National Insurance Co. Ltd., Kolkata V. DCIT, Circle - 6, Kolkata, Kolkata

ITA 812/KOL/2009

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7239 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2011
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2001-2002
• Appeal Filed On: 15-05-2009
• Court: TRIBUNAL
• Department Lawyers: NIRAJ KUMAR
• Keywords: Business income
• Section: 43B; 115JB; 11

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH B, KOLKATA () BEFORE . .. . . .. . , , , , , SHRI B.R.MITTAL, JUDICIAL MEMBER. /AND . .. .!' !'!' !'. .. . , #$ SHRI C.D.RAO, ACCOUNTANT MEMBER %& %& %& %& ' ' ' ' / ITA NO.812/KOL/2009 () *+/ ASSESSMENT YEAR : 2001-02 (-. / APPELLANT ) NATIONAL INSURANCE CO.LTD., KOLKATA (PAN: AAACN 9967 E) - ( - - VERSUS - . (01-./ RESPONDENT ) D.C.I.T., CIRCLE-6, KOLKATA -. 2 3 #/ FOR THE APPELLANT: SHRI SANJAY BHATTACHARYA 01-. 2 3 #/ FOR THE RESPONDENT: SHRI NIRAJ KUMAR 4(5 2 '$ /DATE OF HEARING : 24.08.2011. 6* 2 '$ /DATE OF PRONOUNCEMENT : 11.10.2011. #7 / ORDER ( (( ( . .. .!' !'!' !'. .. . ) )) ), , , , #$ PER SHRI C.D.RAO, AM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST ORDER DATED 30.01.2009 OF THE CIT(A)-VI, KOLKATA PERTAINING TO A.Y. 2001-02. 2. IN THIS APPEAL THE ASSESSEE HAS TAKEN THE FOLLOWING TWO GROUNDS : 1. THAT COMMISSIONER OF INCOME-TAX (APPEALS) WAS W RONG IN CONFIRMING THE DISALLOWANCE OF THE EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND AGGREGATING TO RS.8,67,57,956/-. 2. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) WA S WRONG IN CONFIRMING THE ADDITION OF PROVISION MADE FOR LIABILITY TOWARD S UNIDENTIFIED MOTOR THIRD PARTY CLAIM OF RS.3,17,07,848/- FOR THE PURPOSES OF COMPUTING BOOK PROFIT UNDER SECTION 115JB. 2 3. GROUND NO. 1 RELATES TO DISALLOWANCE OF EMP LOYEES CONTRIBUTION TO THE PROVIDENT FUND. 4. THE BRIEF FACTS OF THIS ISSUE ARE THAT WHIL E DOING THE SCRUTINY ASSESSMENT AO HAS DISALLOWED AN AMOUNT OF RS.12,47,14,601/- BY OBSER VING AS UNDER :- IT WAS NOTED THAT IN ANNEXURE III OF TAX AUDIT REP ORT THAT THERE ARE INSTANCES OF DELAYS IN PAYMENT OF EMPLOYEES AND EMPLOYERS CONTRI BUTION TOWARDS PROVIDENT FUND. ASSESSEE MAKES ADHOC PAYMENTS OFF AND ON AND IT WAS NOTED THAT AFTER A CERTAIN PERIOD OF TIME THERE WAS A CLEAR DEFICIT IN PAYMENT. THIS WAS ALSO POINTED OUT TO THE A/R UDIRNG THE COURSE OF ASSESSMENT PROCEEDINGS AND A/R WAS ASKED TO CLARIFY ON THIS POINT. IN RESPONSE, IN HEARING DATED 8.3.2004, THE A/R FILED A STATEMENT OF DELAY IN DEPOSIT IN WHICH DELAYED PAYMENT AMOUNTING TO RS.12 ,47,14,601/- HAS BEEN ACCEPTED. A/R ALSO SUBMITTED THAT THERE IS A TYPOGRAPHICAL ER ROR IN THE ANNEXURE III IN THE SENSE THAT IN THE COLUMN DUE DATE, I ROW DOWN HAS BEEN IN ADVERTENTLY TAKEN. THEREFORE FOR INSTANCES, FOR THE MONTH OF MAY 15 TH MAY HAS BEEN WRITTEN WHICH SHOULD BE 15 TH JUNE AND SO ON. THIS PARTICULAR SUBMISSION IS CONSIDERED FAVOURABLY AS ALWAYS DUE DATE IS 15 TH OF THE FOLLOWING MONTH AND NOT 15 TH OF THE SAME MONTH. HOWEVER, THERE IS A DELAY IN PAYMENT OF RS.12,47,14,601/- WHICH WAS BEYOND DUE DATE AND WHICH HAS ALSO BEEN ADMITTED AN D ACCEPTED BY THE ASSESSEE COMPANY. THE STATEMENT FILED ON 8.3.2004 BY THE A/R IN WHICH THE DELAY IS CLEAR AND UNAMBIGUOUS IS ANNEXED