ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD, MUMBAI V. ASST CIT CIR 6(1), MUMBAI

ITA 5252/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87993 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 29-12-2014
• Assessment Year: 2011-2012
• Appeal Filed On: 29-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Keywords: Presumptive income; Gift; Depreciation; Earning of tax free income; Source of fund; Question of law; Valuation report
• Section: 43B; 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI . . , , , BEFORE SHRI R.C. SHARMA,AM AND SHRI VIJAY PAL RAO, JM ./I.T.A. NO.5251/MUM/2013 ( / ASSESSMENT YEAR : 2010-11) ./I.T.A. NO.5252/MUM/2013 ( / ASSESSMENT YEAR : 2011-12) ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. 1089, APPASAHEB MARATHE MARG PRABHADEVI MUMBAI-400 025. / VS. THE ACIT CIRCLE 6(1) ROOM NO.506, 5 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. ./ ./PAN/GIR NO. : AAAC 1735 P ( /APPELLANT ) . . ( / RESPONDENT ) ./I.T.A. NO.5529/MUM/2013 ( / ASSESSMENT YEAR : 2010-11) ./I.T.A. NO.5530/MUM/2013 ( / ASSESSMENT YEAR : 2011-12) THE ACIT CIRCLE 6(1) ROOM NO.506, 5 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. / VS. ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. 1089, APPASAHEB MARATHE MARG PRABHADEVI MUMBAI-400 025. ./ ./PAN/GIR NO. : AAAC 1735 P ( /APPELLANT ) .. ( / RESPONDENT ) ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. ITA NO.5251, 5529, 5530 & 5252 2 ! ' / APPELLANT BY : MS. AARTI VISSANJI ! ' / RESPONDENT BY : SHRI KISHAN VYAS #$ ! % / DATE OF HEARING : 29/12/2014 &'() ! % / DATE OF PRONOUNCEMENT : 14/01/2015 / O R D E R PER BENCH : THESE ARE SET OF TWO CROSS APPEAL I.E. ITA NOS.5251/MUM/2013 AND 5252/MUM/2013 ARE ASSESSEES APPEALS AND ITA NOS.5529 /MUM/2013 AND 5530/MUM/2013 ARE APPEALS BY THE DEPARTMENT , WHICH ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF CIT(A) BOTH DATED 29/5/2013 FOR THE ASSES SMENT YEARS 2010-11 AND 2011-12 RESPECTIVELY. THE ASSESSEE HAS RAISED THE COMMON GR OUNDS IN BOTH THE APPEALS. THE GROUNDS RAISED FOR THE ASSESSMENT YEAR 2010-11 ARE AS FOLLOWS :- 1. THE CIT (APPEALS) HAS ERRED IN NOT ADJUDICATING GRO UND NO.1 RAISED BEFORE HIM RELATING TO THE COMPUTATION ADOPTED FOR FILING RETU RN OF INCOME BY THE APPELLANT HOLDING THAT THIS GROUND OF APPEAL IS GENERAL IN NA TURE. 2. THE CIT HAS ERRED TAXING TWICE NEGATIVE RESERVE ONC E IN EARLIER YEARS ON ARISING AND AGAIN IN CURRENT YEAR OF CRYSTALLIZATION. 3. THE CIT (APPEALS) HAS ERRED IN HOLDING THAT THE PRO VISIONS OF SECTION 14A ARE APPLICABLE TO THE APPELLANT. 4. WITHOUT PREJUDICE TO THE ABOVE, THE CIT (APPEALS) E RRED IN HOLDING THAT DISALLOWANCE SHOULD BE COMPUTED BY APPLYING RULE 8D , ESTIMATING THE EXPENSES ATTRIBUTABLE TOWARDS DIVIDEND INCOME AS 0.5% (I.E. RS. 85.43 CRORES) OF AVERAGE INVESTMENT, WITHOUT GIVING ANY REASON FOR DISREGARD ING THE CALCULATIONS FILED BY WAY OF SUBMISSIONS, DETAILING THE METHOD OF COMPUTI NG EXPENSES ATTRIBUTABLE TO SUCH EXEMPT INCOME. 2. GROUND NO.1 IS REGARDING NON ADJUDICATION OF THI S ISSUE BY THE CIT(A), I.E. REGARDING THE COMPUTATION ADOPTED BY THE ASSESSEE I N THE RETURN OF INCOME . ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. ITA NO.5251, 5529, 5530 & 5252 3 2.1 WE HAVE HEARD THE LD. AR AS WELL AS THE LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT AN I DENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 TO 2008-09 IN THE CASE OF ( ICICI PRUDENTIAL INSURANCE CO. LTD. ) 140 ITD 41 IN PARA 42 AS UNDER :- 42. IN VIEW OF THE ABOVE, LOOKING AT THE ISSUE IN ANY WAY WHAT WE NOTICE IS THAT THE COMPUTATION MADE BY ASSESSEE IS IN ACCORDANCE W ITH RULE-2 OF THE INSURANCE ACT 1938 ACCORDING TO WHICH ONLY AO CAN BASE HIS CO MPUTATION. THIS ALSO CORRESPONDS TO THE WAY INCOMES WERE ASSESSED IN EAR LIER YEARS I.E. THE CORRECT METHOD AS PER RULE 2 AND SEC 44 OF IT ACT. IN VIEW OF THE DISCUSSION ABOVE AND AFTER ANALYZING THE FORMS, REGULATIONS AND PROVISIO NS WE HAVE NO HESITATION TO HOLD THAT THE ASSESSEE WORKING OF ACTUARIAL SURPLUS / DEFICIT IS IN ACCORDANCE WITH RULE 2 OF FIRST SCHEDULE. THEREFORE, ASSESSEE GROUN DS ON THIS ISSUE ARE ALLOWED AND AO IS DIRECTED TO MODIFY THE ORDER ACCORDINGLY. GROUND NOS.1 TO 3 ARE CONSIDERED ALLOWED. 2.1.1 ACCORDINGLY, THE AO IS DIRECTED TO COMPUTE TH E INCOME OF THE ASSESSEE IN ACCORDANCE WITH THE RULE-2 OF THE INSURANCE ACT, 19 38. THIS GROUND OF THE ASSESSEES APPEAL IS TREATED AS ALLOWED. 