSURANCE REGULATORY AND DE VELOPMENT AUTHORITY ACT, 1999 AND REGULATION THERE UNDER AND ACCORDINGLY ALLOWING ADJUSTMENT FROM THE SURPLUS [AND AS SHOWN BY THE ASSESSEE IN FORM - 1] IN VIOLATION OF RATIO OF THE APEX COURT IN THE CASE OF LIC VS. CIT 51 ITR 778?. 2 . WHETHER ON THE FA CTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS CORRECT IN INTERPRETING THAT ON ACCOUNT OF LEGISLATION BY INTERPRETATION , ONLY THE UN - AMENDED INSURANCE ACT 1938 AND THE REGULATIONS THERE UNDER BECAME PART OF SECTION 44 R.W.RULE 2 OF THE FIRST SCHEDULE OF THE I.T. RULES. HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 3 3 . WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS CORRECT IN INTERPRETING THE PROVISIONS OF SECTION 44 OF THE I.T. ACT READ WITH RULE 2 OF THE FIRST SCHEDULE THAT THE LEGISLATURE C ONSCIOUSLY OMITTED INCORPORATION OF THE PROVISION OF THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY ACT, 1999 AND REGULATION MADE THERE UNDER IN RULE 2 OF THE FIRST SCHEDULE WHICH REFERS ONLY TO U N AMENDED INSURANCE ACT 1938 AND REGULATIONS MADE THE RE UNDER. 4 . WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THE PROVISIONS OF SECTION 28 OF INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY ACT, 1999 WHICH CLARIFIES THAT PROVISIONS OF IRDA ACT AND ITS REGULATION AS LEGISLATION BY REFERENCE IN SECTION 44 OF THE I.T. ACT READ WITH R ULE 2 OF THE FIRST SCHEDULE OF THE I.T. RULES. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS CORRECT IN ALLOWING RELIEF TO THE ASS ESSEE BY HOLDING THAT SURPLUS AVAILABLE IN SHARE HOLDER ACCOUNT IS NOT TO BE TAXED SEPARATELY AS INCOME FROM OTHER SOURCES AND AT THE NORMAL CORPORATE RATE AND HOLDING THAT SURPLUS FROM SHARE HOLDERS ACCOUNT WAS ONLY PART OF INCOME FROM I NSURANCE BUSINES S ARRIVED AT AFTER COMBINING SURPLUS AVAILABLE IN SHARE HOLDERS ACCOUNT WITH THE SURPLUS AVAILABLE IN POLICY HOLDER ACCOUNT AND THEN TAXING THIS NET SURPLUS ARRIVED AT THE RATES SPECIFIED U/S. 115B OF THE ACT. 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN IGNORING THE FACT THAT EVEN THE ASSESSEE INSURANCE COMPANY USES THE NOMENCLATURE EXPENSES OTHER THAN THOSE DIRECTLY RELATED TO INSURANCE BUSINESS WHILE COMPUTING THE SURPLUS IN THE SHARE HOLDER A CCOUNT AND TREATING IT AS PART OF INSURANCE BUSINESS? 7 . WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS CORRECT IN CONCLUDING THAT TRANSFER FROM SHARE HOLDER ACCOUNT TO POLICY HOLDERS ACCOUNT AND SHOWN AS PART OF SUR PLUS IN THE ACTUARIAL VALUATION WAS ONLY TRANSFER OF CAPITAL ASSET AND NOT TAXABLE U/S.44 OF THE ACT R.W. RULE 2 OF THE FIRST SCHEDULE. 8. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS CORRECT IN ALLOWING RELIEF TO THE ASSESSEE BY HOLDING THAT SURPLUS AVAILABLE BOTH IN POLICY HOLDERS ACCOUNT AND SHARE HOLDERS ACCOUNT IS TO BE CONSOLIDATED AND ONLY NET SURPLUS IS TO BE TAXED AS INCOME FROM INSURANCE BUSINESS. 