TO THIS ASSESSMENT ORDER AS ANNEXURE A. THIS SHORT PAYMENT OF RS.12,47,14,460/- IS TREATED AS INCOME OF THE AS SESSEE COMPANY U/S 2(24)(X) READ WITH SECTION 36(1)(VA) OF THE INCOME TAX ACT. 4.1. ON APPEAL LD. CIT(A) HAS CONFIRMED AN AMOUN T OF RS.8,67,57,956/- OUT OF RS.12,47,14,460/- BY OBSERVING AS UNDER :- I HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE A/ R AND ALSO PERUSED THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER AS WELL AS THE ITAT ORDER DATED 21-7-04 REFERRED TO ABOVE. IT IS NOTED THAT THE ASS ESSING OFFICER CONSIDERED THE ENTIRE CONTRIBUTIONS AGGREGATING TO RS.12,47,14,601/- AS E MPLOYEES CONTRIBUTIONS AND HE ADDED BACK THE SAID SUM OF RS.12,47,14,601 US 2(24) (X) READ WITH SECTION 36(1)(VA). SO IT APPEARS THAT THE ASSESSING OFFICER DID NOT MA KE ANY SEPARATE CONSIDERATION AS REGARDS THE EMPLOYERS CONTRIBUTION INCLUDED IN THE ABOVE MENTIONED SUM OF RS.12,47,14,601/-. AS PER THE PROVISIONS OF THE ACT THE EMPLOYEES CONTRIBUTIONS AND THE EMPLOYERS CONTRIBUTIONS ARE TO BE CONSIDERED U NDER TWO SEPARATE PROVISIONS, VIZ. SECTION 2(24)(X)/36(1)(VA) FOR EMPLOYEES CONTRIBUT IONS AND SECTION 43B FOR EMPLOYERS CONTRIBUTIONS. AS ALREADY HELD BY THE IT AT, KOLKATA IN THE ABOVE REFERRED CASE, AS REGARDS THE EMPLOYERS CONTRIBUTION OF RS. 3,79,56,645 (AS STATED BY THE APPELLANT) THE ASSESSING OFFICER IS DIRECTED TO ALL OW THE SAME AFTER VERIFYING THE FIGURE AND THE FACT OF ITS PAYMENT BEFORE THE DUE D ATE FOR FILING OF THE RETURN FOR THE ASSESSMENT YEAR 2001-02. ON BEING SATISFIED ABOUT T HE AMOUNT AND THE DATE OF DEPOSIT THE ASSESSING OFFICER WILL ALLOW THE EMPLOY ERS CONTRIBUTIONS TO THE PROVIDENT FUND. HOWEVER, AS REGARDS THE A/RS ARGUMENTS FOR ALLOWIN G THE EMPLOYEES CONTRIBUTIONS U/S 36(1)(VA) ON THE BASIS OF CREDITS MADE TO THE E MPLOYEES ACCOUNTS WITHOUT MAKING THE ACTUAL PAYMENTS, I AM NOT AGREEING FOR ANY SUCH ALLOWABILITY. IN MY VIEW, FOR BEING ENTITLED TO DEDUCTION U/S 36(1)(VA) ALSO THE EMPLOYER IS REQUIRED TO MAKE ACTUAL 3 PAYMENTS OF THE EMPLOYEES CONTRIBUTIONS TO THE CON CERN PROVIDENT FUND AND JUST CREDITING THE ACCOUNTS WILL NOT BE SUFFICIENT. ACCO RDINGLY, THE DISALLOWANCE OF RS.8,67,57,956 (AS SHOWN BY THE APPELLANT) BEING TH E EMPLOYEES CONTRIBUTIONS INCLUDED IN THE DISALLOWED SUM OF RS.12,47,14,601 I S CONFIRMED. HENCE, OUT OF THE DISALLOWANCE OF RS.12,47,14,601 THE ASSESSING OFFICER WOULD ALLOW THE AMOUNT REPRESENTING THE EMPLOYERS CONTRIBUTION S THAT HAD BEEN PAID BEFORE THE DUE DATE OF FILING OF THE RETURN FOR THE ASSESSMENT YEAR 2001-02 AND THE BALANCE OF DISALLOWANCE REPRESENTING THE EMPLOYEES CONTRIBUTI ONS, STANDS CONFIRMED. 4.2. AGGRIEVED BY THIS THE ASSESSEE IS IN APPEA L BEFORE US. 5 THE LD. COUNSEL ON BEHALF OF ASSESSEE HAS S UBMITTED THAT THE ASSESSEE HAD BEEN CARRYING ON THE BUSINESS OF INSURANCE OTHER THAN LI FE INSURANCE AND, ACCORDINGLY. THE PROFITS AND GAINS OF BUSINESS OF INSURANCE IN THE H ANDS OF THE ASSESSEE WERE REQUIRED TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SE CTION 44 OF THE INCOME-TAX ACT, 1961 (ACT) READ WITH RULE 5 OF THE FIRST SCHEDULE O F THE SAID ACT. AS PER RULE 5 OF THE FIRST SCHEDULE, THE BALANCE OF PROFITS DISCLOSED BY THE ANNUAL ACCOUNTS, COPIES OF WHICH WERE REQUIRED TO BE