3. GROUND NOS. 2 AND 3 ARE REGARDING DISALLOWANCE U NDER SECTION 14A. THE ASSESSEE CONTENDED BEFORE THE AUTHORITIES BELOW THA T PROVISIONS OF SECTION 14A ARE NOT APPLICABLE IN CASE OF INSURANCE COMPANY, HOWEVER, T HE AO AS WELL AS THE LD. CIT(A) HAS HELD THAT PROVISIONS OF SECTION 14A ARE APPLICABLE TO THE ASSESSEE AND CONSEQUENTLY MADE THE DISALLOWANCE OF RS.118.81 CRORES UNDER SEC TION 14A. 3.1 WE HAVE HEARD THE LD. AR AS WELL AS THE LD. DR. AT THE OUTSET WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2005-06 IN PARA-46 AS UNDER :- 46. THIS ISSUE IS ALREADY DECIDED BY THE COORDINATE BE NCHES IN VARIOUS CASES. FOR THE SAKE OF RECORD, THE ORDER IN THE CASE OF GENERA L INSURANCE CORPORATION OF INDIA (SUPRA) VIDE PARA 9 IS AS UNDER: 9. 'ISSUE NO.6 NON APPLICABILITY OF PROVISIONS OF S ECTION 14A. (MODIFIED GROUND OF APPEAL NO.3.1 TO 3.4 - ORIGINAL GROUND OF APPEAL NO.3.1 TO 3.5). THE ISSUE IS WITH REFERENCE TO THE APPLICABILITY OF SECTION 14A AND DISALLOWANCE OF EXPENDITURE IN RESPECT OF SALE OF INVESTMENT WHICH ARE NOT TAXED. WE HAVE ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. ITA NO.5251, 5529, 5530 & 5252 4 HEARD THE RIVAL CONTENTIONS. WE ALSO NOTE THAT THIS ISSUE IS ALSO CONSIDERED BY THE COORDINATE BENCH IN ASSESSEE'S OWN CASE FOR 200 6-07 VIDE PARA 7 TO 9: 7. GROUNDS OF APPEAL NO.4 REGARDING THE EXPENDITURE UNDER SECTION 14A. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT RECORD. WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED AND DECIDE D BY THE PUNE BENCH OF THIS TRIBUNAL IN THE CASE OF BAJAJ ALLIANZ GENERAL INSUR ANCE COMPANY LIMITED V. ADDL. CIT IN ITA NO.1447/PN/2007 FOR THE ASSESSMENT YEAR 2003-04 ORDER DATED 31.08.2009. THIS TRIBUNAL IN THE CASE OF JCIT V. M/ S RELIANCE GENERAL INSURANCE CO. IN ITA NO.3085/MUM/2008 FOR THE ASSESSMENT YEAR 2005-06 VIDE ORDER DATED 26.2.2010 HAS CONSIDERED THIS ISSUE AND DECID ED IN FAVOUR OF THE ASSESSEE. THIS ORDER WAS FOLLOWED BY THIS TRIBUNAL WHILE DECIDING THE ISSUE IN ITA NO.781/MUM/2007 VIDE ORDER DATED 30.4.2010. THU S, THIS ISSUE HAS BEEN CONSISTENTLY DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THIS TRIBUNAL. THE PUNE BENCH OF THIS TRIBUNAL IN THE CA SE OF BAJAJ ALLIANZ GENERAL INSURANCE COMPANY LIMITED V. ADDL. CIT (SUPRA ) HAS DECIDED THIS ISSUE IN PARAGRAPHS 17 TO 20 AS UNDER: '17. FINALLY THE QUEST ION TO BE ANSWERED IS ABOUT THE APPLICABILITY OF S. 14A IN RESPECT OF SALE OF INVESTMENT WHICH IS NOT TAXED UN DER THE SPECIAL CIRCUMSTANCES OF DELETION OF A SUB-RULE FROM THE ST ATUTE. IT IS NOT QUESTIONED THAT THE IMPUGNED PROFIT WAS NON-TAXABLE PER SE RAT HER THE ACCEPTED LEGAL POSITION IS THAT THE IMPUGNED PROFIT WAS VERY MUCH TAXABLE IN THE PAST. NOW IT HAS BEEN INFORMED THAT THIS CONTROVERSY IN RESPECT OF INSURANCE COMPANY SET AT REST BY A DECISION OF TRIBUNAL, DELHI BENCH VERDICT IN THE CASE OF ORIENTAL INSURANCE CO. LTD. (ITA NOS. 5462 & 5463/DEL /2003) ASST. YRS. 2000-01 AND 2001-02 ORDER DT. 27TH FEB. 2009 [REPORTED AS ORIEN TAL INSURANCE CO. LTD. V. ASSTT. CIT [2010] 130 TTJ (DELHI)388 : [2010] 38 DT R (DELHI ) 225-ED.]. THEREFORE CONSIDERING THE VEHEMENT RELIANCE OF LEAR NED AUTHORIZED REPRESENTATIVE IT IS WORTH TO MENTION AT THE OUTSET ITSELF THAT THE ISSUE NOW STOOD RESOLVED BY THIS LATEST DECISION OF DELHI, TR IBUNAL IN THE CASE OF ORIENTAL INSURANCE CO. LTD. (SUPRA), THE RELEVANT PORTION RE PRODUCED BELOW: '17. WE HAVE HEARD RIVAL SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IDENTICAL ISSUE AROSE IN ASSESSEE'S OWN CASE FOR ASST. YR. 1985-86. THE TRIBUNAL ACCEPTED THE PLEA O F THE ASSESSEE AND IN FACT THE ISSUE WENT UP TO THE HON'BLE DELHI HIGH COURT I N ASST . YRS. 1986-87 TO 1988-89, WHICH IS REPORTED AS CIT V. ORIENTAL INSUR ANCE CO. LTD. [2003] 179 CTR (DELHI) 85 : [2002] 125 TAXMAN 1094 (DELHI), DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT S. 44 OF THE ACT IS A SPECIAL PROVISION DEALING WITH THE COMPUTATION OF PROFITS AND GIFTS OF BUSINE SS OF INSURANCE. IT BEING A NON OBSTINATE PROVISION, HAS TO PREVAIL OVER OTHER PROVISIONS IN THE ACT. IT CLEARLY PROVIDES THAT INCOME FROM INSURANCE BUSINES S HAS TO BE COMPUTED IN ACCORDANCE WITH THE RULE CONTAINED IN THE FIRST SCH EDULE. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT COMPUTED THE PROFITS AND GAINS OF ITS INSURANCE BUSINESS IN ACCORDANCE WITH THE SAID RULE S. RELIANCE WAS PLACED ON THE SCOPE OF S. 144, AS HELD IN THE CASE OF GENERAL INSURANCE CORPORATION OF INDIA V. CIT [1999] 156 CTR (SC) 425 : [1999] 240 ITR 139 (SC), WHEREIN THEIR LORDSHIPS OF THE APEX COURT HAVE CATEGORICALLY HELD THAT THE PROVISIONS OF S. 44 BEING A SPECIAL PROVISION GOVERN COMPUTATION OF TAX ABLE INCOME EARNED FROM BUSINESS OF INSURANCE. IT MANDATES THE TAX AUTHORIT IES TO COMPUTE THE TAXABLE INCOME IN RESPECT OF INSURANCE BUSINESS IN ACCORDAN CE WITH THE PROVISIONS OF THE FIRST SCHEDULE TO THE ACT. IN THE LIGHT OF THES E, THEIR LORDSHIPS OF DELHI HIGH COURT HAVE HELD THAT NO QUEST ION OF LAW, MUCH LESS A SUBSTANTIAL QUESTION OF LAW SURVIVES FOR THEIR CONSIDERATION. IN OTHER WORD S, ORDER OF THE TRIBUNAL HAS ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. ITA NO.5251, 5529, 5530 & 5252 5 BEEN AFFIRMED. FOLLOWING THE SAME REASONING, ADDITI ON MADE BY THE AO IS DELETED. 22. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GO NE THROUGH THE RECORDS. THE PROVISIONS OF S. 44 READ AS UNDER: '44. INSURANCE BUSINESS.-NOTWITHSTANDING ANYTHING T O THE CONTRARY CONTAINED IN THE PROVISIONS OF THIS ACT RELATING TO THE COMPUTAT ION OF INCOME CHARGEABLE UNDER THE HEAD 'INTEREST ON SECURITIES'. 'INCOME FR OM HOUSE PROPERTY' , 'CAPITAL GAINS' OR 'INCOME FROM OTHER SOURCES' , OR IN S. 19 9 OR IN SS. 28 TO 43B, THE PROFITS AND GAINS OF ANY BUSINESS OF INSURANCE, INC LUDING ANY SUCH BUSINESS CARRIED ON BY A MUTUAL INSURANCE COMPANY OR BY A CO OPERATIVE SOCIETY, SHALL BE COMPUTED IN ACCORDANCE WITH THE RULES CONTAINED IN THE FIRST SCHEDULE''. 23. THE ABOVE PROVISION MAKES IT VERY CLEAR THAT S. 44 APPLIES NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED WITHIN THE PROVI SIONS OF THE IT ACT RELATING TO COMPUTATION OF INCOME CHARGEABLE UNDER DIFFERENT HEADS. WE AGREE WITH THE LEARNED COUNSEL THAT THERE IS NO REQUIREMENT OF HEA D-WISE BIFURCATION CALLED FOR WHILE COMPUTING THE INCOME UNDER S. 44 OF THE ACT I N THE CASE OF AN INSURANCE COMPANY. THE INCOME OF THE BUSINESS OF INSURANCE IS ESSENTIALLY TO BE AT THE AMOUNT OF THE BALANCE OF PROFITS DISCLOSED BY THE A NNUAL ACCOUNTS AS FURNISHED IN THE CONTROLLER OF INSURANCE. THE ACTUAL COMPUTAT ION OF PROFITS AND GAINS OF INSURANCE BUSINESS WILL HAVE TO BE COMPUTED IN ACCO RDANCE WITH R. 5 OF THE FIRST SCHEDULE. IN THE LIGHT OF THESE SPECIAL PROVISIONS COUPLED WITH NON OBSTANTE CLAUSE THE AO IS NOT PERMITTED TO TRAVEL BEYOND THE SE PROVISIONS. 24. SEC. 14A CONTEMPLATES AN EXCEPTION FOR DEDUCTIO NS AS ALLOWABLE UNDER THE ACT ARE THOSE CONTAINED UNDER SS. 28 TO 43B OF THE ACT. SEC. 44 CREATES SPECIAL APPLICATION OF THESE PROVISIONS IN THE CASES OF INS URANCE COMPANIES. WE THEREFORE, AGREE WITH THE ASSESSEE AND DELETE THE A CT AS ACCORDING TO US, IT IS NOT PERMISSIBLE TO THE AO TO TRAVEL BEYOND S. 44 AN D FIRST SCHEDULE OF THE IT ACT.' 18. IT MAY NOT BE OUT OF PLACE TO MENTION THAT THE RESPECTED CO-ORDINATE BENCH HAS DULY TAKEN THE NOTE OF AN EARLIER DECISION OF T HAT VERY BENCH DECIDED IN THE CASE OF THAT VERY ASSESSEE VIDE ORDER DT. 29TH SEPT . 2004 BEARING ITA NOS. 7815/DEL/1989, 3607 TO 3609/DEL /1990; 5035/DEL / 1 998 AND 3910/DEL /2000 NAMED AS DY. CIT V. ORIENTAL GENERAL INSURANCE CO. LTD. [2005] 92 TTJ (DELHI) 300. AS SEEN FROM THE PARAS REPRODUCED ABOVE ON DUE CONSIDERATION OF THE RELEVANT PROVISIONS AS APPLICABLE TO RESOLVE THIS I SSUE A CONCLUSION WAS DRAWN THAT SINCE THE COURTS HAVE HELD, S. 44 CREATES A SP ECIAL PROVISION IN THE CASES OF ASSESSMENT OF INSURANCE COMPANIES THEREFORE IT WAS NOT PERMISSIBLE TO THE AO TO TRAVEL BEYOND S. 44 OF FIRST SCHEDULE OF IT ACT. 18.1 THE NEXT COMMON DISPUTE RELATES TO THE ORDER O F THE CIT (A) IN SUSTAINING THE ACT ION OF AO IN AL LOWING ONLY 50 PER CENT OF THE MANAGEMENT EXPENSES BY INVOKING THE PROVISIONS OF S. 14A OF THE ACT. THE A DDITION IS MADE BY THE AO ON THE PLEA THAT THE PROVISIONS OF S.14A WAS INSERTED BY FINANCE ACT, 2001 W.E.F. 1ST APRIL, 1962. IT IS STATED THAT THE INVESTMENTS MADE BY THE ASSESSEE ARE BOTH TAXABLE AS WELL AS TAX FREE. AN ESTIMATED DISALLOWA NCE OF 50 PER CENT OUT OF THE MANAGEMENT EXPENSES INCURRED AND AS CLAIMED IN THE P&L A/C IS TREATED AS EXPENSES INCUR RED IN CONNECT ION WITH THE LOOKING AFTER TAX-FREE INVESTMENT. 19. THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE INCOME OF THE ASSESSEE IS TO BE COMPUTED UNDER S. 44 R/W R . 