Appeal Details
Counselvise Citation
[2016] 131 COUNSELVISE.COM (IT) 1458 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 7 month(s) 10 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-12-2016
Appeal Filed By
Assessee
Bench Allotted
E
Assessment Year
2010-2011
Appeal Filed On
13-05-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. NO.4066/MUM/2011 - ASSESSMENT YEAR: 2007-08 I.T.A. NO.3495/MUM/2014 - ASSESSMENT YEAR : 2009-10 I.T.A. NO.5112/MUM/2012 - ASSESSMENT YEAR : 2009-10 I.T.A. NO.5267/MUM/2012 - ASSESSMENT YEAR : 2008-09 I.T.A. NO.1897/MUM/2012 - ASSESSMENT YEAR : 2008-09 I.T.A. NO.2863/MUM/2015 - ASSESSMENT YEAR : 2010-11 SBI LIFE INSURANCE CO LTD 5 TH FLOOR, NATRAJ, M.V. ROAD WESTERN EXPRESS HIGHWAY JUNCTION ANDHERI (E), MUMBAI-69 VS ACIT 1(3), MUMBAI PAN : AAFCS2530P (APPELLANT) (RESPONDENT) I.T.A. NO.4945/MUM/2012 - ASSESSMENT YEAR : 2009-10 I.T.A. NO.2114/MUM/2012 - ASSESSMENT YEAR : 2008-09 I.T.A. NO.1668/MUM/2011 - ASSESSMENT YEAR : 2002-03 I.T.A. NO.3170/MUM/2011 - ASSESSMENT YEAR : 2007-08 I.T.A. NO.2576/MUM/2014 - ASSESSMENT YEAR : 2010-11 ACIT 1(3), MUMBAI / DY.CIT 1(3), MUMBAI VS SBI LIFE INSURANCE CO LTD 5 TH FLOOR, NATRAJ, M.V. ROAD WESTERN EXPRESS HIGHWAY JUNCTION ANDHERI (E), MUMBAI-69 PAN : AAFCS2530P (REVENUE) (RESPONDENT) ASSESSEE BY SHRI F.V. IRANI ALONG WITH WITH SHRI MANOJ PUROHIT REVENUE BY D. CHANDA, CIT-DR 2 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD DATE OF HEARING : 01-12-2016 DATE OF PRONOUNCEMENT : 23 -12-2016 O R D E R PER BENCH: THESE CROSS APPEALS PERTAIN TO SAME ASSESSEE FOR D IFFERENT ASSESSMENT YEARS INVOLVING IDENTICAL ISSUES, THEREF ORE, THESE WERE HEARD TOGETHER AND BEING DISPOSED OF BY THIS COMMON ORDER . DURING THE COURSE OF HEARING, IT WAS STATED AT THE VERY OUTSET BY THE LD. COUNSEL OF THE ASSESSEE THAT THE ISSUES INVOLVED IN THIS CASE HAVE ALREADY BEEN REACHED BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE AND THE TRIBUNAL DECIDED THE ISSUES FOR EARLIER ASSESSMENT YEARS. IT WAS FURTHE R STATED THAT THERE IS NO DISTINCTION IN FACTS AND LEGAL POSITION IN THOSE YE ARS AND THE YEARS BEFORE US NOW. UNDER THESE CIRCUMSTANCES, RELIANCE WAS PL ACED ON THE ORDER OF THE TRIBUNAL FOR EARLIER YEARS, ESPECIALLY THE ORDE R PASSED IN ITA NO 3800/MUM/2008 & OTHERS FOR A.YS 2003-04 AND 2006-07 . 2. PER CONTRA, THE LD.CIT-DR DID NOT OBJECT TO THE ABO VE SUBMISSION AND COULD NOT POINT OUT ANY DISTINCTION IN FACTS OR LEG AL POSITION. THUS, WITH THIS BACKGROUND WE PROCEED TO DECIDE THE PRESENT AP PEALS IN THE LIGHT OF THE DECISION TAKEN BY THE TRIBUNAL IN EARLIER YEARS ON IDENTICAL ISSUES. 3. FIRST, WE SHALL TAKE UP APPEAL FILED BY THE REVE NUE FOR AY. 2002-03 IN ITA NO.1668/MUM/2011 FILED AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-2, MUMBAI [IN SHORT, CIT(A)] D ATED 10-12-2010 PASSED AGAINST THE ASSESSMENT ORDER DATED 14-12-20 09 U/S 143(3) R.W.S. 147 OF THE ACT FOR AY. 2002-03 ON THE FOLLOWING GRO UNDS:- 3 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD GROUND NO 1 DISALLOWANCE OF EXEMPTION IN RESPECT OF DIVIDEND INCOME U/S 10(34): (I) THE LEARNED CIT (A) HAS ERRED IN LAW AS WELL AS ON FACTS IN EXERCISING THE POWER OF ENHANCEMENT FOR WITHDRAWING THE EXEMPTION ALLOWED BY THE A.O. UNDER SECTION 10 (34) IN RESPECT OF INCOME FROM DIVIDEND. (II) THE LEARNED CIT (A) FAILED TO APPRECIATE THE F ACT THAT INCOME FROM DIVIDEND IS ONE OF THE TYPE OF INCOME THAT IS NOT TO FORM PART OF THE TOTAL INCOME UNDER CHAPTER III OF THE I .T. ACT. IN WHATEVER MANNER THE TOTAL INCOME OF THE ASSESSEE IS TO BE COMPUTED UNDER THE LAW THE SAME IS TO EXCLUDE THE I NCOME FROM DIVIDEND UNDER SUB-SECTION (34) OF SECTION 10 OF TH E INCOME TAX ACT, 1961. (III) THE LEARNED CIT (A) FAILED TO APPRECIATE THE IMPORT OF THE LEGAL PROVISION CONTAINED IN SECTION 44 OF THE I.T. ACT READ WITH SCHEDULE I WHICH IS A SPECIAL PROVISION FOR COMPUTA TION OF THE INCOME FROM BUSINESS OF LIFE INSURANCE. THE PROVISI ON, THOUGH A NON-OBSTANTE PROVISION, DOES NOT OVERRIDE ALL THE P ROVISIONS OF THE ACT. THE PROVISION SPECIFICALLY OVERRIDES ONLY THE PROVISIONS OF THE ACT RELATING TO THE COMPUTATION OF INCOME CHARG EABLE UNDER THE HEAD 'INTEREST ON SECURITIES' 'INCOME FROM HOUS E PROPERTY' 'CAPITAL GAIN' OR ' INCOME FROM OTHER SOURCES' OR I N SECTION 199 OR IN SECTION 28 TO 43B. IT DOES NOT OVERRIDE THE P ROVISIONS OF CHAPTER III OF WHICH SECTION 10(34) IS A PART. (IV) THE LEARNED CIT (A) FAILED TO THE TAKE NOTE OF THE SETTLED POSITION OF LAW THAT INCOME IS TO BE COMPUTED AS PE R THE APPLICABLE PROVISIONS OF THE ACT UNLESS ALL OR ANY OF THE PROVISIONS ARE EXPRESSLY MADE INAPPLICABLE. IN CASES WHERE APP LICATION OF ONLY SPECIFIC PROVISIONS IS BARRED, ALL OTHER PROVI SIONS REMAIN APPLICABLE. ANY OTHER VIEW TAKEN RENDERS THE OVERRI DING OF SPECIFIED PROVISIONS REDUNDANT AND THE LAW CANNOT B E INTERPRETED IN A MANNER SO AS TO RENDER ANY PROVISI ON OF THE ACT OR PART THEREOF AS REDUNDANT. 4 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD (V) THAT THE LEARNED CIT (A) ERRED IN BASING HIS DE CISION ON THE ERRONEOUS UNDERSTANDING OF THE COMPUTATION OF ACTUA RIAL SURPLUS/ DEFICIENCY AS PER THE PROVISIONS OF THE IN SURANCE ACT WHEN HE OBSERVED THAT INCOME FROM DIVIDEND HAS NOT BEEN TAXED. EVEN IF INCOME FROM DIVIDEND IS NOT BEING CH ARGED TO TAX UNDER THE RESPECTIVE HEADS OF INCOME, SUCH INCOME G ETS INCLUDED IN THE TOTAL INCOME OF THE APPELLANT. EVEN IF THE P ROVISIONS RELATING TO COMPUTATION OF INCOME UNDER THE HEAD 'I NCOME FROM OTHER SOURCES' ARE OVERRIDDEN OBVIATING THE REQUIRE MENT OF HEADWISE COMPUTATION OF TOTAL INCOME, THE INCOME ME NTIONED IN CHAPTER ILL, OF INCLUDED IN THE TOTAL INCOME IN ANY FORM, IS REQUIRED TO BE EXCLUDED. AS OBSERVED BY HON'BLE BOM BAY HIGH COURT IN LIFE INSURANCE CORPORATION OF INDIA CASE R EPORTED IN 119 STR 900 THE SURPLUS IN A LIFE INSURANCE BUSINESS IS WORKED OUT ON THE BASIS OF 'THE NET LIABILITY UNDER BUSINESS AS S HOWN IN THE SUMMARY AND VALUATION OF POLICIES' AND THE 'BALANCE OF LIFE INSURANCE FUND AS SHOWN IN THE BALANCE SHEET'. SINC E INCOME FROM DIVIDEND BECOME PART OF THE LIFE INSURANCE FUN D, IT ENTERS INTO THE COMPUTATION OF TOTAL INCOME UNDER SECTION 44 READ WITH FIRST SCHEDULE OF THE LT. ACT. THE MERE FACT THAT T HE 'INCOME FROM OTHER SOURCES' HAS NOT BEEN SEPARATELY COMPUTE D DOES NOT MAKE ANY DIFFERENCE IN THE TAX TREATMENT OF SUCH IN COME. GROUND NO 2 ADDITION ON ACCOUNT OF DIS LLOWANCE OF EXPENDITURE U/S 14A: BASED ON THE DECISION LEADING TO WITHDRAWAL OF EXEM PTION GRANTED IN RESPECT OF INCOME FROM DIVIDEND, THE LEA RNED CIT HAS HELD THAT THE PROVISIONS OF SECTION 14A ARE NOT APP LICABLE TO THE CASE. HOWEVER, IN THE EVENT OF HIS FINDING GETTING REVERSED IN APPEAL, THE PROVISIONS WILL BECOME APPLICABLE. HE H AS THEREFORE, CONSIDERED AND DISAPPROVED THE SUBMISSIONS MADE BY THE APPELLANT IN REGARD TO WORKING OUT THE AMOUNT OF EX PENSES RELATABLE TO EXEMPT INCOME FROM DIVIDEND. IN THAT R ESPECT THE APPELLANT IS AGGRIEVED ON FOLLOWING GROUNDS. (I) THE LEARNED CIT WAS IN ERROR IN HOLDING THAT RULE 8 D REPRESENTS THE WISDOM OF THE LEGISLATURE IN THE MAT TER OF DETERMINING THE AMOUNT TO BE DISALLOWED UNDER SECTI ON 5 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD 14A OF THE ACT IN ALL CASES AND EVEN IN RESPECT OF ASSESSMENTS RELATING THE ASSESSMENT YEARS PRIOR TO ASSESSMENT YEARS 2008-09. (II) (II) EVEN FOLLOWING THE RATIO OF HON'BLE BOMBAY HIG H COURT DECISION IN THE CASE OF GODREJ & BOYCE THAT RULE 8D HAS NO RETROSPECTIVE APPLICATION, THE LEARNED CIT ERRED IN UPHOLDING THE COMPUTATION AS PER RULE 8D IN THE ASSESSMENT RELATING TO 2007-08 WITHOUT GOING INTO T HE SPECIFIC FACTS OF THE CASE. THE LEARNED CIT ERRONEO USLY IGNORED THE PROVISIONS OF SUB-SECTION (2) OF SECTIO N 14A UNDER WHICH THE A.O. IS REQUIRED TO DETERMINE THE A MOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOM E IN ACCORDANCE WITH THE PRESCRIBED METHOD ONLY IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. THE METHOD PRESCRIBED, WHICH IS RULE 8D, GETS RELEV ANCE ONLY IN CASE OF FAILURE OF THE ASSESSEE TO SATISFY THE CORRECTNESS OF THE CLAIM AND THAT TOO WITH EFFECT F ROM A.Y. 2008-09. PRIOR TO 2008-09, THERE BEING NO PRESCRIBE D METHOD, THE AMOUNT OF DISALLOWANCE IS TO BE SOLELY DETERMINED ON THE BASIS OF THE FACTS OF EACH INDIVI DUAL CASE AND NOT BY BLANKET APPLICATION OF RULE 8D. (III) THE LEARNED CIT (A) WAS, THEREFORE, NOT JUSTI FIED IN HOLDING COMPUTATION OF DISALLOWABLE AMOUNT AS PER RULE 8D A S A RULE OF UNIVERSAL APPLICATION BASED ON THE ARGUMENT THAT TH E RULE SIGNIFIED LEGISLATIVE WISDOM IN DETERMINATION OF SU CH AMOUNT IN ALL CASES AND IN ALL THE YEARS, EVEN PRIOR TO ITS C OMING INTO FORCE. IN CASE THE PROPOSITION IS ACCEPTED, IT WILL RENDER THE FINDINGS OF THE HON'BLE BOMBAY HIGH COURT IN GODREJ AND BOYCE R EDUNDANT AND OF NO LEGAL CONSEQUENCE. (IV) THE AMOUNT OFFERED FOR DISALLOWANCE BY THE APP ELLANT WAS BASED ON FACTS AND OUGHT TO HAVE BEEN ACCEPTED AS R EASONABLE AND JUSTIFIED. GROUND NO. 3 D I SALLOWANCE OF EXEMPTION IN RESPECT OF INCOME FROM PENSION FUND UIS 10(23AAB): 6 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD (I) THE LEARNED CIT (A) WAS NOT JUSTIFIED IN HOLDIN G THAT THE EXEMPTION U/ S 10 (23AAB) IN REGARD TO INCOME OF PE NSION FUND IS NOT AVAILABLE TO THE APPELLANT ON THE GROUND THA T SUCH AN EXEMPTION IS APPLICABLE ONLY WHEN THE PENSION FUND IS AN INDEPENDENT ASSESSABLE ENTITY. (III) THE LEARNED CIT(A) FAILED TO TAKE A NOTE OF THE FAC T THAT FOR THE PURPOSE OF AVAILING THE EXEMPTION UNDER SEC TION 10(23AAB) THERE ARE ONLY TWO CONDITIONS TO BE FULFI LLED AS LAID DOWN IN THE SECTION, FIRSTLY THAT THE CONTRIBUTIONS TO SUCH A FUND IS MADE BY ANY PERSON FOR THE PURPOSE OF RECEIVING PENSION FROM SUCH FUND AND SECONDLY THE FUND IS APPROVED BY THE CONTROLLER OF INSURANCE OR THE INSURANCE DEVELOPMENT AUTHORITY OF INDIA(IRDA). HENCE, THE LEARNED CIT (A) WAS NOT JUS TIFIED IN SUCH AN UNDERSTANDING OF THE PROVISION WHICH NOWHERE LAY S DOWN THE REQUIREMENT OF THE FUND TO BE AN INDEPENDENT ASSESS ABLE ENTITY. THE PROVISION IS APPLICABLE AND CONSEQUENTLY, THE E XEMPTION IS AVAILABLE TO THE FUND, IRRESPECTIVE OF THE FACT WHE THER IT IS AN INDEPENDENT ENTITY OR RUN AS A SEGMENT OF THE LIFE INSURANCE COMPANY, PROVIDED THE CONDITIONS SET OUT IN SUB-SEC TION (23AAB) OF SECTION 10 ARE COMPLIED WITH. THE APPELLANT HUMB LY SUBMIT THAT THE FUND IS OPERATED BY THE APPELLANT COMPANY AS ONE OF THE VARIOUS SEGMENTS, ACCOUNTS ARE MAINTAINED IN TH E MANNER FROM WHICH SURPLUS I DEFICIENCY THERE FROM IS DETER MINABLE AND ALL THE REQUIREMENTS OF SECTION 10 (23AAB) ARE MET. (III) FOR THE REASONS AFOREMENTIONED, THE LEARNED C IT OUGHT TO HAVE DIRECTED THE A.O. TO ALLOW THE EXEMPTION OF TH E SURPLUS RELATABLE TO THE PENSION FUND. GROUND NO.4 NOT ALLOWING SET OFF OF BROUGHT FORWARD LOSSES: (I) THE LEARNED CIT (A) WAS NOR JUSTIFIED IN DIRECT ING THE A.O. TO PASS SPECIFIC ORDER U/S 157 INSTEAD OF DIRECTING HI M TO ALLOW SET OFF OF THE BROUGHT FORWARD LOSSES. 7 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD (II) THE LEARNED CIT (A) MISUNDERSTOOD THE APPELLAN T'S REQUEST WHICH WAS FOR SET OFF OF LOSSES OF EARLIER YEARS WH ICH ARE DETERMINED LOSSES BROUGHT FORWARD IN THE YEAR UNDER APPEAL. THESE LOSSES ARE ALLOWED TO SET OFF OUT OF CURRENT YEARS INCOME FOR WHICH NO ORDER U/S 157 IS NECESSARY. IN ANY CAS E, THIS PROVISIONS DOES NOT INVOLVE AN ORDER BUT MERELY AN INTIMATION OF THE CURRENT LOSS ASSESSED BY HIM UNDER THE PROVISIO NS OF THE ACT. 4. GROUNDS 1, 1(I) & 1(II) DEAL WITH COMMON ISSUE WHEREIN THE AO RECOMPUTED THE INCOME OF THE ASSESSEE BY TREATING S HAREHOLDERS ACCOUNT AND POLICY HOLDERS ACCOUNT AS SEPARATE AND CONSEQUENTLY SEPARATELY ASSESSING THE INCOME OF RS.10,91,69,687 BEING THE AMOUNT TRANSFERRED FROM SHAREHOLDERS ACCOUNT TO POLICY HO LDERS ACCOUNT. 5. IN THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE STA TED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LIFE INSURAN CE AND THAT IS THE ONLY BUSINESS OF THE ASSESSEE. SEPARATE ACCOUNTS OF SHA REHOLDERS AND POLICY HOLDERS HAVE BEEN MADE KEEPING IN VIEW THE REQUIREM ENT OF IRDA, BUT THE ASSESSEE HAS ONLY ONE INTEGRATED BUSINESS OF LIFE I NSURANCE. THUS, THE AO HAS GROSSLY ERRED BY ARTIFICIALLY BREAKING THE BUSI NESS OF THE ASSESSEE INTO TWO PARTS MERELY ON THE GROUND THAT THE ASSESSEE WA S MAINTAINING SHAREHOLDERS ACCOUNT AND POLICYHOLDERS ACCOUNT. IT WAS FURTHER STATED BY HIM THAT THIS ISSUE IS NO MORE RES INTEGRA SINCE IT HAD ALREADY ARISEN IN EARLIER YEARS AND THE TRIBUNAL HAS DECIDED THE ISSU E IN FAVOUR OF THE ASSESSEE IN ITS ORDER DATED 23-05-2014 FOR AYS. 200 3-04 TO 2006-07. IT WAS FURTHER STATED THAT THE IMPUGNED YEAR I.E. AY. 2002 -03 WAS REOPENED SUBSEQUENTLY ON THE BASIS OF ASSESSMENT ON ORDER OF THOSE YEARS. LD. CIT(A) HAS RELIED UPON HIS EARLIER ORDER WHILE DELE TING THE ADDITION MADE BY THE AO. IT WAS ALSO SUBMITTED THAT ORDERS OF TH E LD. CIT(A) OF THOSE YEARS REACHED BEFORE THE TRIBUNAL AND HAVE BEEN CON FIRMED BY THE 8 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD TRIBUNAL BY DISMISSING THE APPEAL OF THE REVENUE. THUS, IT WAS REQUESTED BY THE LD. COUNSEL THAT THE EARLIER ORDERS OF THE T RIBUNAL MAY BE FOLLOWED IN THIS YEAR ALSO. 6. PER CONTRA, THE LD. CIT-DR COULD NOT POINT OUT ANY DISTINCTION IN FACTS OR IN LAW IN EARLIER ORDERS OF THIS TRIBUNAL AND IN THE YEARS BEFORE US. 7. WE HAVE GONE THROUGH THE ORDERS PASSED BY LOWER AUT HORITIES, SUBMISSIONS MADE BY BOTH THE SIDES BEFORE US AS WEL L AS THE EARLIER ORDERS OF THE TRIBUNAL. THESE THREE GROUNDS ARE RELATED T O EACH OTHER INVOLVING COMMON ISSUES, I.E. WHETHER THE ASSESSEE WAS CARRYI NG ON TWO INDEPENDENT ACTIVITIES, I.E. ONE OF INSURANCE BUSIN ESS WHICH WAS REFLECTED IN POLICYHOLDERS ACCOUNT BY THE ASSESSEE AND THE O THER, BEING AN INDEPENDENT ACTIVITY DEPICTED IN SHAREHOLDERS ACCO UNT, AS PER THE DETAILED FINDINGS GIVEN IN THE ASSESSMENT ORDER. U NDER THESE CIRCUMSTANCES, THE AO TAXED THE INCOME ARISING IN S HAREHOLDERS ACCOUNT AS INCOME FROM OTHER SOURCES AND THE ACTIVITY REL ATED TO INSURANCE AS REFLECTED IN POLICYHOLDERS ACCOUNT WAS HELD TO BE TAXABLE IN ACCORDANCE WITH PROVISIONS OF SECTION 44 OF THE INCOME-TAX ACT . HAVING HELD THAT ACTIVITIES OF THE ASSESSEE WERE SEPARATE AND INDEPE NDENT, THE AO COMPUTED THE INCOME FROM OTHER SOURCES AFTER MAKI NG FEW ADJUSTMENTS AND DISALLOWANCES. IT WAS NOTED BY THE AO THAT IN SHAREHOLDERS ACCOUNT NET INCOME WAS SHOWN AT RS.10,62,87,461. IT WAS FU RTHER NOTED THAT A SUM OF RS.10,91,69,687 WAS DEBITED IN SHAREHOLDERS ACCOUNT AND TRANSFERRED TO POLICYHOLDERS ACCOUNT WAS CONVERTED IN LOSS OF RS.28,82,226. THE AO DELINKED BOTH THE ACCOUNTS AN D COMPUTED THE INCOME BY MAKING ADDITION OF RS.10,91,69,687 BEING THE AMOUNT 9 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD TRANSFERRED FROM SHAREHOLDERS ACCOUNT TO POLICYHOL DERS ACCOUNT. IN APPEAL BEFORE THE LD. CIT(A), PROPER ANALYSIS WERE MADE AND ALL THE FACTS AND FIGURES WERE DULY CONSIDERED BY HIM. HE EXAMIN ED THE EXACT POSITION OF LAW IN THIS REGARD AND FINALLY HELD THAT LIFE IN SURANCE BUSINESS IS INTEGRATED BUSINESS AND INVESTMENT IS MADE BY THE A SSESSEE KEEPING IN VIEW THE REQUIREMENTS OF THE REGULATORY AUTHORITIES , THEREFORE, ENTIRE LIFE INSURANCE BUSINESS SHOULD BE ASSESSED AS ONE IN VIE W OF SECTION 44 OF THE ACT READ WITH RULE 1 AND RULE 1D OF FIRST SCHEDULE OF THE ACT. RELEVANT PART OF FINDING OF LD. CIT(A) IS REPRODUCED BELOW : - 9. HAVING SO HELD ABOUT THE ACTIVITIES OF APPELLANT , ASSESSING OFFICER HAS COMPUTED THE INCOME FROM OTHER SOURCES AFTER MAKING ADJUSTMENT AND DISALLOWANCES. THE FACTS IN. BRIEF ARE THAT THE POSITION IN THE POLICYHOLDERS ACCOUNT AND THE SHAREHOLDERS ACCOUNT AS DEPICTED BY APPELLANT WAS A S UNDER: POLICYHOLD ERS ACCOUNT SHAREHOLDERS ACCOUNT TOTAL GROSS INCOME 148971452 125951099 274922551 GROSS EXPENDITU RE 258141139 19663638 277804777 NET INCOME BEFORE TRANSFER (109169687) 106387461 (2882226) TRANSFER ENTRY FROM SHAREHOLD ERS ACCOUNT TO POLICYHOLD 109169687 (109169687) NIL 10 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD ERS ACCOUNT 10. IT IS EVIDENT FROM ABOVE THAT AN AMOUNT OF RS.1 0,91,69,687 HAS BEEN TRANSFERRED THROUGH A SIMPLE ACCOUNTING ENTRY FROM THE SHAREHOLDERS ACCOUNT TO THE POLICYHOLDERS ACCOUNT. IT IS THIS TRANSFER ENTRY WHICH IS CRITICAL TO THE ISSUE UNDER CONSIDER ATION. IT IS CLARIFIED THAT THE SHAREHOLDERS ACCOUNT IS ALSO KNOWN AS THE PROFIT AND LOSS ACCOUNT WHEREAS THE POLICYHOLDERS ACCOUNT AS ANOTHE R NAME AS REVENUE ACCOUNT. THESE TWO ACCOUNTS ARE MAINTAINED SEPARATELY UNDER SPECIFIC GUIDELINES OF IRDA, THE REGULATING A UTHORITY OF- INSURANCE IN INDIA. 11. FOR THE SAKE OF CLARITY, IT IS NECESSARY TO UN DERSTAND THE BREAKUP OF THE AMOUNT TRANSFERRED FROM SHAREHOLDERS ACCOUNT TO POLICYHOLDERS ACCOUNT. IT CONSISTS OF TWO PARTS AS UNDER: 1. BONUS PAID TO POLICYHOLDERS RS.14,320/- 2. DEFICIENCY IN REVENUE ACCOUNTRS.10,91,55,367/- 12. ACCORDING TO APPELLANT, THE TRANSFER IS NECESS ITATED BECAUSE THE APPELLANT DESIRED TO EFFECT PAYMENT OF BONUS WHICH COULD NOT HAVE BEEN DONE BY APPELLANT AS LONG AS THERE WAS NEGATIV E SURPLUS IN THE POLICYHOLDERS ACCOUNT. THEREFORE, THE POSITIVE INCO ME IN THE SHAREHOLDERS ACCOUNT WAS TRANSFERRED BY PASSING A J OURNAL ENTRY TO THE POLICYHOLDERS ACCOUNT. 13. ASSESSING OFFICER HAS TREATED THE EFFECT OF THE TRANSFER ENTRY AS UNDER: (1) THE AMOUNT OF DIVIDEND PAID TO THE POLICYHOLDER S AT RS.14,320 HAS BEEN TREATED AS SURPLUS IN THE POLICY HOLDERS ACCOUNT (BEFORE TRANSFER ENTRY) AS AGAINST ACTUAL D EFICIENCY OF RS.10,91,55,367/-. ACCORDING TO ASSESSING OFFICER T HE AMOUNT OF RS.14,320/- IS INCOME FROM LIFE INSURANCE BUSINESS BEING SURPLUS AS PER ACTUARY VALUATION. THE SAME HAS BEEN BROUGHT TO TAX 11 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD AGAINST WHICH APPELLANT IS IN APPEAL IN THE SECOND GROUND APPEAL. (2) ASSESSING OFFICER HAS TAKEN THE INCOME ARISING FROM THE SHAREHOLDERS ACCOUNTS OF RS.28,82,226/ -, AS INCOME FROM SOURCES, OTHER THAN INSURANCE BUSINESS, AND HAS MAD E THE DISALLOWANCES, FIRST BEING AMOUNT TRANSFERRED FROM SHAREHOLDERS ACCOUNT TO POLICYHOLDERS ACCOUNT ON THE GROUND THAT THIS IS NOT AN EXPENDITURE ITEM AND THEREFORE HAS TO BE DISALLO WED IN THE COMPUTATION OF INCOME AGAINST WHICH -APPELLANT HAS PREFERRED GROUND OF APPEAL NO.3 AND, FOR THE DISALLOWANCE OF STAMP DUTY CHARGES OF RS.12,50,000/ - UNDER PRETEXT THAT THESE ARE CAPITAL EXPENDITURES AND CANNOT BE ALLOWED IN COMPUTATION O F INCOME, AGAINST WHICH APPELLANT HAS PREFERRED THE GROUND OF APPEAL BEING GROUND OF APPEAL NO.5. APPELLANT HAS TAKEN AN OTHER GROUND OF APPEAL BEING GROUND OF APPEAL NO.4 WHERE THE FINDING OF ASSESSING OFFICER TO TAX INCOME IN THE SHAREHOLD ERS ACCOUNT AS INCOME FROM OTHER SOURCES HAS BEEN CHALLENGED. 14. IT IS RELEVANT TO POINT OUT HERE THAT THERE ARE SOME MISTAKES ON CONTENTS ADOPTED FOR DIFFERENT PURPOSES BY ASSES SING OFFICER WHICH ARE NOT CONSIDERED HERE BECAUSE THAT WOULD AM OUNT TO DIVERSION FROM THE MAIN ISSUE. 15. IT IS EVIDENT FROM THE PRECEDING DISCUSSION THA T THE WHOLE ISSUE IS REVOLVING AROUND THE CONCEPT OF BUSINESS O F INSURANCE, WHICH ACCORDING TO ASSESSING OFFICER, APPELLANT IS DOING ONLY IN RELATION TO THE POLICYHOLDERS ACCOUNT AND THEREFOR E THE ENTIRE TRANSACTION OF SHAREHOLDERS ACCOUNT IS REQUIRED TO BE TAXED SEPARATELY AS INCOME FROM OTHER SOURCES AND WHICH H AS NOT BEEN ACCEPTED BY APPELLANT ACCORDING TO WHOM THE TWO ACC OUNTS, THE POLICYHOLDERS ACCOUNT AND THE SHAREHOLDERS ACCOUNT ARE AN INTEGRA1 PART OF THE SAME BUSINESS OF INSURANCE. TH IS ISSUE WAS CONSIDERED BY ME IN THE CASE OF ANOTHER CORPORATE E NTITY ENGAGED IN LIFE INSURANCE BUSINESS WHERE I HAVE HEL D THAT THE POLICYHOLDERS ACCOUNT AND THE SHAREHOLDERS ACCOUNT CANNOT BE SEGREGATED BY ASSESSING OFFICER FOR COMPUTING INCOM E OF 12 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD INSURANCE BUSINESS AND THAT APPELLANT IS NOT DOING ANY INDEPENDENT BUSINESS ACTIVITY IN RELATION TO FUNDS IN- THE, SHAREHOLDERS ACCOUNT AND THAT THE ACTIVITY OF INVES TMENT OF THESE FUNDS IS INTRICATELY INTERLACED WITH THE ACTI VITY OF INSURANCE UNDERTAKEN UNDER THE POLICYHOLDERS ACCOUNT AND THE TWO TOGETHER REFLECT BUSINESS OF INSURANCE. 8. THEREAFTER, THE LD. CIT(A) MADE HIS DETAILED ANALYS IS AND RECORDED WELL REASONED FINDINGS BY MAKING REFERENCE TO HIS E ARLIER ORDER PASSED IN ANOTHER CASE AND CONCLUDED THAT AS PER LAW AND FACT S, THE WHOLE BUSINESS OF THE ASSESSEE IS THAT OF LIFE INSURANCE AND, THER EFORE, IT HAS TO BE TAKEN AS ONE INTEGRATED BUSINESS AND SHOULD BE ASSESSED A S SUCH IN VIEW OF SECTION 44 OF THE ACT. THUS, ADDITION MADE BY THE AO WAS DELETED. THE AO WAS ALSO DIRECTED TO RE-COMPUTE THE INCOME BY AC CEPTING THE INCOME AS WAS COMPUTED IN THE RETURN FILED BY THE ASSESSEE . 9. DURING THE COURSE OF HEARING BEFORE US, LD. CIT-DR WAS NOT ABLE TO SHOW ANYTHING INCORRECT OR CONTRARY TO LAW IN THE D ETAILED AND WELL REASONED FINDINGS OF LD. CIT(A). FURTHER, THE LD. COUNSEL OF THE ASSESSEE DREW OUR ATTENTION ON THE ORDER PASSED BY THE TRIBU NAL WHEREIN IDENTICAL ISSUE HAS ALREADY BEEN DECIDED IN ASSESSEES OWN CA SE BY THE TRIBUNAL VIDE ITS ORDER DATED 23-05-2014. 10. WE HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL AND FIND THAT THE ISSUE BEFORE US IS COVERED IN FAVOUR OF THE ASSESSE E BY THE EARLIER DECISION OF THE TRIBUNAL. RELEVANT PART OF OBSERVATIONS OF THE TRIBUNAL IS REPRODUCED BELOW: 2. CORE ISSUE COMMON IN AYS UNDER CONSIDERATION- I NCOME NATURE OF THE FUNDS TRANSFERRED FROM SHAREHOLDERS' ACCOUNTS TO THE POLICYHOLDERS' ACCOUNT TO MEET OUT THE DEFICIEN CIES: DURING 13 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD THE PROCEEDINGS BEFORE US AND AT THE OUTSET, IN CON NECTION WITH THE APPEALS OF THE ASSESSEE, F.V. IRANI AND SHRI MA NOJ PUROHIT, LD COUNSELS FOR THE ASSESSEE STATED THAT THE ASSESSEE IN THE PRESENT CASE IS AN INSURANCE COMPANY AND THE PROVISIONS OF SECTION 44 OF THE INCOME TAX ACT ARE APPLICABLE HERE. FURTHER, BR INGING OUR ATTENTION TO THE CORE ISSUE RAISED IN ALL THE GROUN DS 1 TO 4 OF THE APPEAL FOR THE AY 2003-04, WHICH IS COMMON IN ALL T HE AYS UNDER CONSIDERATION, HE MENTIONED THAT UNDER THE PROVISIO NS OF IRDA ACT, THE ASSESSEE IS UNDER OBLIGATION TO MAINTAIN S EPARATE ACCOUNTS NAMELY 'POLICY HOLDERS ACCOUNT' AND THE 'S HAREHOLDERS ACCOUNT'. IN CASE, THERE IS INCOME DEFICIENCY IN PO LICY HOLDERS' ACCOUNT, THE FUNDS ARE TRANSFERRED FROM THE SHAREHO LDERS ACCOUNT OTHERWISE, BOTH THESE ACCOUNTS ARE PART OF THE BUSINESS OF THE ASSESSEE AND IT IS CASE OF TRANSFER OF FUNDS FROM ONE HAND TO THE OTHER OF THE SAME PERSON. SUCH TRANSFER OF F UNDS TO POLICY HOLDERS' ACCOUNTS SHOULD NOT BE TREATED AS INCOME A S IT IS A CASE OF TRANSFER OF FUNDS FROM ONE HAND TO THE OTHER. IT IS A TAX NEUTRAL TRANSACTION. THIS ISSUE IS NOW SETTLED BY THE DECIS IONS OF THE TRIBUNAL IN THE CASE OF ICICI PRUDENTIAL INSURANCE VS. ACIT VIDE ITA NOS.6854 TO 6856, 6509, 7765 AND 7213/MUM/2010. HE BROUGHT OUR ATTENTION TO PARA 40, 42, AND 55 OF THE SAID ORDER OF THE TRIBUNAL WHICH READ AS UNDER: '40. IN OUR OPINION WHAT ASSESSEE HAS DONE IN RECON CILING THE IRDA FORMAT WITH THAT OF OLD INSURANCE FORM IS CORRECT AND ACCORDINGLY THE LOSS DISCLOSED IN THE COMPUTATI ON OF INCOME IS ACCORDING TO THE ACTUARIAL SURPLUS/DEFICI T UNDER THE INSURANCE ACT 1938 PRESCRIBED UNDER RULE 2 OF T HE FIRST SCHEDULE PART-A. IN VIEW OF THIS, WE ARE OF THE OPI NION THAT INSISTENCE BY AO TO BRING TO TAX THE ENTIRE AMOUNT SHOWN UNDER THE NEW REGULATIONS INCLUDING TRANSFER FROM SHAREHOLDERS ACCOUNT IS NOT CORRECT. INSTEAD OF AO IN TAKING THE SURPLUS AT REGUULATION 8(1)(A) WHICH IS THE ACT UARIAL SURPLUS / DEFICIT FOR THE YEAR TOOK THE AMOUNT AS D ISCLOSED AT REGULATION 8 (1) (F) (TOTAL SURPLUS AFTER TRANSFER FROM SHAREHOLDER'S ACCOUNT) WHICH IS NOT AT ALL CORRECT. 42. IN VIEW OF THE ABOVE, LOOKING AT THE ISSUE IN A NY WAY WHAT WE NOTICE IS THAT THE COMPUTATION MADE BY ASSE SSEE IS IN ACCORDANCE WITH RULE-2 OF THE INSURANCE ACT 1938 14 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD ACCORDING TO WHICH ONLY AD CAN BASE HIS COMPUTATION . THIS ALSO CORRESPONDS TO THE WAY INCOMES WERE ASSESSED I N EARLIER YEARS IE. THE CORRECT METHOD AS PER RULE 2 AND SEC 44 OF IT ACT. IN VIEW OF THE DISCUSSION ABOVE AND AFTE R ANALYZING THE FORMS, REGULATIONS AND PROVISIONS WE HAVE NO HESITATION TO HOLD THAT THE ASSESSEE WORKING OF ACTUARIAL SURPLUS / DEFICIT IS IN ACCORDANCE WITH RULE 2 OF F IRST SCHEDULE. THEREFORE, ASSESSEE GROUNDS ON THIS ISSUE ARE ALLOWED AND AD IS DIRECTED TO MODIFY THE ORDER ACCO RDINGLY. GROUND NOS. 1 TO 3 ARE CONSIDERED ALLOWED. 55. WE HAVE HEARD THE RIVAL CONTENTIONS. AS BRIEFLY DISCUSSED WHILE DECIDING THE ISSUE OF TAXING SURPLU S, ASSESSEE IS IN LIFE INSURANCE BUSINESS AND IT IS NO T PERMITTED TO DO ANY OTHER BUSINESS. ALL ACTIVITIES CARRIED OU T BY ASSESSEE ARE FOR FURTHERANCE OF LIFE INSURANCE BUSI NESS. MAINTAINING ADEQUATE CAPITAL IS NECESSARY TO COMPLY WITH IRDA (ASSETS, LIABILITIES AND SOLVENCY MARGIN OF IN SURERS) REGULATIONS,2000. INCOME EARNED ON CAPITAL INFUSED IN BUSINESS IS INTEGRAL PART OF LIFE INSURANCE BUSINES S. 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 SEPA RATE ACCOUNTS BY IRDA REGULATIONS. JUST BECAUSE SEPARATE ACCOUNTS ARE MAINTAINED THE INCOMES IN SHAREHOLDER' S ACCOUNT DOES NOT BECOME SEPARATE FROM LIFE INSURANC E 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 SHAREHO LDER'S 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 EXCLU DES OTHER HEADS OF INCOME LIKE, INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS OR INCOME FROM O THER SOURCES. BEING NON-OBSTANTE CLAUSE, SEC. 44 MANDATE S THAT THE PROFITS AND GAINS OF INSURANCE BUSINESS SHALL B E COMPUTED IN ACCORDANCE WITH THE RULES CONTAINED IN FIRST SCHEDULE. THEREFORE, THE INCOMES IN SHAREHOLDER'S A CCOUNT 15 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD 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 GRO UNDS ARE ALLOWED. AD IS DIRECTED TO TREAT THEM AS PART OF LI FE INSURANCE BUSINESS AND TAX THEM U/S 115B.' 3. FURTHER, LD COUNSEL ALSO BROUGHT OUR ATTENTION T O THE ANOTHER DECISIONS OF THE TRIBUNAL IN THE CASES OF (I) M/S. KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD VIDE ITA NO.2551/M/20 10; (II) HDFC STANDARD LIFE INSURANCE COMPANY LTD S. DCIT VI DE ITA NO.2203/MUM/2012 (PARA 2.5); (III) LIC VS. CIT, 51 ITR 773 AND MANY OTHERS TO STRENGTHEN THE ABOVE VIEWS. IN THIS REGARD, LD COUNSEL FILED A COMPOSITE CHART INVOLVING THE GROUN DS OF ALL THE APPEALS OF THE ASSESSEE AS WELL AS THE REVENUE AND, FOR CONSOLIDATED ADJUDICATION OF THE COMMON GROUNDS, HE MENTIONED THAT GROUND NO. I, 2, 3 AND 4 FOR THE A Y S 2003-04; 2004-05 AND 2005-06 AND GROUNDS NO.1 AND 2 OF A.Y. 2006-07 ARE ONE AND THE SAME. ALL THESE GROUNDS STAND COVE RED BY THE ABOVE EXTRACTED RATIO OF THE JUDGMENTS. 11. WE HAVE ALSO EXAMINED THE FACTS OF THE YEAR BEFORE US. IT IS NOTED FROM THE NOTES TO ACCOUNTS APPENDED TO THE BALANCE- SHEET, WHEREIN IT HAS BEEN MENTIONED THAT INVESTMENTS SHOWN IN THE BALANC E-SHEET WERE MADE IN ACCORDANCE WITH INSURANCE ACT, 1938, THE INSURAN CE REGULATOR AND DEVELOPMENT AUTHORITY (INVESTMENT REGULATIONS, 2000 ) AS AMENDED AND CIRCULARS / NOTIFICATIONS ISSUED BY IRDA FROM TIME TO TIME. FURTHER, DURING THE COURSE OF PROCEEDINGS BEFORE THE AO FOR AY. 201 0-11, THE ASSESSEE SUBMITTED TO THE AO, VIDE ITS REPLY DATED 26-12-201 2 AS UNDER:- 13) ' WHY THE NET PROFIT FROM SHAREHOLDERS ACCOUNTS SHOULD NOT BE TAXED AS INCOME FROM OTHER BUSINESS ACTIVITIES AS PER THE PROVISIONS OF SECTION FROM 28 TO 43B OTHER THAN ACTIVITY OF INSURANCE BUSINESS AS PER SE CTION 44 OF THE INCOME TAX ACT, 1961?' WE WOULD LIKE TO SUBMIT THAT THE AMOUNT OF ` 98,7047,844/ -WHICH PROFIT FROM SHAREHOLDERS ACCOUNT, CANNOT BE TREATED AS PROFIT/IOSS OTHER THAN INSURANCE BUSINESS AND AC CORDINGLY 16 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD APPLIED THE PROVISIONS OF SECTION 28 TO 43B, FOR TH E FOLLOWING REASONS: I. THE COMPANY IS ENGAGED IN THE BUSINESS OF LIFE INSURANCE. IT IS DEBARRED UNDER THE STATUTE TO INDU LGE IN ANY OTHER BUSINESS VIDE SUB-SECTION 4(H) OF SEC TION 3 OF THE INSURANCE ACT, 1938. PLEASE FIND BELOW THE EXTRACTS OF THE AFORESAID SECTION: '3(4) THE AUTHORITY SHALL CANCEL THE REGISTRATION O F AN INSURER EITHER WHOLLY OR INSOFAR AS IT RELATES TO A PARTICULAR CLASS OF INSURANCE BUSINESS, AS THE CASE MAY BE- (H) IF THE INSURER CARRIES ON ANY BUSINESS OTHER TH AN INSURANCE BUSINESS OR ANY PRESCRIBED BUSINESS ' THEREFORE IT IS EVIDENT BY LAW THAT CORPORATE ENTIT Y ENGAGED IN INSURANCE BUSINESS CANNOT UNDERTAKE ANY OTHER BUSINESS ACTIVITY. IF IT DOES SO, ITS LICENSE TO CARRY ON INSURANCE BUSINESS IS LIABLE TO BE CANCELL ED. IT, THEREFORE, FOLLOWS THAT THE ENTIRE PROFIT GENER ATED FROM THE BUSINESS IS PROFIT FROM BUSINESS OF LIFE INSURANCE IRRESPECTIVE OF HA - THE SAME IS ACCOUNTED FOR. CLAUSE (C) OF SECTION 2 (7 A) OF INSURANCE ACT 1938 MAY BE REFERRED WHICH STATES THAT 'INDIAN INSURANCE COMPANY MEANS ANY INSURER BEING A COMPANY- WHOSE SOLE PURPOSE IS TO CARRY ON LIFE INSURANCE BUSINESS OR GENERAL INSURANCE BUSINESS OR REINSURANCE BUSINESS. ' II. KEEPING SEPARATE ACCOUNTS FOR THE BUSINESS AS A WHOLE VIZ. REVENUE ACCOUNT AND PROFIT AND LOSS ACCOUNT IS THE REQUIREMENT PRESCRIBED BY THE INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA (IRDA) WITH THE SOLE PURPOSE OF PRESENTING THE ANNUAL RESULT IN SUCH A MANNER TH AT THE POLICYHOLDERS ARE ASSURED OF THE FINANCIAL SOLVENCY AND THE CAPACITY OF THE COMPANY TO HONOUR ITS LONG-TERM COMMITMENTS TO THE POLICYHOLDERS WITH WHOM THE COMP ANY STANDS IN FIDUCIARY RELATIONSHIP. SEPARATION OF TOT AL PROFIT IN TWO DIFFERENT ACCOUNTS IS MERELY A WAY OF PRESENTAT ION OF RESULTS WITHOUT IN ANY WAY AFFECTING THE REAL NATUR E OF THE PROFIT WHICH REMAINS PROFITS FROM LIFE INSURANCE BU SINESS. LIFE INSURANCE COMPANIES ARE REQUIRED TO PREPARE FINANCI AL 17 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD STATEMENTS AS PER THE INSURANCE REGULATORY AND DEVE LOPMENT AUTHORITY (PREPARATION OF FINANCIAL STATEMENTS AND AUDITORS REPORT OF INSURANCE COMPANIES) REGULATION 2002. III. UNDER THE REVISED FORMAT THE ACCOUNT FOR POLICYHOLD ERS IS CALLED REVENUE ACCOUNT UNDER WHICH THE INCOME F ROM POLICYHOLDER (PREMIUM, INCOME FROM THEIR INVESTMENT ) AND THE EXPENSES ON POLICYHOLDERS (CLAIMS, COMMISSI ON ETC.) ARE ACCOUNTED FOR. THE SURPLUS LEFT AFTER ACC OUNTING FOR CHANGE IN VALUE OF INVESTMENTS, INTERIM BONUS P AID TO THE POLICYHOLDERS ETC. ARE APPROPRIATED TO THE SHAREHOLDERS FUNDS, RESERVES AND FUNDS FOR FUTURE APPROPRIATIONS. UNDER THE ACCOUNT OF SHAREHOLDERS CALLED P&L A / C, THE REVENUES EARNED ON SHAREHOLDE RS INVESTMENTS AND THE EXPENSES NOT DIRECTLY RELATED T O POLICYHOLDERS ARE ACCOUNTED FOR. IT IS RELEVANT TO MENTION THAT SURPLUS / DEFICIENCY IN REVENUE ACCOUN T IS DULY REFLECTED IN P&L A/ C AND IT IS ONLY AFTER TAK ING ACCOUNT OF SURPLUS/ DEFICIENCY IN REVENUE ACCOUNT T HAT THE PROFIT SUBJECT TO APPROPRIATION IS ARRIVED AT I N THE P&L A/ C. THE TWO ACCOUNTS ARE, THEREFORE, INSEPARA BLE AND FOR ARRIVING AT THE PROFIT OF THE INSURANCE BUS INESS AS A WHOLE, ONE HAS TO SEE THE COMBINED RESULT IN T HE TWO ACCOUNTS. IV. FURTHER, SECTION 64VA(IA) OF THE INSURANCE ACT 1938 MANDATES THAT EVERY LIFE INSURER MUST MAINTAIN A PRESCRIBED SOLVENCY MARGIN IN RESPECT OF ITS LIFE INSURANCE BUSINESS. F OR THE PURPOSE OF CALCULATING THE SOLVENCY MARGIN, CONSIDERATION H AS TO BE GIVEN TO ASSETS RELATING TO POLICYHOLDERS AS WELL AS SHAR EHOLDERS AS REFLECTED IN THE COMBINED BALANCE SHEET. ANY SHORTF ALL IN SOLVENCY MARGIN IS REQUIRED TO BE MADE UP BY THE IN SURER. BY INFUSING ADDITIONAL CAPITAL. THE SHAREHOLDERS FUND DOES NOT THEREFORE, REPRESENTS FUND FOR AN INDEPENDENT ACTIV ITY BUT, BEING A CREATION OF STATUTORY REQUIREMENT, IS INTRICATELY LINKED TO THE BUSINESS OF LIFE INSURANCE. V. INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA) HAS ISSUED CLARIFICATION ON REGULATORY FRAMEWORK VI DE ITS LETTER NO. 108/1/F&A/SBLIC/100/0CT./2008-09 DATED OCTOBER 20, 2008 ADDRESSED TO APPELLANT AND CONFIRMED THAT' SHAREHOL DER'S 18 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD ACCOUNT IS AN INTEGRAL AND INDIVISIBLE PART OF LIFE INSURANCE BUSINESS.' THE COPY OF SAID LETTER IS ATTACHED AS P ER ANNEXURE 9. VI. WE WOULD ALSO LIKE TO BRING YOUR ATTENTION THAT THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF ICIER PRUDENTIAL INS URANCE CO. LTD VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE- 6(1), (2012-TROL- 580-ITAT-MUM-ITA NO. 6855/MUM/2010) HELD THAT: 'AS BRIEFLY DISCUSSED WHILE DECIDING THE ISSUE OF T AXING 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 B USINESS. MAINTAINING ADEQUATE CAPITAL IS NECESSARY TO COMPLY WITH IRDA (ASSETS, LIABILITIES AND SOLVENCY MARGIN OF INSURERS) REGULATIONS, 2000. INCOME EARNED ON CAPIT AL INFUSED IN BUSINESS IS INTEGRAL PART OF LIFE INSURA NCE BUSINESS. THE LD. CIT (A) GIVES A FINDING THAT ASSE SSEE IS EXCLUSIVELY IN LIFE INSURANCE BUSINESS. HOWEVER, SI NCE HE GAVE PRIMACY TO FORM I PROFORMA HE CONCLUDED THAT O THER INCOMES ARE NOT OF LIFE INSURANCE BUSINESS. WE HAVE ALREADY CONSIDERED AND DECIDED THAT ASSESSEE WAS MANDATED T O MAINTAIN SEPARATE ACCOUNTS BY IRDA REGULATIONS. JUS T BECAUSE SEPARATE ACCOUNTS ARE MAINTAINED THE INCOME S IN SHAREHOLDER'S ACCOUNT DOES NOT BECOME SEPARATE FROM LIFE INSURANCE BUSINESS. AS PER INSURANCE ACT 1938 ALL I NCOMES ARE PART OF ONE BUSINESS ONLY AND THESE INCOMES ARE CONSIDERED AS PART OF SAME BUSINESS. THEREFORE, THE INCOMES IN SHAREHOLDER'S ACCOUNT ARE TO BE CONSIDER ED AS ARISING OUT OF LIFE INSURANCE BUSINESS ONLY. MORE O VER SEC 44 MANDATES THAT ONLY FIRST SCHEDULE WILL APPLY FOR CO MPUTING INCOMES AND EXCLUDES OTHER HEADS OF INCOME LIKE, IN TEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS OR INCOME FROM OTHER SOURCES. BEING NON-OBSTANTE CLAUS E, SEC. 44 MANDATES THAT THE PROFITS AND GAINS OF INSURANCE BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE R ULES CONTAINED IN FIRST SCHEDULE. THEREFORE, THE INCOMES IN SHAREHOLDER'S ACCOUNT ARE TO BE TAXED AS PART OF LI FE INSURANCE BUSINESS ONLY, AS THEY ARE PART OF SAME B USINESS AND INVESTMENTS ARE MADE AS PART OF SOLVENCY RATIO OF SAME BUSINESS. THE GROUNDS ARE ALLOWED. AO IS DIRECTED T O TREAT 19 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD THEM AS PART OF LIFE INSURANCE BUSINESS AND TAX THE M U/S 115B. VII. THE LEARNED CIT (A) HAS DECIDED THE SAID ISSUE IN FAVOUR OF APPELLANT IN THE PREVIOUS ASSESSMENT YEARS. (KINDLY REFER THE SL.NO. .3 OF ANNEXURE 8.) 14) WHY THE AMOUNT TRANSFER FROM POLICYHOLDERS' ACCOUNT S HAS BEEN REDUCED FROM THE NET PROFIT/(LOSS) IN POLICYHOLDERS'. ACCOUNT(TECHNICAL) AND WHY IT SHOUL D NOT BE TREATED AS INCOME / LOSS FROM OTHER BUSINESS ACTIVI TY. I. IN THIS REGARD, WE WOULD LIKE TO SUBMIT THAT THE AMOUNT TRANSFERRED FROM THE POLICYHOLDERS ACCOUNT TO THE SHAREHOLDERS' ACCOUNT IS A MERE APPROPRIATION FROM THE SURPLUS IN THE REVENUE ACCOUNT (POLICYHOLDERS ACCOU NT). THIS AMOUNT HAS ALREADY BEEN SUBJECT TO TAX IN THE REVENUE ACCOUNT AND IS INCLUDED IN RS. 1,942,556,721/-. THIS AMOUNT IS THE AMOUNT OF SURPLUS GENERATED FROM THE POLICYHOLDERS ACCOUNT AND A PORTION OF WHICH I.E. ` 1,777,528,757 HAS BEEN TRANSFERRED TO THE SHAREHOLD ERS BY WAY OF AN APPROPRIATION. TAXING THE SAME AMOUNT AG AIN IN THE SHAREHOLDERS ACCOUNT WOULD AMOUNT TO DOUBLE TAX ATION WHICH IS AGAINST THE INTENT OF LAW. II. THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF ICICI PRUDENTIAL INSURANCE CO. LTD VS. ASSTT. COMMISSIONE R OF INCOME TAX CIRCLE-6(1), (2012-TIOL-580-ITAT- MUM-ITA 6854/MUM/2010) HELD THAT : 'SINCE ASSESSEE IS HAVING ONLY ONE BUSINESS OF LIFE INSURANCE, THE ENTIRE TRANSACTIONS BOTH UNDER THE POLICYHOLDER'S AND SHAREHOLDER'S ACCOUNT DO PERTAIN TO THE LIFE INSURANCE BUSINESS ONLY AS IT WAS NOT PERMITTED TO DO ANY OTHER BUSINESS. ONCE ASSESSEE I S IN THE LIFE INSURANCE BUSINESS, THE COMPUTATION HAS TO BE MADE IN ACCORDANCE WITH THE RULE-2 AS PER PROVISIONS OF SECTION 44. THEREFORE, THERE IS A VAL ID ARGUMENT RAISED BY ASSESSEE THAT BOTH THE POLICYHOLDER'S & SHAREHOLDER'S ACCOUNT HAS TO BE CONSOLIDATED INTO ONE AND TRANSFER FROM ONE ACCOUNT TO ANOTHER IS TAX NEUTRAL. ' THUS, IT WAS HELD BY THE HON'BLE MEMBERS IN THE AF ORESAID CASE THAT BOTH THE POLICYHOLDERS & SHAREHOLDERS ACC OUNT HAS 20 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD TO BE CONSOLIDATED FOR THE PURPOSE OF ARRIVING AT T HE DEFICIT OR SURPLUS, WHICH IN TURN WILL NEUTRALIZE THE EFFECT O F INTERNAL TRANSFER FROM ONE ACCOUNT TO ANOTHER. 12. THUS, FROM THE PERUSAL OF THE ABOVE, IT MAY BE NOTE D THAT ASSESSEE HAS TIME AND AGAIN BROUGHT TO THE NOTICE OF THE AO THAT ASSESSEE IS ENGAGED ONLY IN THE BUSINESS OF LIFE INSURANCE. IT HAS BEEN BROUGHT TO THE NOTICE OF THE AO THAT NO OTHER BUSINESS HAS BEEN CA RRIED OUT. THE INVESTMENTS WERE MADE IN LINE WITH THE REQUIREMENT OF APPLICABLE REGULATIONS. IT IS FURTHER NOTED THAT NOTHING HAS BEEN BROUGHT OUT BY THE AO IN THE ASSESSMENT ORDER TO SHOW IF ANY OTHER BUS INESS HAS BEEN DONE BY THE ASSESSEE. IT HAS ALSO BEEN SHOWN THAT SHARE HOLDERS ACCOUNT AND POLICYHOLDERS ACCOUNT HAVE BEEN SEPARATELY MAINTAI NED FOR THE PURPOSE OF MEETING THE REQUIREMENT OF LAW AS MENTIONED ABOV E ALSO. THUS, THERE WAS NO JUSTIFICATION TO ARTIFICIALLY DISINTEGRATE T HE BUSINESS BY SEPARATELY ASSESSING THE AMOUNT TRANSFERRED FROM ONE ACCOUNT T O THE OTHER BY THE ASSESSEE FOR THE PURPOSE OF MAINTENANCE OF ACCOUNTS AS PER REQUIREMENT OF LAW. THUS, IN VIEW OF WELL REASONED FINDINGS OF LD. CIT(A), WE RESPECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL DATED 23-09-2014, WHEREIN IT HAS BEEN HELD THAT ASSESSEE WAS ENGAGED IN ONLY ONE BUSINESS, I.E. BUSINESS OF LIFE INSURANCE. UNDER THESE CIRCUMSTAN CES, THE RE- COMPUTATION OF INCOME MADE BY THE AO WAS RIGHTLY RE JECTED BY THE LD. CIT(A). THEREFORE, WE DO NOT FIND ANY REASON OR JUS TIFICATION TO INTERFERE IN THE FINDINGS OF THE LD. CIT(A). THUS, THE ORDER OF LD.CIT(A) IS HEREBY CONFIRMED. AS A RESULT, GROUNDS 1(I) & 1(II) RAISE D BY THE REVENUE ARE HEREBY DISMISSED. 13. GROUND 1(III) : IN THIS GROUND, THE REVENUE HAS CHALLENGED THE ACTION OF LD.CIT(A) IN DELETING DISALLOWANCE OF RS. 12,50,00 BY TREATING THE 21 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD SAME AS CAPITAL EXPENDITURE AS AGAINST REVENUE EXPE NDITURE CLAIMED BY THE ASSESSEE. 14. THE BRIEF BACKGROUND IS THAT THE AO NOTED FROM THE PERUSAL OF SHARE HOLDERS ACCOUNT THAT ASSESSEE HAD CLAIMED STAMP DU TY CHARGES AMOUNTING TO RS.12,50,000 AS REVENUE EXPENDITURE. IT WAS NOTED BY THE AO THAT THESE CHARGES WERE DISALLOWED BY THE LD. CI T(A) IN A.Y. 2005-06 AND THUS RELYING UPON THE SAME, THESE WERE DISALLOW ED AS CAPITAL EXPENSES DURING THE YEAR WHICH WAS ALLOWED BY THE L D. CIT(A) HOLDING IT AS REVENUE EXPENSES. 15. DURING THE COURSE OF HEARING BEFORE US, IT WAS STAT ED BY THE LD. COUNSEL THAT THIS ISSUE IS ALSO COVERED IN FAVOUR O F THE ASSESSEE BY THE EARLIER ORDER OF THE TRIBUNAL. LD. CIT-DR DID NOT MAKE ANY DISTINCTION ON FACTS OF THE CASE. IT IS NOTED THAT IN THE APPEAL FOR A.Y. 2005-06, THE TRIBUNAL, VIDE ITS ORDER DATED 23-05-2014 HELD AS U NDER: 11. REGARDING GROUND 5 OF THE ASSESSEE APPEAL FOR THE AY 2005-06, LD COUNSEL MENTIONED THAT IT RELATES TO TH E 'ALLOWABILITY OF CLAIM OF STAMP DUTY EXPENDITURE IN CURRED IN EQUITY SHARE CAPITAL. IN THIS REGARD, BOTH PARTIES MENTIONED THAT THE AO/CIT(A) ARE OF THE OPINION THAT THE SAID EXPENDITURE IS NOT ALLOWABLE CONSIDERING THE CAPITAL NATURE OF THEM. HOWEVER, NOW THIS ISSUE HAS TO BE REDECIDED CONSIDE RING THE ORDER OF THE TRIBUNAL IN THE CASE OF HDFC STANDARD LIFE INSURANCE CO LTD (ITA 3004/M/2012 AND LIC, SUPRA. O N HEARING THE PARTIES, WE REMAND THIS ISSUE TO FILE OF THE AO FOR FRESH ADJUDICATION AFTER GRANTING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, RELEVANT CONCLU SIONS OF THE CIT(A) ARE SET ASIDE AND GROUND 5 IS REMANDED. SUBSEQUENTLY THE AO PASSED ORDER GIVING EFFECT TO T HE ORDER OF THE TRIBUNAL ON 29-11-2016, WHEREIN THE ISSUE SENT BACK BY THE TRIBUNAL TO 22 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD THE FILE OF THE AO HAS BEEN DECIDED IN FAVOUR OF TH E ASSESSEE BY OBSERVING AS UNDER:- 5. ALLOWABILITY OF CLAIM OF STAMP DUTY EXPENDITURE INCURRED IN EQUITY SHARE CAPITAL 5.1 THE AO DISALLOWED EXPENDITURE OF RS 1,16,44,000 /- DEBITED TO PROFIT AND LOSS ACCOUNT. THESE STAMP DUTY EXPENS ES ARE IN CONNECTION WITH RAISING OF ADDITIONAL CAPITAL. THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO. ON APPEA L, THE HON'BLE ITAT REMANDED THIS ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AFTER CONSIDERING THE ORDER OF THE TRI BUNAL IN THE CASE OF HDFC STANDARD LIFE INSURANCE CO LTD (ITA 30 04/M/2012) AND LIC (SUPRA). IN THE CASE OF HDFC STANDARD LIFE INSURANCE CO LTD (ITA 3004/M/2012), THE HON'BLE ITAT, MUMBAI HEL D AS UNDER. 'WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. WHILE DECIDING GROUND NO.1 TO 7 , WE HAVE HELD THAT INCOME OF THE ASSESSEE DOING THE BUS INESS 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 DE CIDED IN FAVOUR OF THE ASSESSEE. SO, ISSUE BEFORE US IS HELD TO BE ACADEMIC IN NATURE. WE ARE OF THE OPINION THAT ADS ARE NOT ALLOWED TO DISTURB THE ACTUARIAL VALUATION, AS HELD BY THE HON'BLE APEX COURT IN THE CASE OF LIFE INSURANCE CO RPORATION OF INDIA (SUPRA). THEREFORE, GROUND NO.11 IS ALLOWE D IN FAVOUR OF THE ASSESSEE FOR STATISTICAL PURPOSES. ' SO, IN VIEW OF THE ABOVE, THE AO IS NOT ALLOWED TO DISTURB THE ACTUARIAL VALUATION CARRIED OUT UNDER INSURANCE ACT , 1938, INCLUDING THE ALLOWABILITY OR OTHERWISE OR NATURE O F EXPENDITURE I.E. REVENUE OR CAPITAL. AFTER VERIFICATION OF THE SAME, THE SAID ADDITION IS TO BE DELETED. ON THE BASIS OF THE ABOVE, IT WAS STATED BY THE LD. COUNSEL THAT THIS ISSUE STANDS DECIDED BY THE AO IN FAVOUR OF THE ASSESSEE ON THE BASIS OF LEGAL PRINCIPLE BY RELYING UPON THE ORDERS OF THE TRIBUNA L IN THE CASE OF HDFC STANDARD LIFE INSURANCE CO LTD. UNDER THESE CIRCUM STANCES, IN THIS YEAR 23 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD ALSO, THERE WOULD BE NO POINT IN SENDING THE ISSUE BACK FOR FUTILE EXERCISE AS THE DECISION HAS ALREADY BEEN TAKEN, WHICH CAN B E APPLIED HERE ALSO. WE HAVE CONSIDERED THE REQUEST OF THE LD. COUNSEL. NO OBJECTION OR ANY CONTRARY ARGUMENT WAS MADE BY THE LD. CIT-DR IN THI S REGARD. THUS, UNDER THESE CIRCUMSTANCES, WE FIND THAT THERE WOULD NOT B E ANY REQUIREMENT TO SEND THIS ISSUE BACK TO THE FILE OF THE AO WHICH WO ULD BE A REDUNDANT EXERCISE SINCE THE ISSUE HAS ALREADY BEEN DECIDED I N FAVOUR OF THE ASSESSEE BY THE AO HIMSELF. THEREFORE, THE ADDITION IS DIRE CTED TO BE DELETED. AS A RESULT, GROUND 1(III) RAISED BY THE REVENUE IS DISM ISSED. 16. AS A RESULT, APPEAL OF THE REVENUE IS DISMISSED. 17. NOW, WE SHALL TAKE UP REVENUES APPEALS FOR AY 2 007-08 IN ITA NO.3170/MUM/2010 AND AY 2009-10 IN ITA NO. 4945/MUM /2012. 18. IT HAS BEEN JOINTLY STATED BY BOTH THE PARTIES THAT GROUNDS RAISED IN THESE APPEALS ARE IDENTICAL TO GROUNDS 1, 1(I), & 1 (II) OF REVENUES APPEAL FOR A.Y. 2002-03 AND THERE IS NO CHANGE IN FACTS OR LAW. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AND FIND THAT IDENTICAL ISSUES HAVE BEEN RAISED BY THE REVENUE. WE HAVE ALR EADY DISMISSED THE GROUNDS RAISED BY THE REVENUE. RESPECTFULLY FOLLOW ING THE SAME, APPEALS FILED BY THE REVENUE ARE DISMISSED IN THESE YEARS A S WELL. 19. NOW WE SHALL TAKE UP REVENUES APPEAL FOR A.Y. 2 010-11 IN ITA NO.2576/MUM/2014 WHICH HAS BEEN FILED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) )-2, MUMBAI [I N SHORT, CIT(A)] DATED 10-12-2010 PASSED AGAINST THE ASSESSMENT ORD ER DATED 11-12-2013 U/S 143(3) OF THE ACT FOR AY. 2010-11 ON THE FOLLOW ING GROUNDS:- 24 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) IS CORRECT IN HOLDING THA T THE INCOME FROM SHARE HOLDERS ACCOUNT OF RS. 98,70,47,844/ - H AS TO BE TREATED ON PAR WITH THE INCOME FROM THE INSURANCE B USINESS UNDER THE POLICY HOLDERS ACCOUNT TAXABLE U/S 44 OF THE LT. ACT'. 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN NOT APPRECIATING THAT NEGATIVE RESERVE HAS AN IMPACT OF REDUCING THE TAXABLE SURPL US AS PER FORM-I AND THEREFORE, CORRESPONDING ADJUSTMENT FOR NEGATIVE RESERVE NEED TO BE MADE TO ARRIVE AT TAXABLE SURPLU S?' 3.1 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERR D IN DIRECTING TO RE DUCE DIVIDEND INCOME (CLAIM BY THE ASSESSEE EXEMPT U/S 10(34) OF THE ACT) FROM INCOME COMPUTED IN ACCORDANCE WITH SCHEDULE I R.W.S. 44 OF THE ACT, DESPITE THE FACT THAT INCOME IN SCHEDULE 1 IS DETERMINED BY ACTUARY USING MATHEMATICAL FORMULAE AND PRINCIPL ES AND, DIVIDEND INCOME IS NOT PARTICULARLY INCLUDED IN THE SE CALCULATIONS?' 3.2 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DIRECTING TO RED UCE DIVIDEND INCOME (CLAIM BY THE ASSESSEE EXEMPT U/S 10(34) OF THE ACT) FROM INCOME COMPUTED IN ACCORDANCE WITH SCHEDULE 1 R.W.S. 44 OF THE ACT, DESPITE THE FACT THAT INCOME IN SCHEDUL E 1 IS DETERMINED UNDER NON-OBSTANTE CLAUSE OF SECTION 44 OF THE ACT'. 3.3 'WHETHER THE LD. CIT(A) IS CORRECT IN HOLDING T HAT THE PROVISIONS OF CHAPTER III OF THE LT. ACT PERTAINING TO EXEMPT INCOME AS PER SECTION 10 WAS AVAILABLE TO THE ASSES SEE DESPITE THE FACT THAT THE COMPUTATION OF TAXABLE INCOME OF THE ASSESSEE (LIFE INSURANCE COMPANY) WAS GOVERNED BY NON-OBSTAN TE PROVISION OF SECTION 44 OF THE LT. ACT WHICH INCLUD ES EVEN DIVIDEND INCOME UNDER THE HEAD INCOME FROM OTHER SO URCES TO BE DEALT AS PER RULES CONTAINED IN THE FIRST SCHEDULE OF THE I.T. ACT? 4. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD.CIT(A) IS CORRECT IN DELETING TH E DISALLOWANCE U/S 14A OF THE ACT MADE BY THE ASSESSING OFFICER IN ACCORDANCE WITH THE RULE 8D?' 25 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD 20. GROUND 1: THIS GROUND IS IDENTICAL TO GROUND 1 OF REVENUES APPEAL FOR AY 2002-03 WHEREIN WE HAVE REJECTED THE GROUND RAISED BY THE REVENUE. RELYING UPON OUR ORDER FOR AY 2002-03, THI S GROUND IS DISMISSED. 21. GROUND 2: IN THIS GROUND, THE REVENUE HAS CHALLENGED THE ACT ION OF LD. CIT(A) IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF NEGATIVE RESERVE. DURING THE COURSE OF HEARING, T HE LD. CIT-DR CONTENDED THAT THE LD.CIT(A) ERRED IN NOT APPRECIAT ING THAT NEGATIVE RESERVE HAS AN IMPACT OF REDUCING THE SURPLUS AS PE R FORM-I AND, THEREFORE, CORRESPONDING ADJUSTMENTS FOR NEGATIVE R ESERVE NEED TO BE MADE TO ARRIVE AT TAXABLE SURPLUS. 22. PER CONTRA, THE LD. COUNSEL SUBMITTED THAT THIS ISS UE HAS ALSO BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL I N ITS ORDER DATED 23-05- 2014 PASSED IN ASSESSEES OWN CASE . 23. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AS WELL AS THE ORDER OF THE TRIBUNAL FOR EARLIER YE ARS. THE BRIEF BACKGROUND IS THAT THE AO WAS OF THE VIEW THAT THE ASSESSEE TO OK AN UNDUE ADVANTAGE BY REDUCING ITS TAXABLE SURPLUS BY THE AMOUNT OF NE GATIVE RESERVE, VALUE OF WHICH WAS TAKEN AT ZERO. IN THE APPELLATE PROCE EDINGS BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED THAT INCOME OF THE A SSESSEE WAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTI ON 44 OF THE ACT WHICH OVERRIDES ALL THE GENERAL PROVISIONS FOR COMP UTATION OF INCOME FROM BUSINESS CONTAINED IN SECTIONS 28 TO 43B OF THE ACT . IT WAS ALSO SUBMITTED THAT COMBINED READING OF SECTION 44 OF THE ACT WITH RULE 2 OF FIRST SCHEDULE OF THE ACT MAKES IT CLEAR THAT SURPLUS OR DEFICIT DISCLOSED BY THE ACTUARIAL VALUATION MADE IN ACCORDANCE WITH INSURAN CE ACT, 1938 IS THE 26 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD SOLE BASIS FOR COMPUTATION OF INCOME FROM LIFE INSU RANCE BUSINESS, AND THESE PROVISIONS DO NOT PERMIT ANY ADJUSTMENT TO BE MADE EXCEPT ADJUSTMENT FOR SURPLUS / DEFICIT IN THE LAST VALUAT ION REPORT SO AS TO ARRIVE AT THE INCREMENTAL SURPLUS / DEFICIT FOR THE VALUAT ION PERIOD. LD. CIT(A) CONSIDERED ALL THE PROVISIONS AS ALSO THE LEGAL POS ITION IN DETAIL IN THIS REGARD AND PARTLY ALLOWED THE GROUND OF THE ASSESSE E BY OBSERVING AS UNDER:- 4.13. I HAVE CAREFULLY EXAMINED THE FACTS OF THE C ASE, THE STAND TAKEN BY THE A.O. IN THE ASSESSMENT ORDER, THE GROU NDS OF APPEAL AND THE SUBMISSIONS FILED BY THE APPELLANT COMPANY DURING THE APPELLATE PROCEEDINGS. THE SAME ISSUE WAS EVALUATED BY ME FOR THE ASSESSEE'S APPELLATE PROCEEDINGS FOR AY 2003-04 . I WOULD LIKE TO REITERATE THOSE FINDINGS HERE WAS WELL. IT IS SEEN THAT THE HON'BLE SUPREME COURT IN THE CA SE OF LIFE INSURANCE CORPORATION OF INDIA VIS CIT, DELHI AND R AJASTHAN [5IITR0773] HAS DEALT WITH THE ISSUE OF MATHEMATICA L RESERVE, WHICH MAY BE NEGATIVE, IS CALLED 'NEGATIVE RESERVE' , WHERE THE VALUE OF FUTURE INCOME EXTENDS THE VALUE OF ESTIMAT ED LIABILITIES. HOWEVER, IN TERMS OF REGULATIONS GOVERNING THE INSU RANCE BUSINESS, SUCH A NEGATIVE RESERVE HAS TO BE IGNORED AND HAS TO BE TAKEN AS ZERO. THE HON'BLE SUPREME COURT HAS IN THE CASE OF LIC (SUPRA), HELD THAT THE ASSESSING OFFICER SHALL NOT DISTURB SUCH ACCOUNTING METHODOLOGY WHICH IS REGULATED UNDER THE INSURANCE ACT. AS ALSO CITED BY THE APPELLANT COMPANY, THE HO N'BLE MUMBAI TRIBUNAL IN THE CASE OF ICICI PRUDENTIAL INS URANCE CO. LTD. (SUPRA) HAS CITED THE DECISION OF THE HON'BLE SUPREME COURT [51 ITR 773] AND HELD THAT THERE IS NO SCOPE FOR TH E ASSESSING OFFICER TO MAKE ANY ADJUSTMENT AFTER THE ACTUARIAL VALUATION IS DONE. BY RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT, MY PREDECESSOR CIT(A) VIDE ORDER NO CIT(A)- XXILACIT1(3)/IT- 111/08-09 DATED 18.08.2009 FOR AY 2006-07 HAS ALLOWED THE APPEAL OF THE APPELLANT COMPANY ON THIS ISSUE. THEREFORE, I HAVE NO REASON TO DIFFER WITH MY DECIS ION AND THAT OF MY PREDECESSOR, SINCE THE FACTS ARE IDENTICAL AND T HE DECISION IS RENDERED IN THE APPELLANT COMPANY'S OWN CASE. ACCOR DINGLY, THE 27 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD ADDITION MADE BY THE AO, ON ACCOUNT OF INCREMENTAL NEGATIVE RESERVE IS HEREBY DELETED. 24. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSEL SUBMITTED THAT THIS ISSUE WAS SENT BACK TO THE FILE OF THE AO IN A Y. 2005-06 WHEREIN FRESH ASSESSMENT ORDER HAS BEEN PASSED BY THE AO AND THIS CLAIM HAS BEEN ALLOWED ON LEGAL PRINCIPLE. THEREFORE, FOLLOWING T HE SAME IN THIS YEAR ALSO, IT CAN BE ALLOWED RIGHT HERE AND THE FUTILE EXERCIS E OF SENDING IT BACK TO THE AO CAN BE AVOIDED IN THE INTEREST OF JUSTICE. COPY OF ORDER PASSED BY THE AO HAS BEEN PROVIDED TO THE LD. CIT-DR AND AFTE R READING THE SAME HE RAISED NO SERIOUS OBJECTION AND DID NOT POINT OUT A NY DISTINCTION OR CONTRADICTION IN THE FACTS FOR AY 2005-06 AND THE Y EAR BEFORE US. 25. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AND ORDER OF THE TRIBUNAL AS WELL AS THE FRESH ORDE R PASSED BY THE AO FOR AY 2005-06. IT IS NOTED THAT THE TRIBUNAL, VIDE IT S ORDER DATED 23-05-2014 OBSERVED AS UNDER: IN CONNECTION WITH ISSUE AT (D) ABOVE, IT IS THE C LAIM OF THE ASSESSEE THAT THE SAME IS REQUIRED TO BE ADJUDICATE D CONSIDERING THE DECISIONS OF THE TRIBUNAL IN THE CASE OF ICICI PRUDENTIAL INSURANCE, SUPRA AND LIC, SUPRA. THESE DECISIONS AR E NOT IN EXISTENCE AT THE RELEVANT POINT OF TIME. CONSIDERIN G THESE NEW DEVELOPMENTS, WE DIRECT THE AO TO RE-ADJUDICATE THE SAME AFTER CONSIDERING THE SAID DECISIONS AND THE AFTER GRANTI NG REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDI NGLY, WE PARTLY ALLOW THE RELEVANT GROUNDS FOR STATISTICAL P URPOSE. IT IS FURTHER NOTICED BY US THAT PURSUANCE TO THE A FORESAID ORDER, THE AO PASSED FRESH ASSESSMENT ORDER FOR AY. 2005-06 DATED 30-11-2016 BY OBSERVING AS UNDER:- 28 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD 3. IN THE MEAN TIME, THE CASE WAS REOPENED ON 25-0 3-2010 AND A NOTICE U/S 148 OF THE ACT WAS ISSUED ON 25-03-201 0. WHILE COMPLETING RE-ASSESSMENT PROCEEDINGS U/S 143(3) R.W .S 147 OF THE ACT ON 13-12-2010, THE ASSESSING OFFICER HAS AD DED INCREMENTAL NEGATIVE RESERVES OF RS 8,17,92,0001-, AS THE SAME WAS NOT CONSIDERED AS PART OF ACTUARIAL SURPLUS ARR IVED AT AS PER ACTUARIAL VALUATION, FOR THE PURPOSE OF COMPUTING I NCOME FROM LIFE INSURANCE BUSINESS AS PER PROVISIONS OF SECTIO N 44 READ WITH RULE 1 & 2 OF THE FIRST SCHEDULE OF INCOME-TAX ACT, 1961. 4. THE ASSESSEE FILED APPEAL BEFORE CIT(A) CHALLENG ING THE REOPENING OF ASSESSMENT AS WELL AS ADDITION ON ACCO UNT OF NEGATIVE RESERVES OF RS. 8,17,92,000/-. THE CIT(A) IN HIS ORDER IN APPEAL NO. CIT(A)-2/IT-114/2010-11 AND DATED 19-12- 2011 DISMISSED THE APPEAL OF THE ASSESSEE ON BOTH THE GR OUNDS OF APPEAL. 5. AGAINST THE ORDER OF CIT(A), THE ASSESSEE WENT I NTO APPEAL BEFORE ITAT. THE HON'BLE ITAT, MUMBAI VIDE ITS ORDE R IN APPEAL NO. ITA NO. 16841M12012 DATED 19-06-2015 DISPOSED T HE APPEAL OF THE ASSESSEE. THE HON'BLE IT AT UPHELD TH E REOPENING OF ASSESSMENT U/S 148 OF THE ACT. THE ITA T RESTORE D THE ISSUE ON NEGATIVE RESERVES TO THE FILE OF THE AO TO DECIDE T HE SAME IN THE LIGHT OF DIRECTIONS GIVEN BY THE TRIBUNAL FOR ADJUD ICATING THE ISSUE FOR SUBSEQUENT YEAR I.E. AY 2006-07 VIDE ITA NO. 5670/M/2009 IN ASSESSEE'S OWN CASE DECIDED ON 23-05 -2014 ALONG WITH OTHER APPEALS OF THE ASSESSEE BEARING NO . 38001M12008, 3801/M/2008, 1501/M/2008 AND CORRESPON DING CROSS APPEALS OF THE REVENUE, WHEREIN THE TRIBUNAL RESTORED THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION AFTER CONSIDERING THE DECISION OF ITA T, MUMBAI IN THE CA SE OF ICICI PRUDENTIAL INSURANCE CO. LTD (ITA NO. 6854/M/2010) AND LIC VS ADDL. CIT (ITA NO. 6221/M/2012). 6. IN THIS REGARD, THE DECISION OF THE TRIBUNAL ON THE ISSUE OF TREATMENT OF NEGATIVE RESERVES IN THE CASE OF ICICI PRUDENTIAL INSURANCE CO. LTD (ITA NO. 6854/M/2010) IS REPRODUC ED AS UNDER:- '56. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOL LOWING THREE GROUNDS: '1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN NOT SUBJECTING THE NEG ATIVE 29 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD RESERVE AMOUNTING TO RS 27.27 CRORES IGNORING THE F ACTS THAT NEGATIVE RESERVE HAS AN IMPACT OF REDUCING THE TAXABLE SURPLUS AS PER FORM-L ........... 57. GROUND NO. 1 IS ON THE ISSUE OF TREATING NEGATI VE RESERVE AND DISALLOWING THE AMOUNT. WHILE COMPLETING THE ASSESS MENT OF LIFE INSURANCE BUSINESS THE AD, AFTER TAKING THE TOTAL S URPIUS FROM FORM-I, REDUCED THE NEGATIVE RESERVE AMOUNTING TO R S 27.27 CRORES. ASSESSEE SUBMITTED BEFORE THE CIT(A) AS UNDER: - METHOD OF DETERMINATION OF MATHEMATICAL RESERVES - (1) . MATHEMATICAL RESERVES SHALL BE DETERMINED SEP ARATELY FOR EACH CONTRACT BY A PROSPECTIVE METHOD OF VALUAT ION IN ACCORDANCE WITH SUB-PARAS (2) TO (4). (2) THE VALUATION METHOD SHALL TAKE INTO ACCOUNT AL L PROSPECTIVE CONTINGENCIES WHICH ANY PREMIUMS (BY TH E POLICYHOLDER) OR BENEFITS (TO THE POLICYHOLDER/BENE FICIARY) MAY BE PAYABLE UNDER THE POLICY, AS DETERMINED BY THE P OLICY CONDITIONS. THE LEVEL OF BENEFITS SHALL TAKE INTO A CCOUNT THE REASONABLE EXPECTATIONS OF POLICYHOLDERS (WITH REGA RD TO BONUSES, INCLUDING TERMINAL BONUSES, IF ANY) AND AN Y ESTABLISHED PRACTICES OF AN INSURER FOR PAYMENT OF BENEFITS. (3) THE VALUATION METHOD SHALL TAKE INTO ACCOUNT TH E COST OF ANY OPTIONS THAT MAY BE AVAILABLE TO THE POLICYHOLD ER UNDER THE TERMS OF THE CONTRACT. (4) THE DETERMINATION OF THE AMOUNT OF LIABILITY UN DER EACH POLICY SHALL BE BASED ON PRUDENT ASSUMPTIONS OF ALL RELEVANT PARAMETERS. THE VALUE OF EACH SUCH PARAMETER SHALL BE BASED ON THE INSURER'S EXPECTED EXPERIENCE AND SHAL L INCLUDE AN APPROPRIATE MARGIN FOR ADVERSE DEVIATIONS (HEREI NAFTER REFERRED TO AS MAD) THAT MAY RESULT IN AN INCREASE IN THE AMOUNT OF MATHEMATICAL RESERVES. (5) (1) THE AMOUNT OF MATHEMATICAL RESERVE IN RESPE CT OF A POLICY, DETERMINED IN ACCORDANCE WITH SUB-PARA (4), MAY BE NEGATIVE (CALLED 'NEGATIVE RESERVES') OR LESS THAN THE GUARANTEED SURRENDER VALUE AVAILABLE (CALLED 'GUARA NTEED SURRENDER VALUE DEFICIENCY RESERVES') AT THE VALUAT ION DATE . 30 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD THE APPOINTED ACTUARY SHALL, FOR THE PURPOSE OF SEC TION 35 OF THE ACT, USE THE AMOUNT OF SUCH MATHEMATICAL RESERV ES WITHOUT ANY MODIFICATION. THE APPOINTED ACTUARY SHALL, FOR THE PURPOSE OF SEC TIONS 13, 49, 64VAND 64VA OF THE ACT, SET THE AMOUNT OF SUCH MATHEMATICAL RESERVE TO ZERO, IN CASE OF SUCH NEGAT IVE RESERVE, OR TO THE GUARANTEED SURRENDER VALUE, IN C ASE OF SUCH GUARANTEED SURRENDER VALUE DEFICIENCY RESERVES , AS THE CASE MAY BE. (6) THE VALUATION METHOD SHALL BE CALLED 'GROSS PRE MIUM METHOD'. (7) IF IN THE OPINION OF THE APPOINTED ACTUARY, A M ETHOD OF VALUATION OTHER THAN THE GROSS PREMIUM METHOD OF VA LUATION IS TO BE ADOPTED, THEN, OTHER APPROXIMATIONS (E.G. RETROSPECTIVE METHOD) MAY BE USED. PROVIDED THAT THE AMOUNT OF CALCULATED RESERVE IS E XPECTED TO BE AT LEAST EQUAL TO THE AMOUNT THAT SHALL BE PRODU CED BY THE APPLICATION OF GROSS PREMIUM METHOD. (8) THE METHOD OF CALCULATION OF THE AMOUNT OF LIAB ILITIES AND THE ASSUMPTIONS FOR THE VALUATION PARAMETERS SHALL NOT BE SUBJECT TO ARBITRARY DISCONTINUITIES FOR ONE YEAR T O THE NEXT. (9) THE DETERMINATION OF THE AMOUNT OF MATHEMATICAL RESERVES SHALL TAKE INTO ACCOUNT THE NATURE AND TER M OF THE ASSETS REPRESENTING THOSE LIABILITIES AND THE VALUE PLACED UPON THEM AND SHALL INCLUDE PRUDENT PROVISION AGAINST TH E EFFECTS OF POSSIBLE FUTURE CHANGES IN THE VALUE OF ASSETS ON T HE ABILITY TO THE INSURER TO MEET ITS OBLIGATIONS ARISING UNDER P OLICIES AS THEY ARISE. MANDATE TO APPOINTED ACTUARY UNDER REGULATION SUB-RULE 4 MANDATES APPOINTED ACTUARY TO HAVE PRUDE NT ASSUMPTION OF ALL RELEVANT PARAMETERS AND TO INCLUD E AN APPROPRIATE MARGIN FOR ADVERSE DEVIATIONS THAT MAY RESULT IN AN INCREASE IN THE AMOUNT OF MATHEMATICAL RESERVES. SUB-RULE 5 DEFINES SUCH MARGIN AS 'NEGATIVE RESERVE ', WHICH IS BEING DISCLOSED IN COLUMN 6 OF THE FORM 1. FURTHER, CLAUSE (III) TO SUB-RULE 5 MANDATES APPOIN TED ACTUARY TO PROVIDE FOR NEGATIVE RESERVE IN MATHEMATICAL RES ERVE, ACCORDINGLY NOT TO INCLUDE IN DISTRIBUTABLE SURPLUS AS PER SECTION 49 OF THE INSURANCE ACT, 1938. 31 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD CLAUSE (II) TO SUB-RIFLE 5 MANDATES APPOINTED ACTUA RY TO INCLUDE NEGATIVE RESERVE IN MATHEMATICS RESERVE. ON LY AT THE TIME OF AMALGAMATION AND TRANSFER OF INSURANCE BUSI NESS AND OTHERWISE. TAXABLE SURPLUS SINCE TAXATION OF LIFE INSURANCE BUSINESS IS ON SUR PLUS DISCLOSED AS PER SECTION 49 WHICH IS COVERED BY RUL E 2 (5)(III), WHERE IN APPOINTED ACTUARY IS MANDATED TO ARRIVE AT SURPLUS AFTER EXCLUDING NEGATIVE RESERVE. IN VIEW OF THE ABOVE WE HUMBLY SUBMIT BEFORE YOUR G OODSELF TO KINDLY NOT TREAT NEGATIVE RESERVE AS TAXABLE. SU B-RULE 4 MANDATES APPOINTED ACTUARY TO HAVE PRUDENT ASSUMPTI ON OF ALL RELEVANT PARAMETERS AND TO INCLUDE AN APPROPRIA TE MARGIN FOR ADVERSE DEVIATIONS THAT MAY RESULT IN AN INCREA SE IN THE AMOUNT OF MATHEMATICAL RESERVES. ' 58. THE CIT(A), IN HIS BRIEF ORDER VIDE PARA 17, CO NSIDERED THE DETAILED EXPLANATION ABOVE AND ACCEPTED THAT THE NE GATIVE RESERVE DISCLOSED IN FORM-1 DOES NOT GIVE RISE TO D ISTRIBUTABLE SURPLUS. ACCORDINGLY HE DISALLOWED THE SAME. 59. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND EXA MINING THE METHOD OF ACCOUNTING AND THE MANDATE GIVEN BY REGUL ATIONS TO APPOINT ACTUARIAL ON THE CONCEPT OF MATHEMATICAL RESERVES, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDE R OF THE CIT(A). THE MATHEMATICAL RESERVE IS PART OF ACTUARI AL VALUATION AND THE SURPLUS AS DISCUSSED IN FORM-I UNDER REGULA TION 4 TAKES INTO CONSIDERATION THIS MATHEMATICAL RESERVE ALSO. THEREFORE THE ORDER OF THE CIT(A) IS APPROVE. MOREO VER THE ASSESSING OFFICER HAS NO POWER TO MODIFY THE AMOUNT AFTER ACTUARIAL VALUATION WAS DONE, WHICH WAS THE BASIS F OR ASSESSMENT UNDER RULE 2 OF 1ST SCHEDULE R.W.S. 44 O F THE 1 T. ACT. THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREM E COURT IN LIC VS. CIT 512 ITR 773 ABOUT THE POWERS OF ASSESSI NG OFFICER ALSO RESTRICTS THE SCOPE AND ADJUSTMENTS BY THE A O . IN VIEW OF THIS WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE REVENUE GROUND. ' 7. AS CAN BE SEEN ABOVE, THE HON'BLE ITAT, MUMBAI H ELD THAT MATHEMATICAL RESERVE, WHICH IS DEBITED ON EXPENSE S IDE OF THE PROFIT AND LOSS ACCOUNT, IS COMPUTED AS PER THE INS URANCE REGULATIONS, AS PER WHICH NEGATIVE RESERVE IS TO BE IGNORED WHILE 32 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD ARRIVING AT THE MATHEMATICAL RESERVE AND AS THE ASS ESSING OFFICER HAS NO POWER TO MODIFY THE AMOUNT AFTER ACT UARIAL VALUATION WAS DONE, WHICH IS THE BASIS OF ASSESSMEN T UNDER RULE 2 OF FIRST SCHEDULE READ WITH SECTION 44 OF THE INC OME-TAX ACT, 1961. IN VIEW OF THE SAME, AFTER GOING THROUGH THE DECISION OF ITAT, MUMBAI IN THE CASE OF ICICI PRUDENTIAL INSURA NCE CO. LTD (SUPRA), THE NEGATIVE RESERVE CANNOT BE ADDED BACK WHILE COMPUTING THE INCOME OF LIFE INSURANCE BUSINESS OF THE ASSESSEE COMPANY UNDER SECTION 44 R.W. RULE 1 & 2 OF THE FIR ST SCHEDULE TO THE INCOME-TAX ACT, 1961. SO, THE ADDITION OF RS . 8,17,92,000/- MADE BY THE AO ON ACCOUNT OF NEGATIVE RESERVES IS T O BE DELETED IN PURSUANCE OF DIRECTIONS GIVEN BY THE HON'BLE ITA T, MUMBAI. 26. THUS, FROM THE ABOVE, IT IS CLEAR THAT THE AO HAS H IMSELF TOOK A DECISION THAT THE NEGATIVE RESERVES CANNOT BE ADDED BACK WHILE COMPUTING THE INCOME OF LIFE INSURANCE ASSESSEE COM PANY U/S 44 READ WITH RULES 1 & 2 OF FIRST SCHEDULE OF THE INCOME-TA X ACT, 1961. UNDER THESE CIRCUMSTANCES, WE FIND THAT NO DISPUTE IS LEF T ON THIS ISSUE. THEREFORE, WE FIND THAT ADDITION HAS BEEN RIGHTLY D ELETED BY THE LD. CIT(A) ON THE BASIS OF HIS WELL REASONED FINDINGS. NO INT ERFERENCE IS CALLED FOR IN HIS ORDER FROM US. THUS, THE ORDER OF THE LD. CIT( A) IS UPHELD AND GROUND 2 IS DISMISSED. 27. GROUNDS 3.1 TO 3.3: IN THESE GROUNDS, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DIRECTING TO GRANT BENEFIT OF EXEMPTION U/S 10(32) ON DIVIDEND INCOME RECEIVED BY THE ASSESSEE DURING THE YEAR. 28. THE BRIEF BACKGROUND OF THE ISSUE IS THAT AS PER TH E ASSESSING OFFICER MANNER OF THE COMPUTATION OF PROFIT OF ANY BUSINESS OF LIFE INSURANCE IS LAID DOWN IN SECTION 44 OF THE ACT WHICH OVER RIDE THE NORMAL PROVISIONS OF THE ACT FOR COMPUTATION OF INCOME. THUS, INCOME SO COMPUTED U/S 44 OF THE ACT IS TAXED AT SPECIAL RATES ON WHICH THE TAX PAYABLE BY THE ASSESSEE IS AT LOWER RATE. IN VIEW OF THE ABOVE FACTS, THE EXEM PTION U/S 10(34) OF THE 33 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD INCOME TAX ACT IS NOT AVAILABLE TO THE ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF LIFE INSURANCE. 29. IN THE APPEAL BEFORE THE LD. CIT(A), IT WAS SUBMIT TED BY THE ASSESSEE IN DETAIL THAT DIVIDEND INCOME IS EXEMPT B Y VIRTUE OF SECTION 10(34) OF THE ACT. IT IS CORRECT THAT SECTION 44 OV ERRIDES SECTIONS 28 TO 43B, BUT DIVIDEND IS NOT EXEMPT UNDER THESE SECTIONS. T HEREFORE, IT IS INDEPENDENT OF THESE PROVISIONS AND AVAILABLE FOR S EEKING EXEMPTION WHILE COMPUTING THE INCOME OF LIFE INSURANCE BUSINESS U/S 44 OF THE ACT. IN SUPPORT OF ITS ARGUMENT, THE ASSESSEE PLACED RELIAN CE ON THE VARIOUS JUDGMENTS. LD. CIT(A) CONSIDERED THE FACTS OF THE CASE AND ANALYSED THE LEGAL POSITION WITH THE HELP OF THESE JUDGMENTS AND HELD THAT BENEFIT OF EXEMPTION U/S 10(34) UPON THE DIVIDEND INCOME WAS A VAILABLE TO THE ASSESSEE. RELEVANT PART OF LD. CIT(A)S ORDER IS R EPRODUCED HEREIN BELOW:- 5.8 I HAVE EXAMINED THE FACTS OF THE CASE, THE STA ND TAKEN BY THE A.O. IN THE ASSESSMENT ORDER AND THE CONTENTION S OF THE APPELLANT. I AM IN AGREEMENT WITH THE CONTENTION O F THE APPELLANT THAT SECTION 10(34) IS INDEPENDENT OF THE PROVISIONS OF SECTION 44 OF THE INCOME TAX ACT, 1961. THEREFORE, WHILE CALCULATING THE INCOME OF A LIFE INSURANCE BUSINESS AS PER THE RULE 2 OF THE FIRST SCHEDULE IT IS CONSIDERED BY THE ACT UARY FOR CALCULATING THE SURPLUS OF SUCH BUSINESS. HENCE, BY VIRTUE OF SECTION 10(34) OF THE INCOME TAX ACT, 1961 THE EXEM PTION IS AVAILABLE TO THE ASSESSEE WHILE COMPUTING THE TAXAB LE INCOME. ALSO, THE SAME VIEW IS APPROVED BY THE HON'BLE HIGH COURT OF BOMBAY IN CASE OF LIFE INSURANCE CORPORATION OF IND IA VS. COMMISSIONER OF INCOME TAX REPORTED IN 115 ITR 45 ( BORN), HON BLE MUMBAI TRIBUNAL IN THE CASE OF ICICI PRUDENTIA L INSURANCE CO. LTD VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCL E- 6(1),(2012- TIOL-580-ITAT-MUM-ITA NO. 7765/MUM/2010) AND HONBLE MUMBAI TRIBUNAL IN THE CASE OF SBI LIFE VS COMMISSI ONER OF INCOME TAX - 1, MUMBAI, (2013-TIOL-681-ITAT-MUM, IT A NO.6366/ MUM/2011). HENCE, RESPECTFULLY FOLLOWING T HE 34 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD JUDGMENTS (SUPRA), I AM IN AGREEMENT WITH THE CONTE NTIONS OF THE APPELLANT. ACCORDINGLY, THE ADDITION MADE BY AS SESSING OFFICER ON ACCOUNT OF 'DIVIDEND INCOME' IS HEREBY D ELETED. 30. DURING THE COURSE OF HEARING BEFORE US, IT WAS STAT ED BY THE LD. COUNSEL THAT THIS ISSUE HAS BEEN EXAMINED BY THE TR IBUNAL IN ASSESSEES OWN CASE IN ITS ORDER DATED 23-05-2014 WHEREIN THE TRIBUNAL PRINCIPALLY DECIDED THE ISSUE IN FAVOUR OF ASSESSEE, BUT SENT I T BACK TO THE AO FOR THE LIMITED PURPOSE OF VERIFICATION OF FACTS. IN PURSU ANCE TO THE SAME, THE AO PASSED ORDER GIVING APPEAL EFFECT ON 29-11-2016, WH EREIN HE AFTER VERIFICATION OF THE FACTS IN DETAIL AND AFTER EXAMI NING THE JUDGMENTS OF THE TRIBUNAL DECIDED THIS ISSUE IN FAVOUR OF THE ASSES SEE BY ALLOWING BENEFIT OF EXEMPTION U/S 10(34), 1038) AS WELL AS 10(23AAB). IT WAS REQUESTED THAT IN VIEW OF THESE FACTS AND CIRCUMSTANCES, THIS ISSU E SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. 31. PER CONTRA, THE LD. DR DID NOT MAKE OUT ANY DISTINC TION ON FACTS OR LAW. 32. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, FACTS OF THE CASE, EARLIER ORDER OF THE TRIBUNAL AS WELL AS ORDER GIVING APPEAL EFFECT PASSED BY THE AO AS WAS BROUGHT BEFORE US. IT IS NOTED THAT IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL WHICH W AS SENT BACK TO THE FILE OF THE AO AFTER DECIDING THE ISSUE PRINCIPALLY IN F AVOUR OF THE ASSESSEE. IN THE ORDER GIVING APPEAL EFFECT PROCEEDINGS, THE AO VERIFIED THE FACTS AND GRANTED THE BENEFIT OF EXEMPTION WITH FOLLOWING OBS ERVATIONS:- 6. EXCLUSION FROM TOTAL INCOME THE EXEMPTED INCOME U/S 10(34), 10(38) AND 10(23AAB) OF THE ACT 6.1 THE AO INCLUDED INCOME EXEMPTED D/S 10(34), 10( 38) AND 10(23AAB) OF THE ACT WHILE COMPUTING THE TOTAL INCO ME OF THE ASSESSEE COMPANY. THE CIT(A) ALLOWED THE CLAIM OF T HE ASSESSEE. 35 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD THE DEPARTMENT WENT INTO APPEAL BEFORE IT AT ON THI S ISSUE. THE IT AT DIRECTED THE AO TO RE-ADJUDICATE THE MATTER K EEPING IN VIEW THE DECISIONS OF HON'BLE ITAT, MUMBAI IN THE CASE O F ICICI PRUDENTIAL INSURANCE VS ACIT VIDE ITA NOS. 6854 TO 6856, 7765 AND NL3/MUM/20L0 AND LIC VS CIT (115 ITR 45,51 ITR 773 AND 119 ITR 900). 6.2 IN THE CASE OF ICICI PRUDENTIAL INSURANCE VS AC IT VIDE ITA NOS. 6854 TO 6856, 7765 AND 7213 UM/20LO, THE HON'BLE IT AT, MUMBAI HELD AS UNDER:- '49. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWIN G THE SAME, WE HOLD THAT ASSESSEE IS ENTITLED TO EXEMPTIO N 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(23AA B) OF SURPLUS OF PARTICIPATING PENSION BUSINESS AND ALSO DIVIDEND UNDER SECTION 10(34). ACCORDINGLY REVENUE HIS ISSUE IS REJECTED. ' 6.3 IN VIEW OF THE ABOVE, THE CLAIM OF THE ASSESSEE COMPANY U/S 10(34), 10(38) AND 10(23AAB) ARE TO BE EXCLUDED BEF ORE COMPUTATION OF INCOME FROM LIFE INSURANCE BUSINESS UNDER SECTION 44 READ WITH RULE 1 & 2 OF THE FIRST SCHEDU LE OF THE ACT. THIS ISSUE WAS ALREADY DECIDED IN FAVOUR OF THE ASS ESSEE AS PER THE DECISION AND DIRECTIONS OF THE CIT(A) AND MADE PART OF THE ORDER GIVING TO APPELLATE ORDER OF CIT(A) 1154 OF T HE ACT, AS MENTIONED ABOVE. 33. WE HAVE GONE THROUGH THE ORDER PASSED BY LD. CIT(A ) ALSO AND FIND THAT THE BENEFIT OF EXEMPTION WAS GRANTED BY THE LD . CIT(A) RELYING UPON THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN T HE CASE OF LIFE INSURANCE CORPORATION OF INDIA VS CIT 115 ITR 45 (B OM) AS WELL AS JUDGEMENT OF MUMBAI BENCH OF THE TRIBUNAL IN THE CA SE OF ICICI PRUDENTIAL INSURANCE CO LTD VS ACIT (SUPRA). THE AO IN ORDER GIVING EFFECT HAS ALSO GRANTED RELIEF TO THE ASSESSEE BY RELYING UPON THES E JUDGEMENTS. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND IT NECESSARY TO INTERFERE IN THE FINDING 36 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD OF LD. CIT(A) AND, THEREFORE, THE ORDER OF THE LD.C IT(A) IS UPHELD. THESE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 34. GROUND 4: IN THIS GROUND, THE REVENUE IS AGGRIEVED BY THE ACT ION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO U/S 14A ON THE BASIS OF RULE 8D. 35. THE BRIEF BACKGROUND OF THE MATTER IS THAT IN THE A SSESSMENT ORDER IT WAS STATED BY THE AO THAT IN CASE THE ASSESSEE I S ALLOWED THE BENEFIT OF EXEMPTION U/S 10(34) AT ANY STAGE, IN THAT CASE DIS ALLOWANCE U/S 14A WOULD BE REQUIRED TO BE MADE IN ACCORDANCE WITH LAW . IN THE APPEAL BEFORE LD. CIT(A), IT WAS STATED BY THE ASSESSEE TH AT THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ORIENTAL INSURANCE CO LTD V S ACIT (ITA NO.5462 & 5463/DEL/2003 HAS HELD THAT DISALLOWANCE U/S 14A OF THE ACT IS NOT ATTRACTED IN THE CASE OF INSURANCE COMPANY DUE TO S PECIAL PROVISIONS OF SECTION 44 OF THE INCOME-TAX ACT BEING APPLICABLE T O SUCH COMPANIES. UNDER THESE CIRCUMSTANCES, IT WAS REQUESTED THAT NO DISALLOWANCE WAS MADE U/S 14A. THE LD. CIT(A) CONSIDERED THE FACTS OF THE CASE AND VARIOUS JUDGEMENTS AVAILABLE ON THIS ISSUE AND HELD THAT NO DISALLOWANCE WAS REQUIRED TO BE MADE U/S 14A. DISALLOWANCE MADE BY T HE AO WAS DIRECTED TO BE DELETED WITH FOLLOWING OBSERVATIONS:- 6.8. I HAVE EXAMINED THE FACTS OF THE CASE, THE ST AND TAKEN BY THE A.O. IN THE ASSESSMENT ORDER AND THE CONTENTION S OF THE APPELLANT. LIFE INSURANCE IS GOVERNED BY THE PROVIS ION OF SECTION 44 OF THE INCOME TAX ACT, 1961. THE HON'BLE DELHI T RIBUNAL IN THE CASE OF ORIENTAL INSURANCE COMPANY LTD VS. ACIT (20 09-TIOL-172- ITAT-DEL -ITA NO.5462 & 54631 DEL/03), CATEGORICALL Y HELD THAT DISALLOWANCE UNDER SECTION 14 A OF THE IT ACT IS NO T ATTRACTED IN CASE OF AN INSURANCE COMPANY DUE TO SPECIAL PROVISI ONS OF SECTION 44 OF THE IT ACT APPLICABLE TO SUCH COMPANI ES FOR CALCULATING THE TAXABLE INCOME. SAME VIEW WAS ALSO CONFIRMED IN THE CASES OF THE LIFE INSURANCE CORPORATION OF INDI A, VS. ADDL. 37 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD COMMISSIONER OF INCOME TAX, RANGE - 1(2), 2013 (TIO L-275-ITAT- MUM); AND ICICI PRUDENTIAL INSURANCE CO. LTD VS. AS STT. COMMISSIONER OF INCOME TAX CIRC1E-6(1), (2012-TIOL- 580-ITAT- MUM-ITA NO. 68541MUM120 1 0). SINCE, I HAVE NO REAS ON TO DIFFER FROM THE ABOVE JUDICIAL DECISIONS, A.O. IS H EREBY DIRECTED TO DELETE THE DISALLOWANCE MADE U/S. 14A OF THE ACT. 36. DURING THE COURSE OF HEARING BEFORE US IT WAS STATE D BY THE LD. COUNSEL THAT THIS ISSUE HAS ALSO BEEN EXAMINED BY T HE TRIBUNAL IN ASSESSEES OWN CASE IN ITS ORDER DATED 23-05-2014 W HEREIN IT WAS HELD THAT PROVISIONS OF SECTION 14A R.W. RULE 8D WERE NO T APPLICABLE TO INSURANCE COMPANIES, THEREFORE, THE ORDER OF THE LD . CIT(A) SHOULD BE UPHELD ON THIS ISSUE. 37. PER CONTRA, THE LD. DR DID NOT MAKE ANY DISTINCTION ON FACTS OR LAW. 38. WE HAVE GONE THROUGH THE ORDERS PASSED BY LOWER AUT HORITIES AS WELL AS EARLIER ORDERS PASSED BY THE TRIBUNAL IN AS SESSEES OWN CASE. IT IS NOTED THAT THE TRIBUNAL HAS ALREADY DECIDED THIS IS SUE IN FAVOUR OF THE ASSESSEE IN ITS AFORESAID ORDER BY OBSERVING AS UND ER:- 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE DECISIONS OF THE TRIBUNAL CITED BEFORE US. ON PERUSAL OF THE DECISION OF THE ITAT IN THE CASE OF LCICI PRUDENTIAL INSURANCE (SUPRA) AS WELL AS AN OTHER DECISION IN THE CASE OF HDFC STANDARD LIFE INSURANCE COMPANY (SUPRA), WE FIND REVENUE RAISED THE ARGUMENTS REVOLVING AROU ND THE APPLICABILITY OF THE JUDGMENT IN THE CASE OF GODREJ & BOYCE MFG CO LTD, SUPRA. DESPITE THE SAME, THE TRIBUNAL CONSI DERED THE SAID JUDGMENT AND STILL ALLOWED THE CLAIM OF THE ASSESSE E. THEREFORE, IN VIEW OF THE SPECIAL PROVISIONS APPLICABLE TO THE INSURANCE COMPANIES, WE ARE OF THE OPINION THAT THE PROVISION S OF SECTION 14A R.W.R. 8D WERE HELD NOT APPLICABLE TO THE INSUR ANCE COMPANIES I.E., LCICI PRUDENTIAL INSURANCE, HDFC ST ANDARD LIFE INSURANCE COMPANY. THEREFORE, THE SSI LIFE INSURANC E COMPANY LIMITED (ASSESSEE IN THE PRESENT CASE SHOULD NOT BE ANY EXCEPTION. CONSIDERING THE SETTLED NATURE OF THE IS SUE VIDE THE 38 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD DECISIONS OF THE TRIBUNALS ORDERS (SUPRA), GROUND NO.3 RAISED B THE ASSESSEE FOR THE AY 2006-07 IS ALLOWED . 39. DURING THE COURSE OF HEARING BEFORE US, NO DISTINCT ION HAS BEEN MADE. THUS, RESPECTFULLY FOLLOWING THE ORDER OF TH E TRIBUNAL, WE UPHOLD THE DECISION OF THE LD. CIT(A) ON THIS ISSUE. NO I NTERFERENCE IS CALLED FOR IN HIS ORDER. GROUND 4 RAISED BY THE REVENUE IS DISMI SSED. 40. AS A RESULT, APPEAL FILED BY THE REVENUE IS DISMISS ED. 41. NOW WE SHALL TAKE UP APPEAL OF THE ASSESSEE IN I TA NO.4066/MUM/2011 FOR AY. 2007-08. THIS APPEAL IS FILED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) - 2, MUMBAI [IN SHORT, CIT(A)] DATED 04-02-2011 PASSED AGAINST THE ASSESSM ENT ORDER DATED 14- 12-2009 U/S 143(3) OF THE ACT ON THE FOLLOWING GROU NDS:- GROUND NO 1 DISALLOWANCE OF EXEMPTION IN RESPECT OF DIVIDEND INCOME UIS 10(34): (I) THE LEARNED CIT (A) HAS ERRED IN LAW AS WELL AS ON FACTS IN EXERCISING THE POWER OF ENHANCEMENT FOR WITHDRAWING THE EXEMPTION ALLOWED BY THE A.O. UNDER SECTION 10 (34) IN RESPECT OF INCOME FROM DIVIDEND. (II) THE LEARNED CIT (A) FAILED TO APPRECIATE THE F ACT THAT INCOME FROM DIVIDEND IS ONE OF THE TYPE OF INCOME THAT IS NOT TO FORM PART OF THE TOTAL INCOME UNDER CHAPTER III OF THE L T. ACT. IN WHATEVER MANNER THE TOTAL INCOME OF THE ASSESSEE IS TO BE COMPUTED UNDER THE LAW THE SAME IS TO EXCLUDE THE I NCOME FROM DIVIDEND UNDER SUB-SECTION (34) OF SECTION 10 OF TH E INCOME TAX ACT, 1961. (III) THE LEARNED CIT (A) FAILED TO APPRECIATE THE IMPORT OF THE LEGAL PROVISION CONTAINED IN SECTION 44 OF THE LT. ACT READ WITH SCHEDULE I WHICH IS A SPECIAL PROVISION FOR COMPUTA TION OF THE INCOME FROM BUSINESS OF LIFE INSURANCE. THE PROVISI ON, THOUGH A NON-OBSTANTE PROVISION, DOES NOT OVERRIDE ALL THE P ROVISIONS OF THE ACT. THE PROVISION SPECIFICALLY OVERRIDES ONLY THE PROVISIONS OF 39 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD THE ACT RELATING TO THE COMPUTATION OF INCOME CHARG EABLE UNDER THE HEAD 'INTEREST ON SECURITIES' 'INCOME FROM HOUS E PROPERTY' 'CAPITAL GAIN' OR 'INCOME FROM OTHER SOURCES' OR IN SECTION 199 OR IN SECTION 28 TO 43B. IT DOES NOT OVERRIDE THE P ROVISIONS OF CHAPTER III OF WHICH SECTION 10(34) IS A PART. (IV) THE LEARNED CIT (A) FAILED TO THE TAKE NOTE OF THE SETTLED POSITION OF LAW THAT INCOME IS TO BE COMPUTED AS PE R THE APPLICABLE PROVISIONS OF THE ACT UNLESS ALL OR ANY OF THE PROVISIONS ARE EXPRESSLY MADE INAPPLICABLE. IN CASES WHERE APP LICATION OF ONLY SPECIFIC PROVISIONS IS BARRED, ALL OTHER PROVI SIONS REMAIN APPLICABLE. ANY OTHER VIEW TAKEN RENDERS THE OVERRI DING OF SPECIFIED PROVISIONS REDUNDANT AND THE LAW CANNOT B E INTERPRETED IN A MANNER SO AS TO RENDER ANY PROVISI ON OF THE ACT OR PART THEREOF AS REDUNDANT. (V) THAT THE LEARNED CIT (A) ERRED IN BASING HIS DE CISION ON THE ERRONEOUS UNDERSTANDING OF THE COMPUTATION OF ACTUA RIAL SURPLUS/DEFICIENCY AS PER THE PROVISIONS OF THE INS URANCE ACT WHEN HE OBSERVED THAT INCOME FROM DIVIDEND HAS NOT BEEN TAXED. EVEN IF INCOME FROM DIVIDEND IS NOT BEING CH ARGED TO TAX UNDER THE RESPECTIVE HEADS OF INCOME, SUCH INCOME G ETS INCLUDED IN THE TOTAL INCOME OF THE APPELLANT. EVEN IF THE P ROVISIONS RELATING TO COMPUTATION OF INCOME UNDER THE HEAD 'I NCOME FROM OTHER SOURCES' ARE OVERRIDDEN OBVIATING THE REQUIRE MENT OF HEAD WISE COMPUTATION OF TOTAL INCOME, THE INCOME MENTIO NED IN CHAPTER ILL, OF INCLUDED IN THE TOTAL INCOME IN ANY FORM, IS REQUIRED TO BE EXCLUDED. AS OBSERVED BY HONBLE