FURNISHED TO THE CONTROLL ER OF INSURANCE UNDER THE INSURANCE ACT, 1938. SUBJECT TO THE SPECIFIED ADJUSTMENTS, WE RE TO BE CONSIDERED AS THE ASSESSEES INCOME FROM INSURANCE BUSINESS. AS PER C LAUSE (A) OF THE ABOVE-MENTIONED RULE 5, SUBJECT TO THE OTHER PROVISIONS OF THE SAID RULE 5, ANY EXPENDITURE OR ALLOWANCE INCLUDING ANY AMOUNT DEBITED TO THE PROFI T & LOSS ACCOUNT EITHER BY WAY OF A PROVISION FOR ANY TAX, DIVIDEND, RESERVE OR AN Y OTHER PROVISION AS MAY BE PRESCRIBED, WHICH WOULD NOT BE ADMISSIBLE UNDER THE PROVISIONS OF SECTIONS 30 TO 43B IN COMPUTING THE PROFITS AND GAINS OF THE INSURANCE BUSINESS, SHOULD BE ADDED BACK. 5.1. HE FURTHER SUBMITTED THAT SECTION 2(24)(X) OF THE ACT PROVIDES THAT ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONT RIBUTIONS TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR ANY FUND SET UP UNDER THE PR OVISIONS OF THE EMPLOYEES STATE INSURANCE ACT. 1948. OR ANY OTHER FUND FOR THE WELF ARE OF SUCH EMPLOYEES, SHOULD BE INCLUDED IN THE DEFINITION OF INCOME OF THE ASSES SEE. SECTION 36(L)(VA) PROVIDES THAT DEDUCTION SHOULD BE ALLOWED IN RESPECT OF THE SUM R ECEIVED BY THE ASSESSEE FROM ANY OF ITS EMPLOYEES TO WHICH THE PROVISIONS OF SECTION 2(24)(X) APPLY, IF SUCH SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND ON OR BEFORE 4 THE DUE DATE. THE TERM DUE DATE HAS BEEN DEFINED THROUGH AN EXPLANATION TO CLAUSE (VA)OF SECTION 36(1). 5.2. FROM THE LANGUAGE OF THE ABOVE-REFERRED TWO SE CTIONS, VIZ., 2(24)(X) AND 36(L)(VA), IT APPEARS THAT CERTAIN RECEIPT HAVING B EEN CONSIDERED AS AN INCOME U/S 2(24)(X) OF THE ACT, WILL BE DEDUCTIBLE ON CREDIT O F SUCH RECEIPT TO THE CONCERNED EMPLOYEES ACCOUNT WITHIN THE DUE DATE. IT IS SUBMI TTED THAT THE RECEIPT BY WAY OF CONTRIBUTION, WHICH IS CONSIDERED AS AN INCOME IS ACTUALLY A LIABILITY IN THE HANDS OF THE ASSESSEE AND ON CREDITING THE RELEVANT RECEIPTE D SUM TO THE CREDIT OF THE CONCERNED EMPLOYEE THE SAID LIABILITY IS DISCHARGED. HENCE, I T IS SUBMITTED THAT CREDITING OF THE EMPLOYEES CONTRIBUTION TO HIS INDIVIDUAL ACCOUNT I N THE PROVIDENT FUND, SHOULD NOT BE CONSIDERED AS ANY EXPENDITURE OR ALLOWANCE AS R EFERRED TO IN CLAUSE (A) OF RULE 5 OF THE FIRST SCHEDULE TO THE ACT. HENCE, IT IS SUBM ITTED THAT THE CREDITING OF THE EMPLOYEES CONTRIBUTION BEING NOT OF THE NATURE OF ANY EXPENDITURE OR ALLOWANCE, THE PROVISIONS CONTAINED IN CLAUSE (A) OF RULE 5 OF THE FIRST SCHEDULE, SHOULD NOT BE CONSIDERED AS APPLICABLE IN THE CASE OF ANY BUSINES S OF INSURANCE OTHER THAN LIFE INSURANCE. 5.3. ON THE BASIS OF THE ABOVE SUBMISSIONS, HE CONT ENDED THAT THERE BEING NO QUESTION OF INCURRING OF ANY EXPENDITURE IN THE MAT TER OF CREDITING THE SUM RECEIVED TOWARDS CONTRIBUTIONS FROM THE EMPLOYEES, THERE COU LD NOT BE ANY SCOPE FOR MAKING ANY ADDITION UNDER CLAUSE (A) OF RULE 5 OF THE FIRS T SCHEDULE IN THE CASE OF THE ASSESSEE WHO HAS BEEN CARRYING ON THE BUSINESS OF I NSURANCE OTHER THAN LIFE INSURANCE. HENCE, IT IS SUBMITTED THAT THERE SHOULD NOT BE ANY APPLICABILITY OF SECTION 36(1 )(VA) READ WITH SECTION 2(24)(X) IN VIEW OF TH E SAME NOT BEING COVERED BY RULE 5(A) OF THE FIRST SCHEDULE. THEREFORE HE REQUESTED TO DELETE THE DISALLOWANCE OF RS.8,67,57,956/- SUSTAINED BY LD. CIT(A). 