5 OF SCH. 1 OF THE IT ACT. SEC. 44 IS A NON OBSTINATE CLAUSE AND APPLIES NOTWI THSTANDING ANYTHING TO THE CONTRARY CONTAINED WITHIN THE PROVISIONS OF THE IT ACT RELATING TO COMPUTATION OF INCOME CHARGEABLE UNDER DIFFERENT HEADS, OTHER T HAN THE INCOME TO BE COMPUTED UNDER THE HEAD 'PROFIT AND GAINS OF BUSINE SS OR PROFESSION'. FOR ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. ITA NO.5251, 5529, 5530 & 5252 6 COMPUTATION OF PROFITS AND GAINS OF BUSINESS OR PRO FESSION THE MANDATE TO THE AO IS TO COMPUTE THE SAID INCOME IN ACCORDANCE WITH THE PROVISIONS OF SS. 28 TO 43B OF THE ACT. IN THE CASE OF THE COMPUTATION OF P ROFITS AND GAINS OF ANY BUSINESS OF INSURANCE, THE SAME SHALL BE DONE IN AC CORDANCE WITH THE RULES PRESCRIBED IN FIRST SCHEDULE OF THE ACT, MEANING TH EREBY SS. 28 TO 43B SHALL NOT APPLY. NO OTHER PROVISION PERTAINING TO COMPUTATION OF INCOME WILL BECOME RELEVANT. ACCORDING TO THE LEARNED COUNSEL, TWO PRE SUMPTIONS THAT FOLLOW ON A COMBINED READING OF SS. 14, 14A, 44 AND R. 5 OF THE FIRST SCHEDULE ARE: (A) THAT NO HEAD-WISE BIFURCATION IS CAL LED FOR. T HE INCOME, INTER ALIA, OF THE BUSINESS OF INSURANCE IS ESSENTIALLY TO BE AT THE A MOUNT OF THE BALANCE OF PROFITS DISCLOSED BY THE ANNUAL ACCOUNTS AS FURNISH ED TO THE CONTROLLER OF INSURANCE UNDER THE INSURANCE ACT, 1938. THE SAID B ALANCE OF PROFITS IS SUBJECT ONLY TO ADJUSTMENTS THERE UNDER. THE ADJUSTMENTS DO NOT REFER TO DISALLOWANCE UNDER S. 14A OF THE ACT. (B) PROFITS AND GAINS OF BUSINESS AS REFER RED TO I N (A) ABOVE HAVE ONLY TO BE COMPUTED IN ACCORDANCE WITH R. 5 OF THE FIRST SCHED ULE. 22. SEC. 44 CREATES A SPECIFIC EXCEPT ION TO THE AP PLICABILITY OF SS. 28 TO 43B. THEREFORE, THE PURPOSE, OBJECT AND PURVIEW OF S. 14 A HAS NO APPLICABILITY TO THE PROFITS AND GAINS OF AN INSURANCE BUSINESS. 23. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGL Y JUSTIFIED THE ACT ION OF THE AO AND THAT OF THE CIT(A) IN THE LIGHT OF THE C LEAR PROVISIONS OF S. 14A OF THE ACT. SINCE THE VIEW HAS AL READY BEEN EXPRESSED BY RESPECTED CO-ORDINATE BENCH THEREFORE, WE HAVE NO REASON TO TAKE ANY OTHE R VIEW EXCEPT TO FOLLOW THE SAME. WITH THE RESULT WE HEREBY ACCEPT THE ARGU MENT OF LEARNED AUTHORIZED REPRESENTATIVE TO THE EXTENT THAT IN THE PRESENT SITUATION THE PROVISIONS OF S. 14A NEED NOT TO APPLY WHILE GRANTI NG EXEMPT ION TO AN INCOME EARNED ON SALE OF INVESTMENT PRIMARILY BECAUSE OF T HE REASON OF THE WITHDRAWAL OR DELETION OF SUB-R. 5(B) TO FIRST SCHEDULE OF S. 44 OF IT ACT. ONCE WE HAVE TAKEN THIS VIEW THEREFORE THE ENHANCEMENT AS PROPOS ED BY LEARNED CIT(A) IS REVERSED AND THE DIRECTIONS IN THIS REGARD ARE SET ASIDE. RESULTANTLY GROUND NO. 1 IS ALLOWED CONSEQUENT THEREUPON GROUND NO. 2 AUTO MATICALLY GOES IN FAVOUR OF THE ASSESSEE'. ACCORDINGLY, BY FOLLOWING THE ORDERS OF THIS TRIBUN AL, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THEREFORE, THE GROUND IS AL LOWED'. RESPECTFULLY FOLLOWING THE SAME, WE MODIFY THE ORDE R OF THE CIT (A) AND DELETE THE ADDITION MADE BY AO. THE GROUND AND ADDITIONAL GROUNDS ARE CONSIDERED AS ALLOWED. 3.2 FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 4. THE REVENUE HAS RAISED COMMON GROUNDS IN BOTH T HE APPEALS. THE GROUNDS RAISED FOR THE ASSESSMENT YEAR 2010-11 ARE AS UNDER :- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD C1T(A) ERRED IN INTERPRETING THE PROVIS IONS OF SECTION 44 OF THE I.T. ACT READ WITH RULE 2 OF THE FIRST SCHEDULE ALONGWITH PR OVISIONS OF INSURANCE ACT 1938, INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY ACT 1999 AND REGULATIONS THERE UNDER AND ACCORDINGLY ALLOWING ADJUSTMENT FRO M THE 'SURPLUS WORKED ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. ITA NO.5251, 5529, 5530 & 5252 7 AS PER 'ACTUARIAL VALUATION' [AND AS SHOWN BY THE A SSESSEE IN FORM-I] IN VIOLATION OF THE RATIO OF THE APEX COURT IN THE CAS E OF LIC VS CIT 51 ITR 778? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD CIT(A) ERRED IN ALLOWING THE RELIEF TO THE A SSESSEE BY HOLDING THAT 'SURPLUS' AVAILABLE BOTH IN POLICY HOLDERS ACCOUNT AND SHARE HOLDER'S ACCOUNT IS TO BE CONSOLIDATED AND ONLY 'NET SURPLUS ' IS TO BE TAXED AS INCOME FROM INSURANCE BUSINESS? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN GIVING RELIEF TO THE ASSESSE E, FOLLOWING THE DECISION OF HON'BLE ITAT IN ASSESSEE OWN CASE FOR THE EARLIER Y EARS, WHEREIN HONBLE TRIBUNAL HELD THAT ON ACCOUNT OF 'LEGISLATION BY IN CORPORATION', 'ONLY' THE 'UN- AMENDED' INSURANCE ACT 1938 AND THE REGULATIONS THE RE UNDER BECAME PART OF SECTION 44 R.W RULE 2 OF THE FIRST SCHEDULE OF THE IT. RULES; WHEN AN APPEAL AGAINST THIS ORDER OF ITAT HAS BEEN FILED & IS PEND ING WITH HIGH COURT, BOMBAY? 