Commissioner Of Income Tax-1 v. Sbi Life Insurance Company Ltd

rsk IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1440 OF 2018 Commissioner of Income Tax-1 vs. ...Appellant SBI Life Insurance Company Ltd. ...Respondent ---- Mr. Suresh Kumar for Appellant . Mr. Atul K. Jasani a/w. Mr. P. C. Tripathi for Respondent. ---- CORAM : K. R. SHRIRAM & AMIT B. BORKAR, JJ.DATE : 22 OCTOBER 2021 AMIT B. BORKAR, JJ. P. C. : Respondent carried out life insurance business for theAssessment Year 2003-2004 and filed return of income on24/11/2003 showing total loss of Rs.7,46,63,410/-. The same wasprocessed under Section 143(1) on 25/2/2004. Thereafter the casewas selected for scrutiny and notices under Section143(2) and underSection 142(1) of the Act were issued and served on respondent. 2.During the course of assessment respondent furnishedcopy of actuarial report and abstract of the company as on31/3/2003. From the examination of actuarial report, AssessingOfficer noted that the total surplus disclosed by actuarial evaluationmade in accordance with the Income Tax Act was Rs.81,000/-. rsk Respondent was asked to explain why this amount of Rs.81,000/-should not be taxed as total income of assessee. Assessee filed a replyand also contended that allocation of bonus of Rs.81,000/- appearingin the revenue account of the company was for the year ended31/3/2003 and is in line with IRDA Regulations and does not in anyway represent surplus in the revenue and thus cannot be brought totax under the Act. Assessing Officer took the view that as per theoverriding provision of Section 44 read with Rule 2 of the FirstSchedule of the Income Tax Act, the profit and gains of life insurancebusiness is to be taken to be the annual average of the surplusdisclosed in the actuarial valuation report for the year and henceprofit and gains of life insurance business of the assessee forAssessment Year 2003-2004 is taken at Rs.81,000/- and completedthe assessment under Section 143(3) of the Act on 21/3/2006. 3.The case was reopened on 26/3/2010 and notice underSection 148 of the Act dated 26/3/2010 was issued on Respondent.The reasons for reopening was communicated to the assessee on26/4/2010 and notice under Section 143(2) of the Income Tax Actdated 26/4/2010 was also served. The reasons for reopening were asunder: "During the AY 2003-2004, the assessee has negativereserves of Rs.1,55,05,000/-. This negative reserve has notformed part of the actuarial surplus which is not in order.To that extent, the actuarial surplus has been understated.The assessee not offering the incremental negative reserves rsk as a part of surplus arrived at as per actuarial valuation, forthe purpose of computing income from the insurancebusiness, has resulted in income escaping assessment to thetune of Rs..1,55,05,000/- within the meaning of Section147 of the IT Act, 1961." 4.Assessing Officer completed re-assessment under Section143(3) read with 147 of the Act by order dated 26/11/2010disallowing the provision for negative reserve amounting toRs.1,55,05,000/- 5.Aggrieved by this order of Assessing Officer respondentpreferred an appeal before CIT(A). CIT(A) allowed the appeal byorder dated 28/8/2013 holding that the proceedings initiated underSection 147 of the Act were not valid. This order was impugnedbefore ITAT by Revenue. ITAT by its order dated 23/6/2017 dismissedthe appeal of Revenue. ITAT also noted that Assessing Officer did notbring any tangible material on record to show that there was anyfailure on the part of respondent to disclose fully and truly allmaterial facts on record necessary for assessment and concluded thatit was merely a change of opinion. Other observations were also madeon merits and ITAT concluded that even on merits, Assessing Officerhad gone wrong in passing his order dated 26/11/2010. Aggrieved bythis order and assessment, Revenue has preferred this appeal andsubstantial law of questions proposed are as under: 1.Whether on the facts & circumstances of the case and 1.Whether on the facts & circumstances of the case and in law, the Hon'ble ITAT was justified in holding that theproceedings under Section 147 of the I. T. Act are not validand holding that the reopening of the assessment wasmerely based on change of opinion ? 2.Whether on the facts and circumstances of the caseand in law, the Hon'ble ITAT was justified in holding thatthe AO has not brought any tangible material on record toindicate that there was an omission or failure on the part ofthe assessee to disclose fully and truly all material factsnecessary for the assessment, ignoring the fact that theassessee has understated the income by not showing thenegative surplus of Rs.1,55,05,000/- as part of actuarialsurplus ? 3.Whether on the facts and circumstances of the caseand in law, the Hon'ble ITAT was justified in deleting theaddition of Rs.1,55,05,000/- made on account of negativereserve without appreciating that the negative reserve hasan impact on reducing the "taxable surplus" as per Form "I"and therefore corresponding adjustment for negativereserve need to be made to arrive at taxable surplus ? 6.The conclusion of ITAT can be found in paragraph No.5 ofits order particularly regarding lack of jurisdiction of Assessing Officerwhile reopening under Section 148 of the Act. rsk 7.We have considered the submissions made by Mr. SureshKumar for Appellant and Mr. Atul K. Jasani for Respondent and withtheir assistance, we have also perused the impugned order. 8.This Court in a recent judgment in Ananta Landmark (P.)Ltd. vs. Deputy Commissioner of Income Tax1 has held that whereassessment was not sought to be reopened on reasonable belief thatincome had escaped assessment on account of failure of assessee todisclose truly and fairly full material fact that were necessary forcomputing of income it was not the case wherein assessment assought could be reopened. On account of change of opinion ofAssessment Officer about the manner of computation to deductionsunder Section 57 of the Act, reopening was not justified. Theproposition in this judgment squarely applies to the case in hand aswell. ITAT has concluded that during the assessment proceedingrespondent had furnished actuarial form that showed negative resultand the Assessing Officer had made addition of Rs.81,000/- duringthe original assessment proceeding on account of actuarial surplus.Negative reserve was part of document furnished during theassessment and therefore it cannot be said that there was nondisclosure of material facts relevant for assessment. ITAT has alsoobserved that Assessing Officer while passing assessment order hasreferred to the actuarial report as on 31/3/2003 and hence it cannotbe said that Assessing Officer has not made any inquiry in respect ofnegative reserve which has been shown in actuarial report. ITAT has 1(2021) 131 taxmann.com 52 (Bombay) rsk also observed that the assessment order was passed with dueapplication of mind and the Assessing Officer has not brought anytangible material on record to show that there was any failure on thepart of the assessee to disclose fully and truly all material on recordnecessary for assessment. 9.As such, we do not find any infirmity in the impugnedorder. Question Nos.1 and 2 are answered in the negative. QuestionNo.3 is on merits. Since the assessment order itself has been set aside,this question will not arise as a substantial question of law. (AMIT B. BORKAR, J) (K. R. SHRIRAM, J.) Digitally signedbyRAJESHWARISUBODHRAJESHWARISUBODHKARVEKARVEDate:2021.10.2716:31:35 +0530