5.4. WITHOUT PREJUDICE TO THE SUBMISSIONS MADE IN ( 1) ABOVE, IT IS SUBMITTED BY THE LD. COUNSEL FOR ASSESSEE THAT SECTION 36(L)(VA) REQ UIRES CREDITING OF THE EMPLOYEES CONTRIBUTIONS WITHIN THE DUE DATE BY THE EMPLOYER AND THE SAID DUE DATE, HAS BEEN CLARIFIED BY WAY OF AN EXPLANATION. UNLIKE SECTION 43B, WHICH SPECIFICALLY REQUIRES ACTUAL PAYMENT FOR BEING ENTITLED TO A SPECIFIED DE DUCTION, IN SECTION 36(1)(VA) THE 5 REQUIREMENT IS OF CREDIT ONLY. HENCE, IT IS SUBMI TTED THAT FOR BEING ENTITLED TO A DEDUCTION IN RELATION TO THE INCOME ARISING BECAU SE OF SECTION 2(24)(X), THE REQUIREMENT IS OF CREDIT OF THE CONCERNED SUM [DE EMED TO BE AN INCOME U/S 2(24)(X)] TO THE CONCERNED EMPLOYEES ACCOUNT MAINT AINED UNDER THE PROVIDENT FUND AND ACTUAL PAYMENT OF THE SUM BEFORE THE DUE DAT E IS NOT A MANDATORY REQUIREMENT. 5.5. IT IS SUBMITTED FOR THE KIND CONSIDERATION OF THE HONBLE MEMBERS THAT IN SECTION 43B, INSERTED IN THE ACT WITH EFFECT FROM 0 1-04-1984, THE REQUIREMENT FOR BEING ENTITLED TO DEDUCTION IS ACTUAL PAYMENT, BU T IN SECTION 36(1 )(VA), INSERTED FROM A LATER DATE, VIZ., 01-04-1988 THE REQUIREMENT IS O F CREDIT AND NOT ACTUAL PAYMENT. THE USE OF DIFFERENT EXPRESSIONS, VIZ., ACTUAL PAY MENT AND CREDIT, APPEARS TO SUGGEST THAT THE INTENTION OF THE LAW MAKERS HAD NO T BEEN TO ENSURE ACTUAL PAYMENT, BUT A MANDATORY CREDIT AS REGARDS EMPLOYEES CONT RIBUTIONS. 5.6. IN THE CASE OF THE ASSESSEE, ON THE BASIS OF T HE ADVICE GIVEN BY THE APPELLANT TO THE TRUSTEES OF THE PROVIDENT FUND, CREDIT ENTRIES ARE BEING MADE TO THE INDIVIDUAL ACCOUNTS OF THE CONCERNED EMPLOYEES WITHIN 15TH OF THE MONTH FOLLOWING THE MONTH IN WHICH THE RELEVANT SALARIES ARE BEING MADE. THE ASS ESSEE HAS BEEN MAKING PAYMENTS FROM TIME TO TIME ON AD HOC BASIS TO THE FUND AND C ONTINUOUS ADJUSTMENTS ARE BEING MADE BY THE FUND IN RESPECT OF THE CONTRIBUTIONS RE CEIVABLE FROM THE ASSESSEE AGAINST THE SAID PAYMENTS MADE ON AD HOC BASIS FROM TIME TO TIME. SOMETIMES, THE PROVIDENT FUND ACCOUNT REFLECTS BALANCES RECOVERABLE FROM THE ASSESSEE AND AGAIN SOMETIMES BALANCES RECEIVED IN EXCESS FROM THE ASSESSEE FOR T HE TIME BEING. HOWEVER, AS ALREADY MENTIONED HEREINBEFORE, THE EMPLOYEES RESPECTIVE I NDIVIDUAL ACCOUNTS ARE ALWAYS REGULARLY CREDITED WITH THE CONTRIBUTIONS MADE BY T HE EMPLOYEES AS WELL AS BY THE ASSESSEE AS THE EMPLOYER WITHIN THE DUE DATE SPECIF IED IN THE RELEVANT RULES OF THE PROVIDENT FUND. 5.7. IN SUPPORT OF THE ABOVE SUBMISSIONS THE FOLLOW ING DOCUMENTS ARE ENCLOSED (I) ONE CERTIFICATE ISSUED BY THE CENTRAL PROVIDENT FUND DEPARTMENT OF THE ASSESSEE (PAGE 1); (II) ONE INDIVIDUAL ACCOUNT OF AN EMPLOYEE AS AT 31 -03-2001 (PAGE 2); (III) STATEMENT SHOWING THE AMOUNTS DUE AND PAID ON ACCOUNT OF CONTRIBUTIONS OF THE EMPLOYEES AND EMPLOYER DURING THE FINANCIAL YEAR 20 00-01 (PAGE 3); 6 (IV) A COPY OF THE RULES AND REGULATIONS OF THE ASS ESSEES EMPLOYEES PROVIDENT FUND (PAGES 4 TO 30). 5.8. ON THE BASIS OF THE ABOVE EXPLANATIONS AN D THE DOCUMENTS, IT IS SUBMITTED THAT SINCE THE ASSESSEE HAD DULY CREDITED THE INDIVIDU AL ACCOUNTS OF THE CONCERNED EMPLOYEES IN THE PROVIDENT FUND WITHIN 15 OF THE MO NTH FOLLOWING THE MONTH IN WHICH THE SALARIES HAVE BEEN PAID AND PROVIDENT FUN D CONTRIBUTIONS HAVE BEEN DEDUCTED, IT MAY KINDLY BE HELD THAT THE ASSESSEE H AD DULY COMPLIED WITH THE REQUIREMENTS OF SECTION 36(1)(VA). THEREFORE HE REQ UESTED TO DELETE THE DISALLOWANCE OF RS.8,67,57,956/- SUSTAINED BY LD. CIT(A). 