9. WHETHER ON THE FACTS AND CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT PROVISIONS OF SECTION 14 A OF THE ACT DID NOT APPLY TO INSURANCE BUSINESS, EVEN WHEN THE ASSESSEE HAS CLAIMED EXEMPTED INCOME U/S.10 OF THE I.T. ACT. 10. WHETHER ON THE FACTS AND CIRCUMSTAN CES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN GIVING RELIEF TO THE ASSESSEE ON CHARGE OF INTEREST U/S. 234B OF THE ACT ON ITS PERCEPTION OF PECULIAR CIRCUMSTANCES OF CASE. 11. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS CORRECT IN FAILING TO APPRECIATE THAT NEGATIVE RESERVE HAS AN IMPACT OF REDUCING THE TAXABLE SURPLUS AS PER FORM - 1 AND THEREFORE CORRESPONDING ADJUSTMENT FOR NEGATIVE RESERVE NEED TO BE MADE TO ARRIVE AT TAXABLE SURPLUS? 1.3 THE GR OUNDS TAKEN IN ASSESSEES CROSS - OBJECTION READ AS UNDER. 1. THE COMMISSIONER OF INCOME TAX (APPEALS)[CIT(A)] OUGHT TO HAVE HELD THAT THE PROVISIONS OF SECTION 234B OF THE INCOME - TAX ACT, 1961 (THE ACT) ARE NOT APPLICABLE IN THE RESPONDENTS CASE. 2. IF T HE NEGATIVE RESERVES ARE HELD TO BE TAXABLE AS INCOME, THEN A. ONLY THE INCREMENTAL NEGATIVE RESERVES SHOULD BE BROUGHT TO TAX. HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 4 B. THE NEGATIVE RESERVES PERTAINING TO THE PENSION LINE OF BUSINESS OUGHT TO BE CONSIDERED EXEMPT UNDER SECTION 10(23AAB) OF TH E ACT. THIS IS WITHOUT PREJUDICE TO THE RELIEF GRANTED BY THE CIT(A) THAT THE NEGATIVE RESERVES ARE NOT TAXABLE. 3. IF THE CONTRIBUTION FROM PROFIT AND LOSS ACCOUNT IS HELD TO BE TAXABLE AS INCOME, THE EXEMPTION UNDER SECTION 10(23AAB) SHOULD ALSO BE AVAIL ABLE IN RESPECT OF THE AMOUNT OF RS.2,68,78,000 TRANSFERRED FROM THE PROFIT AND LOSS ACCOUNT TO THE PENSION BUSINESS THIS IS WITHOUT PREJUDICE TO THE RELIEF GRANTED BY THE CIT(A) THAT THE CONTRIBUTIONS ARE NOT TAXABLE. 4. IF SECTION 14A OF THE ACT IS HELD T O BE APPLICABLE TO THE RESPONDENT, THE DISALLOWANCE UNDER SECTION 14A SHOULD BE RESTRICTED TO THE DISALLOWANCE OF RS.7,93,30,441 CALCULATED BY THE RESPONDENT. 2. THE LEARNED SR. COUNSEL APPEARING FOR ASSESSEE, SHRI PERCY PARDIWALA, AT THE OUTSET, SUBMITTE D THAT IDENTICAL ISSUES WERE RAISED BY THE REVENUE IN AYS 2010 - 11 & 2011 - 12 WHICH WERE SUBJECT MATTER OF ADJUDICATION BY TRIBUNAL VIDE ITA NOS.4078/MUM/2015 & ORS. (A/W MA NOS.249 - 250/M/2018 ORDER DATED 02/08/2019) , COMMON ORDER DATED 23/08/2017. A COPY OF THE O RDER HAS BEEN PLACED ON RECORD. T HE ATTENTION HAS BEEN DRAWN TO THE FACT THAT ALL THE ELEVEN GROUNDS RAISED IN REVENUES APPEAL IN THIS YEAR WERE IDENTICAL TO GROUNDS RAISED IN AYS 2010 - 11 & 2011 - 12 AND THEREFORE, THE SAID DECISION IS SQUARELY APPLIC ABLE TO THIS YEAR. UPON PERUSAL OF THE ORDER, WE FIND THAT THIS DECISION FOLLOWS THE EARLIER DECISIONS OF TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 2002 - 03 TO 2009 - 10. THE ORDER