The Assessing Officer has disallowed my general insurance client's amortisation of premium on investments and its investments written off, and has added the reserve for unexpired risks to book profit under s.115JB. What is the limit on his power?
The Kolkata Tribunal dismissed all three of the Revenue's appeals. It upheld the Commissioner (Appeals) in deleting the disallowance of amortisation of premium paid on purchase of investments and of investments written off, on the footing that under section 44 read with Rule 5 of the First Schedule the Assessing Officer may add back only an expenditure, an allowance or a listed provision that is inadmissible under sections 30 to 43B, and an amount amortised or written off is none of those. It also upheld the Commissioner (Appeals) in holding that the reserve created for unexpired risk need not be added back in computing book profit under section 115JB, that reserve having been created not by a debit to the profit and loss account but out of the premium received, as the Insurance Act 1938 requires and as Rule 5(c) of the First Schedule and Rule 6E of the Income-tax Rules recognise.
Decided by the ITAT (Shri N.V. Vasudevan, Judicial Member and Shri M. Balaganesh, Accountant Member (Income Tax Appellate Tribunal, 'A' Bench, Kolkata)) on 2016-08-05, reported as ITA Nos. 674/Kol/2012, 982/Kol/2012 and 983/Kol/2012, assessment years 2005-06, 2007-08 and 2008-09; date of hearing 19 July 2016, date of pronouncement 5 August 2016; no law-report citation is printed on the document read. It bears on section 44, section First Schedule, section Rule 5 of the First Schedule, section Rule 6E, section 115JB, section 115JB(2), section 36(1)(vii), section 36(1)(viia)(c), section 36(2), section 43B of the Income Tax Act 1961, in Deductions & Disallowances, How Tax Law Is Read and Assessment & Scrutiny matters.
The value of this order to a practitioner is the structure of the argument rather than its novelty. It shows how the section 44 non-obstante clause converts an assessment dispute into a question about the three permitted adjustments in Rule 5: the officer must place his addition inside clause (a) (an expenditure or allowance, including a provision for tax, dividend, reserve or other prescribed provision, that is inadmissible under sections 30 to 43B), clause (b) (gain or loss on realisation of investments not already taken to the profit and loss account, and a provision for diminution in the value of investment), or clause (c) (the prescribed unexpired-risk reserve, which is a deduction and not an add-back). An amortisation charge and a write-off fall in none of them. The second point, on section 115JB, turns on a fact rather than a principle and must be checked in every case: the Commissioner (Appeals) found — and the Tribunal accepted — that the reserve for unexpired risk was never debited to the profit and loss account at all, but was created by debiting the premium received so as to carry forward the part relating to future periods under section 64V(1)(ii)(b) of the Insurance Act 1938, and that it therefore was not an amount "carried to any reserve" within clause (b) of Explanation 1 to section 115JB(2). An insurer whose accounts do debit the reserve to the profit and loss account will not be able to use that finding. Note also the third issue in the order, which is a caution rather than a help: the Revenue appealed against the Commissioner (Appeals)'s confirmation of a disallowance of a provision for doubtful debts, and the Tribunal dismissed that ground as unwarranted because the issue had already been decided in the Revenue's favour below.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee carries on the business of insurance other than life insurance, so that its assessments are made under section 44 read with Rule 5 of the First Schedule. Three Revenue appeals for assessment years 2005-06, 2007-08 and 2008-09 were heard together. Four issues are relevant here. First, the assessee claimed Rs.6,02,18,000 towards amortisation of premium paid on investments; the Assessing Officer disallowed it without assigning any reason. The assessee's case was that it buys Government securities at a premium as the Government of India's guidelines compel, that the premium is amortised over the holding period rather than charged in the year of purchase, and that an amortised sum is neither expenditure nor allowance nor provision and so cannot be added back under Rule 5. Second, the assessee wrote off Rs.4,22,26,000 out of investments by charging it to the profit and loss account; the Assessing Officer disallowed that too, and the assessee made the same argument, adding that under section 44 all its income is assessable as business income so that its investments are business assets. Third, the assessee made a provision for doubtful debts of Rs.5,12,36,000; the Assessing Officer, treating the company as a public financial institution within section 4A of the Companies Act 1956, restricted the allowance to the section 36(1)(viia)(c) limit, which on a nil total income was nil, and disallowed the whole. Fourth, in computing book profit under section 115JB for assessment year 2008-09 the Assessing Officer added back Rs.169,45,00,000 being the reserve for unexpired risk; the assessee's case was that under section 64V(1)(ii)(b) of the Insurance Act 1938 that reserve is created by reducing from premium received the part attributable to succeeding accounting periods, that it is not an amount "carried to any reserve" debited to the profit and loss account within clause (b) of Explanation 1 to section 115JB(2), and that it is not a provision for an unascertained liability within clause (c) either. The Commissioner (Appeals) deleted the disallowances on amortisation, on investments written off and on the section 115JB addition, and confirmed the disallowance of the provision for doubtful debts. The Revenue appealed on all four, including the one it had won.