BOM BAY HIGH COURT IN LIFE INSURANCE CORPORATION OF INDIA CASE R EPORTED IN 119 ITR 900 THE SURPLUS IN A LIFE INSURANCE BUSINESS IS WORKED OUT ON THE BASIS OF 'THE NET LIABILITY UNDER BUSINESS AS S HOWN IN THE SUMMARY AND VALUATION OF POLICIES' AND THE 'BALANCE OF LIFE INSURANCE FUND AS SHOWN IN THE BALANCE SHEET'. SINC E INCOME FROM DIVIDEND BECOME PART OF THE LIFE INSURANCE FUN D, IT ENTERS INTO THE COMPUTATION OF TOTAL INCOME UNDER SECTION 44 READ WITH FIRST SCHEDULE OF THE LT. ACT. THE MERE FACT THAT T HE 'INCOME FROM OTHER SOURCES' HAS NOT BEEN SEPARATELY COMPUTE D DOES NOT MAKE ANY DIFFERENCE IN THE TAX TREATMENT OF SUCH IN COME. GROUND NO 2 ADDITION ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE U/S 14A: 40 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD BASED ON THE DECISION LEADING TO WITHDRAWAL OF EXEM PTION GRANTED IN RESPECT OF INCOME FROM DIVIDEND, THE LEA RNED CIT HAS HELD THAT THE PROVISIONS OF SECTION 14A ARE NOT APP LICABLE TO THE CASE. HOWEVER, IN THE EVENT OF HIS FINDING GETTING REVERSED IN APPEAL, THE PROVISIONS WILL BECOME APPLICABLE. HE H AS THEREFORE, CONSIDERED AND DISAPPROVED THE SUBMISSIONS MADE BY THE APPELLANT IN REGARD TO WORKING OUT THE AMOUNT OF EX PENSES RELATABLE TO EXEMPT INCOME FROM DIVIDEND. IN THAT R ESPECT THE APPELLANT IS AGGRIEVED ON FOLLOWING GROUNDS. (I) THE LEARNED CIT WAS IN ERROR IN HOLDING THAT RULE 8 D REPRESENTS THE WISDOM OF THE LEGISLATURE IN THE MAT TER OF DETERMINING THE AMOUNT TO BE DISALLOWED UNDER SECTI ON 14A OF THE ACT IN ALL CASES AND EVEN IN RESPECT OF ASSESSMENTS RELATING THE ASSESSMENT YEARS PRIOR TO ASSESSMENT YEARS 2008-09. (II) EVEN FOLLOWING THE RATIO OF HONBLE BOMBAY HIGH COU RT DECISION IN THE CASE OF GODREJ & BOYCE THAT RULE 8D HAS NO RETROSPECTIVE APPLICATION, THE LEARNED CIT ERRED IN UPHOLDING THE COMPUTATION AS PER RULE 8D IN THE ASSESSMENT RELATING TO 2007-08 WITHOUT GOING INTO T HE SPECIFIC FACTS OF THE CASE. THE LEARNED CIT ERRONEO USLY IGNORED THE PROVISIONS OF SUB-SECTION (2) OF SECTIO N 14A UNDER WHICH THE A.O. IS REQUIRED TO DETERMINE THE A MOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOM E IN ACCORDANCE WITH THE PRESCRIBED METHOD ONLY IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. THE METHOD PRESCRIBED, WHICH IS RULE 8D, GETS RELEV ANCE ONLY IN CASE OF FAILURE OF THE ASSESSEE TO SATISFY THE CORRECTNESS OF THE CLAIM AND THAT TOO WITH EFFECT F ROM A.Y. 2008-09. PRIOR TO 2008-09, THERE BEING NO PRESCRIBE D METHOD, THE AMOUNT OF DISALLOWANCE IS TO BE SOLELY DETERMINED ON THE BASIS OF THE FACTS OF EACH INDIVI DUAL CASE AND NOT BY BLANKET APPLICATION OF RULE 8D. (III) THE LEARNED CIT (A) WAS, THEREFORE, NOT JUSTIFIED I N HOLDING COMPUTATION OF DISALLOWABLE AMOUNT AS PER RULE 8D A S A RULE OF UNIVERSAL APPLICATION BASED ON THE ARGUMENT THAT THE RULE SIGNIFIED LEGISLATIVE WISDOM IN DETERMINAT ION OF SUCH AMOUNT IN ALL CASES AND IN ALL THE YEARS, EVEN PRIOR TO ITS COMING INTO FORCE. IN CASE THE PROPOSITION IS A CCEPTED, IT 41 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD WILL RENDER THE FINDINGS OF THE HONBLE BOMBAY HIGH COURT IN GODREJ AND BOYCE REDUNDANT AND OF NO LEGAL CONSEQUENCE. (IV) THE AMOUNT OFFERED FOR DISALLOWANCE BY THE APPELLAN T WAS BASED ON FACTS AND OUGHT TO HAVE BEEN ACCEPTED AS REASONABLE AND JUSTIFIED. GROUND NO. 3 DISALLOWANCE OF EXEMPTION IN RESPECT OF INCOME FROM PENSION FUND UIS 10(23AAB): (I) THE LEARNED CIT (A) WAS NOT JUSTIFIED IN HOLDIN G THAT THE EXEMPTION U/S 10 (23AAB) IN REGARD TO INCOME OF PEN SION FUND IS NOT AVAILABLE TO THE APPELLANT ON THE GROUN D THAT SUCH AN EXEMPTION IS APPLICABLE ONLY WHEN THE PENSI ON FUND IS AN INDEPENDENT ASSESSABLE ENTITY. (II) THE LEARNED CIT(A) FAILED TO TAKE A NOTE OF T HE FACT THAT FOR THE PURPOSE OF AVAILING THE EXEMPTION UNDER SECTION 10(23AAB) THERE ARE ONLY TWO CONDITIONS TO BE FULFI LLED AS LAID DOWN IN THE SECTION, FIRSTLY THAT THE CONTRIBU TIONS TO SUCH A FUND IS MADE BY ANY PERSON FOR THE PURPOSE O F RECEIVING PENSION FROM SUCH FUND AND SECONDLY THE F UND IS APPROVED BY THE CONTROLLER OF INSURANCE OR THE INSU RANCE DEVELOPMENT AUTHORITY OF INDIA(IRDA). HENCE, THE LE ARNED CIT (A) WAS NOT JUSTIFIED IN SUCH AN UNDERSTANDING OF THE PROVISION WHICH NOWHERE LAYS DOWN THE REQUIREMENT O F THE FUND TO BE AN INDEPENDENT ASSESSABLE ENTITY. TH E PROVISION IS APPLICABLE AND CONSEQUENTLY, THE EXEMP TION IS AVAILABLE TO THE FUND, IRRESPECTIVE OF THE FACT WHE THER IT IS AN INDEPENDENT ENTITY OR RUN AS A SEGMENT OF THE LI FE INSURANCE COMPANY, PROVIDED THE CONDITIONS SET OUT IN SUB-SECTION (23AAB) OF SECTION 10 ARE COMPLIED WITH . THE APPELLANT HUMBLY SUBMIT THAT THE FUND IS OPERATED B Y THE APPELLANT COMPANY AS ONE OF THE VARIOUS SEGMENTS, ACCOUNTS ARE MAINTAINED IN THE MANNER FROM WHICH SURPLUS/ DEFICIENCY THEREFROM IS DETERMINABLE AND A LL THE REQUIREMENTS OF SECTION 10 (23AAB) ARE MET. (III) FOR THE REASONS AFOREMENTIONED, THE LEARNED CIT OUGHT TO HAVE DIRECTED THE A.O. TO ALLOW THE EXEMPTION OF TH E SURPLUS RELATABLE TO THE PENSION FUND. 42 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD GROUNDNO.4 NOT ALLOWING SET OFF OF BROUGHT FORWARD LOSSES: (I) THE LEARNED CIT (A) WAS NOT JUSTIFIED IN DIREC TING THE A.O. TO PASS SPECIFIC ORDER U/ S 157 INSTEAD OF DIRECTIN G HIM TO ALLOW SET OFF OF THE BROUGHT FORWARD LOSSES. (II) THE LEARNED CIT (A) MISUNDERSTOOD THE APPELLA NT'S REQUEST WHICH WAS FOR SET OFF OF LOSSES OF EARLIER YEARS WH ICH ARE DETERMINED LOSSES BROUGHT FORWARD IN THE YEAR UNDER APPEAL. THESE LOSSES ARE ALLOWED TO SET OFF OUT OF CURRENT YEARS INCOME FOR WHICH NO ORDER U/ S 157 IS NECESSA RY. IN ANY CASE, THIS PROVISIONS DOES NOT INVOLVE AN ORDER BUT MERELY AN INTIMATION OF THE CURRENT LOSS ASSESSED B Y HIM UNDER THE PROVISIONS OF THE ACT. 42. GROUND 1: BOTH THE PARTIES JOINTLY STATED THAT THIS GROUND IS IDENTICAL TO GROUND 3.1 TO 3.3 OF REVENUES APPEAL FOR A.Y. 2010-11, WHEREIN THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF TH E ASSESSEE AND REVENUES APPEAL WAS DISMISSED. NO DISTINCTION ON FACTS OR LEGAL POSITION WAS BROUGHT TO OUR NOTICE. THUS, RESPECTFULLY FOLL OWING OUR ORDER, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE A O IS DIRECTED TO GRANT THE BENEFIT OF EXEMPTION U/S 10(34) ON THE DIVIDEND INC OME. GROUND 1 IS ALLOWED. 43. GROUND 2: THIS GROUND DEALS WITH THE DISALLOWANCE MADE U/S 14 A OF THE ACT. IT WAS JOINTLY STATED BY BOTH THE PARTIES THAT THIS GROUND IS IDENTICAL TO GROUND 4 OF REVENUES APPEAL FOR A.Y. 2010-11 WHICH HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT P ROVISIONS OF SECTION 14A ARE NOT APPLICABLE ON THE ASSESSEE COMPANY BEING A LIFE INSURANCE COMPANY. CONSISTENT WITH OUR ORDER, THIS ISSUE IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE AND IT IS HELD THAT THE PROVISIONS OF SECTION 14A ARE NOT 43 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD APPLICABLE UPON THE ASSESSEE; THEREFORE DISALLOWANC E MADE BY THE AO IS DIRECTED TO BE DELETED. 44. GROUND 3 : IN THIS GROUND, THE ASSESSEE IS AGGRIEVED WITH THE ACTION OF LOWER AUTHORITIES IN HOLDING THAT EXEMPTION U/S 10(23AAB) IN REGARD TO INCOME OF PENSION FUND WAS NOT AVAILABLE TO THE ASS ESSEE DUE TO THE FACT THAT SUCH AN EXEMPTION IS APPLICABLE ONLY WHEN PENS ION FUND IS AN INDEPENDENT ASSESSABLE ENTITY. 45. DURING THE COURSE OF HEARING, IT WAS STATED BY THE LD. COUNSEL THAT THIS ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ITS ORDER DATED 23-05-2014, WHEREIN THIS ISSUE WAS PRINCIPALLY DECIDED IN FAVOUR OF THE ASSESSEE, BUT FOR THE PURPOSE OF V ERIFICATION OF FACTS IT WAS SENT BACK TO THE FILE OF THE AO. THE AO, IN THE OR DER GIVING APPEAL EFFECT EXAMINED THIS ISSUE ON FACTS AS WELL AS ON LAW, AND VIDE HIS ORDER DATED 29- 11-2016 HE HAS ALREADY DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. 46. PER CONTRA, THE LD. DR DID NOT MAKE ANY DISTINCTION IN FACTS OR LAW. 47. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH T HE SIDES AS WELL AS ORDERS PLACED BEFORE. IT IS NOTED THAT THI S GROUND IS IDENTICAL TO GROUND NO.1 WHEREIN THE ISSUE OF AVAILABILITY OF EX EMPTION U/S 10(34) ON THE DIVIDEND INCOME WAS EXAMINED. IT IS NOTED THAT IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL IN EARLIER YEARS WHICH WAS S ENT BACK TO THE AO. THE AO IN HIS ORDER GIVING APPEAL EFFECT DATED 29-11-20 16 HAS DECIDED THIS ISSUE AFTER FOLLOWING THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ICICI PRUDENTIAL INSURANCE CO VS ACIT. REL EVANT PART OF THE ORDER OF THE AO HAS ALREADY BEEN REPRODUCED BY US IN EARLIER PART OF THE ORDER. NO DISTINCTION HAS BEEN POINTED OUT BY THE LD. DR BEFO RE US ON THE FACTS OF EARLIER YEARS AND THIS YEAR. THUS, WE HAVE NO OPTI ON BUT TO APPLY THE 44 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD DECISION WHICH HAS ALREADY BEEN TAKEN BY US IN EARL IER YEARS IN THE CASE OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES, WE DIRECT THE AO TO GRANT THE BENEFIT OF EXEMPTION U/S 10(23AAB). AS A RESULT, G ROUND 3 OF THE ASSESSEE IS ALLOWED. 48. GROUND 4: IN THIS GROUND, THE ASSESSEE IS AGGRIEVED IN NOT A LLOWING THE BENEFIT OF SET OFF OF BROUGHT FORWARD LOSSES OF EARLIER YEARS. 49. DURING THE COURSE OF HEARING, IT WAS STATED BY THE LD. COUNSEL THAT THIS GROUND HAS BECOME INFRUCTUOUS AT THIS STAGE IN VIEW OF THE FACT THAT RELIEF HAS BEEN GRANTED IN SUBSEQUENT YEARS. THUS, THIS GROUND IS DISMISSED AS INFRUCTUOUS. 50. AS A RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. 51. NOW WE SHALL TAKE UP ASSESSEES APPEAL FOR A.Y 2008-09 IN ITA NO.1897/MUM/2012 FILED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) )-2, MUMBAI [IN SHORT, CIT(A)] DATED 03-01-2012 PASSED AGAINST THE ASSESSMENT ORDER DATED 30-12-20 10 U/S 143(3) R.W.S. 144A OF THE ACT ON THE FOLLOWING GROUNDS:- THE FOLLOWING GROUNDS OF APPEAL ARE WITHOUT PREJUD ICE TO AND INDEPENDENT OF THE OTHER(S). ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, SBI LIFE INSURANCE COMPANY LIMITED [HEREINAFTER REFERRED TO AS THE APPELLANT] CRAVES TO PREFER AN APPEAL AGAINST THE O RDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) -II, MU MBAI [HEREINAFTER REFERRED TO AS THE LEARNED CIT(A)], UN DER SECTION 250(6) OF THE INCOME-TAX ACT, 1961 (ACT) IN RESPECT OF THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME-TAX - R ANGE 1(3), MUMBAI (THE AO) UNDER SECTION 143(3) OF THE ACT, ON THE FOLLOWING GROUNDS: GROUND NO 1 THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ACT ION OF THE AO TO DISALLOW THE EXEMPTION OF RS 19,62,41,801/- IN R ESPECT OF 45 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD DIVIDEND INCOME UNDER SECTION 10(34) AND FAILED TO APPRECIATE THAT SECTION 10(34) IS NOT OVERRIDDEN BY THE PROVIS IONS OF SECTION 44 OF THE ACT. GROUND NO 2 THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ACT ION OF THE AO TO DISALLOW THE EXEMPTION OF RS 18,47,89,000/- IN R ESPECT OF INCOME OF PENSION FUND UNDER SECTION 10(23AAB) AND FAILED TO APPRECIATE THAT SECTION 10(23AAB) IS NOT OVERRIDDEN BY THE PROVISIONS OF SECTION 44 OF THE ACT. GROUND NO 3 THE LEARNED CIT (A) HAS ERRED IN ENHANCING THE ACTU ARIAL SURPLUS BY THE NEGATIVE RESERVE AMOUNTING RS 3,59,25,230/ - FOR DETERMINING THE PROFIT FROM BUSINESS OF LIFE INSURA NCE IGNORING THE RATIO OF THE SUPREME COURT DECISION IN LIC V / S [CIT 51 ITR 773] AND THE PROVISION OF INSURANCE ACT AND THE RUL ES AND REGULATION FRAMED THERE UNDER. GROUNDNO4 THE LEARNED CIT (A) HAS ERRED IN INITIATING PENALTY PROCEEDINGS AGAINST THE APPELLANT UNDER SECTION 271(1)(C). 52. GROUND 1 IS REGARDING DENIAL OF BENEFIT OF EXEMPTION U/S 10 (34) ON THE DIVIDEND INCOME RECEIVED BY THE ASSESSEE ON THE GROUND THAT INCOME OF THE ASSESSEE IS COMPUTED U/S 44 OF THE ACT. 53. IT IS NOTED ON THE BASIS OF SUBMISSIONS MADE BY BOT H THE SIDES THAT THIS GROUND IS IDENTICAL TO GROUND 1 OF A.Y. 2007-0 8 WHICH HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE. THEREFORE, FOLLOWING OUR ORDER, THIS GROUND OF THE ASSESSEE IS ALLOWED. 54. GROUND 2: THIS GROUND IS AGAINST DENIAL OF BENEFIT U/S 10(23 AAB) IN RESPECT OF INCOME OF PENSION FUND. IT IS NOTED ON THE BASIS OF SUBMISSIONS MADE BY BOTH THE SIDES BEFORE US THAT THIS GROUND I S IDENTICAL TO GROUND 3 OF ASSESSEES APPEAL FOR A.Y.2007-08 WHICH HAS ALRE ADY BEEN DECIDED IN 46 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD FAVOUR OF THE ASSESSEE. FOLLOWING OUR ORDER, THIS GROUND IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE. GROUND 2 IS ALLOWED. 55. GROUND 3: IN THIS GROUND, THE ASSESSEE IS AGGRIEVED WITH THE ACTION OF THE LOWER AUTHORITIES IN DIRECTING THE ADDITION OF NEGATIVE RESERVE TO THE ACTUARIAL SURPLUS FOR DETERMINING THE PROFIT FR OM BUSINESS OF LIFE INSURANCE. IT IS NOTED THAT THIS GROUND IS IDENTIC AL TO GROUND 7 OF REVENUES APPEAL FOR AY. 2010-11 WHEREIN RELYING UP ON THE ORDER OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE, THIS GROUND HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. NO DISTINCTION HAS BEEN MA DE ON FACTS OR LAW. THUS, FOLLOWING OUR ORDER, THIS GROUND IS DECIDED I N FAVOUR OF THE ASSESSEE. GROUND 3 IS ALLOWED. 55. GROUND 4 IS WITH REGARD TO INITIATION OF PENALTY PROCEEDING S AND IS DISMISSED BEING PREMATURE. 56. AS A RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. 57. NOW WE SHALL TAKE UP APPEAL FILED BY THE ASSESSE E FOR AY. 2009-10 IN ITA NO.5112/MUM/2012 FILED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-2, MUMBAI [IN SHORT, CIT(A)] D ATED 30-05-2012 PASSED AGAINST THE ASSESSMENT ORDER DATED 30-12-20 11 U/S 143(3) OF THE ACT ON THE FOLLOWING GROUNDS:- GROUNDS OF APPEAL THE FOLLOWING GROUNDS OF APPEAL ARE WITHOUT PREJUDI CE TO AND INDEPENDENT OF THE OTHER(S). ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, SBI LIFE INSURANCE COMPANY LIMITED [HEREINAFTER REFERRED TO AS THE APPELLANT] CRAVES TO PREFER AN APPEAL AGAINST THE O RDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) - 2, MU MBAI [HEREINAFTER REFERRED TO AS THE LEARNED CIT(A)], UN DER SECTION 250 47 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD OF THE INCOME-TAX ACT, 1961 (ACT) IN RESPECT OF THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME-TAX (OSD)-1(2) , MUMBAI (THE AO) UNDER SECTION 143(3) OF THE ACT, ON THE FO LLOWING GROUNDS: GROUND NO 1 THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ACT ION OF THE AO IN MAKING ADDITION OF NEGATIVE RESERVES AMOUNTING R S 2,66,25,660/ - TO THE ACTUARIAL SURPLUS FOR DETERMI NING THE PROFIT FROM BUSINESS OF LIFE INSURANCE IN DISREGARD OF THE LAW LAID DOWN BY THE SUPREME COURT IN THE CASE OF LIC VS CIT 51 I TR 773 FOR PROHIBITING ANY ADJUSTMENT TO THE ACTUARIAL SURPLUS DETERMINED AS PER THE PROVISION OF INSURANCE ACT. GROUND NO 2 THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ACT ION OF THE AO TO DISALLOW THE EXEMPTION OF RS 50,92,75,738/- IN R ESPECT OF DIVIDEND INCOME UNDER SECTION 10(34) AND FAILED TO APPRECIATE THAT SECTION 10(34) IS NOT OVERRIDDEN BY THE PROVIS IONS OF SECTION 44 OF THE ACT. 58. GROUND 1 IS WITH REGARD TO ADDITION ON THE BASIS OF ACTUARI AL SURPLUS OF NEGATIVE RESERVES. IT WAS JOINTLY STATED THAT T HIS GROUND IS IDENTICAL TO GROUND 2 OF REVENUES APPEAL FOR AY. 2010-11. THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE. THUS, CONSISTEN T WITH OUR ORDER, WE DECIDE THIS GROUND IN FAVOUR OF THE ASSESSEE. GROU ND 1 IS ALLOWED. 59. GROUND 2 IS WITH REGARD TO BENEFIT OF EXEMPTION U/S 10(34) ON THE DIVIDEND INCOME. THIS GROUND IS IDENTICAL TO GROUN DS 3.1 TO 3.3 OF REVENUES APPEAL FOR AY. 2010-11. THUS FOLLOWING OU R ORDER, THIS GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE. GROUND 2 IS ALL OWED. 60. AS A RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. 61. NOW WE SHALL TAKE UP APPEAL FILED BY THE ASSESSE E FOR A.Y. 2009-10 IN ITA NO.3495/MUM/2014 FILED AGAINST THE ORDER OF THE COMMISSIONER OF 48 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD INCOME-TAX-2, MUMBAI [IN SHORT, CIT] DATED 19-03-20 14 PASSED U/S 263(3) OF THE ACT ON THE FOLLOWING GROUNDS:- THE FOLLOWING GROUNDS OF APPEAL ARE WITHOUT PREJUD ICE TO AND INDEPENDENT OF THE OTHER(S). ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW, SBI LIFE INSURANCE COMPANY LIM ITED (HEREINAFTER REFERRED TO AS THE 11 APPELLANT') CRAV ES TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX-I, MUMBAI (HEREINAFTER REFERRED TO AS THE LEARN ED CIT (1), UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961(' ACT ') SETTING ASIDE THE ASSESSMENT OF THE APPELLANT TO BE MADE FR ESH, ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT (1) ERRED IN INVOKING THE PROVISION S OF SECTION 263 OF THE INCOME TAX ACT, 1961 AND ASSUMIN G JURISDICTION TO PROCEED UNDER THE SECTION. THE LEAR NED CIT (1) WHILE PASSING THE ORDER WENT WRONG IN NOT APPLYING THE RATIO OF THE HONOURABLE SUPREME COURT LAID IN MALABAR INDUST RIAL COMPANY LTD V IS CIT (2000) 243 ITR 83 (SC) FOR REA SON NOT RELEVANT TO THE APPLICABILITY OF THE RATIO AND FAIL ED TO APPRECIATE THAT THE EXEMPTION OF INCOME FROM PENSION FUND IS M ATTER ON WHICH DIFFERENT VIEWS ARE POSSIBLE, ONE OF WHICH TA KEN BY THE ASSESSING OFFICER (AO). 1.1 THE LEARNED CIT (1) ERRED IN DIRECTING THE AO T O DECIDE THE ISSUE OF EXEMPTION UNDER SECTION 10(23AAB) OF THE I NCOME TAX ACT, 1961 AND PASS AN ASSESSMENT ORDER AFRESH. 2. THE LEARNED CIT (1) ERRED IN HOLDING THAT EXEMPT ION UNDER SECTION 10(23AAB) OF THE INCOME TAX ACT, 1961 IS NO T AVAILABLE TO ASSESSEE AS SEPARATE PENSION FUND IS NOT ESTABLI SHED BY THE COMPANY. THE LEARNED CIT (1) HAS FAILED TO APPRECIA TE THAT THE COMPANY HAS A SEPARATE FUND AND ITS PENSION SCHEMES ARE DULY APPROVED BY THE INSURANCE REGULATORY AND DEVELOPMEN T AUTHORITY AS REQUIRED BY THE LAW. 2.1 THE LEARNED CIT (1) ERRED IN GUIDING HIMSELF BY THE UNDERSTANDING THAT CREDITING INCOME TO P&L AI C AMO UNTS TO CONFIRMATION THAT A SEPARATE FUND HAS NOT BEEN CREA TED. HE IGNORED THE FACT THAT A PENSION SEGMENT, EVEN THOUG H A DISTINCT SEGMENT, REMAINS PART OF INSURANCE BUSINESS. THE CI T (1) FAILED TO APPRECIATE THAT BY VIRTUE OF SECTION 3 (4H) OF T HE INSURANCE 49 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD ACT, 1938 AN INSURER IS NOT PERMITTED TO DO ANY OTH ER BUSINESS EXCEPT INSURANCE BUSINESS. 2.2 THE CIT (1) FAILED TO TAKE NOTE OF THE OBSERVAT IONS OF THE HONOURABLE BOMBAY HIGH COURT IN THE CASE OF LIFE IN SURANCE CORPORATION OF INDIA LTD VS CIT (1), MUMBAI (2011- TIOL-483-HC- MUM-IT), THAT THE OBJECT OF INSERTING SECTION 10(23 AAB) OF THE INCOME TAX ACT, 1961 WAS NOT WITH A VIEW TO TREAT T HE PENSION FUND LIKE JEEVAN SURAKSHA OUTSIDE THE PURVIEW OF IN SURANCE BUSINESS BUT TO PROMOTE INSURANCE BUSINESS BY EXEMP TING THE INCOME FROM SUCH FUND. 3. WITHOUT PREJUDICE TO THE CLAIM THAT PENSION FUND REMAINS PART OF INSURANCE BUSINESS EVEN WITH THE EXEMPTION UNDER SECTION 10(23AAB) OF THE INCOME TAX ACT, 1961, IN CASE IT I S HELD TO BE INCOME OF A SEPARATE ENTITY, IT WILL BE ERRONEOUS N OT TO EXCLUDE SUCH INCOME FROM THE TOTAL INCOME OF THE APPELLANT. 62. DURING THE COURSE OF HEARING, IT WAS STATED BY THE LD. COUNSEL THAT ISSUES RAISED IN THE ORDER OF CIT ARE IDENTICAL TO GROUNDS 2 & 3 OF ASSESSEES APPEAL FOR A.YS 2007-08 & 2008-09. THES E ISSUES HAVE ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE. THEREFORE, THE ENTIRE EXERCISE TAKEN BY THE LD. CIT HAS BECOME INFRUCTUOUS AT THIS STAGE. 63. PER CONTRA, THE LD. DR DID NOT OPPOSE THE SUBMISSIO NS OF THE LD. COUNSEL IN THIS REGARD. 64. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AND FIND THAT THE ISSUE INVOLVED IN THE ORDER PASSE D BY THE LD.CIT IS WITH REGARD TO ALLOWABILITY OF EXEMPTION U/S 10(23AAB) T O THE ASSESSEE BEING LIFE INSURANCE COMPANY. IT IS NOTED THAT ON FACTS, THIS ISSUES HAS ALREADY BEEN EXAMINED IN EARLIER YEARS BY THE TRIBUNAL AND ALSO BY THE AO. RELEVANT PART OF THE ORDER HAS ALREADY BEEN DISCUSS ED IN EARLIER PART OF OUR ORDER. THERE IS NO CHANGE IN FACTS OR IN LEGAL POS ITION AS PER THE INFORMATION PROVIDED TO US. UNDER THESE CIRCUMSTAN CES, WE FIND THAT SINCE 50 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD THE ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE ON MERITS, NO PURPOSE WILL BE SERVED IN GOING AHEAD WITH THE ORDE R PASSED BY THE LD.CIT U/S 263. THUS, TAKING INTO ACCOUNT THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LD.CIT U/S 263 IS HEREBY SET ASIDE. 65. AS A RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. 66. NOW WE SHALL TAKE UP THE APPEAL FILED BY THE ASS ESSEE FOR AY 2010-11 IN ITA NO.2863/MUM/2015 AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX-1, MUMBAI (IN SHORT, CIT ) DATED 16-03-2015 ON THE FOLLOWING GROUNDS:- THE FOLLOWING GROUNDS OF APPEAL ARE WITHOUT PREJUD ICE TO AND INDEPENDENT OF THE OTHER(S). ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW, SBI LIFE INSURANCE COMPANY LIM ITED (HEREINAFTER REFERRED TO AS THE 11 APPELLANT') CRAV ES TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX - 1, MUMBAI (HEREINAFTER REFERRED TO AS THE LEA RNED CIT (1), UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961(' ACT ') SETTING ASIDE THE ASSESSMENT OF THE APPELLANT TO BE MADE FR ESH, ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT (1) ERRED IN INVOKING THE PROVIS IONS OF SECTION 263 OF THE INCOME TAX ACT, 1961 AND ASSUMING JURISD ICTION TO PROCEED UNDER THE SECTION. THE LEARNED CIT (1) WHIL E PASSING THE ORDER WENT WRONG IN NOT APPLYING THE RATIO OF THE H ONOURABLE SUPREME COURT LAID IN MALABAR INDUSTRIAL COMPANY LT D V IS CIT (2000) 243 ITR 83 (SC) FOR REASON NOT RELEVANT TO T HE APPLICABILITY OF THE RATIO AND FAILED TO APPRECIATE THAT THE EXEM PTION OF INCOME FROM PENSION FUND IS MATTER ON WHICH DIFFERE NT VIEWS ARE POSSIBLE, ONE OF WHICH TAKEN BY THE ASSESSING OFFIC ER (AO). 1.1 THE LEARNED CIT (1) ERRED IN DIRECTING THE AO T O DECIDE THE ISSUE OF EXEMPTION UNDER SECTION 10(23AAB) OF THE I NCOME TAX ACT, 1961 AND PASS AN ASSESSMENT ORDER AFRESH. 2. THE LEARNED CIT (1) ERRED IN HOLDING THAT EXEMPT ION UNDER SECTION 10(23AAB) OF THE INCOME TAX ACT, 1961 IS NO T AVAILABLE TO ASSESSEE AS SEPARATE PENSION FUND IS NOT ESTABLI SHED BY THE COMPANY. THE LEARNED CIT (1) HAS FAILED TO APPRECIA TE THAT THE COMPANY HAS A SEPARATE FUND AND ITS PENSION SCHEMES ARE DULY 51 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD APPROVED BY THE INSURANCE REGULATORY AND DEVELOPMEN T AUTHORITY OF INDIA AS REQUIRED BY THE LAW. 2.1 THE LEARNED CIT (1) ERRED IN GUIDING HIMSELF BY THE UNDERSTANDING THAT CREDITING INCOME TO PROFIT & LOS S AI C AMOUNTS TO CONFIRMATION THAT A SEPARATE FUND HAS NO T BEEN CREATED. HE IGNORED THE FACT THAT A PENSION SEGMENT , EVEN THOUGH A DISTINCT SEGMENT, REMAINS PART OF INSURANC E BUSINESS. THE CIT (1) FAILED TO APPRECIATE THAT BY VIRTUE OF SECTION 3(4H) OF THE INSURANCE ACT, 1938 AN INSURER IS NOT PERMITTED TO DO ANY OTHER BUSINESS EXCEPT INSURANCE BUSINESS. 2.2 THE CIT (1) FAILED TO TAKE NOTE OF THE OBSERVAT IONS OF THE HONOURABLE BOMBAY HIGH COURT IN THE CASE OF LIFE IN SURANCE CORPORATION OF INDIA LTD VS CIT (1), MUMBAI (2011- TIOL-483-HC- MUM-IT), THAT THE OBJECT OF INSERTING SECTION 10(23 AAB) OF THE INCOME TAX ACT, 1961 WAS NOT WITH A VIEW TO TREAT T HE PENSION FUND LIKE JEEVAN SURAKSHA OUTSIDE THE PURVIEW OF IN SURANCE BUSINESS BUT TO PROMOTE INSURANCE BUSINESS BY EXEMP TING THE INCOME FROM SUCH FUND. 3. WITHOUT PREJUDICE TO THE CLAIM THAT PENSION FUND REMAINS PART OF INSURANCE BUSINESS EVEN WITH THE EXEMPTION UNDER SECTION 10(23AAB) OF THE INCOME TAX ACT, 1961, IN CASE IT I S HELD TO BE INCOME OF A SEPARATE ENTITY, IT WILL BE ERRONEOUS N OT TO EXCLUDE SUCH INCOME FROM THE TOTAL INCOME OF THE APPELLANT. 67. IT WAS JOINTLY STATED BY BOTH THE PARTIES THAT THIS ISSUE IS IDENTICAL TO APPEAL FOR AY 2009-10 IN ITA NO.3495/M/2014 (AGAINS T THE ORDER U/S 263). 68. THE FACTS AND LEGAL SITUATION REMAINING THE SAME, C ONSISTENT WITH OUR ORDER, WE ALLOW THE APPEAL OF THE ASSESSEE. 69. NOW WE SHALL TAKE UP APPEAL FILED BY THE ASSESSE E IN ITA NO 5267/M/12/ FOR A.Y. 2008-09 AGAINST THE ORDER OF THE CIT(A)-2, [IN SHORT, CIT(A)]MUMBAI DATED 28-06-2012 WHEREIN PENALTY U/S 271(1)(C) WAS LEVIED ON THE INCOME ENHANCED BY THE CIT(A). 70. THE BRIEF BACKGROUND OF THIS APPEAL IS THAT THE LD. CIT (A) HAD ENHANCED THE INCOME OF THE ASSESSEE BY MAKING ADDIT ION ON ACCOUNT OF 52 I.T.A. NO.4066/MUM/2011 & OTHERS SBI LIFE INSURANCE CO LTD NEGATIVE RESERVES AND THEREAFTER PENALTY WAS LEVIED ON THIS AMOUNT. IT IS NOTED THAT THE ADDITION MADE BY THE LD. CIT(A) HAD ALREADY BEEN DELETED BY US IN QUANTUM APPEAL FOR A.Y. 2008-09 IN ITA NO. 1897/MUM/2012 ABOVE. UNDER THESE CIRCUMSTANCES, THERE REMAINS NO BASIS TO CONTINUE WITH THE PENALTY PROCEEDINGS. THEREFORE, PENALTY L EVIED BY THE LD. CIT(A) IS DIRECTED TO BE DELETED. APPEAL OF THE ASSESSEE IS ALLOWED. 71. IN THE RESULT, REVENUES APPEALS ARE DISMISSED AND ASSESSEES APPEALS IN ITA NOS. 3495/M/2014, 5112/M/2012, 5267/ M/2012 & 2863/M/2015 ARE ALLOWED AND ASSESSEES APPEALS IN I TA NOS 4066/M/2011 AND 1897/M/2012 ARE PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF THE HEARING. SD/- SD/- (MAHAVIR SINGH) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 23 RD DECEMBER, 2016 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , E-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES
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