OF HONBLE BOMBAY HIGH C OURT IN REVENUES APPEAL FOR AY 2008 - 09, ITA NO.548 OF 2 014 DATED 10/10/2016 HAS ALSO BEEN PLACED ON RECORD WHEREIN THE APPEAL HAS BEEN ADMITTED BY HONBLE C OURT ON QUESTIONS NOS. 2,3,8,11 & 12 WHEREAS REMAINING QUESTIONS HAVE NOT BEEN ADMITTED, FINDING NO SUBSTANTIAL QUESTION OF LAW. 3. THE LD. SPECIAL COUNS EL FOR REVENUE, SHRI CHARANJEEV CHANDRAPAL, VERY FAIRLY CONCEDED THE AFORESAID FACT. HOWEVER, LD. COUNSEL SUBMITTED THAT THE ISSUE OF NEGATIVE RESERVES IS IN FURTHER CHALLENGE BY REVENUE AND ALREADY PENDING FOR ADJUDICATION BEFORE HONBLE APEX COURT. HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 5 THE REFORE, THE REVENUE WISHES TO RESERVE ITS ARGUMENTS ON THIS ISSUE. IN THE SAID BACKGROUND, LD. SR. COUNSEL SUPPORTED THE ASSESSMENT FRAMED BY LD. AO. 4 . WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AND PERUSED RELEVANT MATERIAL ON RECORD INCLUDING THE ORD ERS OF LOWER AUTHORITIES AND THE CITED ORDER OF TRIBUNAL IN ASSES SEES OWN CASE FOR EARLIER YEARS AS WELL AS THE ORDER OF HONBLE BOMBAY HIGH COURT IN ASSESSEES OWN CASE . OUR ADJUDICATION TO THE SUBJECT MATTER OF APPEAL WOULD BE AS UNDER. ASSESSMENT PROC EEDINGS 5. 1 THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE IS STATED TO BE ENGAGED IN LIFE INSURANCE BUSINESS. THE INCOME OF SUCH BUSINESS IS TAXED AS PER SEC.44 OF THE ACT R/W RULE CONTAINED UNDER FIRST SCHEDULE. THE ASSESSEE DECLARED LOSS OF RS.31.79 CRO RES IN ORIGINAL RETURN OF INCOME FILED ON 28/09/2012 . THE SAID LOSS WAS ARRIVED AT BY CONSIDERING THE INCREMENTAL SURPLUS DISCLOSED IN NEW FORM - 1 AND NET INCOME / LOSS AS PER THE PROFIT & LOSS ACCOUNT. 5.2 HOWEVER, THE DECLARED LOSS WAS REVISED TO INCOME OF RS.12.83 CRORES WHICH WAS ULTIMATELY REDUCED TO NIL AFTER SET - OFF OF BROUGHT FORWARD LOSSES. THE RETURN WAS STATED TO BE REVISED ON THE BASIS OF TRIBUNALS DECISION IN ASSESSEES OWN CASE FOR EARLIER YEARS. IN ACCORDANCE WITH THE DECISION, THE REVISED INCOME WAS COMPUTED BY CONSIDERING THE DEFICIT IN THE VALUATION BALANCE SHEET (I.E. OLD FORM) AS AT 31/03/2012 AS REDUCED BY THE DEFICIT IN VALUATION BALANCE SHEET A S AT 31/03/2011. THE DECISION OF TRIBUNAL HELD THAT SURPLUS / DEFICIT AS PER RULE 2 SHOULD BE THE SURPLUS / DEFICIT DISCLOSED BY ACTUARIAL VALUATION MADE IN ACCORDANCE WITH THE REGULATIONS CONTAINED IN THE ERSTWHILE PART - HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 6 1 & PART - II OF THE FOURTH SCHEDULE TO THE INSURANCE ACT AND ACCORDINGLY, THE SURPLUS / DEFICIT COMPUTED BASED ON FORM - I OF FO URTH SCHEDULE TO THE INSURANCE ACT PRIOR TO ITS AMENDMENT, REPRESENTS THE TAXABLE INCOME OF A LIFE INSURANCE COMPANY. 5.3 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, LD. AO NOTED THAT THERE WERE RECURRING ISSUES ON WHICH ADDITIONS WERE MADE IN EARLIER YEA RS AND THEREFORE, THE SAME ADDITIONS WERE TO BE MADE IN TH IS YEAR. ACCORDINGLY, AN ASSESSMENT HAS FRAMED FOR THE YEAR UNDER CONSIDERATION U/S 143(3) ON 09/03/2015 DETERMIN ING PROFIT OF RS.4001.71 CRORES AFTER CERTAIN ADJUSTMENTS / DISALLOWANCES. 