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN GIVING RELIEF TO THE ASSESSE E, FOLLOWING THE DECISION OF HON 'BLE ITAT IN ASSESSEE OWN CASE FOR THE EARLIER YEARS, WHEREIN HON 'BLE TRIBUNAL HELD THAT THE LEGISLATURE CONSCIOUSLY OMIT TED INCORPORATION OF THE PROVISION OF INSURANCE REGULATORY AND DEVELOPMENT A UTHORITY ACT 1999 AND REGULATIONS MADE THEREUNDER IN SECTION 44 OF THE L. T.ACT R.W.RULE 2 OF THE FIRST SCHEDULE WHICH 'REFERS' ONLY TO UN-AMENDED IN SURANCE ACT 1938 AND REGULATIONS MADE THERE-UNDER; WHEN AN APPEAL AGAINS T THIS ORDER OF ITAT HAS BEEN FILED & IS PENDING WITH HIGH COURT, BOMBAY? 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN GIVING RELIEF TO THE ASSESSE E, FOLLOWING THE DECISION OF HON 'BLE ITAT IN ASSESSEE OWN CASE FOR THE EARLIER YEARS, WHEREIN HON BLE TRIBUNAL FAILED TO TAKE NOTE THAT SECTION 28 OF INS URANCE REGULATORY AND DEVELOPMENT AUTHORITY ACT 1999 CLARIFIES THAT PROVI SIONS OF IRDA ACT ARE IN ADDITION AND NOT IN DEROGATION OF INSURANCE ACT 193 8, WHICH MEANS IRDA ACT AND ITS REGULATION HAS BEEN ADOPTED IN SECTION 44 O F THE I.T. ACT R.W. RULE 2 OF THE FIRST SCHEDULE BY WAY OF 'LEGISLATION BY REFERE NCE'; AND WHEN AN APPEAL AGAINST THIS ORDER OF ITAT HAS BEEN FILED & IS PEND ING WITH HIGH COURT, BOMBAY? 6. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN ALLOWING THE RELIEF TO THE ASSESSEE BY HOLDING THAT 'SURPLUS' AVAILABLE BOTH IN POLICY HOLDERS ACC OUNT AND SHARE HOLDER'S ACCOUNT IS TO BE CONSOLIDATED; AND ONLY 'NET SURPLU S' IS TO BE TAXED AS INCOME FROM INSURANCE BUSINESS? 7. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN CONCLUDING THAT TRANSFER BET WEEN SHARE HOLDERS ACCOUNT AND POLICY HOLDER'S ACCOUNT IS TAX NEUTRAL AND NOT TAXABLE U/S 44 OF THE ACT R.W RULE 2 OF THE FIRST SCHEDULE. 8. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DELETING THE ADDITION M ADE ON ACCOUNT OF CLAIM OF 100% DEPRECIATION IGNORING THE FACTS THAT ACTUARIAL SURPLUS IS DETERMINED ON THE BASIS OF THE TOTAL ASSETS OF THE COMPANY AND TH EREFORE BY NOT ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. ITA NO.5251, 5529, 5530 & 5252 8 CAPITALIZING THE ABOVE ASSETS, THE ASSETS OF THE AS SESSEE COMPANY ARE UNDER-STATED IN THE BOOKS AND THEREBY IT HAS AN IMP ACT OF REDUCING THE SURPLUS OR INCREASE IN THE DEFICIT AND THEREFORE, T HE ASSETS SO WRITTEN OFF ARE ALSO ACCORDINGLY REQUIRED TO BE CONSIDERED AS PART OF TH E SURPLUS AND TAXABLE UNDER SECTION 44 OF THE IT. ACT? 9. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN ALLOWING THE DIVIDEND I NCOME OF ASSESSEE AS EXEMPT U/S. 10(34) OF THE I.T. ACT, 1961, IGNORING THE FACT THAT DIVIDEND INCOME IS CONSIDERED AS PART OF INCOME OF LIFE INSU RANCE BUSINESS AND IS INCLUDED AS AN INCOME BY THE ACTUARY? 10. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD CIT(A) ERRED IN ALLOWING RELIEF TO THE ASSES SEE BY HOLDING THAT SURPLUS AVAILABLE IN SHARE HOLDERS ACCOUNT IS NOT TO BE TAX ED SEPARATELY AS 'INCOME FROM OTHER SOURCES' AND AT THE NORMAL CORPO RATE RATE AND HOLDING THAT SURPLUS FROM SHARE HOLDERS ACCOUNT WAS ONLY PART OF INCOME FROM INSURANCE BUSINESS ARRIVED AT AFTER 'COMBINING' SUR PLUS AVAILABLE IN SHARE HOLDERS ACCOUNT WITH THE SURPLUS AVAILABLE IN POLIC Y HOLDERS ACCOUNT AND THEN AND TAXING THIS 'NET SURPLUS' ARRIVED AT, AT T HE RATES SPECIFIED U/S. 1 15B OF THE ACT? 11 . 'THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A) O N THE ABOVE GROUNDS BE SET ASIDE TO FILE OF AO OR CONFIRM THE O RDER OF THE AO. 12. 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY G ROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' 5. GROUND NO.1 TO 6 REGARDING INTERPRETATION OF THE PROVISION OF SECTION 44 OF THE INCOME TAX ACT R.W. RULE 2 OF THE 1 ST SCHEDULE OF THE INCOME TAX ACT, 1938. 5.1 WE HAVE HEARD THE LD. DR AS WELL AS THE LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ISSUE INVOLVED IN GROUND NO .1 TO 6 OF THE REVENUES APPEAL HAVE BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005- 06 TO 2008-09 IN 140 ITD 41 IN PARA NOS. 23, 27, 3 2, 38, 40 AND 42 WHICH ARE AS UNDER :- 27. RESPECTFULLY FOLLOWING THE ABOVE PRINCIPLES AND EX AMINING THE PROVISIONS OF IT ACT, WE ARE OF THE OPINION THAT THE 'ACTUARIAL VALUATION MADE I N ACCORDANCE WITH THE INSURANCE ACT, 1938' DO MEAN THAT THE ACTUARIAL VALUATION DONE IN ACCORDANC E WITH THE INSURANCE ACT, 1938. IN ARRIVING AT THE ABOVE DECISION WE HAVE ALSO TAKEN INTO CONSIDER ATION THAT RULE-5 IN PART-B OF THE FIRST SCHEDULE WITH REFERENCE TO 'OTHER INSURANCE BUSINES S' DID INCORPORATE THE IRDA AND ITS REGULATIONS AS AMENDED BY THE FINANCE ACT 2009 W.E. F. 1.4.2011 WHICH IS AS UNDER: 'B- OTHER INSURANCE BUSINESS: COMPUTATION OF PROFITS AND GAINS OF OTHER INSURANCE BUSI NESS. ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. ITA NO.5251, 5529, 5530 & 5252 9 5. THE PROFITS AND GAINS OF ANY BUSINESS OF INSURAN CE OTHER THAN LIFE INSURANCE SHALL BE TAKEN TO BE THE PROFIT BEFORE TAX AND APPROPRIATION S AS DISCLOSED IN THE PROFIT & LOSS A/C PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE I NSURANCE ACT, 1938 (4 OF 1938) OR THE RULES MADE THEREUNDER OR THE PROVISIONS OF THE INS URANCE REGULATORY AND DEVELOPMENT AUTHORITY ACT, 1999 (4 OF 1999) OR THE R EGULATIONS MADE THEREUNDER SUBJECT TO THE FOLLOWING ADJUSTMENTS:- ( A ) SUBJECT TO THE OTHER PROVISIONS OF THIS RULE, ANY EXPENDITURE OR ALLOWANCE INCLUDING ANY AMOUNT DEBITED TO THE PROFI T AND LOSS ACCOUNT EITHER BY WAY OF A PROVISION FOR ANY TAX, D IVIDEND, RESERVE OR ANY OTHER PROVISION AS MAY BE PRESCRIBED WHICH I S NOT ADMISSIBLE UNDER THE PROVISIONS OF SECTION 30 TO 43B IN COMPUT ING THE PROFITS AND GAINS OF A BUSINESS SHALL BE ADDED BACK: ( B ) ( I ) ANY GAIN OR LOSS ON REALIZATION OF INVESTMENTS SH ALL BE ADDED OR DEDUCTED, AS THE CASE MAY BE, IF SUCH GAIN OR LOSS IS NOT CREDITED OR DEBITED TO THE PROFIT & LOSS A/C ; ( C ) SUCH AMOUNT CARRIED OVER TO A RESERVE FOR UNEXPIR ED RISKS AS MAY BE PRESCRIBED IN THIS BEHALF SHALL BE ALLOWED AS A DED UCTION'. (EMPHASIS SUPPLIED) THIS INDICATES THAT THE LEGISLATURE CONSCIOUSLY OMI TTED INCORPORATING THE PROVISIONS OF IRDA OR THE REGULATIONS MADE THERE UNDER IN RULE 2 WHICH STILL REFERS TO THE INSURANCE ACT 1938 ONLY. .. 32. IRDA REGULATIONS SPECIFICALLY REQUIRE TO MAINTAIN THE POLICYHOLDER'S ACCOUNT AND THE SHAREHOLDER'S ACCOUNT SEPARATELY AND PERMITS TRANSF ER OF FUNDS FROM SHAREHOLDER'S ACCOUNT TO POLICYHOLDER'S ACCOUNT AS AND WHEN THERE IS A DEFIC IT IN POLICYHOLDER'S ACCOUNT. AS RIGHTLY NOTED BY THE HON'BLE BOMBAY HIGH COURT, AS A POLICY, COMPANY IS TRANSFERRING FUNDS/ASSETS FROM SHAREHOLDER'S ACCOUNT TO POLICYHOLDER'S ACCOUNT EVE N DURING THE YEAR PERIODICALLY AS AND WHEN THE ACTUARIAL VALUATION WAS ARRIVED AT IN POLICYHOLDER' S ACCOUNT. MOST OF THE COMPANIES ARE REQUIRED TO SUBMIT QUARTERLY ACCOUNTS UNDER THE COMPANY LAW, THERE IS REQUIREMENT OF ACTUARIAL VALUATION REPORT PERIODICALLY AND ACCORDINGLY ASSESSEE WAS TR ANSFERRING FUNDS FROM THE SHAREHOLDER'S ACCOUNT TO POLICYHOLDER'S ACCOUNT. SINCE THE INSURA NCE BUSINESS WILL NOT YIELD THE REQUIRED PROFITS IN THE INITIAL 7 TO 10 YEARS, LOT OF CAPITAL HAS TO BE INFUSED SO AS TO BALANCE THE DEFICIT IN THE POLICYHOLDER'S ACCOUNT. DURING THE YEAR AS ALREADY STATED ASSESSEE HAS ISSUED FRESH CAPITAL TO THE EXTENT OF RS.250 CRORES AND TRANSFERRED FUNDS TO TH E EXTENT OF RS.233 CRORES FROM THE SHAREHOLDER'S ACCOUNT TO POLICYHOLDER'S ACCOUNT. SI NCE ASSESSEE IS HAVING ONLY ONE BUSINESS OF LIFE INSURANCE, THE ENTIRE TRANSACTIONS BOTH UNDER THE P OLICYHOLDER'S AND SHAREHOLDER'S ACCOUNT DO PERTAIN TO THE LIFE INSURANCE BUSINESS ONLY AS IT W AS NOT PERMITTED TO DO ANY OTHER BUSINESS. ONCE ASSESSEE IS IN THE LIFE INSURANCE BUSINESS, THE COM PUTATION HAS TO BE MADE IN ACCORDANCE WITH THE RULE-2 AS PER PROVISIONS OF SECTION 44. THEREFO RE, THERE IS A VALID 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 NEU TRAL. WHAT AO HAS DONE IS TO TAX THE SURPLUS AFTER THE FUNDS HAVE BEEN TRANSFERRED FROM SHAREHOL DER'S ACCOUNT TO THE POLICYHOLDER'S ACCOUNT AT THE GROSS LEVEL WHILE IGNORING SUCH TRANSFER IN SHA REHOLDER'S ACCOUNT, WHILE BRINGING TO TAX ONLY THE INCOMES DECLARED IN THE SHAREHOLDER'S ACCOUNT T HAT TOO UNDER THE HEAD 'OTHER SOURCES OF INCOME'. IN FACT WHILE GIVING THE FINDING THAT ASSE SSEE IS IN THE LIFE INSURANCE BUSINESS ONLY AND INCOMES ARE TO BE TREATED AS INCOME FROM LIFE INSUR ANCE BUSINESS, THE CIT (A) SURPRISINGLY IN SUBSEQUENT ASSESSMENT YEARS APPEALS ACCEPTED AO'S C ONTENTION THAT SURPLUS IN SHAREHOLDER'S ACCOUNT IS TO BE TAXED AS OTHER SOURCES OF INCOME. BUT ONCE THE PROVISIONS OF SECTION 44 OF IT ACT ARE INVOKED ANYTHING CONTAINED IN THE HEADS OF INCO ME LIKE INCOME FROM OTHER SOURCES, CAPITAL GAINS, HOUSE PROPERTY OR EVEN INTEREST ON SECURITIE S DOES NOT COME INTO PLAY AND ONLY FIRST SCHEDULE HAS TO BE INVOKED TO ARRIVE AT THE PROFIT. THEREFORE, IN OUR OPINION BOTH THE ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. ITA NO.5251, 5529, 5530 & 5252 10 POLICYHOLDER'S AND SHAREHOLDER'S ACCOUNT HAS TO BE CONSOLIDATED FOR THE PURPOSE OF ARRIVING AT THE DEFICIT OR SURPLUS. . 