6. ON THE OTHER HAND, THE LD. DR APPEARING O N BEHALF OF THE REVENUE RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES AND FURTHER CONTE NDED THAT KOLKATA BENCHES HAS CATEGORICALLY DISALLOWED THE EMPLOYEES CONTRIBUTIO NS. THEREFORE HE REQUESTED TO UPHELD THE ORDERS OF THE REVENUE AUTHORITIES. 7. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREFUL PERUSAL OF THE MATERIALS AVAILABLE ON RECORD, SPECIALLY THE INDIVIDUAL ACCOU NTS OF THE EMPLOYEES AS ON 31.3.2001 WHICH WAS PLACED AT PAGE 2 OF THE PAPER B OOK AND THE STATEMENT SHOWING THE AMOUNTS DUE AND PAID ON ACCOUNT OF CONTRIBUTION OF THE EMPLOYEES AND EMPLOYERS CONTRIBUTION DURING THE FINANCIAL YEAR 2 000-01 WHICH WAS PLACED AT PAGE 3 OF THE PAPER BOOK AND COPY OF THE RULES AND REGULAT IONS OF THE ASSESSEES PROVIDENT FUND RULES PLACED AT PAGES 4-30 OF THE PAPER BOOK W E ARE OF THE VIEW THAT SINCE THE ASSESSEE HAS CREDITED BOTH EMPLOYEES AS WELL AS EM PLOYERS CONTRIBUTIONS TO THE INDIVIDUAL ACCOUNTS OF THE EMPLOYEES ON THE DATE OF RECOVERY OF THE PROVIDENT FUND IN OUR OPINION ASSESSEE FULFILS THE REQUIREMENTS MENTI ONED U/S 36(1)(VA). THEREFORE WE SET ASIDE THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE AND DIRECT AO TO GIVE RELIEF OF RS.8,67,57,956/-. 8. IN THE RESULT GROUND NO.1 OF THE ASSESSEE IS ALLOWED. 9. AS REGARDING GROUND NO.2 THE EFFECTIVE ISSU E WHICH RELATES TO UNIDENTIFIED MOTOR THIRD PARTY CLAIM OF RS.3,17,07,848/-. 7 10. THE BRIEF FACTS OF THIS ISSUE ARE THAT WHILE DOING THE SCRUTINY ASSESSMENT THE AO HAS DISALLOWED AN AMOUNT OF RS.3,17,07,848/- WHILE COMPUTING THE TAXABLE INCOME ON REGULAR BASIS AS WELL AS UNDER MAT I.E. U/S 115JB B Y OBSERVING AS UNDER :- DURING THE PREVIOUS YEAR, THE ASSESSEE DEBITED ITS P/L A/C WITH A SUM OF RS.30,89,12,892/- THROUGH MISCELLANEOUS INSURANCE REVENUE ACCOUNTS TOWARDS PROVISION FOR UNIDENTIFIED MOTOR THIRD PARTY CLAIM . SIMILAR PROVISION OF RS.27,72,04,444/- MADE DURING THE FINANCIAL YEAR 19 99-2000 HAS BEEN REVERSED IN THE ACCOUNTS DURING THE YEAR UNDER CONSIDERATION. SO, N ET AMOUNT OF RS.3,17,07,848/- WAS FRESH RESERVE CREATED FOR THE PURPOSE DURING THE YE AR. THE ASSESSEE IN ITS SUBMISSION DATED 20.12.2002 STA TED THAT PARTICULAR PROVISION TOWARDS UNIDENTIFIED MOTOR THIRD PARTY CLAIM WERE M ADE IN THE ACCOUNTS ON THE BASIS OF INFORMATION OF ACCIDENT RECEIVED THROUGH COURT S UMMONS. ACCORDING TO ASSESSEE THE SPECIAL PROVISION MADE TO THE EXTENT OF THIRD P ARTY ONE-THIRD PERCENT TO TOTAL CLAIM REPORTED THROUGH COURT AS PER THE DECISION HELD IN THE MEETING OF PARENT INSURANCE COMPANY ON 23/24 APRIL, 1997. IT WAS ALSO SUBMITTED THAT IN EARLIER AS SESSMENT YEARS, THE CLAIM OF THE ASSESSEE WAS REJECTED BUT LD. CIT(A) DECIDED THE ISSUE IN FA VOUR OF THE ASSESSEE IN RESPECT OF ASSESSMENT YEAR 1999-2000. HOWEVER, IT IS NOTED THA T THE LD. CIT(A)S ORDER HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND AN APPEAL HAS B EEN PREFERRED BEFORE THE HONBLE ITAT, KOLKATA AGAINST THE DECISION OF THE CIT(A). THE SUBMISSION IS DULY CONSIDERED. IT I S NOTED THAT THIS PARTICULAR CLAIM IS IN THE NATURE OF AN AD-HOC ONE WORKED OUT ON SPECIFIC PERCENTAGE AGAINST ANTICIPATED/UNDETERMINED LIABILITY WHICH IS LIKELY TO ARISE IN FUTURE. THIS IS NOT AN ACTUAL OR DETERMINED LIABILITY. NO SUCH PROVISION I S ALLOWABLE AS PER I.T.ACT. HENCE, THE ASSESSEES CLAIM IS NOT ADMISSIBLE. RS.3,17,07, 848/- IS THEREFORE ADDED BACK TO INCOME OF ASSESSEE. 10.1. ON APPEAL LD. CIT(A) HAS DELETED THE ADDITI ON MADE BY AO IN CONTRIBUTING THE INCOME UNDER NORMAL PROVISION OF THE IT ACT BY OBSE RVING AS UNDER - I HAVE GONE THROUGH THE APPELLANTS SUBMISSIONS AN D I AM OF THE VIEW THAT KEEPING IN MIND OF THE SPECIFIC PROVISIONS CONTAINED IN THE I. T.ACT, 1961 AS REGARDS THE PROCEDURE FOR ASSESSMENT OF AN ASSESSEE CARRYING ON GENERAL INSURANCE BUSINESS, AND ALSO THE ABOVE-REFERRED TWO DECISIONS OF THE SUPREM E COURT, THE ASSESSING OFFICERS ACTION IN DISALLOWING THE SUM OF RS.3,17,07,848/- D OES NOT APPEAR TO BE CORRECT. ACCORDINGLY, FOLLOWING THE APPELLATE ORDERS PASSED FOR SEVERAL EARLIER YEARS, I DELETE THE DISALLOWANCE OF RS.3,17,07,848/-. 10.2. HOWEVER, HE CONFIRMED THE ADDITIONS MADE B Y AO UNDER THE PROVISIONS OF SECTION 115JB OF THE IT ACT BY OBSERVING AS UNDER : I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLA NT AND THE ASSESSMENT ORDER OF THE A.O. WHILE SUBMITTING HIS ARGUMENTS FOR THIRD PARTY INSURANCE CLAIM AR STATED THAT WHENEVER IT IS OBSERVED THAT THE NECESSARY DETAILE D INFORMATION ARE NOT AVAILABLE IN THE SUMMONS FROM COURT, THE APPELLANT MAKES A PROVI SION FOR ONE-THIRD OF THE CLAIM SPECIFIED IN THE RELEVANT SUMMONS. AS SEEN THIS, CL AIM IS IN THE NATURE OF AN AD-HOC ONE WORKED OUT ON SPECIFIC PERCENTAGE AGAINST ANTIC IPATED/UNDETERMINED LIABILITY 8 WHICH IS LIKELY TO ARISE IN FUTURE. I AGREE WITH TH E ASSESSING OFFICER THAT FOR COMPUTING BOOK PROFIT IT IS AN UNASCERTAINED LIABILITY AND TH E ADDITION IS CONFIRMED. 10.3. AGGRIEVED BY THIS ASSESSEE IS IN APPEAL BE FORE US ON ACCOUNT OF THE ADDITIONS MADE BY AO U/S 115JB AND FURTHER CONFIRMED BY LD. C IT(A). 11. THE LD. COUNSEL APPEARING ON BEHALF OF TH E ASSESSEE HAS SUBMITTED THAT THE ASSESSEES INSURANCE BUSINESS INCLUDES, INTER ALIA, THIRD PARTY INSURANCE WHICH ARISES - OUT OF MOTOR ACCIDENTS. WHENEVER, THERE OCCURS ANY MOTOR ACCIDENT THE INJURED PERSON AND/OR IN THE CASE OF DEATH OF THE INJURED PERSON, HIS LEGAL HEIR, FILES AN APPLICATION BEFORE THE MOTOR ACCIDENT CLAIMS TRIBUNAL THROUGH C OURT CLAIMING COMPENSATION FOR INJURY OR DEATH, AS THE CASE MAY BE. ON THE BASIS O F APPLICATION FILED BY THE CLAIMANT TO THE COURT THE COURT THEN ISSUES SUMMONS TO THE INSU RANCE COMPANY FOR SETTLEMENT OF THE THIRD PARTY CLAIM. AS AND WHEN THE ASSESSEE REC EIVES SUCH SUMMONS IT BECOMES NECESSARY FOR IT TO PROVIDE FOR A LIABILITY TOWARDS THE CLAIM TO BE SETTLED. WHENEVER IT IS OBSERVED THAT THE NECESSARY DETAILED INFORMATION AR E NOT AVAILABLE IN THE SUMMONS THE ASSESSEE MAKES A PROVISION FOR ONE-THIRD OF THE CLA IM SPECIFIED IN THE RELEVANT SUMMONS. THIS METHOD OF PROVISIONING FOR CLAIMS HAD BEEN ADOPTED THROUGH DISCUSSIONS HELD IN BETWEEN THE GENERAL INSURANCE C ORPORATION OF INDIA BEING THE HOLDING COMPANY OF THE ASSESSEE AND THE SUBSIDIARIE S OF THE GENERAL INSURANCE CORPORATION OF INDIA INCLUDING THE ASSEESSEE. IN AC CORDANCE WITH THE ABOVEMENTIONED PROCEDURE THE ASSESSEE DEBITED ITS MISCELLANEOUS IN SURANCE REVENUE ACCOUNT WITH A SUM OF RS.30,89,12,392 TOWARDS UNIDENTIFIED MOTOR T HIRD PARTY CLAIM. IN THE JUST- PRECEDING YEAR SIMILAR PROVISION HAD BEEN MADE FOR RS.27,72,04,044 WHICH WAS REVERSED DURING THE YEAR UNDER APPEAL AND HENCE THE NET DEBIT TO THE ACCOUNTS WAS FOR RS.3, 17,07,848. THE ASSESSING OFFICER HELD THAT TH IS WAS ALLEGEDLY NOT A DETERMINED LIABILITY AND SO HE WOULD NOT ALLOW THE SAME WHILE COMPUTING THE BUSINESS INCOME AND HE DISALLOWED THE AFORESAID SUM OF RS.3,17.,07,848. AGAIN, WHILE COMPUTING THE BOOK PROFIT U/S 11 5JB, THE ASSESSING OFFICER ADDED BACK THE ABOVEMENTIONED SUM OF RS.3,17,07,848. 11.1. HE FURTHER SUBMITTED THAT THE CIT(APPEALS) , IN RELATION TO THE DISALLOWANCE OF RS.3,17,07,848 MADE IN THE COMPUTATION OF BUSINESS INCOME, DELETED THE SAID 9 DISALLOWANCE. HOWEVER, IN RESPECT OF THE ADDITION M ADE WHILE COMPUTING THE BOOK PROFIT, THE CIT(APPEALS) HELD THAT THE ASSESSEES C LAIM WAS IN THE NATURE OF AN AD HOC ONE WORKED OUT ON SPECIFIC PERCENTAGE AGAINST THE A NTICIPATED/UNDETERMINED LIABILITY WHICH WOULD LIKELY TO ARISE IN FUTURE. ON THE BASIS OF HIS ABOVE OBSERVATION THE CIT(APPEALS) AGREED WITH THE ASSESSING OFFICER THAT FOR COMPUTING BOOK PROFIT THE PROVISION WAS ALLEGEDLY AN UNASCERTAINED LIABILITY AND HE CONFIRMED THE SAID ADDITION. THE ASSESSEE SUBMITS FOR THE KIND CONSIDERATION OF THE HONBLE MEMBERS THAT THE PROVISION HAD BEEN MADE ON THE BASIS OF THE ACTUAL CLAIMS RECEIVED THROUGH COURT SUMMONS AND SO THE SAID PROVISION SHOULD NOT HAVE B EEN CONSIDERED AS AN ALLEGED UNASCERTAINED LIABILITY. THE METHOD OF MAKING PROVI SION OF THIS NATURE HAD BEEN ADOPTED THROUGH DISCUSSIONS HELD IN BETWEEN THE GEN ERAL INSURANCE CORPORATION OF INDIA (GIC) WHICH WAS THE HOLDING COMPANY OF THE AS SESSEE AND THE SUBSIDIARIES OF GIC WHICH INCLUDED THE ASSESSEE. THE ASSESSEE FURTH ER SUBMITS THAT IT WAS ONLY ONE- THIRD OF THE CLAIMS MADE AGAINST THE ASSESSEE THAT HAD BEEN CONSIDERED FOR MAKING THE PROVISION AND IN THE SUCCEEDING YEAR ON ACTUAL RECE IPT OF CLAIMS WITH FULL DETAILS, THE ENTRIES MADE FOR THE PROVISION WERE REVERSED. THE A PPELLANT SUBMITS THAT THE ACTUAL LIABILITY WOULD ALWAYS BE MORE THAN THE PROVISION W HICH WAS BEING MADE AT ONLY ONE- THIRD OF THE CLAIM MADE. HENCE, IT MAY KINDLY BE AP PRECIATED THAT PROVISION MADE TO THE EXTENT OF ONE-THIRD OF THE CLAIMS RECEIVED THRO UGH SUMMONS OF THE COURT, SHOULD NOT BE CONSIDERED TO HE ALLEGED UNASCERTAINED LIABI LITY AT LEAST TO THIS EXTENT THE LIABILITY SHOULD BE TREATED AS ASCERTAINED LIABILIT Y WHICH IN ALL PROBABILITY WOULD INCREASE IN FUTURE. 11.2. HE SUBMITTED THAT COPIES OF THE CORRESPON DENCE AND THE MINUTES OF THE DISCUSSIONS HELD BETWEEN THE GENERAL INSURANCE CORP ORATION OF INDIA AND ITS SUBSIDIARIES IN RESPECT OF THE UNIDENTIFIED MOTOR T HIRD PARTY CLAIMS, ARE ENCLOSED FOR READY REFERENCE (PAGE 31 TO 34). 