5.4 AGGRIE VED, THE ASSESSEE CONTESTED THE ADJUSTMENTS / ADDITIONS WITH PARTIAL SUCCESS BEFORE LD. CIT(A) VIDE I MPUGNED ORDER DATED 22/12/2016. THE AFORESAID ADJUDICATION HAS GIVEN RISE TO REVENUES APPEAL BEFORE US. APPELLATE PROCEEDINGS 6. B EFORE LD. CIT(A), THE AT TENTION WAS DRAWN TO THE FACT THE ISSUES WERE COVERED BY THE EARLIER DECISIONS OF TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 2002 - 03 TO 2009 - 10. THE SAME HAS ALSO BEEN TABULATED IN PARA 6.1 OF THE IMPUGNED ORDER. FOLLOWING THESE DECISIONS, THE IMPUGNED ORDER HAS BEEN PASSED. I T IS ADMITTED POSITION BEFORE US THAT LD. CIT(A) HAS MERELY FOLLOWED THE EARLIER DECISIONS OF THE TRIBUNAL. OUR FINDINGS & ADJUDICATION 7. IN THE ABOVE BACKGROUND, OUR ADJUDICATION TO THE SUBJECT MATTER OF APPEAL WOULD BE AS UNDER: - HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 7 8. SURPLUS IN POLICYHOLDERS ACCOUNT AS PER ACTUARIAL VALUATION TREATED AS INCOME FROM INSURANCE BUSINESS AS PER RULE - 2 OF FIRST SCHEDULE 8.1 THE ASSESSEE DECLARED INCOME AS PER PROVISIONS OF SECTION 44 R /W RULE 1 & 2 OF FIRST S CHEDULE OF INCOME TAX ACT, 196 1 . DURING ASSESSMENT PROCEEDINGS, THE REVISED INCOME FILED BY THE ASSESSEE BASED ON VALUATION BALANCE SHEET (OLD FORM) WAS DISREGARDED. AS AGAINST THIS, THE SURPLUS, AS DONE IN EARLIER YEARS, WAS TO BE CONSIDERED AS PER NEW FORM - 1 WHICH WOULD REPRESENT INC OME FROM LIFE INSURANCE BUSINESS WHEREAS INCOME IN THE PROFIT & LOSS ACCOUNT REPRESENTING SHAREHOLDERS ACCOUNT WAS TO BE TREATED AS INCOME FROM OTHER SOURCES. 8.2 AS PER ACTUARIAL VALUATION (NEW FORM) , THE ASSESSEE HAD SURPLUS OF RS.868.77 CRORES ON 31/ 03/2012 IN POLICYHOLDERS ACCOUNT. AS PER THE OVERRIDING PROVISIONS OF SEC.44 R/W RULE - 2 OF THE FIRST SCHEDULE, THE PROFITS OF LIFE INSURANCE BUSINESS WAS TO BE TAKEN TO BE THE ANNUAL AVERAGE OF THE SURPLUS DISCLOSED IN THE ACTUARIAL VALUATION REPORT OF TH E YEAR. HOWEVER, THE ASSESSEE MADE FURTHER ADJUSTMENT OF REDUCING THE ACTUARIAL SURPLUS AS ON 31/03/2011 TO ARRIVE AT INCREMENTAL SURPLUS AND ADDING THE SURPLUS / DEFICIT OF THE SHAREHOLDERS I.E. NET PROFIT / LOSS FOR THE YE AR TAKEN F ROM THE FINANCIALS OF THE COMPAN Y TO THE INCREMENTAL SURPLUS OF NEW FORM - 1 . THE SAME, IN THE OPINION OF LD. AO WAS NOT ACCEPTABLE SINCE THE ASSESSEE CARRIES OUT THE ACTUARIAL VALUATION EVERY YEAR AND THEREFORE, THERE WOULD BE NO QUESTION OF ADJUSTING THE EARLIER SURPLUS . A C CORDINGLY, THE SURPLUS OF RS.868 .77 CRORES WAS TAKEN AS THE PROFIT OF INSURANCE BUSINESS INSTEAD OF INCREMENTAL SURPLUS AS OFFERED BY THE ASSESSEE. THE INCOME IN SHAREHOLDERS ACCOUNT WAS BROUGHT TO TAX HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 8 AS INCOME FROM OTHER SOURCES. IT WAS NOTED THAT THE EARLIER DECISIONS OF ITAT WERE UNDER CHALLENGE BY THE DEPAR TMENT BEFORE HONBLE HIGH COURT. 8.3 THE LD. CIT(A), FOLLOWING TRIBUNALS DECISIONS FOR AYS 2002 - 03 TO 2009 - 10, DIRECTED LD. AO TO ACCEPT REVISED INCOME BASED ON OLD FORM - 1. FURTHER, THE LD. AO WAS DIRECTED TO CONSIDER ONLY THE INCREMENTAL SURPLUS OR DEFICIT FOR THE SAID PURPOSE. AGGRIEVED, THE REVENUE IS BEFORE US BY WAY OF GROUND NOS. 1 TO 4. 8.4 EVIDENTLY, LD. CIT(A) HAS MERELY FOLLOWED EARLIER VIEW OF THE TRIBUNAL. WE FIND THAT SIMILAR VIEW HAS BEEN TAKEN BY COORDINATE BENCH IN ASSESSEES OWN CASE FOR AYS 2010 - 11 & 2011 - 12, ITA NOS. 4078/MUM/2015 & ORS. (A/W MA NOS.249 - 250/M/2018 ORDER DATED 02/08/2019) , COMMON ORDER DATED 23/08/2017. THE HONBLE BOMBAY HIGH COURT , ON THIS ISSUE, HAS ADMITTED REVENUES GROUND OF APPEAL BUT THE DECISION IS PENDING. THEREFORE, THE ISSUE, AS OF NOW, IS SQUARELY COVERED BY THE EARLIER DECISIONS OF THE TRIBUNAL. THEREFORE, WE FIND NO REASON TO DEVIATE FROM THE EARLIER STAND OF THE TRIBUNAL. RESULTANTLY, G ROUND NOS. 1 TO 4 STANDS DISMISSED. 8.5 CONSEQUENTLY, THE WORKING DONE BY LD. AO IN PARA - 12, ON ACCOUNT OF PENSION FUND TO RE - COMPUTE EXEMPTION U/S 10(23AAB) WOULD STAND REVERSED. 9. NEGATIVE RESERVES IN THE ACTUARIAL VALUATION AS ON 31/03/2012 9.1 THERE WERE NEGATIVE RESERVES OF RS.3555.35 CRORES IN (NEW) FORM NO.1 . THE LD. AO PROCEEDED TO TREAT THE SAME AS THE INCOME OF THE ASSESSEE . THE ASSESSEE OPPOSED THE SAME BY SUBMITTING THAT TAXING NEGATIVE RESERVES WOULD RESULT IN TAXING FUTURE PROFITS WHICH MAY OR MAY HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 9 NO T ARISE. HOWEVER, L D . AO NOTED THAT SURPLUS IN ACTUARIAL VALUATION IN FORM NO.1 WAS ARRIVED AT BY IGNORING THE NEGATIVE RESERVES AND THE SAME SHOULD HAVE BEEN TAKEN INTO ACCOUNT WHILE COMPUTING THE INCOME. 9.2 THE CONCEPT OF NEGATIVE RESERVE WOU LD STEM FROM THE FACT THAT W HILE MAKING ACTUARIAL VALUATION, REQUIREMENT OF RESERVE TO SERVICE THE INSURANCE POLICIES ISSUED BY THE COMPANY WAS TO BE ASCERTAINED. SUCH RESERVE (CALLED MATHEMATICAL RESERVE OR VALUE OF LIABILITY) WOULD BE EQUAL TO PRESENT VA LUE OF FUTURE BENEFITS PAYABLE & FUTURE EXPENSES TO BE INCURRED LESS PRESENT VALUE OF FUTURE PREMIUM PAYABLE. WHEN THE PRESENT VALUE OF FUTURE PREMIUM IS MORE THAN THE PRESENT VALUE OF FUTURE BENEFITS & FUTURE EXPENSES, THIS AMOUNT BECOMES NEGATIVE WHICH I S KNOWN AS NEGATIVE RESERVES. IN SIMPLE WORDS, IT WOULD MEAN THAT THE INSURANCE CONTRACT UNDER CONSIDERATION WOULD NOT WARRANT ANY FURTHER PROVISION AND IS, IN FACT, AN ASSET. HOWEVER, FOLLOWING IRDA GUIDELINES, INSURERS MAY NOT TREAT THE POLICIES AS AN ASSET AND THEY WOULD SET ANY NEGATIVE RESERVE TO ZERO. 9.3 THE LD. AO OPINED THAT IGNORING SUCH NEGATIVE RESERVES WOULD GIVE UNREALISTIC PICTURE AND UNDERSTATE THE SURPLUS. THOUGH THE ASSESSEE SUBMITTED THAT INCOME OF THE LIFE INSURANCE BUSINESS WAS T O BE ASSESSED ON THE BASIS OF ACTUARIAL VALUATION ONLY AND THE SURPLUS WORKED OUT BY THE ACTUARY COULD NOT BE DISTURBED BY INCOME TAX AUTHORITY, HOWEVER, THE SAME COULD NOT CONVINCE LD. AO . ACCORDINGLY, THE SURPLUS OF ACTUARIAL VALUATION WAS INCREASED BY T HE AMOUNT OF NEGATIVE RESERVES I.E. RS.3555.35 CRORES . IT WAS NOTED THAT THE EARLIER DECISIONS OF ITAT WERE UNDER CHALLENGE BY THE DEPARTMENT BEFORE HONBLE HIGH COURT. HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 10 9.4 THE LD. CIT(A), FOLLOWING TRIBUNALS DECISIONS FOR AYS 2002 - 03 TO 2009 - 10, DIRECT ED LD. AO TO DELETE THE AFORESAID ADJUSTMENT. AGGRIEVED, THE REVENUE IS BEFORE US BY WAY OF GROUND NO. 11. 9.5 EVIDENTLY, LD. CIT(A) HAS MERELY FOLLOWED EARLIER VIEW OF THE TRIBUNAL. WE FIND THAT SIMILAR VIEW HAS BEEN TAKEN BY COORDINATE BENCH IN ASSESSEE S OWN CASE FOR AYS 2010 - 11 & 2011 - 12, ITA NOS. 4078/MUM/2015 & ORS. (A/W MA NOS.249 - 250/M/2018 ORDER DATED 02/08/2019), COMMON ORDER DATED 23/08/2017. THE HONBLE BOMBAY HIGH COURT HAS NOT ADMITTED REVENUES GROUND OF APPEAL , ON THIS ISSUE, IN AY 2008 - 09. THEREFORE, THE ISSUE, AS OF NOW, IS SQUARELY COVERED BY THE EARLIER DECISIONS OF THE TRIBUNAL. THEREFORE, FOLLOWING CONSISTENT VIEW OF THE TRIBUNAL, WE DISMISS THIS GROUND OF APPEAL. 10. INCOME FROM SHAREHOLDERS ACCOUNT TREATED AS INCOME FROM OTHER SOU RCES WITHOUT ALLOWING DEDUCTION IN RESPECT OF FUNDS TRANSFERRED FROM SHAREHOLDERS ACCOUNT (SHA) TO POLICYHOLDERS ACCOUNT (PHA) 10.1 THE LD. AO NOTED THAT THE ASSESSEE WAS REQUIRED TO PREPARE TWO SEPARATE ACCOUNTS AS PER IRDA REGULATIONS, 2002 REVENUE ACCOUNT OF THE POLICY HOLDERS (TECHNICAL ACCOUNT) AND PROFIT & LOSS ACCOUNT OF THE SHAREHOLDERS (NON - TECHNICAL ACCOUNT). THE ASSESSEE EARNED INCOME FROM ACTIVITIES OTHER THAN LIFE INSURANCE BUSINESS WHICH WOULD APPEAR IN REVENUE ACCOUNT OF SHAREHOLDERS. SI NCE, TAXATION OF SURPLUS AS PER ACTUARIAL VALUATION IS TAXATION OF INCOME OF ASSESSEE FROM LIFE INSURANCE BUSINESS AND THE ASSESSEE IS NOT PERMITTED TO CARRY ANY OTHER BUSINESS, THE SURPLUS IN SHAREHOLDERS ACCOUNT WAS TO BE TAXED SEPARATELY AS INCOME FRO M OTHER SOURCES . THE NET SURPLUS IN SHAREHOLDERS ACCOUNT HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 11 FORM A - PL WAS RS.46.39 CRORES WHICH WAS BROUGHT TO TAX BY LD. AO AS INCOME FROM OTHER SOURCES . THE SAID INCOME WOULD BE TAXABLE AT NORMAL RATES. THE ASSESSEES ALTERNATIVE PLEA THAT CONTRIBUTION F ROM SHA TO PHA SHOULD BE ALLOWED AS DEDUCTION WAS ALSO NEGATED. 10.2 THE LD. CIT(A), FOLLOWING TRIBUNALS DECISIONS FOR AYS 2002 - 03 TO 2009 - 10, DIRECTED LD. AO TO CONSIDER SHAREHOLDERS ACCOUNT AS PART AN D PARCEL OF INSURANCE BUSINESS . IN OTHER WORDS, T HE INCOME FROM SHAREHOLDERS ACCOUNT WAS NOT TO BE TAXED AS INCOME FROM OTHER SOURCES BUT AS PROFITS OF INSURANCE BUSINESS UNDER BUSINESS INCOME. THE L D. AO WAS DIRECTED NOT TO MAKE ANY ADJUSTMENTS TO THE INCOME COMPUTED BY THE ASSESSEE IN ACCORDANCE WITH RULES TO FIRST SCHEDULE OF THE INCOME TAX ACT. FURTHER, ENTIRE PROFIT WOULD BE TAXABLE @12.5% U/S 115B AS PER THE AFORESAID DECISION OF THE TRIBUNAL. AGGRIEVED, THE REVENUE IS BEFORE US BY WAY OF GROUND NO S . 5 TO 8 . 10.3 WE FIND THAT L D. CIT(A) HAS MERELY FOLLOWED EARLIER VIEW OF THE TRIBUNAL. S IMILAR VIEW HAS BEEN TAKEN BY COORDINATE BENCH IN ASSESSEES OWN CASE FOR AYS 2010 - 11 & 2011 - 12, ITA NOS. 4078/MUM/2015 & ORS. (A/W MA NOS.249 - 250/M/2018 ORDER DATED 02/08/2019), COMMON ORDER DATED 23/08/2017. THERE FORE, THE ISSUE, AS OF NOW, IS SQUARELY COVERED BY THE EARLIER DECISIONS OF THE TRIBUNAL. THEREFORE, FOLLOWING CONSISTENT VIEW OF THE TRIBUNAL, WE DISMISS GROUND NOS. 5 TO 8. 11. DISALLOWANCE U/S 14A 11.1 THE ASSESSEE RECEIVED EXEMPT DIVIDEND INCOME OF R S.232.12 CRORES BUT DID NOT OFFER ANY SUO - MOTO DISALLOWANCE AGAINST THE SAME WHILE COMPUTING ITS INCOME . AFTER DEDUCTING DIVIDEND OF RS.75.75 CRORES RELAT ING TO PENSION BUSINESS, THE BALANCE DIVIDEND OF RS.156.36 CRORES HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 12 WAS BR OKEN INTO TWO PARTS VIZ. (I) R S.0.64 CRORES PERTAINING TO INVESTMENT FROM SHAREHOLDERS ACCOUNT ; (II) RS.155.72 CRORES PERTAINING T O INVESTMENT FROM POLICYHOLDERS ACCOUNT . 11.2 THE ASSESSEE SUBMITTED THAT THE PROVIS IONS OF S EC . 14A WOULD NOT APPLY TO INSURANCE COMPANY. HOWEVER, NOT CON VINCED, LD. AO , APPLYING RULE 8D(2)(III) , C OMPUTED DISALLOWANCE @0.5% OF AVERAGE INVESTMENTS WHICH WORKED OUT TO BE RS.66.12 CRORES. THE SAID DISALLOWANCE WAS ACCORDINGLY BIFURCATED INTO SHAREHOLDERS ACCOUNT AS WELL AS POLICYHOLDERS ACCOUNT FOR COMPUTATIO N AL PURPOSES IN VIEW OF THE FACT THAT INCOME FROM SHAREHOLDERS ACCOUNT WAS TRE A TED AS INCOME FROM OT HER SOURCES. 11.3 THE LD. CIT(A), FOLLOWING TRIBUNALS DECISIONS FOR AYS 2002 - 03 TO 2009 - 10 OPINED THAT IN VIEW OF SPECIAL PROVISIONS OF SECTION 44 OF TH E ACT, THE PROVISIONS OF SEC.14A WOULD NOT BE ATTRACTED TO THE ASSESSEE . AGGRIEVED, THE REVENUE IS BEFORE US BY WAY OF GROUND NO.9. 11.4 WE FIND THAT LD. CIT(A) HAS MERELY FOLLOWED TRIBUNALS ORDER FOR EARLIER YEARS. KEEPING IN VIEW THE CONSISTENT STAND OF TRIBUNAL IN EARLIER YEARS, WE FIND NO REASON TO DEVIATE FROM THE SAME. THIS GROUND STANDS DISMISSED. 12 . INTEREST U/S 234B 12.1 IN CONCLUDING PARA OF ASSESSMENT ORDER, LD. AO HAS DIRECTED FOR CHARGING OF INTEREST U/S 234A/B/C/D. THE LD. CIT(A), WHILE OBSE RVING THAT LEVY OF INTEREST WAS MANDATORY, DIRECTED LD. AO TO REVISE THE COMPUTATIONS AFTER GIVING EFFECT TO APPELLATE ORDER. AGGRIEVED THE REVENUE IS BEFORE US BY WAY OF GROUND NO.10 WHEREIN IT HAS BEEN PLEADED THAT LD. CIT(A) ERRED IN GIVING RELIEF TO TH E ASSESSEE ON ACCOUNT HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 13 OF INTEREST U/S 234B. HOWEVER, WE FIND THAT NO SUCH RELIEF HAS BEEN GRANTED BY LD. CIT(A). THEREFORE , GROUND NO.10 STANDS DISMISSED. 12.2 T HE ASSESSEE, IN ITS CROSS - OBJECTIONS, HAS SUBMITTED THAT INTEREST U/S 234B WOULD NOT BE LEVIA BLE AS HELD IN EARLIER YEARS. CONCURRING WITH THE SAME, WE DIRECT LD. AO TO FOLLOW THE DIRECTIONS GIVEN IN PARA - 16 OF THE TRIBUNAL ORDER FOR AY 2 010 - 11 & 2011 - 12, ITA NOS. 4078/MUM/2015 & ORS., COMMON ORDER DATED 23/08/2017. GROUND NO.1 OF ASSESSEES CROSS - OBJECTIONS STAND ALLOWED. 12.3 FINALLY THE REVENUES APPEAL STAND DISMISSED. REVENUES APPEAL FOR AYS 2013 - 14 TO 2015 - 16 13 . IT IS ADMITTED POSITION BEFORE US THAT FACTS AS WELL AS ISSUES ARE SUBSTANTIALLY THE SAME I N ALL THESE YEARS . THEREFORE, OUR ADJU DICATION , AS FOR AY 2012 - 13, SHAL L MUTATIS - MUTANDIS APPLY TO ALL THE SE YEARS. WE ORDER SO. CONSEQUENTLY, THE REVENUES APPEAL FOR ALL THESE YEARS STAND DISMISSED. ASSESSEES CROSS - OBJECTIONS 1 4 . 1 THE REGISTRY HAS NOTED A DELAY OF 164 DAYS IN FILING OF CROS S - OBJECTION FOR AY 2015 - 16. THE CONDONATION OF THE SAME HAS BE EN SOUGHT BY THE ASSESSEE ON THE STRENGTH OF LETTER DATED 23/09/2020. IT HAS BEEN SUBMITTED THAT THE LAST DATE FOR FILING THE CROSS - OBJECTION WAS 04/04/2020. OWING TO PANDEMIC SITUATION, THERE W AS COMPLETE LOCKDOWN SINCE MARCH, 2020 WHICH GOT EXTENDED FROM TO TIME. NEVERTHELESS, THE ASSESSEE FILED DIGITALLY SIGNED COPY OF CROSS - OBJECTION BY EMAIL DATED 07/07/2020 AND FINALLY, THE PHYSICALLY COPY COULD BE SUBMITTED ONLY ON 15/09/2020 . IN THE ABOVE BACKGROUND, CONDONATION OF DELAY HAS BEEN SOUGHT BY THE ASSESSEE. HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 14 14.2 AFTER DUE CONSIDERATION OF THE SAME, THE BENCH FORMED AN OPINION THAT THERE WAS A REASONABLE CAUSE IN DELAYED FILING OF THE CROSS - OBJECTION. HENCE, WE ARE INCLINED TO CONDONE THE DELA Y. 14.3 IN GROUND NO.1, THE ASSESSEE HAS ASSAILED CHARGING OF INTEREST U/S 234B. THE SAME HAS ALREADY BEEN ADJUDICATED AND ALLOWED BY US IN PRECEDING PARA - 7.5. REST OF THE GROU NDS, IN ALL THE YEARS, IS ONLY ALTERNATIVE TO REVENUES GROUND OF APPEAL. SINCE REVENUES APPEALS HAVE BEEN DISMISSED, ALL THESE GROUNDS HAVE BEEN RENDERED INFRUCTUOUS. ACCORDINGLY, THE CROSS - OBJECTIONS , FOR ALL THE YEARS, STANDS PARTLY ALLOWED. CONCLUSION 15 . THE REVENUES APPEALS STANDS DISMISSED. THE ASSESSEES CROSS - OBJECTIONS STANDS PARTLY ALLOWED. ORDER PRONOUNCED ON 30 TH APRIL, 2021. SD/ - SD/ - ( RAVISH SOOD ) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 30/04/2021 SR.PS, JAISY VARGHESE / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE HDFC S TANDARD LIFE INSURANCE COMPANY LIMITED ASSESSMENT YEARS: 2012 - 13 TO 2015 - 16 15 / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.