38 . THE ABOVE STATEMENT FURNISHED IS IN ACCORDANCE WITH THE INSURANCE ACT, 1938, THEREFORE, IT CANNOT BE STATED THAT ASSESSEE RETURNED INCOME IS N OT IN ACCORDANCE WITH THE INSURANCE ACT, 1938. THERE IS NO BASIS FOR AO TO TAKE FORM-I 'TOTA L SURPLUS' AS SURPLUS OF THE LIFE INSURANCE BUSINESS IGNORING TRANSFER FROM SHAREHOLDER'S ACCOU NT. . .. 40. IN OUR OPINION WHAT ASSESSEE HAS DONE IN RECONCILI NG THE IRDA FORMAT WITH THAT OF OLD INSURANCE FORM IS CORRECT AND ACCORDINGLY THE LOSS DISCLOSED IN THE COMPUTATION OF INCOME IS ACCORDING TO THE ACTUARIAL SURPLUS/DEFICIT UNDER TH E INSURANCE ACT, 1938 PRESCRIBED UNDER RULE 2 OF THE FIRST SCHEDULE PART-A. IN VIEW OF THIS, WE A RE OF THE OPINION THAT INSISTENCE BY AO TO BRING TO TAX THE ENTIRE AMOUNT SHOWN UNDER THE NEW REGULA TIONS INCLUDING TRANSFER FROM SHAREHOLDER'S ACCOUNT IS NOT CORRECT. INSTEAD OF AO IN TAKING THE SURPLUS AT REGULATION 8(1)(A) WHICH IS THE ACTUARIAL SURPLUS / DEFICIT FOR THE YEAR TOOK THE A MOUNT AS DISCLOSED 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 ANY WAY WHAT WE NOTICE IS THAT THE COMPUTATION MADE BY ASSESSEE IS IN ACCORDANCE WITH RULE-2 OF THE INSURANCE ACT 1938 ACCORDING TO WHICH ONLY AO CAN BASE HIS COMPUTATION. THIS ALS O CORRESPONDS TO THE WAY INCOMES WERE ASSESSED IN EARLIER YEARS I.E. THE CORRECT METHOD A S PER RULE 2 AND SEC 44 OF IT ACT. IN VIEW OF THE DISCUSSION ABOVE AND AFTER ANALYZING THE FORMS, REGULATIONS AND PROVISIONS WE HAVE NO HESITATION TO HOLD THAT THE ASSESSEE WORKING OF ACT UARIAL SURPLUS/ DEFICIT IS IN ACCORDANCE WITH RULE 2 OF FIRST SCHEDULE. THEREFORE, ASSESSEE GROUN DS ON THIS ISSUE ARE ALLOWED AND AO IS DIRECTED TO MODIFY THE ORDER ACCORDINGLY. GROUND NO S.1 TO 3 ARE CONSIDERED ALLOWED. 5.2 FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) QUA THIS ISSUE . ACCORDINGLY GROUND NOS. 1 TO 6 ARE DISMISSED. 6. GROUND NO.7 IS REGARDING THE TAXABILITY OF SURPL US OF BOTH POLICY AND SHARE HOLDERS ACCOUNT. 6.1 WE HAVE HEARD THE LD. DR AS WELL AS THE LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS ISSUE WAS DEC IDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 AND ASSESS MENT YEAR 2008-09 IN PARA NO.55 AS UNDER :- 55. WE HAVE HEARD THE RIVAL CONTENTIONS. AS BRIEFLY DI SCUSSED WHILE DECIDING THE ISSUE OF TAXING SURPLUS, ASSESSEE IS IN LIFE INSURANCE BUSINESS AND IT IS NOT PERMITTED TO DO ANY OTHER BUSINESS. ALL ACTIVITIES CARRIED OUT BY ASSESSEE ARE FOR FURTHERA NCE OF LIFE INSURANCE BUSINESS. MAINTAINING ADEQUATE CAPITAL IS NECESSARY TO COMPLY WITH IRDA ( ASSETS, LIABILITIES AND SOLVENCY MARGIN OF INSURERS) REGULATIONS, 2000. INCOME EARNED ON CAPIT AL INFUSED IN BUSINESS IS INTEGRAL PART OF LIFE INSURANCE BUSINESS. THE LD. CIT(A) GIVES A FINDING THAT ASSESSEE IS EXCLUSIVELY IN LIFE INSURANCE BUSINESS. HOWEVER, SINCE HE GAVE PRIMACY TO FORM I PROFORMA HE CONCLUDED THAT OTHER INCOMES ARE NOT OF LIFE INSURANCE BUSINESS. WE HAVE ALREADY CONSIDERED AND DECIDED THAT ASSESSEE WAS ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. ITA NO.5251, 5529, 5530 & 5252 11 MANDATED TO MAINTAIN SEPARATE ACCOUNTS BY IRDA REGU LATIONS. JUST BECAUSE SEPARATE ACCOUNTS ARE MAINTAINED THE INCOMES 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 BUSINE SS. THEREFORE, THE INCOMES IN SHAREHOLDER'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 CO MPUTING INCOMES AND EXCLUDES OTHER HEADS OF INCOME LIKE, INTEREST ON SECURITIES, INCOME FROM HO USE PROPERTY, CAPITAL GAINS OR INCOME FROM OTHER SOURCES. BEING NON-OBSTANTE CLAUSE, SEC. 44 M ANDATES THAT THE PROFITS AND GAINS OF INSURANCE BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE RULES CONTAINED IN FIRST SCHEDULE. THEREFORE, THE INCOMES IN SHAREHOLDER'S ACCOUNT ARE TO BE TAXED AS PART OF LIFE INSURANCE BUSINESS ONLY, AS THEY ARE PART OF SAME BUSINESS AND INVESTM ENTS ARE MADE AS PART OF SOLVENCY RATIO OF SAME BUSINESS. THE GROUNDS ARE ALLOWED. AO IS DIREC TED TO TREAT THEM AS PART OF LIFE INSURANCE BUSINESS AND TAX THEM U/S 115B. 6.2 FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) AND DECIDE THI S ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 7. GROUND NO.8 IS REGARDING THE CLAIM OF 100% DEPRE CIATION ON FIXED ASSETS. 