All the appeals of the Revenue were dismissed (paragraph 13). On amortisation of premium the Tribunal found no infirmity in the Commissioner (Appeals)'s order, the Revenue having been unable to controvert his detailed findings, and dismissed the ground for assessment years 2007-08 and 2008-09 (paragraph 8.2). On investments written off it likewise found no infirmity and dismissed the ground for both years (paragraph 9.2). On the provision for doubtful debts it dismissed the Revenue's ground for assessment year 2008-09 as an appeal that was not warranted, the issue having been decided by the Commissioner (Appeals) in the Revenue's favour (paragraph 10.3). On section 115JB it held that the Commissioner (Appeals) had dealt with the issue elaborately and had given a proper finding that the reserve created for unexpired risk need not be added back for the purpose of computing book profits, and dismissed the ground for assessment year 2008-09 (paragraph 11.4).
The Tribunal's own reasoning is short and is expressed in each instance as an acceptance of the findings below: it heard the rival submissions, perused the material, found that the Revenue was not able to controvert the detailed findings of the Commissioner (Appeals), and found no infirmity in his orders. The findings it accepted were these. On amortisation and on investments written off, the Commissioner (Appeals) had held that because the assessee carries on general insurance business its assessment must be made under section 44 read with Rule 5 of the First Schedule, that the Assessing Officer is empowered to make additions or disallowances only in accordance with Rule 5, that any sum amortised or written off can be considered neither an expense nor an allowance nor a provision, that Rule 5 permits certain expenditure, allowance or provision to be added back only if inadmissible under sections 30 to 43B, and that there is no mention in Rule 5 of adding back an amount amortised in relation to premium paid on investments or written off out of investments; he had reached those conclusions by following two Supreme Court decisions relied on by the assessee. On section 115JB, he had held that clause (b) of Explanation 1 requires the amounts carried to any reserve to be added back only if such amount is debited to the profit and loss account; that the reserve for unexpired risk had never been debited to the profit and loss account but had been created in accordance with the Insurance Act 1938 by debiting the premium received so as to carry forward the part relating to future years; that Rule 5 of the First Schedule specifically allows a deduction for the reserve carried over for unexpired risk and Rule 6E of the Income-tax Rules limits it to fifty per cent of the net premium received in the relevant year; and that the creation of the reserve is therefore a statutory requirement recognised by the Income-tax Act and Rules and does not fall within the reserves specified in Explanation 1(b) to section 115JB(2).
We have heard the rival submissions. We find that the ld CITA had dealt this issue very elaborately and had given proper finding that the reserve created for unexpired risk need not be added back for the purpose of computation of book profits u/s 115JB of the Act.
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Handle my notice → Ask a CA on WhatsAppThe Kolkata Tribunal dismissed all three of the Revenue's appeals. It upheld the Commissioner (Appeals) in deleting the disallowance of amortisation of premium paid on purchase of investments and of investments written off, on the footing that under section 44 read with Rule 5 of the First Schedule the Assessing Officer may add back only an expenditure, an allowance or a listed provision that is inadmissible under sections 30 to 43B, and an amount amortised or written off is none of those. It also upheld the Commissioner (Appeals) in holding that the reserve created for unexpired risk need not be added back in computing book profit under section 115JB, that reserve having been created not by a debit to the profit and loss account but out of the premium received, as the Insurance Act 1938 requires and as Rule 5(c) of the First Schedule and Rule 6E of the Income-tax Rules recognise. This was decided by the ITAT (Shri N.V. Vasudevan, Judicial Member and Shri M. Balaganesh, Accountant Member (Income Tax Appellate Tribunal, 'A' Bench, Kolkata)) and bears on section 44, section First Schedule, section Rule 5 of the First Schedule, section Rule 6E, section 115JB, section 115JB(2), section 36(1)(vii), section 36(1)(viia)(c), section 36(2), section 43B of the Income Tax Act 1961. It is reported as ITA Nos. 674/Kol/2012, 982/Kol/2012 and 983/Kol/2012, assessment years 2005-06, 2007-08 and 2008-09; date of hearing 19 July 2016, date of pronouncement 5 August 2016; no law-report citation is printed on the document read. The value of this order to a practitioner is the structure of the argument rather than its novelty. It shows how the section 44 non-obstante clause converts an assessment dispute into a question about the three permitted adjustments in Rule 5: the officer must place his addition inside clause (a) (an expenditure or allowance, including a provision for tax, dividend, reserve or other prescribed provision, that is inadmissible under sections 30 to 43B), clause (b) (gain or loss on realisation of investments not already taken to the profit and loss account, and a provision for diminution in the value of investment), or clause (c) (the prescribed unexpired-risk reserve, which is a deduction and not an add-back). An amortisation charge and a write-off fall in none of them. The second point, on section 115JB, turns on a fact rather than a principle and must be checked in every case: the Commissioner (Appeals) found — and the Tribunal accepted — that the reserve for unexpired risk was never debited to the profit and loss account at all, but was created by debiting the premium received so as to carry forward the part relating to future periods under section 64V(1)(ii)(b) of the Insurance Act 1938, and that it therefore was not an amount "carried to any reserve" within clause (b) of Explanation 1 to section 115JB(2). An insurer whose accounts do debit the reserve to the profit and loss account will not be able to use that finding. Note also the third issue in the order, which is a caution rather than a help: the Revenue appealed against the Commissioner (Appeals)'s confirmation of a disallowance of a provision for doubtful debts, and the Tribunal dismissed that ground as unwarranted because the issue had already been decided in the Revenue's favour below. If it applies to you, the first step is this: Make the Assessing Officer identify, for each addition, which of Rule 5(a), 5(b) or 5(c) he is acting under. An addition that fits none of them is outside his power once section 44 applies.
The assessee carries on the business of insurance other than life insurance, so that its assessments are made under section 44 read with Rule 5 of the First Schedule. Three Revenue appeals for assessment years 2005-06, 2007-08 and 2008-09 were heard together. Four issues are relevant here. First, the assessee claimed Rs.6,02,18,000 towards amortisation of premium paid on investments; the Assessing Officer disallowed it without assigning any reason. The assessee's case was that it buys Government securities at a premium as the Government of India's guidelines compel, that the premium is amortised over the holding period rather than charged in the year of purchase, and that an amortised sum is neither expenditure nor allowance nor provision and so cannot be added back under Rule 5. Second, the assessee wrote off Rs.4,22,26,000 out of investments by charging it to the profit and loss account; the Assessing Officer disallowed that too, and the assessee made the same argument, adding that under section 44 all its income is assessable as business income so that its investments are business assets. Third, the assessee made a provision for doubtful debts of Rs.5,12,36,000; the Assessing Officer, treating the company as a public financial institution within section 4A of the Companies Act 1956, restricted the allowance to the section 36(1)(viia)(c) limit, which on a nil total income was nil, and disallowed the whole. Fourth, in computing book profit under section 115JB for assessment year 2008-09 the Assessing Officer added back Rs.169,45,00,000 being the reserve for unexpired risk; the assessee's case was that under section 64V(1)(ii)(b) of the Insurance Act 1938 that reserve is created by reducing from premium received the part attributable to succeeding accounting periods, that it is not an amount "carried to any reserve" debited to the profit and loss account within clause (b) of Explanation 1 to section 115JB(2), and that it is not a provision for an unascertained liability within clause (c) either. The Commissioner (Appeals) deleted the disallowances on amortisation, on investments written off and on the section 115JB addition, and confirmed the disallowance of the provision for doubtful debts. The Revenue appealed on all four, including the one it had won. The matter was decided on 2016-08-05 by the ITAT (Shri N.V. Vasudevan, Judicial Member and Shri M. Balaganesh, Accountant Member (Income Tax Appellate Tribunal, 'A' Bench, Kolkata)). On those facts the ITAT held as follows. All the appeals of the Revenue were dismissed (paragraph 13). On amortisation of premium the Tribunal found no infirmity in the Commissioner (Appeals)'s order, the Revenue having been unable to controvert his detailed findings, and dismissed the ground for assessment years 2007-08 and 2008-09 (paragraph 8.2). On investments written off it likewise found no infirmity and dismissed the ground for both years (paragraph 9.2). On the provision for doubtful debts it dismissed the Revenue's ground for assessment year 2008-09 as an appeal that was not warranted, the issue having been decided by the Commissioner (Appeals) in the Revenue's favour (paragraph 10.3). On section 115JB it held that the Commissioner (Appeals) had dealt with the issue elaborately and had given a proper finding that the reserve created for unexpired risk need not be added back for the purpose of computing book profits, and dismissed the ground for assessment year 2008-09 (paragraph 11.4).
The Tribunal's own reasoning is short and is expressed in each instance as an acceptance of the findings below: it heard the rival submissions, perused the material, found that the Revenue was not able to controvert the detailed findings of the Commissioner (Appeals), and found no infirmity in his orders. The findings it accepted were these. On amortisation and on investments written off, the Commissioner (Appeals) had held that because the assessee carries on general insurance business its assessment must be made under section 44 read with Rule 5 of the First Schedule, that the Assessing Officer is empowered to make additions or disallowances only in accordance with Rule 5, that any sum amortised or written off can be considered neither an expense nor an allowance nor a provision, that Rule 5 permits certain expenditure, allowance or provision to be added back only if inadmissible under sections 30 to 43B, and that there is no mention in Rule 5 of adding back an amount amortised in relation to premium paid on investments or written off out of investments; he had reached those conclusions by following two Supreme Court decisions relied on by the assessee. On section 115JB, he had held that clause (b) of Explanation 1 requires the amounts carried to any reserve to be added back only if such amount is debited to the profit and loss account; that the reserve for unexpired risk had never been debited to the profit and loss account but had been created in accordance with the Insurance Act 1938 by debiting the premium received so as to carry forward the part relating to future years; that Rule 5 of the First Schedule specifically allows a deduction for the reserve carried over for unexpired risk and Rule 6E of the Income-tax Rules limits it to fifty per cent of the net premium received in the relevant year; and that the creation of the reserve is therefore a statutory requirement recognised by the Income-tax Act and Rules and does not fall within the reserves specified in Explanation 1(b) to section 115JB(2). In the words reproduced by the source cited on this page: "We have heard the rival submissions. We find that the ld CITA had dealt this issue very elaborately and had given proper finding that the reserve created for unexpired risk need not be added back for the purpose of computation of book profits u/s 115JB of the Act." The decision followed or applied General Insurance Corporation of India v. CIT (1999) 240 ITR 139 (SC) — relied on below and recorded in the order as holding that the Assessing Officer has no general power to make adjustments in the accounts of a general insurance company (not read on this pass); CIT v. Oriental Fire & General Insurance Co. Ltd. (2007) 291 ITR 370 (SC) — relied on below and recorded in the order as holding that provisions for income tax and for bad and doubtful debts, not being of the nature of expenditure, cannot be added back under section 44 (not read on this pass).
It was decided by the ITAT on 2016-08-05 and is reported as ITA Nos. 674/Kol/2012, 982/Kol/2012 and 983/Kol/2012, assessment years 2005-06, 2007-08 and 2008-09; date of hearing 19 July 2016, date of pronouncement 5 August 2016; no law-report citation is printed on the document read. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 44, section First Schedule, section Rule 5 of the First Schedule, section Rule 6E, section 115JB, section 115JB(2), section 36(1)(vii), section 36(1)(viia)(c), section 36(2), section 43B, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. All the appeals of the Revenue were dismissed (paragraph 13). On amortisation of premium the Tribunal found no infirmity in the Commissioner (Appeals)'s order, the Revenue having been unable to controvert his detailed findings, and dismissed the ground for assessment years 2007-08 and 2008-09 (paragraph 8.2). On investments written off it likewise found no infirmity and dismissed the ground for both years (paragraph 9.2). On the provision for doubtful debts it dismissed the Revenue's ground for assessment year 2008-09 as an appeal that was not warranted, the issue having been decided by the Commissioner (Appeals) in the Revenue's favour (paragraph 10.3). On section 115JB it held that the Commissioner (Appeals) had dealt with the issue elaborately and had given a proper finding that the reserve created for unexpired risk need not be added back for the purpose of computing book profits, and dismissed the ground for assessment year 2008-09 (paragraph 11.4). It arises in Deductions & Disallowances, How Tax Law Is Read and Assessment & Scrutiny matters, on section 44, section First Schedule, section Rule 5 of the First Schedule, section Rule 6E, section 115JB, section 115JB(2), section 36(1)(vii), section 36(1)(viia)(c), section 36(2), section 43B of the Income Tax Act 1961, and was decided by Shri N.V. Vasudevan, Judicial Member and Shri M. Balaganesh, Accountant Member (Income Tax Appellate Tribunal, 'A' Bench, Kolkata). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Characterise the item precisely. Amortisation of premium paid on the purchase of investments, and an investment written off, are neither expenditure nor allowance nor provision; say so in those words, because that is the finding upheld here. For the unexpired-risk reserve, produce the accounting entries. The argument succeeds only if the reserve was created out of premium received and was never debited to the profit and loss account. Anchor the reserve in the regulatory provision — section 64V(1)(ii)(b) of the Insurance Act 1938 — and then in Rule 5(c) of the First Schedule and Rule 6E of the Income-tax Rules, which cap it at 50 per cent of net premium income for fire and miscellaneous business other than terrorism-cover fire or engineering business, and at 100 per cent for marine and for that terrorism-cover business. If a provision for bad and doubtful debts is in issue and your client is a public financial institution within section 4A of the Companies Act 1956, be aware that the Assessing Officer restricted it here to the section 36(1)(viia)(c) limit and, total income being nil, allowed nothing; the Commissioner (Appeals) confirmed that and the assessee did not carry it further in the appeals decided by this order.
Searched for later treatment; none was found. That is not the same as a source affirming it. A citedby: search returns a single hit, and it is a false match — The Oriental Insurance Company Ltd v Reeta Devi (Patna High Court, 28 November 2017), a motor accident claim with nothing to do with s.44 or Rule 5. A second probe on the subject matter ('National Insurance Co' 'unexpired risk' '115JB') returns a large result set but surfaces no decision that adopts this order's reasoning, and no Calcutta High Court appeal from it was traced. The order remains an unreviewed Tribunal decision; the propositions it rests on (s.44 read with Rule 5 of the First Schedule as a complete code for a general insurer) have wider support but not through this order. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Most of the text under the Tribunal's headings 8, 9, 10 and 11 is a recital of the assessee's submissions and of the Commissioner (Appeals)'s findings; the Tribunal's own words are confined to the short sub-paragraphs 8.2, the closing sentences of 9.2, 10.3 and 11.4, in each of which it says the Revenue could not controvert the findings below and that it finds no infirmity in them. I have written the holding accordingly and have not attributed the reasoning in the recitals to the Tribunal. The order cites two Supreme Court decisions — General Insurance Corporation of India v. CIT (1999) 240 ITR 139 (SC) and CIT v. Oriental Fire & General Insurance Co. Ltd. (2007) 291 ITR 370 (SC), the latter cited once as 291 ITR 371 — which I have NOT read and do not vouch for beyond noting that they were relied on below and in the order. The header as printed shows the appellant as the Deputy Commissioner of Income-tax, Circle-6, Kolkata and the respondent as National Insurance Co. Ltd., although the indiankanoon title line reads "National Insurance Co. Ltd., Kolkata vs Department Of Income Tax"; the appeals are the Revenue's, as the disposal confirms. Paragraph 6 is a disposal line for one of the three appeals and paragraph 13 the disposal for all. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
All the appeals of the Revenue were dismissed (paragraph 13). On amortisation of premium the Tribunal found no infirmity in the Commissioner (Appeals)'s order, the Revenue having been unable to controvert his detailed findings, and dismissed the ground for assessment years 2007-08 and 2008-09 (paragraph 8.2). On investments written off it likewise found no infirmity and dismissed the ground for both years (paragraph 9.2). On the provision for doubtful debts it dismissed the Revenue's ground for assessment year 2008-09 as an appeal that was not warranted, the issue having been decided by the Commissioner (Appeals) in the Revenue's favour (paragraph 10.3). On section 115JB it held that the Commissioner (Appeals) had dealt with the issue elaborately and had given a proper finding that the reserve created for unexpired risk need not be added back for the purpose of computing book profits, and dismissed the ground for assessment year 2008-09 (paragraph 11.4).
TaxSphere, “DCIT v National Insurance Co. Ltd (ITAT Kolkata) — under s.44 and Rule 5 an amortised premium and an investment written off are neither expenditure nor allowance nor provision, and the unexpired-risk reserve stays out of book profit”, https://taxnotice.vittsphere.com/caselaw/case/dcit-v-national-insurance-rule-5-limits-what-may-be-added-back-to-a-general-insurer-s-regulatory-accounts/ (validity last checked 2026-09-09)
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My client is an insurance company and the Assessing Officer has computed its income head by head, disallowing items under sections 14A, 37 and 45. Is that computation open to him at all?
My client is a State industrial investment corporation with a returned loss, and the Assessing Officer says the doubtful-and-loss-asset deduction under the proviso to s.36(1)(viia)(c) cannot be allowed because the five per cent limit in sub-clause (c) is computed on total income, which is nil. Is the proviso dependent on sub-clause (c) in that way?
My client is a bank and the Assessing Officer has cut down its claim for provision for bad and doubtful debts. What exactly does section 36(1)(viia) allow, at what percentage, to which class of assessee, and how is the rural-branch figure worked out?
The Assessing Officer has raised a MAT demand on my client bank for an assessment year before 2013-14. Can section 115JB apply at all to a company whose accounts are prepared under the Banking Regulation Act?
