DCIT 10(1), MUMBAI V. STAR UNION DIA-ICHI LIFE INSURANCE COMPANY LTD, MUMBAI

ITA 5090/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8990 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2017
• Appeal Filed By: Department
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 08-07-2013
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Keywords: Business income; Valuation report
• Section: 43B; 143(3)

Judgement Text

, , E, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.5090/MUM/2013 ASSESSMENT YEAR: 2009-10 & ITA NO.6281/MUM/2014 ASSESSMENT YEAR: 2010-11 DCIT - 10(1) 455, AAYAKAR BHAVAN, 4 TH FLOOR, M.K. MARG, MUMBAI 400020 / VS. M/S. STAR UNION DIA ICHI LIFE INSURANCE COMPANY LTD. C-5,G BLOCK, STAR HOUSE, 3 RD FLOOR, B.K.C. BANDRA(E), MUMBAI-400051 ( APPEL LANT ) (RESPONDENT ) P.A. NO. AALCS3949Q REVENUE BY SHRI B. S . BIST ( D R) RESPONDENT BY SHRI SHAILESH SHAH ( A R) / DATE OF HEARING: 14/12/2016 / DATE OF ORDER: 11/01/2017 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THESE APPEALS HAVE BEEN FILED BY THE REVENUE IN THE CASE OF SAME ASSESSEE INVOLVING IDENTICAL ISSUES THEREFO RE THESE WERE HEARD TOGETHER AND BEING DISPOSED BY THIS COMM ON ORDER. FIRST WE SHALL TAKE UP APPEAL IN A.Y. 2009-10 FILED BY THE REVENUE ON THE FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND STAR UNION DIA ICHI LIFE 2 IN LAW THE LD. CIT(A) ERRED IN DELETING ADDITION OF RS. 78,38,270/- ON ACCOUNT OF NEGATIVE RESERVE APPEARING IN ACTUARIAL VALUATION REPORT IN ACCORDANCE WITH INSURANCE ACT, 1938 WITHOUT APPRECIATING THE FACTS AND LOGICAL CONCLUSION OF TH E AO IN THE ORDER OF ASSESSMENT' 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN RELYING ON THE JUDIC IAL PRONOUNCEMENTS WHICH ARE DISTINGUISHABLE ON THE FACTS OF THE CASE.' THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMI T OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEA L AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE BY SHRI SHAILESH SHAH, AUTHORISED REPRESENTATIVES (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI B.S. BIST, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE REVENUE. 3. THE SOLITARY ISSUE RAISED IN THIS APPEAL IS THAT R EVENUE IS AGGRIEVED WITH THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION MADE BY THE AO FOR RS.78,38,270/- ON ACCOUNT OF NEG ATIVE RESERVE APPEARING IN ACTUARIAL VALUATION REPORT IN ACCORDANCE WITH INSURANCE ACT, 1938. 