7.1 WE HAVE HEARD THE LD. DR AS WELL AS THE LD. AR. CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS ISSUE WAS DECIDED BY T HIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 AND ASSESSMENT YEAR 2008-09 IN PARA NOS. 60 TO 62 AS UNDER :- 60. GROUND NO. 2 IS ABOUT DELETION OF ADDITION MADE ON ACCOUNT OF CLAIM OF 100% DEPRECIATION OF RS. 15,79,707/-. IT WAS THE CONTENTION OF THE RE VENUE THAT THE CIT(A) IGNORED THE ACTUARIAL SURPLUS DETERMINED ON THE BASIS OF THE TOTAL ASSETS IF THE COMPANY AND THEREFORE NOT CAPITALIZED IN THE ABOVE ASSETS. THE ASSETS OF ASSESSEE TO THAT EXTENT ARE NOT STATED, THEREFORE, IT HAS AN IMPACT OF REDUCING THE TOTAL SURPLUS. 61. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASSESS EE PREPARED ITS ACCOUNTS AS PER THE FORMAT PRESCRIBED BY THE IRDA IN TUNE WITH THE INSURANCE A CT 1938. THE ASSETS WERE ORIGINALLY CAPITALIZED IN THE BOOKS AND BEING ELIGIBLE FOR 100 % DEPRECIATION THEY ARE WRITTEN OFF. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS, ACCEPTED THE CONTENTION AS UNDER: - '19. THE APPELLANT HAS TO PREPARE ITS ACCOUNTS AS P ER THE FORMATS PRESCRIBED BY THE IRDA UNDER THE INSURANCE ACT, 1938. THESE ACCOUNTS HAVE ACCORDINGLY BEEN PREPARED BY THE APPELLANT AND HAVE BEEN SUBJECT TO STATUTORY AUDIT. FURTHER, THE ACCOUNTING POLICY OF CLAIMING 100% DEPRECIATION IN ITS FINANCIAL STATEME NTS HAS BEEN CONSISTENTLY FOLLOWED BY THE APPELLANT AND HAS ALSO BEEN DULY ACCEPTED BY TH E IRDA. THE APPELLANT HAS STATED THAT THE ASSETS ON WHICH DEPRECIATION HAS BEEN CLAI MED HAVE BEEN INITIALLY CAPITALIZED IN THE BOOKS AND THEN 100% DEPRECIATION HAS BEEN CLAIM ED ON THESE ASSETS. TAXATION OF LIFE INSURANCE IS PRESUMPTIVE TAXATION WITH ONLY TH E SURPLUS AS DISCLOSED BY FORM I BEING SUBJECTED TO TAX. IN MY VIEW, AS PER THE PROVISIONS OF LAW ONLY THOSE ADJUSTMENTS WHICH ARE EXPRESSLY NOT PROHIBITED UNDER SECTION 44 OF TH E ACT COULD BE MADE. CONSEQUENTLY DEPRECIATION WHICH HAS BEEN DEBITED IN THE AUDITED ACCOUNTS AS PER THE CONSISTENTLY FOLLOWED AND ACCEPTED ACCOUNTING POLICY NEED NOT BE DISALLOWED.' ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. ITA NO.5251, 5529, 5530 & 5252 12 62. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT THE ACTION OF THE CIT(A) IN DELETING THE AMOUNT IS CONSISTENT WITH THE ACCOUNTI NG PRINCIPLES FOLLOWED AND THE PROVISIONS OF SECTION 44 READ WITH RULE 2 OF THE 1ST SCHEDULE. TH EREFORE WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE GROUND RAISED BY THE REVENUE. 7.2 FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE LD. CIT(A). THE ISSUE INV OLVED IN GROUND NO. 8 IS DISMISSED. 8. GROUND NO.9-10 IS REGARDING TREATING / EXCLUDING NEGATIVE RESERVE FOR CONSIDERING THE TAXABLE SURPLUS BY THE AO. 8.1 WE HAVE HEARD THE LD. DR AS WELL AS THE LD. AR. CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT AN IDENTICAL ISSUE WAS DECI DED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 AND ASSESS MENT YEAR 2008-09 IN PARA NOS.49 TO 50 WHICH IS REPRODUCED HEREUNDER FOR READ Y REFERENCE :- 49. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING TH E SAME, WE HOLD THAT ASSESSEE IS ENTITLED TO EXEMPTION UNDER SECTION 10. THEREFORE, WE DO NOT SEE ANY REASON TO DIFFER FROM THE ORDER OF THE CIT (A) WHERE HE HAS ALLOWED ASSESSEE'S CLAIM O F EXEMPTION UNDER SECTION 10(23AAB) OF SURPLUS OF PARTICIPATING PENSION BUSINESS AND ALSO DIVIDEND UNDER SECTION 10(34). ACCORDINGLY REVENUE GROUND ON THIS ISSUE IS REJECTED. 50. IN THE RESULT, ASSESSEE APPEAL IN ITA NO.6854/MUM/ 2010 FOR THE ASSESSMENT YEAR 2005-06 IS ALLOWED AND REVENUE APPEAL IN ITA NO.7765/MUM/2010 FOR THE ASSESSMENT YEAR 2005-06 IS DISMISSED. 8.2 FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE LD. CIT(A). AND DECIDE TH IS ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/01/2015 . ! &'() # * +$, 14/01/2015 ' ! - SD/- SD/- (R.C. SHARMA) (VIJAY PAL RAO ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER #. MUMBAI; +$ DATED 14/01/2015 . $ . ./ JV, SR. PS ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. ITA NO.5251, 5529, 5530 & 5252 13 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. #/ ( ) / THE CIT(A)- 4. #/ / CIT 5. 0- %$1 , 1) , #. / DR, ITAT, MUMBAI 6. -2 3 / GUARD FILE. ! ! ! ! / BY ORDER, % % //TRUE COPY// ' '' ' / !# !# !# !# $ $ $ $ (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI