Wp/10510/2019 Of M/S. Bajaj Allianz Life Insurance Company Ltd v. Deputy Commissioner Of Incometax Circle 1 (1) And Ors

JPP IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO. 10510 OF 2019 Bajaj Allianz Life Insurance Company Ltd. … Petitioner V/s. Deputy Commissioner of Income-tax Circle 1(1) and Ors. ... Respondents. Mr. Percy Pardiwala, Senior Advocate a/w. Ms. Vasanti B. Patel forthe Petitioner Mr. Sham Walve a/w. Mr. Pritish Chetterjee for Respondents 1 & 2. CORAM : M.S. SANKLECHA & NITIN JAMDAR, JJ. DATE : 19 NOVEMBER 2019. P.C.:- This Petition under Article 226 of the Constitution of India challenges a notice dated 29 March 2019 issued by theAssessing Officer, Respondent No.1 under Section 148 of theIncome Tax Act, 1961 (Act). The impugned notice dated 29 March2019 seeks to reopen the assessment for the Assessment Year 2012-13. 2.The Petitioner is a company engaged in business of LifeInsurance. The Petitioner filed return of income on 21 September2012 for Assessment Year 2012-13 declaring total income ofRs.12,25,29,85,630/- in accordance with Section 44 of the IncomeTax Act, 1961. On 8 August 2013 the Assessing Officer issuednotice under Section 143(2) of the Act to the Petitioner to filedocuments and evidence. The Petitioner submitted documents ascalled for. Further notice was issued under Section 142(1) of the Actby the Assessing Officer on 13 November 2015. On 7 December2015 Transfer Pricing Officer passed an order accepting the Arm’sLength price reported by the Petitioner. Therefore, on 8 March 2016an assessment order was passed under Section 143(3) r/w. Section92CA(4) of the Act. On 29 March 2019 the Assessing Officerissued a notice under Section 148 of the Act. The Petitioner filed itsreturn of income pursuant to the notice and sought reasons for thenotice under Section 148 of the Act seeking to reopen theassessment. The reasons were supplied to the Petitioner. ThePetitioner submitted its objections for initiation of reassessmentwhich were rejected by order dated 9 June 2019 by the AssessingOfficer. Hence this Petition. 3.We have heard Mr. Pardiwala, Senior Advocateappearing for the Petitioner and Mr. Walve, learned Counselappearing for the Respondents. 4.As a narration of above facts would show thereassessment is sought to be opened after period of four years. Theperiod of four years is of significance as under the scheme of Sections147 and 148 of the Act, if the assessment is sought to be reopenedafter period of four years, there is an additional requirement i.e. theremust be a failure on the part of the assessee to disclose fully and trulyall material facts necessary for the assessment. This requirement is ajurisdictional requirement for the Assessing Officer to proceed toreopen the assessment. 5.The reasons which were supplied to the Petitioner readas under :- “1.The assessee is a domestic company in whichpublic is not substantially interested and engaged inthe business of of life insurance business. The assesseehas filed its original return of income for A.Y. 2012-13on 21/09/2012 declaring total income ofRs.1225,29,85,630/-. The return was processed undersection 143(1) of the Income-tax Act, 1961, acceptingthe returned income. Subsequently, the case wasselected for scrutiny and assessment order u/s. 143(3)of the Act was passed on 08/03/2016. 02. As per provisions contained in Section 44 of theIncome Tax Act, the income of the life insurancebusiness is computed in accordance with Rule 2 of theFirst Schedule. Prior to the enactment of theInsurance (Amendment) Act, 2002, a life insurancecompany was required to maintain a consolidated revenue account including surplus from bothshareholder’s and policyholders’ accounts. 02. As per provisions contained in Section 44 of theIncome Tax Act, the income of the life insurancebusiness is computed in accordance with Rule 2 of theFirst Schedule. Prior to the enactment of theInsurance (Amendment) Act, 2002, a life insurancecompany was required to maintain a consolidated revenue account including surplus from bothshareholder’s and policyholders’ accounts. The Insurance Act, 1938 was amended vide theInsurance (Amendment) Act, 2000 to give full effectto the IRDA Act, 1999. Section 11(1B) of theInsurance Act, 1938, inserted vide the saidamendment provides that every insurer shall keepseparate accounts relating to funds of shareholders andpolicyholders as opposed to the earlier requirement ofmaintaining a consolidated revenue account. Theformats for presentation of insurance accounts havebeen prescribed by the IRDA (Preparation of FinancialStatements and Auditors’ Report of InsuranceCompanies) Regulations, 2002. Part V deals with theprovisions of financial statements. Every insurer isrequired to prepare- (i) a revenue account/technical account which is alsodescribed as a policyholder’s account; and (ii) a profitand loss account, which is also described as ashareholder's account in form A-PL, apart from abalance-sheet. The statutory forms are prescribed bythe Regulations. Form A-RA is prescribed for thepreparation of the revenue account or thepolicyholder’s account. Form A-RA reflects thesurplus or, as the case may be, the deficit generated inthe revenue account for the year ending 31[st] March. Inthe case of revenue account, provision for tax has to bemade before arriving surplus or deficit in revenueaccount. However, in the case of shareholdersaccount, there is no such column for provision for taxthat has to be made before arriving profit or surplus.In case of tax liability for shareholders account, thesame has to be computed after profit, which is quiteopposite to the case of policyholder’s account, whereprovision for tax comes before arriving surplus. 03.In the instant case, it is seen from thefinancial statement submitted by the assessee that theRevenue Account (Policyholders Account -TechnicalAccount)(PHA) was prepared in Form Form A-RAand Profit and Loss Account (Shareholders account –Non Technical account) (SHA) in Form Form A-PL.The assessee has treated the entire profit generatedfrom the business is profit from business of lifeinsurance only. Further, the income of life insurance isaccounted in Form A-RA i.e. Technical account orRevenue Account of policyholders and the actuarialreport in the case of the assessee is prepared on thebasis of assets in Policyholders Account only. Whereasincome earned from the activities other than lifeinsurance business is accounted for in Form A-PL i.e.Non Technical account or Profit and Loss Account ofShareholders. It is the income of the assessee frominvestment of funds available to it in the shareholdersaccount. It is also seen from the Balance sheet that thefunds in shareholders account are maintainedseparately and distinctly from the funds inPolicyholders account. In view of this, the income oflife insurance business alone is taxable on the basis ofactuarial surplus under the provisions of section 44.Since the income of the assessee company inshareholders account is different and distinct from theincome of the Policyholders account, the same has tobe taxed separately under normal provisions of theAct, Since the assessee was not permitted to do anybusiness activity other than life insurance, the incomein shareholders account is required to be taxed as“Income from Other Sources”. 04.It is seen from the records that assessee hadoffered an amount of Rs.244,92,48,380/- afterdeducting provision for taxation of Rs.38,37,57,000/-and tax was paid under special provisions of the Act of 04.It is seen from the records that assessee hadoffered an amount of Rs.244,92,48,380/- afterdeducting provision for taxation of Rs.38,37,57,000/-and tax was paid under special provisions of the Act of Rs.31,78,63,454/-. However, it was seen fromShareholders Account that the assessee had Profitbefore tax of Rs.1349,57,76,000/- which includedtransfer or surplus from Policy holders Account ofRs.1069,12,60,000/- and contribution to PolicyholdersaccountfromShareholdersAccountatRs.2,84,89,000/-. Thus, the net income of theassesseeinShareholdersAccountwasRs.283,30,05,000/- and required to be taxed as“Income from Other Sources” under normal provisionsof the Act. 04. On verification of the record, it is seen that thecase was selected for scrutiny for A.Y. 2012-13 and theorder u/s.143(3) r.w.s.92CA(4) of the IT Act waspassed on 08/03/2016 assessing total income ofRs.1316,81,70,193/- as against the income returned atRs.1225,29,85,630/-. Since the income of the assesseecompany in shareholders account is different anddistinct from the income of the Policyholders account,the same has to be taxed separately under normalprovisions of the Act. This resulted in underassessmentofincomeamountingtoRs.283,30,05,000/- with consequent short levy of taxof Rs.60,13,05,018/-. 05.In view of the above facts of the case, theundersigned is satisfied that income ofRs.283,30,05,000/- chargeable to tax has escapedassessment for the assessment year under considerationwithin the meaning of provisions of section 147 of theAct. In this case more than four years have lapsedfrom the end of the assessment year underconsideration. Hence, necessary sanction to issuenotice u/s 148 has been obtained separately from thePr. Commissioner of Income Tax as per the provisionsof section 151 of the Act.” In the reasons there is not even an averment that there is afailure on the part of the Petitioner – assessee to truly and fullydisclose all material facts necessary for the assessment. Mentioningthis requirement in the reasons is not an empty formality, it showsthat the Assessing Officer is aware of the jurisdictional requirement. 6.In the reasons supplied by the Assessing Officer it hasbeen emphasized that the tax which is stated to have escapedassessment was in respect of the Shareholders’ account of thePetitioner. In the reasons the Assessing Officer refers to theprovisions of Section 44 of the Act and Section 11(1B) of theInsurance Act regarding separate accounts relating to funds ofShareholders and Policyholders. It is then stated that in case of taxliability of Shareholders account, the same has to be computed afterprofit, which is different in the case of Policyholders account. TheAssessing Officer thereafter refers to the financial statementsubmitted by the Petitioner and holds that the Shareholders’ accountbeing distinct and different will have to be taxed separately andtherefore there is a short levy of tax of Rs. 60,13,05,018/-. 7.The Petitioner has drawn our attention to the reply tothe notice dated 15 February 2015 issued to the Petitioner underSection 142(1) of the Act during the regular assessment proceedings.In this reply the Petitioner has submitted on taxability of Shareholders’ profit and loss account as a part of life insurance. Adetailed explanation therefore was given by the Petitioner as to howthe Shareholders account also constitutes part of life insurancebusiness. Case has been put up before the Assessing Officer by thePetitioner squarely that the entire income earned whether onShareholders account or Policy holders account should be recordedas income arising from life insurance business. Upon this submissionof the Petitioner and the documents furnished by the Petitioner thatan assessment order under Section 143(3) of the Act came to bepassed. Shareholders’ profit and loss account as a part of life insurance. Adetailed explanation therefore was given by the Petitioner as to howthe Shareholders account also constitutes part of life insurancebusiness. Case has been put up before the Assessing Officer by thePetitioner squarely that the entire income earned whether onShareholders account or Policy holders account should be recordedas income arising from life insurance business. Upon this submissionof the Petitioner and the documents furnished by the Petitioner thatan assessment order under Section 143(3) of the Act came to bepassed. 8.It is clear from the Reasons that there is no reference toany new tangible material, but the reference is only to the financialstatement of the Petitioner itself. Therefore, there is not only nofailure to disclose any material facts, there is no mention in thereasons that there has been a failure to disclose. A specific query wasraised regarding the implications of Shareholders account, whichdealt with by the Assessing Officer in the assessment order and whatis sought to be done by the Assessing Officer in the impugnednotice and order is a mere change of opinion, which is notpermissible. These grounds, which constitute jurisdictionalrequirements, by series of judicial pronouncements, are held to begrounds for setting aside the initiation of reassessment proceedings. 9. In these circumstances, the impugned notice and impugned order passed by the Assessing Officer being beyond thisjurisdiction are required to be quashed and set aside. Accordingly,the impugned notice dated 29 March 2019 and the impugned orderdated 8 March 2016 passed by the Respondent No.1 – AssessingOfficer are quashed and set aside. NITIN JAMDAR, J. M.S. SANKLECHA, J.