3.1. DURING THE COURSE OF HEARING IT WAS STATED AT THE OUTSET BY THE LD. COUNSEL THAT THIS ISSUE IS COVERED IN FA VOUR OF THE ASSESSEE, IN VIEW OF THE JUDGMENT OF TRIBUNAL IN TH E CASE OF ICICI PRUDENTIAL INSURANCE CO. LTD. V. ACIT (ITA NO.7765/MUM/2010) WHICH HAS BEEN FOLLOWED BY THE LD . CIT(A) IN DELETING THE ADDITION MADE BY THE AO. IT WAS FURTHER SUBMITTED THAT THIS REPORT NOW STANDS COVERED IN FA VOUR OF THE ASSESSEE ON THE BASIS OF FOLLOWING JUDGMENTS: (A) ICICI PRUDENTIAL INSURANCE CO. LTD V. ACIT 201 2 - STAR UNION DIA ICHI LIFE 3 28 TAXMANN.COM 257 (MUM.) (B) LIFE INSURANCE CORPORATION OF INDIA VS CLT 51 ITR 773 [SC] (C) ACIT VS HDFC STANDARD LIFE INSURANCE CO. LTD - 3004/M/2012 AY 2008-09 (D) LIFE INSURANCE CORPORATION OF INDIA V. ADDL. CIT MU MBAI - 6221/MUM/2012 3.2. IT WAS THUS REQUESTED THAT THE ORDER OF LD. CIT(A) DESERVES TO BE UPHELD IN VIEW OF THE AFORESAID JUDGMENTS. 3.3. PER CONTRA LD. DR RELIED UPON THE ORDERS OF THE AO . HOWEVER, IN RESPONSE TO OUR QUERY, HE WAS NOT ABLE TO DRAW ANY DISTINCTION IN FACTS OR LEGAL POSITION BETWEEN AFORESAID JUDGMENTS AND THE CASE OF THE ASSESSEE BEFORE US. 3.4. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWE R AUTHORITIES AS WELL AS COPIES OF JUDGMENTS PLACED B EFORE US FOR OUR CONSIDERATION. THE BRIEF BACKGROUND OF THE CASE IS THAT THE ASSESSEE COMPANY IS A JOINT VENTURE BETWEEN BANK OF INDIA, UNION BANK OF INDIA AND THE DIA ICHI INSURANCE COMP ANY LTD, JAPAN. THE ASSESSEE COMPANY WAS INCORPORATED AS COM PANY UNDER THE COMPANIES ACT, 1956 AND WAS GRANTED LICEN SE BY THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY ON 26.12.2008 FOR CARRYING ON LIFE INSURANCE BUSINESS IN INDIA. 3.5. THE FINANCIAL STATEMENTS ARE PREPARED BY THE ASSES SEE COMPANY IN ACCORDANCE WITH THE REGULATION AND GUIDE LINES ISSUED BY THE IRDA AND THE INSTITUTE OF ACTUARIAL S OCIETY OF INDIA. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE AO THAT ASSESSEE HAD A NEGATIVE RES ERVE IN ITS ACCOUNTS AND THE SURPLUS COMPUTED BY THE ACTUARIAL VALUATION REPORT WAS ARRIVED AT BY IGNORING NEGATIV E RESERVE, AND THEREFORE AO ASKED THE ASSESSEE TO JUSTIFY AS T O WHY THE STAR UNION DIA ICHI LIFE 4 SURPLUS IN THE ACTUARIAL VALUATION REPORT SHOULD NO T BE INCREASED BY THE FIGURE OF NEGATIVE RESERVE. THE AS SESSEE GAVE DETAILED EXPLANATION BY INTER-ALIA CONTENDING THAT FINANCIAL STATEMENTS OF INSURANCE COMPANIES INCLUDING VALUATI ON OF LIABILITIES ARE GOVERNED BY THE REGULATIONS AND GUI DELINES BY IRDA AND THE INSTITUTE OF ACTUARIAL SOCIETY OF INDI A. IT WAS FURTHER SUBMITTED THAT THE SECTION 44 OF THE INCOME TAX ACT, 1961 WHICH PRESCRIBE THE MANNER OF ASSESSMENT OF LI FE INSURERS OVER-RIDES ALL THE GENERAL PROVISIONS FOR COMPUTATION OF INCOME FROM BUSINESS CONTAINED IN SECTION 28 TO 43B OF THE INCOME TAX ACT, 1961. THE RELEVANT RULE 2 OF TH E FIRST SCHEDULE TO THE INCOME TAX ACT, 1961, WHICH LAYS DO WN THE BASIS OF DETERMINATION OF BUSINESS INCOME, LEADS TO THE CONCLUSION THAT THE SURPLUS OR DEFICIT DISCLOSED BY THE ACTUARIAL VALUATION MADE IN ACCORDANCE WITH THE INS URANCE ACT, 1938 IS THE SOLE BASIS FOR COMPUTATION