JCIT (OSD) CIRCLE-8(3)(1), MUMBAI V. TATA AIA LIFE INSURANCE CO,. LTD, MUMBAI

ITA 1482/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0253 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2014-2015
• Appeal Filed On: 08-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R MANJUNATHA SWAMY
• Keywords: Business income; Earning of tax free income; Source of fund; Valuation report; Assessment record; Revised return; Set aside
• Section: 143(3); 14A; 205; 250; 13; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.1482/M/2018 ASSESSMENT YEAR: 2014-15 JCIT (OSD), CIRCLE-8(3)(1), 6 TH FLOOR, ROOM NO.615, AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI - 400020 VS. M/S. TATA AIA LIFE INSURANCE CO. LTD., 14 TH FLOOR, TOWER A, PENINSULA BUSINESS PARK, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI 400 013 PAN: AABCT 3784C (APPELLANT) (RE SPONDENT) ITA NO.1683/M/2018 ASSESSMENT YEAR: 2014-15 M/S. TATA AIA LIFE INSURANCE CO. LTD., 14 TH FLOOR, TOWER A, PENINSULA BUSINESS PARK, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI 400 013 PAN: AABCT 3784C VS. THE ACIT-8(3)(1), 6 TH FLOOR, ROOM NO.615, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI NISHANT THAKKAR, A.R. SHRI HITEN CHANDE, A.R. REVENUE BY : SHRI R. MANJUNATHA SWAMY, D.R. DATE OF HEARING : 03.09.2019 DATE OF PRONOUNCEMENT : 08.11.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE ABOVE TITLED CROSS APPEALS - ONE BY THE REVENU E AND THE OTHER BY THE ASSESSEE HAVE BEEN PREFERRED AGAIN ST THE ORDER DATED 18.12.2017 OF THE COMMISSIONER OF INCOME TAX (APPEALS) ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 2 [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2014-15. ITA NO.1482/M/2018 (REVENUES APPEAL) 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1.'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE SURPLUS DISCLO SED IN THE ACTURIAL REPORT IN FORM I CAN BE CHANGED BY WAY OF ADJUSTMENT. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE CAPITAL CONTRI BUTION OF SHAREHOLDERS ACCOUNT TO POLICY HOLDER ACCOUNT HAS TO BE REDUCED WHILE COMPU TING INCOME U/ R.W.S FIRST SCHEDULE OF IT ACT. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN AGREEING TO REDUCE THE EXEMPT I NCOME U/S 10(34) OF THE IT ACT WHILE COMPUTING INCOME OF INSURANCE BUSINESS OF THE ASSESSEE U/S 44 OF THE IT ACT. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND THAT MAY BE NECESSARY. 5. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO RESTORED. 3. THE ISSUE RAISED IN GROUND NO.1 IS AGAINST THE O RDER OF LD. CIT(A) HOLDING THAT SURPLUS DISCLOSED IN THE ACTUAR IAL REPORT IN FORM 1 CAN BE CHARGED BY WAY OF ADJUSTMENT WHEREAS THE GROUND NO.2 IS AGAINST THE ORDER OF LD. CIT(A) HOLDING THA T CAPITAL CONTRIBUTION OF THE SHAREHOLDERS ACCOUNT TO POLICY HOLDER ACCOUNT HAS TO BE REDUCED WHILE COMPUTING INCOME UN DER SECTION 44 READ WITH 1 SCHEDULE OF THE ACT. 4. THE LD. A.R., AT THE OUTSET, SUBMITTED THAT THE IDENTICAL ISSUE HAS BEEN DECIDED IN ASSESSEES OWN CASE IN IT A NO.1039/M/2011 A.Y. 2006-07 & OTHERS VIDE ORDER DAT ED 21.09.2106 BY THE COORDINATE BENCH. THE LD. A.R. S UBMITTED THAT SINCE THE ISSUES RAISED IN BOTH THE GROUNDS OF APPEAL STOOD DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND ACCORDINGLY T HE GROUND NO.1 & 2 RAISED BY THE REVENUE MAY KINDLY BE DISMIS SED. ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 3 5. THE LD. D.R., ON THE OTHER HAND, FAIRLY AGREED T HAT THE ISSUE HAVE BEEN DECIDED IN ASSESSEES OWN CASE AND THUS FAIRLY AGREEING WITH THE ARGUMENTS OF THE LD. A.R., HOWEVE R, RELIED ON THE GROUNDS OF APPEAL AND ORDER OF THE AO. 6. AFTER GOING THROUGH THE FACTS ON RECORD AND THE ORDER OF CO- ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.1036 & 103 9/M/2011 (SUPRA), WE OBSERVE THAT THE GROUND NO.1 & 2 RAISED IN THE THIS APPEAL BY THE REVENUE ARE IDENTICAL TO GROUND NO.3 & 2 RESPECTIVELY WHICH HAS BEEN DECIDED BY THE CO-ORDIN ATE BENCH OF THE TRIBUNAL AS UNDER: 8. AFTER CONSIDERING THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AS WELL AS THE AFORESAID DECISIONS OF THE TRIBUNAL, WE AGREE WITH LD. COUNSEL THAT ALL THE THREE ISSUES RAISED IN THE GROUNDS RAISED BY THE REVENUE ARE COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT BY THE AFORESAI D DECISIONS OF THE TRIBUNAL. WE FIND THAT THE TRIBUNAL IN THE CASE OF ICICI PRUDENTIAL INSURANCE CO. LTD. (SUPRA) HAS DEALT WITH ALL THESE ISSUES IN DETAIL AFTER CONSIDE RING THE JUDGMENT OF JURISDICTIONAL HIGH COURT; CATENA OF OTHER DECISIONS AND THE RELEV ANT PROVISIONS OF LAW. THE RELEVANT OBSERVATIONS AND THE FINDINGS OF THE TRIBU NAL IN THE CASE OF ICICI PRUDENTIAL INSURANCE CO. LTD. (SUPRA) ON VARIOUS POINTS, PARAG RAPH WISE ARE SUMMARIZED AS UNDER:- 24. BEFORE ANALYZING THE ISSUE, IT IS NECESSARY TO DISCUSS THE PRINCIPLES OF INCORPORATION OF INSURANCE ACT 1938 INTO THE INCO ME TAX ACT 1961. AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL, THE REF ERENCE TO THE INSURANCE ACT 1938 IN THE INCOME TAX ACT AS SUCH CAN ONLY BE CONSIDERED AS LEGISLATION BY INCORPORATION. 27. ACTUARIAL VALUATION MADE IN ACCORDANCE WITH TH E INSURANCE ACT, 1938 DO MEAN THAT THE ACTUARIAL VALUATION DONE IN ACCORDANC E WITH THE INSURANCE ACT, 1938. IN ARRIVING AT THE ABOVE DECISION WE HAV E ALSO TAKEN INTO CONSIDERATION THAT RULE-5 IN PART-B OF THE FIRST SC HEDULE 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 IS ALSO TAKEN INTO CONSIDERATION. THIS INDICATES THAT THE LEGISLATURE CONSCIOUSLY OMITTED INCORPORATING THE PROVISIONS OF IRDA OR THE REGULAT IONS MADE THERE UNDER IN RULE 2 WHICH STILL REFERS TO THE INSURANCE ACT, 193 8 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 AC T IN TUNE WITH IRDA ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 4 ACT BY AMENDING THE RELEVANT PROVISIONS OF INSURANC E 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 TH E 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 I NSURANCE ACT 1938 WERE ONLY INCORPORATED INTO THE INCOME TAX ACT AS FAR AS LIFE INSURANCE BUSINESSES ARE CONCERNED. THEREFORE, AOS ACTION IN FOLLOWING THE FORMAT PRESCRIBED UNDER THE REGULATIONS OF IRDA ACT IS NOT IN ACCORDA NCE WITH THE SPIRIT OF RULE-2 AND PROVISIONS AS MADE APPLICABLE UNDER THE INCOME TAX ACT. 29. IT IS ALSO NOTICED THAT THE ACTUARIAL REPORT AN D ABSTRACTS UNDER THE INSURANCE ACT CARRYING ON LIFE INSURANCE BUSINESS S HALL, IN ACCORDANCE WITH THE REGULATIONS CONTAINED IN PART I OF THE FOURTH S CHEDULE AND IN CONFORMITY WITH THE REQUIREMENTS OF PART II OF THAT SCHEDULE. 30. THE FIRST TO FOURTH SCHEDULE OF THE INSURANCE A CT 1938 WAS OMITTED BY THE INSURANCE AMENDMENT ACT 2002 AFTER INCORPORATIO N OF THE RELEVANT SCHEDULES IN THE IRDA ACT. EVEN THOUGH THE SAID SCH EDULES 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 INCOR PORATION 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, ASSESSEES CONTENTION THAT THE IRDA REGULATIONS EVE N THOUGH ARE APPLICABLE TO ASSESSEE SINCE IT HAS COMMENCED BUSINESS AFTER T HE COMMENCEMENT OF THE IRDA ACT, 1999, FOR THE PURPOSE OF RULE-2, THE ACTUARIAL VALUATION HAS TO BE DONE IN ACCORDANCE WITH THE REGULATIONS CONTAINE D IN ERSTWHILE FOURTH SCHEDULE PART-I AND PART II. THIS IS WHAT ASSESSEE IS CONTENDING AND MERGING THE ACCOUNTS OF POLICYHOLDERS AND SHAREHOLDERS AC COUNT AND ARRIVING AT THE ACTUARIAL DEFICIT, WITHOUT TAKING INTO CONSIDERATIO N THE TRANSFER OF FUNDS FROM THE SHAREHOLDERS ACCOUNT TO POLICYHOLDERS AC COUNT. 31. AFTER INTRODUCTION OF IRDA ACT, THE ENTIRE REGU LATION OF INSURANCE BUSINESS HAS GONE TO THE AUTHORITY AND IN ORDER TO PROTECT THE INTERESTS OF HOLDERS OF INSURANCE POLICIES, TO REGULATE, TO PROM OTE AND ENSURE ORDERLY GROWTH OF INSURANCE INDUSTRY NUMBER OF REGULATIONS HAVE BEEN PRESCRIBED BY THE IRDA. ONE SUCH IS, INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA) (ACTUARIAL REPORT AND ABSTRACT) REGULATIONS 2000 BY WHICH METHOD OF PREPARATION OF ACTUARIES REPORT AND ABSTRACTS WERE PRESCRIBED. AN ACTUARY IS RESPONSIBLE FOR ANALYZING POSSIBLE OUTCOMES OF THE TYPES OF EVENTS THAT WOULD POTENTIALLY COST POLICY HOLDERS TO MAKE CLAIM S AGAINST THEIR INSURANCE POLICIES. INSURANCE COMPANIES NEED TO MAKE SURE THA T THE MONEY THEY ARE CHARGING AND COLLECTING FROM POLICY HOLDERS IS ADEQ UATE TO COVER THE COSTS OF CERTAIN CLAIMS THAT MIGHT BENEFICIALLY BE MADE BY P OLICY HOLDERS AS WELL AS THEIR OTHER EXPENSES. IN FACT, THE WORK THAT ACTUAR IES PERFORM IS CRUCIAL TO AN INSURANCE COMPANYS ABILITY TO REMAIN IN BUSINESS. ACTUARIES ARE INVOLVED AT ALL STAGES IN PRODUCT DEVELOPMENT AND IN THE PRICIN G RISK ASSESSMENT AND ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 5 MARKETING OF THE PRODUCTS. THEIR JOB INVOLVES MAKIN G ESTIMATES OF ULTIMATE OUT-COME OF INSURABLE EVENTS. IN THE BUSINESS OF IN SURANCE THE PRODUCT COST IS AN ABSTRACTION, DEPENDING ON THE TIMING ISSUES, VARIABILITY ISSUES AND RISK PARAMETERS. ONE BIG FUNCTION ACTUARIES PROVIDE IS M AKING RESERVES TO INSURE THAT INSURANCE COMPANIES KEEP ENOUGH MONEY ON THEIR BALANCE SHEETS TO MAKE GOOD OF ALL THE CLAIMS THEY WILL HAVE TO PAY. THIS INVOLVES ARRIVING AT ACTUARIAL SURPLUS OR DEFICIT DEPENDING ON VARIOUS F ACTORS. IN ORDER TO ENSURE A FAIR PLAY IN THE BUSINESS, THE IRDA PRESCRIBED RE GULATIONS ACCORDING TO WHICH VARIOUS NORMS WERE PRESCRIBED IN ORDER TO ENS URE THAT LIFE INSURANCE BUSINESS (EVEN OTHER INSURANCE BUSINESS) ARE DONE A CCORDING TO HEALTHY BUSINESS PRACTICES. AS PER THE ABOVE REGULATIONS, R EGULATION 4 PRESCRIBES NUMBER OF ABSTRACTS AND STATEMENTS IN RESPECT OF (A ) LINKED BUSINESS; (B) NON-LINKED BUSINESS AND (C) HEALTH INSURANCE BUSINE SS. AS PART OF THIS REGULATION 4(2) (D) ITEM NO. IV, FORM-'I' WAS PRESC RIBED FOR THE PURPOSE OF VALUATION RESULTS AND TO INDICATE THE SURPLUS OR DE FICIT IN THE LIFE INSURANCE BUSINESS OF A COMPANY. APART FROM THE ABOVE REGULAT IONS, IRDA ALSO PRESCRIBED INSURANCE REGULATORY AND DEVELOPMENT AUT HORITY (PREPARATION OF FINANCIAL STATEMENTS AND AUDITORS REPORT OF INSURA NCE COMPANIES) REGULATIONS 2002. THE SURPLUS OR DEFICIT ARRIVED AT BY THE ACTUARY IN HIS VALUATION FOR THE INTER VALUATION PERIOD HAS TO BE TAKEN INTO CONSIDERATION UNDER THE REGULATIONS IN FINANCIAL ACCOUNTS AS WELL . 32. IRDA REGULATIONS SPECIFICALLY REQUIRE MAINTAINI NG THE POLICYHOLDERS ACCOUNT AND THE SHAREHOLDERS ACCOUNT SEPARATELY AN D PERMITS TRANSFER OF FUNDS FROM SHAREHOLDERS ACCOUNT TO POLICYHOLDERS ACCOUNT AS AND WHEN THERE IS A DEFICIT IN POLICYHOLDERS ACCOUNT. AS RI GHTLY NOTED BY THE HON'BLE BOMBAY HIGH COURT, AS A POLICY, COMPANY IS TRANSFER RING FUNDS/ASSETS FROM SHAREHOLDERS ACCOUNT TO POLICYHOLDERS ACCOUNT EVE N DURING THE YEAR PERIODICALLY AS AND WHEN THE ACTUARIAL VALUATION WA S ARRIVED AT IN POLICYHOLDERS ACCOUNT. MOST OF THE COMPANIES ARE R EQUIRED TO SUBMIT QUARTERLY ACCOUNTS UNDER THE COMPANY LAW, THERE IS REQUIREMENT OF ACTUARIAL VALUATION REPORT PERIODICALLY AND ACCORDI NGLY ASSESSEE WAS TRANSFERRING FUNDS FROM THE SHAREHOLDERS ACCOUNT T O POLICYHOLDERS ACCOUNT. SINCE THE INSURANCE BUSINESS WILL NOT YIELD THE REQ UIRED PROFITS IN THE INITIAL 7 TO 10 YEARS, LOT OF CAPITAL HAS TO BE INFUSED SO AS TO BALANCE THE DEFICIT IN THE POLICYHOLDERS ACCOUNT. DURING THE YEAR AS ALREADY STATED ASSESSEE HAS ISSUED FRESH CAPITAL TO THE EXTENT OF RS.250 CRORES AND TRANSFERRED FUNDS TO THE EXTENT OF RS.233 CRORES FROM THE SHAREHOLDERS ACCOUNT TO POLICYHOLDERS ACCOUNT. SINCE ASSESSEE IS HAVING ONLY ONE BUSINESS OF LIFE INSURANCE, THE ENTIRE TRANSACTIONS BOTH UNDER THE POLICYHOLDERS A ND SHAREHOLDERS ACCOUNT DO PERTAIN TO THE LIFE INSURANCE BUSINESS ONLY AS I T WAS NOT PERMITTED TO DO ANY OTHER BUSINESS. ONCE ASSESSEE IS IN THE LIFE IN SURANCE BUSINESS, THE COMPUTATION HAS TO BE MADE IN ACCORDANCE WITH THE R ULE-2 AS PER PROVISIONS OF SECTION 44. THEREFORE, THERE IS A VALID ARGUMENT RAISED BY ASSESSEE THAT BOTH THE POLICYHOLDERS & SHAREHOLDERS 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 BEE N TRANSFERRED FROM SHAREHOLDERS ACCOUNT TO THE POLICYHOLDERS ACCOUNT AT THE GROSS LEVEL WHILE IGNORING SUCH TRANSFER IN SHAREHOLDERS ACCOUNT, WH ILE BRINGING TO TAX ONLY ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 6 THE INCOMES DECLARED IN THE SHAREHOLDERS ACCOUNT T HAT 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) SURPRISIN GLY IN SUBSEQUENT ASSESSMENT YEARS APPEALS ACCEPTED AOS CONTENTION T HAT SURPLUS IN SHAREHOLDERS ACCOUNT IS TO BE TAXED AS OTHER SOURC ES 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, CAP ITAL GAINS, HOUSE PROPERTY OR EVEN INTEREST ON SECURITIES DOES NOT CO ME INTO PLAY AND ONLY FIRST SCHEDULE HAS TO BE INVOKED TO ARRIVE AT THE P ROFIT. THEREFORE, IN OUR OPINION BOTH THE POLICYHOLDERS AND SHAREHOLDERS A CCOUNT HAS TO BE CONSOLIDATED FOR THE PURPOSE OF ARRIVING AT THE DEF ICIT OR SURPLUS. COMPARISON OF FORMS-I UNDER THE INSURANCE ACT AND T HE IRDA REGULATIONS . 33. WHETHER ASSESSING OFFICERS ACTION IN ADOPTING FORM-I PRESCRIBED UNDER THE IRDA REGULATIONS SAME AS THAT OF ACTUARIAL VALU ATION MADE IN ACCORDANCE WITH THE INSURANCE ACT 1938. EVEN THOUGH INSURANCE ACT 1938 ALSO REFERS TO FORM-I, THERE IS SUBSTANTIAL DIFFERE NCE IN THE FORMATS. BOTH AO AND THE CIT (A) HAS GIVEN CREDENCE TO FORM I WITHOU T UNDERSTANDING THAT THE OLD FORM-I PRESCRIBED UNDER THE INSURANCE ACT 1938 IS ENTIRELY DIFFERENT FROM NEW FORM-I PRESCRIBED UNDER THE IRDA REGULATIONS. 35. THE DEPARTMENT IS ASKED TO EXPLAIN WHAT THE SUR PLUS IS SHOWN UNDER FORM I I.E. AT COLUMN (A) ABOVE. REGULATION 8 AS SH OWN ABOVE HAS COLUMN (A) SURPLUS SHOWN UNDER FORM I. IN COL.(E) ONE HAS TO REPRESENT SUM TRANSFERRED FROM SHAREHOLDERS FUND DURING THE INTE R VALUATION PERIOD. ITEM (G) REFERS TO THE TOTAL SURPLUS AFTER TAKING INTO ACCOUNT ITEMS (A) TO (F). UNDER COL.(A) SURPLUS SHOWN IN FORM I IS A DEFICIT AS PER FORM AR-A IN THE POLICYHOLDERS DEFICIT ACCOUNT IN THIS YEAR. THIS C ORRESPONDS THE ACTUARIAL VALUATION SURPLUS OR DEFICIT REFERRED TO UNDER THE INSURANCE ACT, 1938. THIS AMOUNT ALSO TALLIES WITH FORM I PRESCRIBED UNDER RE GULATION 4. IRDA REGULATIONS HOWEVER, AFTER ARRIVING AT THE SURPLUS OR DEFICIT IN THE FORM I ALSO PRESCRIBES A SEPARATE STATEMENT AGAIN AS FORM I WITH DETAILS OF (A) TO (F) UNDER REGULATION 8. AS CAN BE SEEN FROM THESE TWO F ORMS, THERE IS VARIATION IN THE AMOUNTS ARE PRESENTED, AS THESE FORMS SERVE DIFFERENT PURPOSES. THE FORM I WHICH WAS PRESCRIBED UNDER REGULATIONS 8 IS AFTER ARRIVING AT THE DISTRIBUTION SURPLUS UNDER REGULATIONS 6. THE REGUL ATIONS 6, 7 AND 8 ARE AS UNDER: THUS AS CAN BE SEEN FROM ABOVE REGULATIONS, THE FORM I UNDER REGULATION 8 REPRESENT THE TOTAL SURPLUS FOR THE PU RPOSE OF DISTRIBUTION OF BONUSES/ DIVIDENDS TO POLICY HOLDERS AND DOES NOT R EPRESENT SURPLUS OR DEFICIT OF ACTUARIAL VALUATION FOR THE PURPOSES OF BALANCE SHEET. THIS AMOUNT IS REPRESENTED IN FORM I PREPARED UNDER REGULATION 4 FOR THE PURPOSE OF FINANCIAL ACCOUNTS. RECONCILIATION OF AMOUNTS:- 36. 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. ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 7 WHILE ACCEPTING THE DEPARTMENT ARGUMENT THAT FOR TH E PURPOSES OF LIFE INSURANCE BUSINESS THE ACT PROVIDES FOR SURPLUS OF VALUATION TO BE TAXED AT LESSER RATE, WE CANNOT ACCEPT THE ARGUMENT THAT SUR PLUS IS TOTAL SURPLUS INCLUDING TRANSFERS FROM SHARE HOLDERS ACCOUNT. BA SICALLY TRANSFERS ARE TAX NEUTRAL AS A CREDIT IN ONE ACCOUNT GETS CANCELLED B Y DEBIT IN OTHER ACCOUNT WHEN ACCOUNTS ARE CONSOLIDATED. WHAT THE RULE.2 PRE SCRIBED WAS ONLY AVERAGE SURPLUS ARRIVED BY ADJUSTING THE SURPLUS DISCLOSED IN THE ACTUARIAL VALUATION MADE WITH REGARD TO THE INSURANCE ACT, 19 38 IN RESPECT OF INTER VALUATION PERIOD. ASSESSEE IN THE COURSE OF THE ASS ESSMENT PROCEEDINGS HAS FURNISHED GENERAL BALANCE SHEET IN FORM-A. 38. THE STATEMENT FURNISHED IS IN ACCORDANCE WITH T HE INSURANCE ACT, 1938, THEREFORE, IT CANNOT BE STATED THAT ASSESSEE RETURN ED INCOME IS NOT IN ACCORDANCE WITH THE INSURANCE ACT, 1938. THERE IS N O BASIS FOR AO TO TAKE FORM-I TOTAL SURPLUS AS SURPLUS OF THE LIFE INSUR ANCE BUSINESS IGNORING TRANSFER FROM SHAREHOLDERS ACCOUNT. 39. IT IS ALSO ON RECORD THAT ASSESSEE FOLLOWED THE IRDA RECOMMENDATIONS AND ACCORDINGLY PREPARED THE ACTUARIAL VALUATION RE PORT INCLUDING THE SURPLUS OR DEFICIT. HOWEVER, RULE-2 PRESCRIBES ONLY ACTUARIAL VALUATION IN ACCORDANCE WITH THE INSURANCE ACT, 1938. THEREFORE, AO IS DUTY BOUND TO INSIST ON ACTUARIAL VALUATION IN ACCORDANCE WITH TH E INSURANCE ACT, 1938, SO AS TO BRING TO TAX THE SURPLUS OR DEFICIT. WHAT WE NOTICE IS THAT AO, IGNORING RULE-2, HAS RELIED ON THE ACTUARIAL VALUATION REPOR T PRESCRIBED UNDER THE IRDA RECOMMENDATIONS UNDER REGULATION 8 THAT TOO AT TOTAL SURPLUS, WHICH IS AT VARIANCE WITH THE INSURANCE ACT, 1938. SINCE NO AMENDMENT WAS BROUGHT TO RULE-2 TO INCORPORATE IRDA RECOMMENDATIO NS, WE ARE OF THE OPINION THAT THE ACTION OF AO IN RELYING ON THE IRD A REGULATIONS IS NOT ACCORDING TO THE LAW. ASSESSEE HAD SUBMITTED ITS AC COUNTS AS STATED ABOVE, WHICH ARE IN ACCORDANCE WITH THE INSURANCE ACT, 193 8. INSTEAD OF EXAMINING THESE STATEMENTS, JUST BECAUSE ASSESSEE HAS SHOWN T OTAL SURPLUS IN THE ACCOUNTS IN SIMILARLY NAMED FORM-I( UNDER REGULATIO N 8), AO WANTS TO TAX THE AMOUNT WHICH IS AFTER TAKING INTO ACCOUNT THE T RANSFER OF ASSETS BY WAY OF FRESH CAPITAL FROM SHAREHOLDERS ACCOUNT. THIS I N A WAY IS TAXING FRESH CAPITAL INFUSED INTO BUSINESS INDIRECTLY WHICH CANN OT BE DONE AS THIS IS NOT BUSINESS SURPLUS BUT INFUSION OF CAPITAL DIRECTLY. 40. 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 INSISTE NCE BY AO TO BRING TO TAX THE ENTIRE AMOUNT SHOWN UNDER THE NEW REGULATIONS I NCLUDING TRANSFER FROM SHAREHOLDERS 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) (TO TAL SURPLUS AFTER TRANSFER FROM SHAREHOLDERS ACCOUNT) WHICH IS NOT AT ALL COR RECT. CONCLUSION:- ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 8 42. IN VIEW OF THE ABOVE, LOOKING AT THE ISSUE IN A NY WAY WHAT WE NOTICE IS THAT THE COMPUTATION MADE BY ASSESSEE IS IN ACCORDA NCE WITH RULE-2 OF THE INSURANCE ACT 1938 ACCORDING TO WHICH ONLY AO CAN B ASE HIS COMPUTATION. THIS ALSO CORRESPONDS TO THE WAY INCOMES WERE ASSES SED IN EARLIER YEARS IE. THE CORRECT METHOD AS PER RULE 2 AND SEC 44 OF IT A CT. IN VIEW OF THE DISCUSSION ABOVE AND AFTER ANALYZING THE FORMS, REG ULATIONS AND PROVISIONS WE HAVE NO HESITATION TO HOLD THAT THE ASSESSEE WOR KING OF ACTUARIAL SURPLUS/ DEFICIT IS IN ACCORDANCE WITH RULE 2 OF FI RST SCHEDULE. THEREFORE, ASSESSEE GROUNDS ON THIS ISSUE ARE ALLOWED AND AO I S DIRECTED TO MODIFY THE ORDER ACCORDINGLY. THIS DECISION HAS BEEN FOLLOWED BY THE TRIBUNAL IN THE CASE OF HDFC STANDARD LIFE INSURANCE CO. LTD. (SUPRA). THUS, FOLLOWING THE SAM E JUDICIAL PRECEDENCE WHICH WOULD APPLY ON THE FACTS OF THE PRESENT CASE ALSO, WE DECIDE THE ISSUES RAISED VIDE GROUND NO. 1&2 IN THE DEPARTMENTS APPEAL IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 9. SIMILARLY, WITH REGARD TO THE ISSUE RAISED IN GR OUND NO.3 ALSO, THE SAME IS ALSO COVERED BY THE SAME DECISION AS INCORPORATED ABOVE AND ACCORDINGLY, RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE CIT( A) AND DISMISSED THE GROUND RAISED BY THE DEPARTMENT. SINCE THE FACTS OF THE ISSUES RAISED BY THE REVENUE ARE IDENTICAL AS DECIDED BY THE COORDINATE BENCH IN THE ORDER AS STATED REPRODUCED ABOVE, ACCORDINGLY THE GROUND NO. 1 AND 2 RAISED BY THE REVENUE ARE DISMISSED AND THE ORDER OF LD. CIT( A) IS UPELD. 7. THE ISSUE RAISED IN GROUND NO.3 BY THE REVENUE I S AGAINST THE ORDER OF LD. CIT(A) DIRECTING THE AO TO REDUCE THE EXEMPT INCOME UNDER SECTION 10(34) OF THE ACT WHILE COMPUT ING THE INCOME OF INSURANCE BUSINESS OF THE ASSESSEE UNDER SECTION 44OF THE ACT. 8. THE LD. A.R. AT THE OUTSET SUBMITTED THAT THE ID ENTICAL ISSUE HAS BEEN DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.1039/M/2011 (SUPRA) IN ASSESSEES OWN CAS E WHEREIN IT HAS BEEN HELD THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE TO LIFE INSURANCE COMPANIES. THE LD . A.R. PRAYED ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 9 THAT THE GROUND RAISED BY THE REVENUE MAY KINDLY BE DISMISSED IN THE LIGHT OF THE SAID DECISION OF THE COORDINATE BENCH. 9. THE LD. D.R., ON THE OTHER HAND, FAIRLY AGREED T HAT THE ISSUE HAS BEEN DECIDED IN ASSESSEES OWN CASE AGREE ING WITH THE ARGUMENTS OF THE LD. A.R., HOWEVER, RELIED ON THE G ROUNDS OF APPEAL AND ORDER OF THE AO. 10. AFTER PERUSING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.1036 & 1039/M/2011 (SUPRA) AND T HE GROUNDS RAISED BY THE REVENUE, WE OBSERVE THAT THE IDENTICAL ISSUE STOOD ADJUDICATED IN FAVOUR OF THE ASSESSEE A ND AGAINST THE REVENUE IN PARA 10 OF THE DECISION DATED 21.09.2016 PASSED IN ITA NO.1039/M/2011 WHICH IS REPRODUCED AS UNDER: 10. LASTLY, WITH REGARD TO GROUND NO.4, THAT IS, D ISALLOWING EXEMPTION UNDER SECTION 10(34) WITH REGARD TO THE DIVIDEND INCOME E ARNED, WE FIND THAT THE LD. CIT(A) AFTER RELYING UPON VARIOUS DECISIONS HELD TH AT SECTION 14A IS NOT APPLICABLE TO LIFE INSURANCE COMPANY. THE TRIBUNAL HAS REITERATED THE SAME VIEW IN THE ABOVE CASES THAT PROVISIONS OF SECTION 14A WILL NOT APPLY TO INSURANCE COMPANIES, WHOSE INCOME ARE STRICTLY ASSESSABLE IN TERMS OF RULES OF THE INSURANCE ACT. THUS, RESPECTFULLY FOLLOWING THE SAME, WE AFFIRM THE ORDE R OF THE CIT (A) AND DISMISSED THE GROUND RAISED BY THE REVENUE. ACCORDINGLY, GROU NDS RAISED BY THE REVENUE ARE DISMISSED. 11. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECIS ION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL, DISMISS THE GROUND NO. 3 RAISED BY THE REVENUE BY UPHOLDING THE ORDER OF LD. CIT(A) . ITA NO. 1683/MUM/2018 12. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL: AGGRIEVED BY THE ORDER PASSED BY THE COMMISSIONER O F INCOME-TAX (APPEALS) - 14, MUMBAI [HEREINAFTER REFERRED TO AS 'THE LEARNED CIT (A)'], UNDER SECTION 250 OF THE INCOME-TAX ACT, 1961 (ACT) AND BASED ON THE FACTS A ND CIRCUMSTANCES OF THE CASE AND IN LAW, TATA AIA LIFE INSURANCE COMPANY LIMITED [HEREINAFTER REFERRED TO AS 'THE APPELLANT'] RESPECTFULLY SUBMITS THAT THE LEARNED C IT(A) ERRED IN DISPOSING THE APPEAL OF THE APPELLANT, ON THE FOLLOWING GROUNDS: ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 10 1. THE LEARNED CIT(A) ERRED IN HOLDING THAT ASSE SSED INCOME CANNOT BE LESS THAN THE RETURNED INCOME BY RELYING ON THE CIRCULAR OF T HE CENTRAL BOARD OF DIRECT TAXES (CBDT) I.E. CIRCULAR NO 549 DATED 31 OCTOBER 1989 A ND THEREBY REJECTING THE COMPUTATION OF INCOME FURNISHED BY THE APPELLANT PR EPARED IN ACCORDANCE WITH REGULATIONS CONTAINED IN PART-L AND PART-LL OF THE FOURTH SCHEDULE OF THE UNAMENDED INSURANCE ACT, 1938 REPORTING A TAXABLE SURPLUS OF RS.3,806,005,935. 2. PLACING RELIANCE ON THE CBDT CIRCULAR NO 549 DATED 31 OCTOBER 1989, THE LEARNED CIT(A) ERRED IN DISREGARDING THE REVISED CL AIM UNDER SECTION 10(34) AND SECTION 10(23AAB) OF THE ACT AMOUNTING TO RS 1,065, 553,682 AND RS 317,696,000 RESPECTIVELY ON THE BASIS THAT THE DEDUCTION WOULD REDUCE THE ASSESSED INCOME BELOW THE INCOME DISCLOSED IN THE REVISED RETURN OF INCOME. 13. THE ASSESSEE HAS ALSO RAISED FOLLOWING ADDITION AL GROUNDS WHICH IS AS UNDER : THE CIT(A) ERRED IN HOLDING THE EXEMPTION UNDER SE CTION 10(34) IS ALLOWABLE ON A NET BASIS. 14. THE FACTS IN BRIEF ARE THAT THE AO WHILE PASSIN G THE ORDER HELD THAT METHOD OF COMPUTING OF BUSINESS INCOME OF LIFE INSURANCE COMPANY ARE TO BE COMPUTED AS PER THE PRO VISION OF SECTION 44 OF THE ACT READ WITH RULE 2 OF THE 1 ST SCHEDULE. THE AO AFTER VERIFYING THE ACTUARIAL REPORT FOR THE YEA R ENDED 31.03.2014 OBSERVED THAT THERE IS A SURPLUS OF RS.594,13,20,000/- WHEREAS THE CORRESPONDING SURPLU S FOR THE PRECEDING YEAR ENDED 31.03.2013 WAS RS.582,16,24,00 0/-. THE AO THUS CONCLUDED THAT PROFITABLE INCOME FOR THE YE AR AS PER RULE 2 OF SCHEDULE 1 OF THE ACT WOULD BE ADJUSTED F OR RS.11,96,96,000/- WHICH WAS CALCULATED BY SUBTRACTI NG THE SURPLUS AS ON 31.03.2013 FROM THE SURPLUS AS ON 31. 03.2014. AFTER GIVING SHOW CAUSE NOTICE TO THE ASSESSEE AS T O WHY THE INCOME SHOULD NOT BE ADJUSTED FOR THE SAME WHICH WA S REPLIED BY THE ASSESSEE SUBMITTING THAT ACTUARIAL REPORT IN CLUDED TRANSFER OF FUNDS FROM SHARE HOLDER ACCOUNT AND HEN CE THE SURPLUS SHOWN IN THE ACTUARIAL REPORT CAN NOT BE TH E INCOME OF THE ASSESSEE. THE ASSESSEE SUBMITTED THAT THE ACTU ARIAL REPORT ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 11 IS CALCULATED AS PER FORM 1 OF THE INSURANCE REGULA TORY AND DEVELOPMENT ACT AND HENCE THE SURPLUS INCLUDES CON TRIBUTIONS FROM SHARE HOLDERS FUNDS. THE ASSESSEE SUBMITTED B EFORE THE AO THAT RULE 2 OF 1 ST SCHEDULE DEALS WITH THE SURPLUS IN ACTUARIAL REPORT AS PER INSURANCE ACT, 1938 AND NOT AS PER T HE IRDA ACT AND THEREFORE THE SURPLUS AS PER ACTUARIAL REPORT C AN NOT BE TREATED AS INCOME OF THE ASSESSEE. THE ASSESSEE RE LIED ON THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN TH E CASE OF ICICI PRUDENTIAL INSURANCE CO. LTD. VS. ACIT MUMBAI (2013 ) 140 ITD 41 (MUM). HOWEVER, THE REPLY OF THE ASSESSEE DID N OT FIND FAVOUR WITH THE AO AND HE ADJUSTED THE INCOME OF THE ASSES SEE BY RS.11,96,96,000/-. 15. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) PA RTLY ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 5.2 I HAVE CONSIDERED THE FACTS OF THE ISSUE AND T HE SUBMISSIONS MADE BY THE AR, IN VIEW OF THE DECISION OF THE JURISDICTIONAL ITAT IN CASE OF ICICI PRUDENTIAL INSURANCE CO LTD V ACIT - 6(1) [2013] 140 ITD 41 (MUMBAI) ICI CI PRU DIRECTING TO COMPUTE THE INCOME OF A LIFE INSURANCE COMPANY BASED ON THE MEC HANISM PRESCRIBED AS PER THE OLD FORM 1 I.E. BY CONSIDERING THE SURPLUS / (DEFIC IT) AS PER FORM I, PREPARED IN ACCORDANCE WITH THE FOURTH SCHEDULE TO THE INSURANC E ACT, 1938 [PRIOR TO ITS AMENDMENT BY THE INSUII2UICE (AMENDMENT) ACT, 2002] FOR THE LAST INTER-VALUATION PERIOD, THE INCOME OF THE APPELLANT IS ALSO TO BE COMPUTED ACCORDINGLY. HOWEVER, WHEN THE COMPUTATION AS PER OLD FORM I IS ADOPTED, THE APPELLANTD INCOME OF THE APPELLANT WILL BE LOWER THAN THE RETU RNED INCOME WHICH IS NOT PERMISSIBLE (THE SURPLUS AS PER OLD FORM I COMES TO RS 3,80,60,05,935 AND THE INCOME AS PER THE REVISED RETURN OF INCOME IS RS 4, 53,28,55,247) IN VIEW OF THE DECISION OF HON'BLE MUMBAI HIGH COURT IN THE CASE OF LML LTD. [1994] 205 ITR 585 (BOMBAY HC), WHEREIN THE HON'BLE MUMBAI HIGH COURT RELYING ON THE CBDT CIRCULAR NO. 549, DATED 31-10-1989 HAS HELD THAT THE ASSESSE D INCOME CANNOT BE LOWER THAN THE RETURNED INCOME. IN LIGHT OF THE ABOVE, I HOLD THAT TOTAL INCOME IS TO BE RESTRICTED TO THE INCOME AS PER REVISED RETURN OF INCOME FILED BY THE APPELLANT. TH E AO IS HEREBY DIRECTED TO COMPUTE THE TOTAL INCOME 'AS PER THE REVISED RETURN OF INCOME FILED BY THE APPELLANT ON 28 MARCH 2016. THIS GROUND IS ACCORDINGLY PARTLY ALLOWED. ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 12 16. THE LD. A.R. VEHEMENTLY SUBMITTED BEFORE THE BE NCH THAT THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE IS NOT AS PER THE PROVISIONS OF THE ACT. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS CHALLENGED THE OBSERVATIONS OF THE LD. CIT(A) I N WHICH THE LD. CIT(A) HAS HELD THAT IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF LML LTD. (1994) 20 4 ITR 585 (BOM. HC) RELYING ON THE CBDT CIRCULAR NO.449 DAT ED 31.10.1999 HAS HELD THAT INCOME ASSESSED CAN NOT BE LOWER THAN THE RETURNED INCOME. THE LD. A.R. SUBMITTED T HAT IDENTICAL ISSUE AROSE IN THE CASE OF ACIT VS. BAJAJ FINANCE L TD. IN ITA NO.288 TO 291/PN/2014 A.Y. 2006-07 TO 2008-09 WHERE IN THE CO-ORDINATE BENCH OF THE TRIBUNAL HAS HELD THAT POS T AMENDMENT TO SECTION 143(3) OF THE ACT BY THE FINANCE ACT(2), 1998 W.E.F. 1.10.1998 THE AO IS EMPOWERED TO GRANT REFUND OF AN Y AMOUNT DUE TO THE ASSESSEE CONSEQUENT TO THE ASSESSMENT AN D THEREFORE THE AO IS STATUTORILY EMPOWERED TO DETERMINE THE RE VISED INCOME WHICH CAN BE LOWER THAN THE RETURNED INCOME. THE L D. A.R. THEREFORE PRAYED BEFORE THE BENCH THAT THE GROUND 1 & 2 RAISED BY THE ASSESSEE MAY KINDLY BE ALLOWED. 17. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDER OF LD. CIT(A) ON THIS ISSUE BY SUBMITTING THAT THE ASSESSE D INCOME CAN NOT BE LOWER THAN THE RETURNED INCOME AND THEREFORE THE GROUND NO.1 & 2 OF THE ASSESSEE MAY KINDLY BE DISMISSED. 18. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE CO-ORDINATE BENCH OF TH E TRIBUNAL IN THE CASE OF ACIT VS. BAJAJ FINANCE LTD. IN ITA NO.2 88 TO 291/PN/2014 (SUPRA) HAS INTERPRETED THE PROVISIONS OF SECTION 143(3) AS AMENDED BY THE FINANCE ACT (2), 1998 W.E. F. ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 13 01.10.1998. THE CO-ORDINATE BENCH OF THE TRIBUNAL HAS HELD THAT THE CBDT CIRCULAR NO.549 DATED 31.10.1989 AND JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF LML VS. CIT (SUPRA) WERE RENDERED IN THE CONTEXT OF ASSESSMENT YEAR 1989-90 WHICH WAS PRIOR TO THE AMENDMENT AND IN THE POST AM ENDMENT PERIOD, THE AO IS STATUTORILY EMPOWERED TO DETERMIN E THE REVISED INCOME WHICH CAN EVEN BE LOWER THAN THE RETURNED IN COME. THE OPERATIVE PART OF THE DECISION IS AS UNDER: 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN OUR CONSIDERED OPINION, THE DISCUSSION MADE BY THE CIT(A) IN PARA 10 OF THE IMPUGNED ORDER, WHICH WE HAVE EXTRACTED ABOVE, SETTLES THE CONTROVERSY IN FAVOUR OF THE ASSESSEE. THE RELIANCE PLACED BY THE REVENUE ON THE CBDT'S CIRCULAR DATED 31.10.1989 (SUPRA) AND THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF LML LTD. VS. ACIT (SUPRA) IS QUITE MIS-PLACED HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. OSTENSIBLY, THE CBDT'S CIRCULAR DATED 31.10.1 989 (SUPRA) AND ALSO THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF LML LTD. VS. ACIT (SUPRA) ARE IN THE CONTEXT OF ASSESSMENT YEAR 1989-90 WHICH WERE PRIOR TO THE AMENDMENTS MADE TO SECTION 143(3) OF THE ACT BY THE FINANCE ACT (NO.2) 1998 W.E.F. 01.10.1998. AS SECTION 143(3) OF THE ACT STOOD FOR THE ASSESSMENT YEAR 1989- 90, THERE WAS NO PROVISION FOR REFUND AFTER THE REG ULAR ASSESSMENT. IN THE PRESENT CASE, THE ASSESSMENT YEARS INVOLVED ARE 2006-07 ONW ARDS, WHICH PERTAIN TO PERIOD AFTER SECTION 143(3) OF THE ACT WAS AMENDED BY THE FINANCE ACT (NO.2) 1998 W.E.F. 01.10.1998. AS PER THE AMENDMENT, THE ASSESSMENT UN DER SECTION 143(3) OF THE ACT, INTER-ALIA, ENVISAGES THE ASSESSING OFFICER TO GRANT REFUND OF ANY AMOUNT DUE TO THE ASSESSEE CONSEQUENT TO THE ASSESSMENT AND THERE FORE, THE ASSESSING OFFICER IS STATUTORILY EMPOWERED TO DETERMINE THE REVISED INCO ME WHICH CAN BE LOWER THAN THE RETURNED INCOME. THEREFORE, IN OUR VIEW, THE OB JECTION RAISED BY THE REVENUE TO THE IMPUGNED ORDER OF CIT(A) IS UNTENABLE IN THE EYES OF THE LAW, AS IT STOOD FOR THE PERIOD UNDER CONSIDERATION. IT IS APPARENT FROM THE ABOVE THAT POST AMENDMENT TO SECTION 143(3) OF THE ACT BY FINANCE ACT (2), 1998 W.E.F. 01.10.1998, THE AO HAS THE POWER TO DETERMINE THE R EVISED INCOME WHICH CAN BE LOWER THAN THE RETURNED INCOME. ACCORDINGLY WE SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO ACCORDINGLY. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO.1 & 2 ARE ALLOWED. ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 14 19. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUND WHICH IS REPRODUCED AS UNDER: THE CIT(A) ERRED IN HOLDING THE EXEMPTION UNDER SE CTION 10(34) IS ALLOWABLE ON A NET BASIS 20. THE LD. A.R. WHILE ARGUING ON THE ADMISSIBILITY OF ADDITIONAL GROUND SUBMITTED THAT THE ISSUE IS EMANA TING OUT OF THE ASSESSMENT RECORD AND ORDER OF THE AUTHORITIES BELOW AND REQUIRES NO INDEPENDENT OR FURTHER VERIFICATION OF FACTS ON THE PART OF THE AO AND THEREFORE THE SAME MAY KINDLY BE ADMITTED FOR ADJUDICATION. 21. WHEREAS THE REVENUE, ON THE OTHER HAND, OPPOSED THE ADMISSION OF THE SAID ADDITIONAL GROUND AT THIS STA GE BY SUBMITTING THAT THE SAID GROUND WAS NOT RAISED BEFO RE THE AUTHORITIES BELOW. 22. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE ISSUE RAISED BY THE LD. A.R. BY WAY OF THIS ADDITIONAL GROUND IS PURELY ILLEGAL AND EMA NATING OUT OF THE ASSESSMENT RECORDS BEFORE THE AUTHORITIES BELOW AND DOES NOT REQUIRE ANY FURTHER VERIFICATION OF FACTS. WE ARE, THEREFORE, INCLINED TO ADMIT THE SAME FOR ADJUDICATION FOLLOWI NG THE DECISION OF NATIONAL THERMAL POWER COMPANY LTD. VS. CIT 229 ITR 383 (SC). 23. AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED BEFORE US THAT THE ISSUE IS SQUARELY COVERED IN FAV OUR OF THE ASSESSEE IN ITA NO.1039/M/2011 IN OWN CASE WHEREIN THE ITAT AFFIRMED THE ORDER OF LD. CIT(A) AND DISMISSED THE GROUND RAISED BY THE REVENUE ON THE ISSUE OF EXEMPTION UNDER SECT ION 10(34) OF THE ACT WITH REGARD TO DIVIDEND INCOME AND PROV ISIONS OF ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 15 SECTION 14A ARE NOT APPLICABLE TO THE INSURANCE COMPANY. THE LD. A.R. SUBMITTED THAT IN VIEW OF THE SAID THE DEC ISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL, THE ADDITIONAL GROU ND OF THE ASSESSEE MAY KINDLY BE ALLOWED BY SETTING ASIDE THE ORDER OF LD. CIT(A) WHEREIN IT HAS BEEN HELD THAT THE EXEMPTIO N UNDER SECTION 10(34) IN RESPECT OF DIVIDEND IS ALLOWABLE ON NET BASIS. 24. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDER OF LD. CIT(A) AND ARGUED THAT THE EXPENSES INCURRED FOR EA RNING EXEMPT INCOME ARE TO BE REDUCED AS CONTEMPLATED BY SECTION 14A OF THE ACT AND THEN EXEMPTION IS TO BE ALLOWED UNDER SECTION 10(34) OF THE ACT. 25. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE CO-ORDINATE BENCH OF TH E TRIBUNAL IN ITA NO.1039/M/2011 (SUPRA) HAS DECIDED THE ISSUE BY HOLDING THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICAB LE TO THE LIFE INSURANCE COMPANIES BY HOLDING AS UNDER: 10. LASTLY, WITH REGARD TO GROUND NO.4, THAT IS, D ISALLOWING EXEMPTION UNDER SECTION 10(34) WITH REGARD TO THE DIVIDEND INCOME E ARNED, WE FIND THAT THE LD. CIT(A) AFTER RELYING UPON VARIOUS DECISIONS HELD TH AT SECTION 14A IS NOT APPLICABLE TO LIFE INSURANCE COMPANY. THE TRIBUNAL HAS REITERATED THE SAME VIEW IN THE ABOVE CASES THAT PROVISIONS OF SECTION 14A WILL NOT APPLY TO INSURANCE COMPANIES, WHOSE INCOME ARE STRICTLY ASSESSABLE IN TERMS OF RULES OF THE INSURANCE ACT. THUS, RESPECTFULLY FOLLOWING THE SAME, WE AFFIRM THE ORDE R OF THE CIT (A) AND DISMISSED THE GROUND RAISED BY THE REVENUE. ACCORDINGLY, GROU NDS RAISED BY THE REVENUE ARE DISMISSED. 26. ACCORDINGLY, FOLLOWING THE CO-ORDINATE BENCH DE CISION WE HOLD THAT THE EXEMPTION UNDER SECTION 10(34) OF THE ACT IS TO BE ALLOWED ON THE AMOUNT OF DIVIDEND EARNED AND NOT ON NET BASIS AS THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE TO THE INSURANCE COMPANIES. THE ADDITIONAL GROUND RAI SED BY THE ASSESSEE IS ALLOWED. ITA NO.1482 & 1683/M/2018 M/S. TATA AIA LIFE INSURANCE CO. LTD. 16 27. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.11.2019. SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 08.11.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.