11.3. ON THE BASIS OF THE ABOVE EXPLANATIONS T HE ASSESSEE SUBMITS THAT THE PROVISION HAVING BEEN MADE TO THE EXTENT OF ONLY ONE-THIRD OF THE CLAIMS RECEIVED, IT MAY KINDLY BE CONSIDERED THAT TO THAT EXTENT, VIZ., ONE-THIRD, THE PROVISION SHOULD BE TOWARDS AN 10 ASCERTAINED LIABILITY AND, ACCORDINGLY, DIRECTION M AY KINDLY BE GIVEN FOR DELETION OF THE ADDITION OF PROVISION OF RS.3,17,07,848 WHILE COMPU TING BOOK PROFIT U/S I I5JB. 12. ON THE OTHER HAND, THE LD. DR APPEARING O N BEHALF OF THE REVENUE HAS RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 13. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF MATERIALS AVAILABLE ON RECORD IT IS OBSERVED THAT LD. CIT(A) HAS DELETED THE ADDITION OF DISALLOWANCE OF RS.3,17 LAKHS WHILE COMPUTING THE R EGULAR TAXABLE INCOME BY OBSERVING THAT KEEPING IN MIND OF THE SPECIFIC PROV ISIONS CONTAINED IN THE I.T.ACT 1961 AS REGARDS THE PROCEDURE FOR ASSESSMENT OF AN ASSESSEE CARRYING ON GENERAL INSURANCE BUSINESS AND ALSO THE ABOVE REFERRED TWO DECISIONS OF THE SUPREME COURT, THE AOS ACTION IN DISALLOWING DOES NOT APPEAR TO B E CORRECT. WHEN ONCE THIS OBSERVATION HAS BEEN MADE BY LD. CIT(A) IT IS NOT F AIR ON THE PART OF LD. CIT(A) TO TAKE A CONTRARY VIEW WHILE COMPUTING THE MAT U/S 115JB O F THE ACT BY STATING THAT THE CLAIM OF ASSESSEE IS IN THE NATURE OF ADHOC ONE WOR KING OUT ON SPECIFIC PERCENTAGE AGAINST ANTICIPATED/UNDETERMINED LIABILITY. IT IS F URTHER OBSERVED FROM THE CORRESPONDENCE AND MINUTES OF OBSERVATIONS HELD BY THE ASSESSEE COMPANY WITH GENERAL INSURANCE CORPORATION OF INDIA AND OTHER SU BSIDIARIES IN RESPECT OF UNIDENTIFIED MOTOR THIRD PARTY CLAIM WHICH WERE PLA CED AT PAGES 31 TO 34 OF THE PAPER BOOK THAT ASSESSEES LIABILITY TOWARDS UNIDENTIFIED MOTOR THIRD PARTY CLAIM CANNOT BE STATED AS UNASCERTAINED LIABILITY. IN OUR CONSIDERE D OPINION THE LIABILITY ON ACCOUNT OF UNIDENTIFIED MOTOR THIRD PARTY CLAIM IS CERTAIN. HO WEVER THE QUANTIFICATION IS NOT CERTAIN. HOWEVER, AS REGARDING QUANTIFICATION ALSO ALL THE SUBSIDIARY COMPANIES OF THE GENERAL INSURANCE CORPORATION OF INDIA ALONG WITH T HE ASSESSEE COMPANY HAS ADOPTED THE SAME METHOD DECIDED BY THE HOLDING COMPANY I.E. GENERAL INSURANCE CORPORATION OF INDIA. 13.1. KEEPING IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE PROVISION CREATED ON ACCOUNT OF UNIDENTIFIED MOTOR THIRD PARTY CLAIM WIL L NOT FALL UNDER SUB SECTION 115JB (2) EXPLANATION 1(C) OF THE IT ACT. THEREFORE, NO A DDITION IS REQUIRED WHILE COMPUTING THE TAX LIABILITY U/S 115JB OF THE IT ACT. HENCE W E SET ASIDE THE ORDERS OF THE REVENUE 11 AUTHORITIES ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER NOT TO MAKE ANY ADJUSTMENT ON ACCOUNT OF THE PROVISION UNDER UNIDENTIFIED MOTO R THIRD PARTY CLAIM WHILE COMPUTING THE TAX LIABILITY U/S 115JB OF THE IT ACT . THIS GROUND OF THE ASSESSEE IS ALLOWED. 14. IN THE RESULT THE APPEAL OF ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE COURT ON 11.10.2011. SD/- SD/- . .. . . .. . , , , , B.R.MITTAL, JUDICIAL MEMBER . .. .!' !'!' !'. .. . , ,, , #$ #$ #$ #$ , C.D.RAO, ACCOUNTANT MEMBER. ( (( ('$ '$ '$ '$) )) ) DATE: 11.10.2011. ORDER PRONOUNCED BY SD/- SD/- (JM) (AM) (NVK) (CDR) #7 2 0& 8#&*9- COPY OF THE ORDER FORWARDED TO: 1. NATIONAL INSURANCE COMPANY LTD., 3, MIDDLETON STREE T, KOLKATA-700071. 2 D.C.I.T., CIRCLE-6, KOLKATA 3. THE CIT, 4. THE CIT(A)-VI, KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA 1& 0/ TRUE COPY, #7(4/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES R.G.(.P.S.)