OF INCO ME FROM THE BUSINESS OF LIFE INSURANCE. THE PROVISIONS DO N OT PERMIT ANY OTHER ADJUSTMENT TO BE MADE THEREIN. THE ACTUAR IAL SURPLUS/DEFICIENCY AS PER INSURANCE ACT, 1938 IS EX PLAINED IN SECTION 13(1) OF THE INSURANCE ACT, 1938 WHICH S TATES THAT AN INVESTIGATION TO BE MADE BY AN ACTUARY INTO THE FINANCIAL CONDITION OF THE LIFE INSURANCE BUSINESS WHICH IS BASICALLY DETERMINATION OF PRESENT VALUE OF FUTURE LIABILITIES IN RESPECT OF POLICIES ISSUED BY THE INSURER. THEREFOR E ACTUARIAL SURPLUS/DEFICIENCY REPRESENTS THE DIFFERENCE BETWEE N THE PRESENT VALUE OF FUTURE PREMIUMS AND OTHER INCOME E XPECTED TO BE GENERATED THROUGHOUT THE POLICY PERIOD AND TH E PRESENT VALUE OF ALL FUTURE LIABILITIES EXPECTED TO ARISE T HROUGHOUT THE STAR UNION DIA ICHI LIFE 5 POLICY PERIOD. 3.6. IN ADDITION TO THE ABOVE, THE ASSESSEE MADE EXHAUS TIVE SUBMISSIONS IN SUPPORT OF ITS CLAIM THAT NEGATIVE R ESERVE WAS NOT TO BE CONSIDERED FOR MAKING ADDITION TO THE ASS ESSABLE INCOME OF THE ASSESSEE. THE AO WAS NOT SATISFIED WI TH THE SUBMISSIONS OF THE ASSESSEE THEREFORE, HE MADE THE ADDITION EQUIVALENT TO THE AMOUNT OF NEGATIVE RESERVES AS RE PORTED IN THE ACTUARIAL VALUATION REPORT OF THE LIFE INSURANC E AND ADDED A SUM OF RS.78,38,270/- TO ITS INCOME. 3.7. IN THE APPEAL BEFORE LD. CIT(A), EXHAUSTIVE SUBMIS SIONS WERE MADE AND RELIANCE WAS PLACED ON VARIOUS JUDGME NTS WHICH WERE IN FAVOUR OF THE ASSESSEE ON THIS ISSUE. LD. CIT(A) CONSIDERED THE FACTS OF THE CASE TO THE ASSESSEE, A ND RELYING UPON THE AFORESAID JUDGMENT OF MUMBAI BENCH OF TRIB UNAL IN THE CASE OF ICICI PRUDENTIAL LIFE INSURANCE CORPORA TION OF INDIA (SUPRA), HE DELETED THE ADDITION WITH FOLLOWI NG OBSERVATIONS: 4.2 I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, SUBMISSIONS OF THE APPELLANT AND CASE LAW S RELIED UPON BY THE APPELLANT. AO DURING THE ASSESSMENT PROCEEDINGS HAD TREATED THE NEGATIVE RESERVE AS REPORTED IN THE ACTUARIAL VALUATION REPO RT OF THE LIFE INSURANCE AND ADDED RS.78,38,270/-. AC TREATED THIS NEGATIVE RESERVE A SURPLUS RESERVE FRO M THE APPELLANT'S LIFE INSURANCE BUSINESS AND ADDED THE AMOUNT IN THE ASSESSMENT ORDER PASSED UNDER SEC. 143(3) OF THE ACT. FOR INSURANCE BUSINESS, ASSESSMENT HAS TO BE PASSED UNDER SEC. 44 OF THE AC T AND RULE 2 OF THE FIRST SCHEDULE WHICH OVER-RIDES ALL THE GENERAL PROVISIONS FOR COMPUTATION OF INCOME FROM BUSINESS CONTAINED IN THE PROVISIONS FR OM SEC. 28 TO 43B, THERE IS NO PROVISION IN THE ACT TO ADD ANY FURTHER ADDITION EXCEPT AS PER THE RULE 2 O F THE FIRST SCHEDULE UNDER SEC. 44 OF THE IT ACT. STAR UNION DIA ICHI LIFE 6 COMPUTATION OF INCOME FOR THIS BUSINESS SHOULD BE O NLY COVERED BY THE ABOVE SEC. 44 AS PER RULE 2 OF THE FIRST SCHEDULE. IN THIS CASE, AC TREATED NEGATIVE RESERVE AS SURPLUS FROM THE ACTUARIAL VALUATION IN INSURANCE BUSINESS AND ADDED THE AMOUNT. ON THE SAME ISSUE AND ON THE SAME FACTS, THIS ISSUE HAS CO ME INTO CONSIDERATION OF ICICI PRUDENTIAL LIFE INSURANCE CORPORATION OF INDIA VS ACIT ITA NO. 7765- 7767/BOMBAY/210 WHEREIN IF IS HELD AS UNDER 'THE MATHEMATICAL RESERVE IS PART OF ACTUARIAL VALUATION AND THE SURPLUS AS DISCUSSED IN FORM-1 UNDER REGULATION 4 TAKES INTO CONSIDERATION THIS MATHEMATICAL RESERVE ALSO. THEREFORE, THE ORDER OF THE CIT(A) IS APPROVED. MOREOVER, THE ASSESSING OFFICER HAS NO POWER TO MODIFY THE AMOUNT AFTER ACTUARIAL VALUATION WAS DONE, WHICH WAS THE BASIS FOR ASSESSMENT UNDER RULE 2 OF 1ST SCHEDULE R.W.S. 44 OF THE IT AC T. THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN LIC CIT 512 ITR 773 ABOUT THE POWERS OF ASSESSING OFFICER ALSO RESTRICTS THE SCOPE AND ADJUSTMENTS BY THE AO. IN VIEW OF THIS, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE REVENUE GROUND.' 4.3 IN THE ABOVE ITATS CASE, IN THE ICICI PRUDENTIAL LIFE INSURANCE CORPORATION OF INDIA, IT IS CLEARLY HELD THAT NEGATIVE RESERVE NEED NOT BE ADDE D IN THE COMPUTATION OF INCOME IN THE CASE OF INSURANCE BUSINESS FOLLOWING THE SUPREME COURT DECISION IN THE CASE OF LIFE INSURANCE CORPORATION OF INDIA VS CIT DELHI AND RAJASTHAN 51 ITR 773. RESPEC TFULLY FOLLOWING THE DECISION, ADDITION IS DELETED AND GROUND OF APPEAL NO. 1 IS ALLOWED. RELIEF GRANTED T O THE APPELLANT IS OF RS.78,38,270/. 3.8. DURING THE COURSE OF HEARING BEFORE US, IT HAS BEE N STATED BY THE LD. COUNSEL THAT NOW THE VIEW TAKEN BY THE L D. CIT(A) HAS BEEN ACCEPTED IN MANY JUDGMENTS WHICH HAVE BEEN MENTIONED ABOVE. IT IS NOTED THAT IN THE CASE OF LI FE INSURANCE STAR UNION DIA ICHI LIFE 7 CORPORATION OF INDIA V. ADDL. CIT MUMBAI (ITA NO.6221/MUM/2012 ORDER DATED 03.04.2013), THE TRIBU NAL DELETED THE ADDITION MADE BY THE AO ON ACCOUNT OF N EGATIVE RESERVE AFTER MAKING DETAILED ANALYSIS WITH THE FOL LOWING OBSERVATIONS: NEXT GROUND OF APPEAL IS ABOUT CONFIRMATION OF AD DITION MADE BY THE AO IN RESPECT OF NEGATIVE RESERVES SHOW N IN FORM-I. DURING THE ASSESSMENT PROCEEDINGS, ON PERUS AL OF THE ACTUARIAL REPORTS IN FORM-I,AO FOUND THAT THERE WAS AN ITEM CALLED NEGATIVE RESERVE AMOUNTING TO RS. 380 75.39 CRORES. HE DIRECTED THE ASSESSEE TO FILE EXPLANATIO N IN THIS REGARD. AFTER CONSIDERING THE SUBMISSIONS OF THE AS SESSEE, ESPECIALLY INSURANCE REGULATORY AND DEVELOPMENT AUTHORITIES (IRDA) (ASSETS, LIABILITIES AND SOLVENC Y MARGIN OF INSURERS) REGULATIONS, 2000 HE DISCUSSED THE PRI NCIPLES GOVERNING THE NEGATIVE RESERVES. HE HELD THAT THE I SSUE IN NEGATIVE RESERVES TO BE TAKEN AS 0 WAS SPECIFIC T O SITUATIONS MENTIONED IN THE REGULATION, THAT RULE 5 (II) MANDATED THAT MATHEMATICAL RESERVES SHOULD BE TAKEN WITHOUT ANY MODIFICATION FOR THE PURPOSE OF SECTION 35 OF THE INSURANCE ACT, THAT PROVISIONS OF INSURANCE ACT CLEARLY INDICATED THAT ACTUARY WAS NOT MANDATED TO TAKE NEG ATIVE RESERVES AT 0IN ALL SITUATIONS, THAT BY TAKING NE GATIVE RESERVES AT 0SURPLUS HAD BEEN MADE LESS THAN THE REAL ACTUARIAL VALUATION, THAT IN INCOME TAX ASSESSMENTS REAL INCOME OF AN ASSESSEE HAD TO BE DEBITED, THAT IGNOR ING NEGATIVE RESERVE WAS IN ACCORDANCE WITH IRDA REGULA TIONS WAS ALSO NOT MATERIAL, THAT THE IRDA GUIDELINES WER E APPLICABLE IN SPECIFIC SITUATIONS ONLY, THAT IRDA G UIDELINES PROVIDED THAT THE LIABILITIES SHALL BE CALCULATED T OGETHER WITH THE FUTURE PREMIUM PAYMENTS, THAT IN THE SURPL US COMPUTATION THE NEGATIVE RESERVES WERE NOTHING BUT FUTURE PREMIUM PAYMENTS IN RESPECT OF POLICIES WHERE LIABI LITIES WERE LESS THAN THE FUTURE PREMIUM RECEIVABLE, THAT LIABILITY VALUATION MUST NOT TAKE THE FIGURE OF NEGATIVE RESE RVE AT 0 FOR THE PURPOSE OF DETERMINING OF SURPLUS OF A PARTICULAR FINANCIAL YEAR. AFTER COMPARING THE ACTUARIAL VALUA TION REPORTS OF 31-03-2008 AND 31-03-2009, HE OBSERVED T HAT FIGURE OF NEGATIVE RESERVE WAS CALCULATED EVERY YEA R WAS TAKEN AT 0 WHILE REDUCING THE LIABILITY FROM THE TOTAL FUND STAR UNION DIA ICHI LIFE 8 OF THE YEAR, THAT THE LIABILITY REDUCED FOR AY. 200 8-09 WAS NOT CARRIED IN LIC FUND ON 31-03-2009, THAT THE LIC FUND OF 31-03-2009 DID NOT INCLUDE ANY ADJUSTMENT BY WAY OF NEGATIVE RESERVES MADE IN THE AY. 2008-09, THAT THE RE WAS NO QUESTION OF GIVING ANY CREDIT FOR ADJUSTMENT NEGATIVE RESERVE DONE IN EARLIER AY. FINALLY, HE HE LD THAT ASSESSEES CONTENTION IN RESPECT OF TAKING NEGATIVE RESERVE AT0 WAS NOT TENABLE AS THE SAME WERE NOT IN ACCORDANCE WITH THE INSURANCE ACT AND IRDA REGULATI ONS. ACCORDINGLY, THE NEGATIVE RESERVE REPORTED BY ACTUA RY AMOUNTING TO RS. 38,075.39 CRORES WAS ADDED BACK TO THE INCOME OF THE ASSESSEE AS SURPLUS OF ACTUARIAL VALU ATION OF LIFE INSURANCE BUSINESS OF THE ASSESSEE-COMPANY. 4.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDE R, FAA HELD THAT UNDER IRDA, NEGATIVE RESERVES WERE TO BE TAKEN UNDER SPECIFIC SITUATIONS AND NOT AS A GENERA L RULE, THAT THE APPELLANT CORPORATION WANTED TO TAKE UN-DU E ADVANTAGE BY REDUCING ITS TAXABLE SURPLUS BY THE AM OUNT OF NEGATIVE RESERVES, THAT THE VALUE OF NEGATIVE RE SERVES WAS TAKEN AS 0, THAT SAME HAD BEEN REDUCED FROM T HE TAXABLE SURPLUS AND TOTAL INCOME OF THE ASSESSEE, T HAT THE TOTAL INCOME OF THE ASSESSEE HAD BEEN UNDER STATED, THAT ACTUARIAL HAD ERRED IN APPLYING INSURANCE ACT CORRE CTLY AND PROPERLY IN THE CASE UNDER CONSIDERATION. REFER RING TO PROVISIONS OF IRDA HE HELD THAT NEGATIVE RESERVE WA S TO BE TAKEN AT ZERO IN SPECIFIC SITUATIONS ONLY -UNDER RU LE 5(II) OF SCHEDULE IIA, THAT SAID MANDATE WAS NOT APPLICABLE IN ALL SITUATION AS ARGUED BY THE ASSESSEE. UPHOLDING THE ORDER OF THE AO HE FURTHER HELD THAT NEGATIVE RESERVES AL READY DISALLOWED IN EARLIER YEARS COULD NOT BE ALLOWED IN THE AY UNDER CONSIDERATION, THAT NEGATIVE RESERVES WERE CALCULATED BY THE ACTUARY ON YEAR TO YEAR BASIS, TH AT COMPOSITION OF THE VARIOUS TYPES OF POLICIES COULD UNDERGO A CHANGE FROM YEAR TO YEAR BASIS, THAT THERE WAS NO PROVISION FOR INCREMENTAL ADDITION/SET OFF OF NEGAT IVE RESERVES UNDER THE INSURANCE ACT OR IRDA REGULATION S. 4.2. BEFORE US, AR SUBMITTED THAT REASONS ADVANCED BY THE AO AND CONFIRMED BY THE FAA FOR DISALLOWING THE CLAIM WERE FAR-FETCHED AND WERE CONTRARY TO THE PROVISION S OF SEC.44 OF THE ACT R.W. THE FIRST SCHEDULE OF THE AC T, THAT THE STAR UNION DIA ICHI LIFE 9 AO HAD NEGATED THE PROVISIONS LEGISLATED BY PARLIAM ENT, THAT IRDA REGULATIONS WERE THE GUIDELINES IN THIS R EGARD, THAT THESE REGULATIONS HAD THE FORCE OF LAW HAVING BEEN NOTIFIED BY THE INSURANCE REGULATORY AND DEVELOPMEN T AUTHORITY IN EXERCISE OF THE POWERS CONFERRED ON TH E AUTHORITY BY SECTION 114A OF THE INSURANCE ACT AND WAS BINDING ON THE INSURER AS ALSO THE APPOINTED ACTUAR Y, THAT PARA 5(III) OF IRDA (ASSETS, LIABILITIES AND SOLVEN CY MARGIN)REGUALTIONS,2000 MANDATED THAT FOR THE PURPO SE OF SECTION 13 THE APPOINTED ACTUARY SHOULD SET THE AMO UNT OF MATHEMATICAL RESERVES TO ZERO IN THE CASE OF NEGATI VE RESERVE, THAT THE APPOINTED ACTUARY HAD DONE THE SA ME IN ARRIVING AT THE NET VALUATION SURPLUS, THAT IRDA TO WHOM THE VARIOUS STATEMENTS(INCLUDING FROM-I)WERE SUBMIT TED HAD ACCEPTED THE VALUATION SURPLUS OF THE LIFE INSU RANCE BUSINESS DETERMINED BY THE APPOINTED ACTUARY IN ACCORDANCE WITH THE REQUIREMENTS OF INSURANCE ACT A ND IRDA REGULATION WAS SACROSANCT AND SAME COULD NOT B E TEMPERED WITH, THAT THE ACTUARIAL VALUATION OF LIAB ILITIES WAS DONE IN ACCORDANCE WITH THE PROVISIONS OF SECTI ONS 13,15,49 AND 64V OF THE INSURANCE ACT,1938 AND IN COMPLIANCE WITH IRDA REGULATIONS. HE REFERRED TO VA RIOUS REGULATIONS OF IRDA. HE FURTHER SUBMITTED THAT METH OD OF VALUATION OF SURPLUS AFTER ZEROING THE NEGATIVE RES ERVES AS REQUIRED BY THE IRDA REGULATIONS WAS ADOPTED BY THE APPOINTED ACTUARY SINCE THE COMMENCEMENT OF IRDA AC T AND IRDA REGULATIONS, THAT SAID METHOD WAS ACCEPTED BY THE CONTROLLER OF INSURANCE(IRDA) AND THE AO IN THE EARLIER AYS., THAT WHILE COMPLETING THE ASSESSMENT FOR THE AY UNDER CONSIDERATION AO HAD ADDED THE NEGATIVE RESER VES TO THE TOTAL INCOME OF THE ASSESSEE, THAT THE AO HA D TAMPERED WITH THE NET VALUATION SURPLUS AS DETERMIN ED BY THE APPOINTED ACTUARY, THAT ACTION OF THE AO WAS CO NTRARY TO THE PROVISIONS OF SECTION 44 OF THE ACT R.W. FIR ST SCHEDULE TO THE ACT. HE RELIED UPON THE CASES OF CI T VS. LIC (51ITR773) AND GIC VS. CIT (240 ITR 139). HE ALSO R ELIED UPON THE ORDER OF THE ICICI PRUDENTIAL INSURANCE CO .(SUPRA) DELIVERED BY THE MUMBAI TRIBUNAL. HE REFERRED TO CI RCULAR NO.202DTD.05.07.1976 ISSUED BY THE CBDT EXPLAINING AND SCOPE OF EFFECT OF THE CHANGES MADE BY THE FINANCE ACT, 1976 IN THE FIRST SCHEDULE TO THE ACT. ALTERNATIVEL Y, HE SUBMITTED THAT TREATMENT TO NEGATIVE RESERVE SHOULD NOT STAR UNION DIA ICHI LIFE 10 RESULT IN DOUBLE TAXATION, THAT FIGURES OF NEGATIVE RESERVES SHOULD BE CONSIDERED FOR ONE AY ONLY, THAT APPROPRI ATE DEDUCTION SHOULD FOR EARLIER YEARS RESERVES SHOULD BE GIVEN IN SUBSEQUENT YEAR. DR STRONGLY SUPPORTED THE ORDERS OF THE AO AND THE FAA. 4.3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT SIMILAR ISSUE WAS RAISED BY THE AO OF THE ICIC I PRUDENTIAL INSURANCE CO.(SUPRA) IN THE APPEAL FILED BY HIM FOR AY 2006-07. GROUND FILED BY HIM READ AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A)ERRED IN NOT SUBJECTING THE NEGAT IVE RESERVE AMOUNTING TO RS.27.27 CRORES IGNORING THE F ACTS THAT NEGATIVE RESERVES HAS IMPACT OF REDUCING THE T AXABLE SURPLUS AS PER FROM I. 4.3.1. WE ARE OF THE OPINION THAT TREATMENT GIVEN T O NEGATIVE RESERVES BY ACTUARY CANNOT BE DISTURBED BY THE AO. HERE, IT WOULD BE USEFUL TO UNDERSTAND MEANING OF NEGATIVE RESERVE IN SIMPLE TERMS. WHILE MAKING ACTU ARIAL VALUATION, REQUIREMENT OF RESERVE TO SERVICE INSURA NCE POLICIES ISSUED IS ASCERTAINED. SUCH RESERVE (CALLE D MATHEMATICAL RESERVE OR VALUE OF LIABILITY) IS EQUA L TO PRESENT VALUE OF FUTURE BENEFITS PAYABLE AND FUTURE EXPENSES TO BE INCURRED LESS PRESENT VALUE OF FUTUR E PREMIUM RECEIVABLE. WHEN THE PRESENT VALUE OF FUTUR E PREMIUM IS MORE THAN THE PRESENT VALUE OF FUTURE BE NEFITS PAYABLE AND FUTURE EXPENSES TO BE INCURRED, THIS AM OUNT BECOMES NEGATIVE, KNOWN AS NEGATIVE RESERVE. IN S IMPLE WORDS, IT MEANS THAT THE INSURANCE CONTRACTS UNDER CONSIDERATION DO NOT WARRANT ANY PROVISION AND IS, IN FACT, AN ASSET. HOWEVER, IN CERTAIN CIRCUMSTANCES, SUCH A S FOR FOLLOWING IRDA GUIDELINES, INSURERS MAY NOT TREAT P OLICIES AS ASSETS AND THEY SET ANY NEGATIVE RESERVES TO ZER O. FOR EXAMPLE, IF AN INSURER HAD TWO POLICIES, ONE WITH A RESERVE OF 100 AND THE OTHER WITH A RESERVE OF - 10, IT MI GHT THINK OF ITS LIABILITIES AT 100 RATHER THAN 90 TO TAKE IN TO ACCOUNT THE EVENTUALITY IN CASE THE SECOND POLICY LAPSED. T HIS PROCESS IS CALLED ELIMINATING NEGATIVE RESERVES. AS MENTIONED EARLIER, A POLICY WHICH HAS A NEGATIVE RE SERVE IS IN NATURE OF AN ASSET. 4.3.2. WE FIND THAT IN THE CASE OF ICICI PRUDENTIAL INSURANCE CO.(SUPRA) AO HAD DISALLOWED NEGATIVE RES ERVE RELATED TO LIFE INSURANCE BUSINESS OF THE ASSESSEE. IN STAR UNION DIA ICHI LIFE 11 APPELLATE PROCEEDINGS FAA ALLOWED THE APPEAL OF THEASSESSEE.AO CHALLENGED THE ORDER OF THE FAA BEFO RE THE TRIBUNAL, AS STATED EARLIER. DISPOSING HIS APPEAL, TRIBUNAL HELD AS UNDER: AFTER CONSIDERING THE RIVAL SUBMISSIONS AND EXAMIN ING THE METHOD OF ACCOUNTING AND THE MANDATE GIVEN BY REGULATIONS TO APPOINT ACTUARIAL ON THE CONCEPT OF MATHEMATICAL RESERVES WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A).THE MATHEMAT ICAL RESERVE IS A PART OF ACTUARIAL VALUATION AND THE SU RPLUS AS DISCUSSED IN FORM-I UNDER REGUALTION 4 TAKES IN TO CONSIDERATION THIS MATHEMATICAL RESERVE ALSO. THERE FORE THE ORDER OF THE ORDER OF THE CIT(A) IS APPROVED. M OREOVER THE ASSESSING OFFICER HAS NO POWER TO MODIFY THE AM OUNT AFTER ACTUARIAL VALUATION WAS DONE, WHICH WAS THE B ASIS FOR ASSESSMENT UNDER RULE 2 OF 1STSCHEDULE R.W.S.44 OF THE I.T. ACT. THE PRINCIPLE LAID DOWN BY THE HONBL E SUPREME COURT IN LIC VS.CIT 51ITR773 ABOUT THE POWE R OF THE ASSESSING OFFICER ALSO RESTRICTED THE SCOPE AND ADJUSTMENT BY THE AO. IN VIEW OF THIS UPHOLD THE OR DER OF THE CIT(A) AND DISMISS THE REVENUES GROUND. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE COORD INATING BENCH WE DECIDE GROUND NO.2 IN FAVOUR OF THE ASSESS EE. 3.9. IT IS FURTHER NOTED THAT SIMILAR VIEW HAS BEEN TAK EN IN OTHER JUDGMENTS RELIED UPON BY THE LD. COUNSEL. NO CONTRARY VIEW WAS BROUGHT TO OUR NOTICE BY LD. DR. THEREFORE , RESPECTFULLY FOLLOWING THESE JUDGMENTS WE DECIDED T HIS ISSUE IN FAVOUR OF THE ASSESSEE. IT IS NOTED THAT THE FINDIN GS RECORDED BY THE LD. CIT(A) WHILE DELETING THE IMPUGNED ADDITION IS BASED UPON PROPER REASONING AND CORRECT APPRECIATION OF L AW. NOTHING WRONG COULD BE POINTED THEREIN BY THE LD. D R. THEREFORE, NO INTERFERENCE IS CALLED FOR THEREIN. T HUS, ORDER PASSED BY THE LD. CIT(A) IS UPHELD. GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 4. AS A RESULT, THE APPEAL OF THE REVENUE IS DISMISSE D. STAR UNION DIA ICHI LIFE 12 5. IT IS NOTED THAT IN A.Y. 2010-11, THE REVENUE HAS RAISED IDENTICAL ISSUE OF DELETION OF ADDITION OF RS.9,11, 32,400/- MADE BY THE AO ON ACCOUNT OF NEGATIVE RESERVE. LD. CIT(A) HAD DELETED THE ADDITION BY FOLLOWING HIS OWN ORDER FOR A.Y. 2009-10. NO DISTINCTION HAS BEEN POINTED OUT BY THE LD. DR IN THE FACTS OF A.YS. 2009-10 AND 2010-11, THEREFORE, FOLLOWING OUR ORDER FOR A.Y. 2009-10, GROUNDS RAISED BY THE R EVENUE ARE DISMISSED. 6. IN THE RESULT, BOTH APPEALS OF THE REVENUE ARE DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JANUARY, 2017. SD/- SD/- ( MAHAVIR SINGH ) ( ASHWANI TANEJA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 11/01/2017 CTX? P.S/. .. !'#$%&%'# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A)- , MUMBAI 5. #$% &' , &' ) , / DR, ITAT, MUMBAI 6. %*+ , / GUARD FILE. / BY ORDER, # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI