General Insurance & Revisionary Jurisdiction (AY 2020-21)

By | March 13, 2026
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General Insurance & Revisionary Jurisdiction (AY 2020-21)

This ruling addresses a three-pronged challenge to Section 263 (Revisionary Jurisdiction) involving a general insurance company. It reinforces the principle that if an Assessing Officer (AO) has conducted a proper inquiry and adopted a “plausible view,” a higher authority cannot set aside the order merely to conduct a “fishing inquiry.”

I. Provision for IBNR/IBNER Claims

The Legal Issue

Can the Commissioner (PCIT) revise an assessment because they feel the AO didn’t “verify enough” regarding the provisions for claims that are Incurred But Not Reported (IBNR) or Incurred But Not Enough Reported (IBNER)?

The Decision

The Tribunal ruled in favour of the assessee:

  • Actuarial Basis: These provisions are not “guesses”; they are based on actuarial certifications and are mandatory under IRDAI regulations.

  • AO’s Inquiry: Since the AO had already examined the replies and the claim during the scrutiny, the order was not “erroneous.”

  • Plausible View: Once the AO adopts a view supported by judicial precedents and regulatory compliance, Section 263 cannot be invoked to replace it with the PCIT’s opinion.

II. Section 80G Deduction under Section 115BAA

The Legal Issue

Is a deduction under Section 80G (donations) allowed for a company that has opted for the concessional tax regime under Section 115BAA for AY 2020-21?

The Decision

The Tribunal ruled in favour of the assessee:

  • Date of Amendment: The restriction on Chapter VI-A deductions (which includes Section 80G) for companies under Section 115BAA only became legally effective from AY 2021-22.

  • AY 2020-21 Status: For the year in question (2020-21), Section 80G was still a permissible deduction.

  • Outcome: The AO was legally correct in allowing the deduction. Since there was no error in law, the “twin conditions” for Section 263 (Erroneous + Prejudicial) were not met.

III. Write-off of Investments (Rule 5 of First Schedule)

The Legal Issue

Can a general insurance company claim a deduction for the “write-off” of investments classified as Held to Maturity (HTM)?

The Decision

The Tribunal ruled in favour of the assessee:

  • Special Provisions (Section 44): The income of insurance companies is not governed by normal business income rules but by Rule 5 of the First Schedule. This rule states that the profit disclosed in the accounts prepared for IRDAI is the starting point.

  • CBDT Circular 5/2010: This specific circular clarifies that any diminution or write-off of investments made as per IRDAI norms is allowable for tax purposes.

  • Lack of Categorical Finding: The PCIT merely asked for “re-verification” without proving why the initial write-off was wrong. A “remand for verification” without a finding of error is an invalid use of Section 263.

Key Takeaways

  • Insurance is Unique: If you work with insurance tax, remember that Section 44 and Rule 5 override the general provisions of Sections 28 to 43C. If it’s in the IRDAI-approved accounts, it’s generally allowed.

  • 115BAA Transition: Be very careful with the “Effective Dates” of amendments. AY 2020-21 was a transition year where some old deductions (like 80G) were briefly “grandfathered” in depending on the specific wording of the Finance Act.

  • Defending Section 263: To win a 263 appeal, show that the AO asked at least one specific question on the topic during the original assessment. If there is a “trail of inquiry” in the records, the PCIT’s power is significantly weakened.

IN THE ITAT CHENNAI BENCH ‘B’
Cholamandalam MS General Insurance Company Ltd.
v.
Principal Commissioner of Income-tax*
Manu Kumar Giri, Judicial Member
and S.R.RAGHUNATHA, Accountant Member
IT Appeal No 3261 (Chny) of 2024
[Assessment year 2020-21]
FEBRUARY  18, 2026
Sandeep Bagmar R., Adv. for the Appellant. Shiva Srinivas, CIT for the Respondent.
ORDER
Manu Kumar Giri, Judicial Member.- This appeal filed by the assessee is directed against the order dated 20.11.2024 passed by the Principal Commissioner of Income Tax, Chennai-4 (hereinafter referred to as “PCIT”) u/s. 263 of the Income Tax Act, 1961, (“the Act”) for Assessment Year (AY) 2020-21.
2. Brief facts of the case are that the Appellant filed its Return of Income on 29 December 2020 declaring a total income of Rs.398,85,42,450/-. The case was selected for scrutiny and the National Faceless Assessment Centre (‘Learned NFAC’ or ‘AO’) issued notices u/s. 143(2) and 142(1) of the Act calling for various details and conducted a complete inquiry. After going through various submissions filed by the Company from time to time, the learned NFAC passed an order u/s. 143(3) read with section 144B of the Act dated 19.09.2022 with a Total income of Rs.402,71,51,541/-.Subsequently, an Audit objection was raised by the Audit party before the Learned AO regarding allowability of write-off of investments and IBNR/IBNER. The ld.AO posted the same query to the Appellant and requested response (Page no 341 of Factual Paper book). Thereafter, the Learned Deputy Commissioner of Income Tax (‘DCIT’) has also issued a notice u/s. 154 of the Act and proposed to make adjustment with respect to issue regarding Incurred But Not Reported (IBNR) & Incurred But Not Enough Reported (IBNER) and disallowance of deduction u/s. 80G of Act. However, the same was subsequently dropped by the Learned DCIT.
3. Pursuant to the aforesaid Assessment Order, the ld. PCIT invoked the provisions u/s. 263 of the Act and issued show cause notice dated 27.09.2024 (refer Page no. 356 of Factual Paper book) and sought to set aside the Assessment order regarding the issue of ‘Provision for IBNR/IBNER’, ‘Deduction u/s. 80G of the Act’ and ‘Write-off of Investments’ on the ground that the assessment was completed without proper verification. The ld.PCIT passed an order u/s. 263 of the Act by stating thatthe AO has erred in allowing the deduction of provision for IBNR/IBNER and held that the assessment order passed u/s. 143(3) read with section 144B of the Act dated 19.09.2022 was erroneous and prejudicial to the interest of the revenue. With respect to the other two issues (Claim related to deduction u/s. 80G and write off of investment), the ld. PCIT directed the AO to verify and decide the issue on merits. Thereby, the assessment order passed was partly set aside with the direction to the Assessing Officer to make necessary inquiries in respect of the said issue and pass a fresh order within the stipulated time, after providing due opportunity to the assessee.
4. The assessee challenged the order of the ld. PCIT before this Tribunal. The assessee has filed the paper book as under:
Sl. NoParticularsPage Nos. From To
1Notice issued u/s 143(2) of the Act dated 29 June 2021001008
2Our response to Notice u/s 143(2) vide letter dated 24 August 2021009012
3Extract of income tax return for the AY 2020-21013021
4Statement of computation of Income022023
5Financial statements for the Financial Year 201920024080
6List of Donation claimed u/s. 80G of the Act081081
7Notice issued u/s 142(1) of the Act dated 12 November 2021 issued by Learned Assessing Officer (‘AO’)082085
8Our response to Notice u/s 142(1) vide letter dated 29 November 2021086086
9Issue letter by Learned AO dated 10 December 2021087087
10Our response to Notice u/s. 142(1) vide letter dated 21 December 2021088094
11Notice issued u/s 142(1) of the Act dated 02 March 2022095099
12Our response to Notice u/s 142(1) vide letter dated 07 March 2022100119
13Issue letter by Learned AO dated 11 March 2022120120
14Our response to Notice u/s 142(1) vide letter dated 15 March 2022121126
15Note on IBNR and IBNER Claims127163
16Show Cause Notice u/s 143(3) of the Act dated 27 March 2022164205
17Our response Show Cause Notice vide letter dated 29 March 2022206216
1818. Hearing notice for Video Conferencing dated 25 August 2022217218
19Submission dated 29 August 2022 pursuant to video conferencing219332
20Order passed u/s 143(3) of the Act dated 19 September 2022333340
21Audit Objection raised by CAG party on the Learned Assessing Officer341342
22Notice u/s. 154 of the Act issued by Learned AO343344
23Written submission dated 31 May 2024 for notice u/s 154 of the Act345355
24Show Cause Notice u/s 263 of the Act dated 27 September 2024356358
25Our response to Show Cause Notice vide letter dated 07 October 2024359376
26Hearing Notice in respect of proceedings u/s 263 dated 10 October 2024377378
27Our response to hearing notice vide letter dated 15 October 2024379379
28Hearing Notice in respect of proceedings u/s 263 dated 21 October 2024380381
29Our response to hearing notice vide letter dated 25 October 2024382383
30Hearing Notice in respect of proceedings u/s 263 dated 05 November 2024384385
31Our submission pursuant to personal hearing dated 08 November 2024386393
32Order u/s 263 of the Act dated 20 November 2024394409
33Extract of The Taxation Laws Amendment Ordinance 2019410413
34Extract of Memorandum to Finance Bill 2020414416
35Extract of Finance Bill 2020 as introduced in Lok Sabha417419
36Extract of Finance Act 2020420423
37Form 10-IC Application for exercise of option u/s 115BAA424425
38Order of CIT(A) for the AY 2012-13 dated 29 December 2023427468
39Circular No. 5 of 2010469476

 

SL. N oDateParticularsCitationForu mFrom To
101.11.2007CIT v. Max India Ltd.  (SC)C.A. No. 5555-5556/2005SC001003
210.02.2000Malabar Industrial Co. Ltd. v. CIT  (SC)C.A. No. 3646 /1993SC004008
328.10.2024EIH Associated Hotels Ltd. v. CIT [2025] 475 ITR 3 (Madras)TCA No. 1249/2010Madr as HC009018
424.11.2024Thanthi Trust v. CIT(Exemptions)  (Chennai – Trib.)ITA 1369/CHNY/202 4Chen nai ITAT019027
530.05.2024PCIT v. Care Health Insurance Limited (Earlier known as M/S Religare Health Insurance Co. Ltd) ITR 402 (Delhi)ITA.No. 304/2024Delhi HC028047
608.01.2025Royal Sundaram General Insurance Co. Ltd. v. DCIT (Chennai – Trib.)ITA. No. 493/CHNY/2018Chen nai ITAT048117
714.10.2019General Insurance Corpn. of India v. ACIT  (Bombay)WP. 2271/2019Bomb ay HC118122
805.08.2016DCIT v. National Insurance Co. Ltd . (Kolkata – Trib.)ITA No. 674, 982 & 983/Kol/2012Kolka ta ITAT123137
918.05.2007CIT v. Oriental Fire and General Insurance Co. Ltd . (SC)C.A. No. 2741 to SC 2745/2007SC138144

 

5. The ld.AR for the assessee in details submitted as under:
Section 263 of the Act makes it clear that the pre-requisite to exercise jurisdiction by the Learned PCIT is that the order of the Learned AO should be erroneous’ insofar as it is ‘prejudicial to the interests of the revenue”.
The Ld. PCIT has to satisfy the twin conditions, namely,
(i) the order of the Assessing Officer sought to be revised is erroneous; and
(ii) it is prejudicial to the interests of the revenue.
If any one of the conditions as mentioned above is absent (i.e., if the order of the Assessing Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue), recourse cannot be had as per Section 263 of the Act.
The aforesaid principle has been reinforced in the following judicial precedents:
(i) Order of Hon’ble Supreme Court of India in the case of Malabar Industrial Co. Ltd (supra) (Para 6 to 10-Page no. 07 of Case law Paperbook 1)
(ii) Order of Hon’ble Supreme Court of India in the case of Max India Ltd (supra) (Para 2 – Page No. 02 of Case law Paperbook 1).
Invoking revisionary power u/s. 263 of the Act by PCIT is unsustainable if the AO has inquired specifically into an issue and response was also filed by the Assessee
A. Issue related to IBNR/IBNER.
The Notice u/s. 143(2) of the Act was issued on 29 June 2021 (Page) 01 of Factual Paperbook) and the Assessee filed its response dated 24 August 2021 (Page 09 of Factual Paperbook) attaching the Financial statement relevant for the Subject AY.A specific disclosure in terms of the how the Provision for IBNR & IBNER was provided as part of the notes to accounts in Financial Statements in Note No. 2(v)(c) of Notes to accounts. (Reference is drawn to Page no. 44 & 59 of the Factual Paperbook). Further, the Learned AO issued Notice u/s. 142(1) dated 02 March 2022 (Page 95 of Factual Paperbook) wherein a specific question was raised on the issue of IBNR & IBNER.The relevant extract of the Notice u/s. 142(1) of the Act is as provided below (Refer Page No. 98 of Factual Paperbook):
5. Details of various provisions for liabilities debited in the Profit & Loss Account and shown as outstanding liability during the year end along with deduction from the profits on account of claims incurred but not reported (IBNR) and claims incurred but not enough reported (IBNER).
In response to the aforesaid specific query by the Learned AO, the Assessee requested for additional time to file detailed submission. And subsequently submitted its detailed response on 15 March 2022 (Page No. 121, 123, 124, 127 to 163 of Factual Paper-book). The submission made by the Assessee is summarised below for your reference:
Outstanding Claims Provision includes Incurred But Not Reported (IBNR) Claims Provision which represents that amount of all claims that may have been incurred prior to the end of the current accounting period but have not been reported or claimed. The IBNR provision also includes provision, if any, required for Incurred but Not Enough Reported (IBNER’).
The said liability is determined based on actuarial principles by the appointed actuary. The methodology and assumptions on the basis of which the liability is determined is also certified by the actuary to be appropriate, in accordance with guidelines and norms issued by the Institute of Actuaries of India and the Insurance Regulatory and Development Authority of India [IRDAI].
Providing for IBNR and IBNER claims are mandatory for all General Insurance Companies and are determined on the basis of guidelines prescribed by IRDAI.
Given the above, the Assessee placed reliance on the following judicial precedents and submitted that Provision for IBNR & IBNER shall be ascertained liability and be allowed as deduction while computing the taxable income:
a. DCIT v. Tata AIG General Insurance Co. Ltd., dated 8 March 2022 (Mumbai ITAT).
b. National Insurance Co Ltd (supra).
c. Supreme Court judgment in the case of Bharat Earth Movers v. CIT (SC).
d. Supreme Court’s judgement in the case of Metal Box Co. of India Ltd. v. Their Workmen (SC)/73 ITR 53 (SC).
e. Supreme Court in the case of Rotork Controls India (P.) Ltd. v. CIT  (SC)/ICA Nos. 3506-3510 of 2009).
Further, in the show cause notice issued u/s. 143(3) of the Act the Learned AO has made further Inquiry on the said issue (Refer point 3 on Page No 166, Appellant’s response in relation to IBNR/IBNER was reiterated in the show cause notice Page No 171 to 182 of the Factual Paperbook)
The Learned AO after considering the submission made by the Assessee in detail, during the scrutiny proceedings, relied on the order of Mumbai ITAT in the case of Tata AIG General Insurance Co. Ltd (supra) and allowed the provision of IBNR/IBNER.
In this regard, we invite your Honours attention to Para 8.2.3 of the impugned order wherein the Learned PCIT himself agreed to the fact that the AO inquired the issue and applied his mind by relying on the judgment of Mumbai ITAT in the case of Tata AIG General Insurance Co. Ltd (supra).
In light of the above, the Appellant submits that the issue of IBNR/IBNER was specifically inquired into by the Learned AO and specifically replied as well during the original assessment proceedings. Therefore, the action of the Learned PCIT to treat the aforesaid assessment order as erroneous is unsustainable and thus without jurisdiction.
Reliance in this regard is placed on order of this Hon’ble Tribunal in the Appellant’s own case in ITA 3262/2025 dated 29 April 2025 for the AY 2022-23, wherein in the similar facts your honours quashed the order of Learned PCIT and inter-alia held the following
we are of the view that the AO has discharged his dual role as that of Investigator (by inquiring into the issues) and an Adjudicator by deciding the issue which is inconsonance with the judicial view on the same. Therefore, the impugned action of the Ld.PCIT to interfere with the action of the AO on the issue viz, claim of deduction in respect of provision made for expense under the head ‘IBNR & IBNER’ is bad in law and therefore quashed.
B. Issue with respect to claim of deduction u/s. 80G of the Act
Section 115BAA of the Act was inserted to the Income Tax Act by way of The Taxation laws (Amendment) Ordinance, 2019 with effect from 01 April 2020. One of the conditions to pay tax under the concessional tax regime is that no deduction is available under any provision of Chapter VI-A under the heading “C- Deduction in respect of Certain Income”. (Refer Page 411 of the Factual Paperbook)
Since Deduction u/s. 80G is covered under the heading “B Deductions in respect of certain payments”, the Assessee opting to pay tax u/s. 115BAA is eligible to claim deduction u/s. 80G of the Act for the AY 2020-21.Thereafter, in Finance Bill 2020 it was proposed to not to allow deduction under any provisions of Chapter VI-A other than section 80JJAA or section 80M of the Act, in case of domestic companies opting for taxation under these sections with effect from 01 April 2020 i.e., AY 2020-21 Onwards (extract of Memorandum to Finance Bill is in Page no. 415 and Finance Bill is in Page No 418 of the Factual Paperbook). However, in the Finance Act the above amendment was given effect from 1 April 2021, i.e., from AY 2021-22 and onwards (Page No. 421 of the Factual Paperbook). Therefore, the Appellant humbly submits that for the AY 2020-21 deduction under section 80G of the Act is available for Assessee who are opting to pay tax u/s. 115BAA of the Act. Thus, the action of Learned AO allowing the deduction u/s. 80G of the Act is permissible under Law.The Assessee wishes to submit that since the claim of deduction u/s. 80G of the Act is permissible under Law, the assessment order cannot be considered as ‘prejudicial to the interest of the revenue’.Therefore, the action of the Learned PCIT to treat the aforesaid assessment order as erroneous/ prejudicial to the interest of the revenue is unsustainable and thus without jurisdiction.
Enquiry made by the learned AO on deduction u/s. 80G of the Act.
The Learned AO issued a notice u/s. 143(2) of the Act and requested to provide further clarification/information with respect to “Deduction from Total Income under Chapter VI-A” (Page 01 of Factual Paperbook). The Appellant in response dated 24 August 2021 filed list of donation eligible for deduction along with PAN. (Refer Para 7 on Page No 12 & 81 of Factual Paperbook). Further, the same is disclosed in income tax return in schedule 80G (Refer Page no 14 to 17, 19 of Factual Paperbook)
It is pertinent to note that, as part of disclosure in Income tax return the Appellant has disclosed the fact of opting to concessional tax regime u/s. 115BAA from AY 2020-21 onwards (Page 13 of Factual Paperbook).
The Learned AO issued Notice u/s. 142(1) of the Act dated 12 November 2021 and requested further information with respect to the deduction u/s. 80G of the Act (Point 4 of Page no 84 of Factual Paperbook). The same was filed in Appellant’s response dated 21 December 2021 (Refer Point 4 & 6(iii) on Page 91, 92 and Annexure in Page 94 of the Factual Paperbook)
Thereafter, the learned AO issued notice u/s. 142(1) of the Act dated 02 March 2022 informed that there is discrepancy in the PAN (Point 4 of Page no 97 of Factual Paperbook). The Appellant in its response dated 07 March 2022 provided proof from the Traces portal that the status of the PAN is Active (Page No 100, 102-119 of Factual Paperbook).
Further, it is pertinent to note that, in the Assessment order dated 19 September 2022, it is specifically mentioned that one of the issues for selecting the case for scrutiny is to verify deduction under Chapter VI-A of the Act. In light of the submission made by the Appellant as stated above, the Learned AO allowed the deduction u/s. 80G of the Act. The relevant extract of the 143(3) order was reproduced below: (Refer Page No 339 of Factual Paperbook)
“The assessee was requested to furnish the details of the same. The assessee vide reply letter dated 21.12.2021 stated that during the year, the assessee has claimed deduction of Rs. 4,10,85,500/- u/s 80G of the Act along with documentary evidences of the same. The same was examined and so no addition is done on the issue.”
In light of the above, the Appellant submits that the Appellant was eligible to claim deduction u/s. 80G of the Act for the AY 2020-21, also the supporting documents related to the deduction u/s. 80G of the Act was inquired into by the Learned AO and replied as well during the original assessment proceedings. Therefore, the action of the Learned PCIT to treat the aforesaid assessment order as ‘erroneous’ is unsustainable and thus without jurisdiction.
The Assessment Order shall not be considered as erroneous for the purpose of Section 263 of the Act where there are two views possible on the issue and the Learned AO has adopted any one of the views.
Provision for IBNR/IBNER
The Appellant wishes to submit that the issue of IBNR/ IBNER has been held in favour of the Company in the following decisions:
Care Health Insurance Limited (Earlier Known As Religare Health Insurance Co. Ltd.(Supra) Page No. 28 of the Case law Paperbook 1)
National Insurance Co Ltd.(supra) Kolkata ITAT
DCIT v. Export Credit Guarantee Corporation [IT Appeal No. 7657 of 2014 , dated 11-10-2017]Mumbai ITAT
Hon’ble Calcutta HC affirming the Kolkata ITAT (supra) decision on the issue in ITA No. 76 of 2019 in the case of National Insurance Co Ltd (supra)
Tata AIG General Insurance (supra) (Mum ITAT)
Further, the finding and the decision of the Hon’ble Chennai Tribunal on the issue of IBNR & IBNER was found to be per in curium by the Hon’ble Bombay High Court in the case of GIC(supra) dated 14 October 2019.
The Learned CIT(A) in Assessee’s own case for AY 2012-13 had held the issue in favour of the Company in Appeal No. CIT (A), Chennai-17/10039/2016-17 dated 29 December 2023 (Page No. 426 to 468 of Factual Paperbook). Relevant extract of the Order of CIT(A) is provided below:
3.4.18 I have carefully considered the facts of the case and the submissions of the Authorized Representative. I have also gone through the decisions relied on by the Authorized Representative. In my view, it is noted that the decision of the Chennai Tribunal has been dealt with by Bombay High Court in the case of GIC Re and the High Court held the following:
11. So far as Issue No. 1 above is concerned, the Petitioner submits that same stands concluded in its favour by virtue of the decision dated 11 October 2017of the Mumbai Bench of the Tribunal in Dy. CIT v. ECGC (IT Appeal No. 7657 (Mum.) of 2014] and the Kolkata Bench of the Tribunal in the case of Dy. CIT v. National Insurance Co. Ltd. in favour of the Petitioner. However, the impugned order still directed a deposit of 10% of disputed demand on this Court in view of the decision of Chennai Bench of the Tribunal in the case of United India Insurance Co. Ltd. v. Jt. CIT . We note that the Chennai Bench decision of the Tribunal has ignored the co-ordinate bench decision of Mumbai and Kolkata benches of the Tribunal. Therefore, prima facie per incurium.
3.4.21 I have carefully considered the submissions of the Appellant as well as the Judgments relied on by the Appellant. The Assessing Officer considered the IBNR & IBNER provision made as unascertained liability because ultimately the settlement of claim happens when the claims are settled later. According to the Appellant, the provisions of IBNR & IBNER are made based on the happening of the actual incident, in accordance with the guidelines provided by insurance regulatory and development authority of India (IRDAI) and certified by the Actuary in accordance with the guidelines and norms issued by the Institute of Actuaries of India (IAI) and therefore it is an ascertained liability. The incident triggering the claims had occurred on or before 31st March of the relevant previous year, certified by the actuarial valuation with respect to the methodology adopted in making such provisions. In my trew, the Appellant is right in providing for the claims of insured on the occurrence of the loss, which is in accordance with the guidelines of the IRDAI. I also find that the judgments relied on by the Appellants on this issue supports this position. Given the same, I direct the Ld. AO to delete the addition made and the Grounds of appeal nos. 9 to 15 are accordingly allowed.
This Hon’ble Chennai Tribunal in the following cases held the issue in favour of the Appellant:
Royal Sundaram General Insurance Company Ltd. (supra) (Para 13 to 13.6-Page no. 84 of Case law Paperbook 1)
In Appellant’s own case in Cholamandalam MS General Insurance Co. Ltd. v. Dy. CIT (Madras)/ITA No. 470/Chny/2024 dated 19 March 2025 (Paras 7 to 7.9)
Also, The Hon’ble Madras High Court in Appellant’s own case in TCA 755 of 2018 dated 16 April 2025 held the issue in favour of the Appellant and reversed the order of Chennai Tribunal dated 26 August 2022.
In light of the above, the Appellant submits that where there are two views possible on the issue and the Learned AO has adopted one of the views in this regard, then the assessment order cannot be held as ‘erroneous order prejudicial to the interest of the revenue’.
Reliance in this regard is placed on Para 9 of the decision of Malabar Industrial Co. Ltd (supra) which inter-alia states that
” ……..9. The phrase ‘prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken bythe ITO is unsustainable in law.”.
Revisionary proceedings cannot be invoked merely because no specific reference is made in the assessment order, though questions were raised during scrutiny and were answered
In the instant case, the Learned AO after considering the submission made by the Assessee during the scrutiny proceedings, has satisfied himself and dropped the issue of IBNR/IBNER thereby making no variations in the Assessment order u/s. 143(3) of the Act.
The Assessee humbly submits that since there is no reference made by the Learned AO in the Assessment order on the issue in particular, it cannot be said that there is no inquiry/ application of mind by the learned AO.
In this regard, the Assessee places reliance on the following judicial precedents wherein it was held that if a query is raised during the assessment proceedings and if the Assessee responds to the said query, merely because the said aspect is not dealt with in the assessment order, would not lead to a conclusion that the learned AO had not applied his mind to the response of the Assessee:
(i) Hon’ble Bombay High Court in the case of MOIL Ltd. v. CIT (Bombay)ITA. No 67 of 2016 dated 26 April 2017 (Para 5- Page no. 04 of Case law Paperbook 2)
(ii) Decision of Hon’ble Bombay High Court in the case of CIT v. Nirav Modi  (Bombay)/ITA. No 17 and 119 of 2014 dated 16 June 2016. (Para 7 Page nos. 11 of Case law Paperbook 2)
(iii) High Court of Allahabad in the case of CIT v. Krishna Capbox (P.) Ltd ITR 310 /in ITA. No 01 of 2015 dated 23 February 2015. (Para 9 to 14 Page no. 16 of Case law Paperbook 2)
In light of the above, the Assessee submits that if a query is raised during the assessment proceedings and if the Assessee responds to the said query, the assessment Order cannot be considered as erroneous and prejudicial to the interest of the Revenue for the purpose of invoking the revisionary power u/s. 263 of the Act.
Invoking revisionary power u/s. 263 of the Act by PCIT is unsustainable if the deduction is allowed as per the Provisions of law.
A. Provision for IBNR/IBNER
With respect to issue relating to Provision for IBNR/ IBNER, the Company submits that the Provision for IBNR & IBNER shall be considered as ascertained liability and be allowed as deduction while computing the taxable income basis the decisions as mentioned above in Para 5.1 and therefore, the assessment order cannot be said to be erroneous’ in terms of Provisions of Section 263 of the Act.
B. Deduction u/s. 80G of the Act
With respect to issue relating to deductions u/s. 80G of the Act since the provisions of section 115BAA of the Act itself is very clear that deduction u/s. 80G of the Act is available to the Appellant for the AY 2020-21, the Learned AO allowing such deduction cannot be said to be erroneous in terms of Provisions of Section 263 of the Act.
The AO in order giving effect u/s. 143(3) r.w.s. 263, has allowed the claim of the assessee being in accordance with law. (Although, the said order of assessment is stayed by the Madras High Court in WP No. 1866/2025 as the same was made in violation of principles of natural justice.)
C. Allowability of write-off of Investment as per the Act.
The Learned PCIT in his show cause notice dated 27 September 2024 stated that the Assessee has claimed expenditure on account of write-off of investments of Rs. 77.73 crores which is in respect of securities which are of the category of Held to Maturity (HTM) and not of the nature trading securities’. Since, these investments are of the category HTM, the write off of these investments cannot be claimed as a revenue expenditure.
During the AY 2020-21, the Assessee has created provision for diminution of value of investments amounting to INR 1,57,32,42,945 and written of investments amounting to INR 77,73,42,000 (Refer Profit and Loss Account in page 41 of Factual Paperbook). The provision for diminution of value of investments was not claimed as allowance whereas the write off of investment was claimed as allowance (refer Computation of Income in Page 23 of Factual Paperbook).
The Assessee respectfully submits that, in its response dated 07 October 2024, it was incorrectly stated that the diminution in value of investments amounting to INR 77.73 crore was not claimed as a deduction in the return of income. The Appellant was under a bona fide belief that the Notice pertains to diminution in value of investments and hence the submission made had a reference that no allowance was claimed in relation to diminution in value of investment. This is also evident from the below extract of the submission wherein the heading mentioned by the Appellant is diminution in the value of investment:
2) Diminution in Volue of Investments-Rs. 77.73 Crores-Response on merits
We have already responded to the Audit Query on the above issue. We enclose a copy of the same, marked as ANNEXURE 2. The value of investments pertaining to Held to Maturity investments, is taken out from our Financials for AY 2020-21. Cholo M5, wishes to place on record, in any case, for AY 2020-21, they have not claimed the Diminution in value of Investments to the extent of Rs. 77.73 Crores, as a deduction in thele Return of Income. Being Held to maturity. Chola MS has not may any deductions of the same.
However, it is pertinent to note that the complete facts regarding allowability of write off of investments, along with reliance on judicial precedents, were provided as Annexure 2 of the said response dated 07 October 2024 to the Respondent (refer page 361 of the Factual Paperbook). The allowability of the write-off of investments is discussed below.
The Appellant is a General Insurance Company covered u/s. 44 of the Act, which states that all the Income of Insurance companies shall be treated to be Profit and Gains from Business or Profession and shall be computed in accordance with the Rules contained in the First schedule of the Act.
As per Rule 5 of the First Schedule, only those adjustments as mentioned in Sub rule (a), (b) or (c) to Rule 5 of First Schedule of the Act shall be made to the figures in the accounts of the Appellant drawn up in accordance with the provisions of First Schedule of the Act and satisfying the requirements of Insurance Act. This proposition is upheld by the Hon’ble Supreme Court in the case of General Insurance Corpn. of India v. CIT (SC) (Para 17 of the judgement)
Therefore, it is humbly submitted that there is no concept of capital gain or capital loss qua an insurance company. In other words, Sections 45 to 55A of the Act cannot be made available to an Insurance Company.
Reliance in this regard is place on the decision of Hon’ble Kolkata Tribunal in the case of National Insurance Co. Ltd (supra) (Refer para 9-9.2, Page No 133 to 135 of the Case law Paperbook 1). The relevant operating para are reiterated for your honours ease of reference:
“We have heard the rival submissions and perused the materials available on record. We find that the ld CIT (A) had deleted the disallowance by observing as under:-
23. I have carefully considered the observations of the Assessing Officer in the assessment order and submissions of the appellant and both the decisions referred to above of Hon’ble Supreme Court and the copies of the Appellate Orders for the Assessment Years 2000-01, 2002-03 and 2004-05 of the CIT(A)-VI, Kolkata. The Authorised Representative further submitted that the transactions in investments being a part of business of the assessee, the writing off of investments should be considered as deductible for the purpose of computing the business income of assessee. Since the assessee has been carrying on the General Insurance business and consequently its assessment is required to be made in accordance with the provisions of section 44, read with the Rule 5, of the First Schedule to the Income-tax Act, 1961, the Assessing Officer is empowered to make additions/disallowances only in accordance with the above mentioned Rule 5. Any sum which has been written off cannot be considered as either “expense” or “allowance” or provision”.
24. It is observed that in the above-referred Rule 5 of the First Schedule it has been mentioned that certain expenditure or allowance or provision can be added back only if the same is not admissible u/ss. 30 to 43B of the Act and there is no specific mentioning of adding back of any amount written off out of investments. From the above-referred Supreme Court decisions it is clear that if the particular item of dispute (debit entry made in the Profit & Loss Account) falls under the category of “expenditure” or “allowance” or “provision”, and the same is not admissible under the Act, only then the concerned item can be added back in computing the income from general insurance business. From the above facts it appears that the disallowance of the writing off of investments, made by the Assessing Officer is not in accordance with the prescribed specific procedure in the appellant’s case.
25. Respectfully following the above-referred two Supreme Court decisions, submissions of the appellant and the Appellate Orders for the Assessment Years 2000-01, 2002-03 and 2004-05 of the CIT(A)-VI, Kolkata and in the facts and circumstances of the case as mentioned hereinabove, it is held that because of the restrictions contained in section 44, read with Rule 5, of the First Schedule, there could not be any disallowance of the amount written off out of investments and, accordingly, the disallowance of Rs. 4,22,26,000/- is deleted. Hence, Ground No.5 is allowed.”
We find that the revenue was not able to controvert the detailed findings of the Id CIT (A) before us. Hence we find no infirmity in the order of the Id CIT (A) in this regard. Accordingly, the Ground No. 3 raised by the revenue for the Asst Years 2007-08 and 2008-09 are dismissed. The decision taken in Asst Year 2007-08 with regard to this ground would apply with equal force to Asst Year 2008-09 as similar disallowance was made in Asst. Year 2008-09 except with variance in figures.
Reliance is also placed on the decision of Hon’ble Delhi Tribunal in the case of Dy. CIT v. Oriental General Insurance Co. Ltd.  TTJ 300 (Delhi).
Also, the Appellant wishes to draw you honours attention to Paras 58.3 and 58.4 of CBDT Circular No. 05/2010 dated 03 June 2010 which states as follows:
“58.3 In view of the above, the Act has been amended to provide any increase in respect of any amount taken credit for in the accounts on account of appreciation of or gains on realisation of investments in accordance with the regulations prescribed by IRDA shall be treated as income and included in the computation of the total income. Similarly, deduction shall be allowed in respect of any amount either written off or provided in the accounts to meet diminution in or loss on realisation of investments in accordance with the regulations prescribed by IRDA.
58.4 Applicability – This amendment has been made applicable with effect from 1st April, 2011, and will accordingly apply in relation to assessment year 2011-12 and subsequent assessment years.” (Page No 475 of the Factual Paperbook)
In other words, write off is allowed as deduction and subsequently when the same is recovered it shall be treated as income and included in the computation of the total income as business income.
The Appellant humbly submits that since the clarification is provided in the Circular, the same is binding on the tax authorities and it cannot be said that the Order of the Learned AO is erroneous.
In view of the CBDT Circular, the write-off of investment is allowable then the order of the AO cannot said to be erroneous, and the fact that the investment if recovered subsequently shall be treated as income which does not prejudice the interest of the revenue. Thus, both the twin conditions of section 263 do not apply in the present case and consequently, the exercise of powers u/s. 263 is without jurisdiction.
Therefore, it is submitted that revision u/s. 263 is not permissible merely because Id. PCIT may entertain a different view on the issue. Where the stand adopted by Ld. AO is one which is plausible supported by CBDT Circular, the assessment order cannot be said to be erroneous in terms of the provisions of Section 263 of the Act. It is well settled position of law that when there is two view possible and the Learned AO has taken one plausible view, the same cannot be said to be erroneous. Furthermore, since the write off of investments in an allowed as per the Act, as stated above, it can be said that no prejudice has been caused to the interest of the revenue. Furthermore, the Appellant humbly submits that an Audit objection was raised by the Audit party before the Learned AO regarding allowability of write-off of investments and IBNR/IBNER. The Learned AO posted the same query to the Appellant and requested response (Page no 341 of Factual Paper book).The Appellant made a detailed submission dated 19 September 2023 (Page No 361 of Factual Paper book). It is pertinent to note that the Learned AO invoked Section 154 of the Act and issued a notice dated 30 April 2024, proposing adjustments specifically related to IBNR/IBNER and the claim u/s. 80G of the Act. This indicates that the Learned AO accepted the Appellant’s response concerning the write-off of investments and did not propose any adjustments in this regard. Therefore, write-off of investments being allowed as deduction was accepted as plausible position by the Ld. AO and therefore, the PCIT by directing to revise the order is proposing to instill his position on the issue in the place of position taken by the Ld. AO. In light of the above, it is humbly submitted that since no addition in relation to write off of investment is warranted as per CBDT Circular (supra), the action of Learned PCIT invoking revisionary proceedings u/s. 263 of the Act is not tenable and the assessment order cannot be held to be ‘erroneous’. Learned PCIT cannot remand for verification by the Ld.AO by invoking the revisionary power u/s. 263 of the Act and has to give categorical finding on the issue under revisionary proceedings u/s. 263 of the Act.
Without prejudice to the above submission, the Appellant wishes to submit that the Learned PCIT directed the Learned AO to ascertain the claims and if found in order allow the same and pass a fresh assessment order in relation to the allowability of deduction u/s. 80G of the Act and also the deduction of write-off of investments. The extract of order u/s. 263 is reproduced below:
”The contentions of the assessee have been duly considered. As regards the applicability of concessional rates of taxation under the provisions of sections 115BAA and 115BAB, it is noted that there was a subsequent amendment vide Finance Act, 2020 which prohibited the assessee even from claiming deduction u/s 80G in order to avail concessional rate of taxation. The AO is directed to ascertain as to whether this amendment is also applicable for the relevant year or not and decide the issue accordingly.
8. 1 As regards the expenditure claimed on account of write off of investments of Rs.77.70 crores which were of the category HTM, the assessee claims that it has not claimed any deduction in respect of this write off in the return of income for the relevant year. The AO is directed to ascertain this claim of the assessee and if found correct, to not make any addition in respect of this issue……”
The Assessee humbly submits that, although the write off of investment is mentioned as not claimed in the return of income, it was incumbent upon the learned PCIT to conduct further enquiry and verify the facts. In various judicial precedents, as cited below, it was held that PCIT cannot remand back the matter to Learned AO for verification. Thus, it can be seen that the learned PCIT failed to establish that the Assessment order is erroneous and prejudicial to the interest of the revenue. It is the duty of the Learned PCIT to make an enquiry and to clearly record the reason for which the order is said to be erroneous and prejudicial to the interest of the revenue. In this regard, reliance is place on the decision of Hon’ble Delhi High Court in the case of ITO v. D.G. Housing Projects Ltd. (Delhi) wherein the Hon’ble High court inter-alia stated that:
”17. This distinction must be kept in mind by the CIT while exercising jurisdiction u/s. 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged “inadequate investigation”, it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous.
Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT (see CIT v. Shree Manjunathesware Packing & Products Camphor Works (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.
18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. (supra), had observed that the phrase ‘prejudicial to the interest of Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by theAssessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue.”
Reliance in this regard is also placed on the below judicial precedents wherein the above principle is upheld:
The recent order of Supreme Court in the case of Pr. CIT-1 v. V-Con Integrated Solutions (P.) Ltd. (SC)/ SLP Civil Diary No. 13205 of 2025 dated 04 April 2025 wherein it was inter-alia held the following:.
”….There may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify a remit, albeit the Commissioner of Income Tax must record the abject failure and lapse on the part of the Assessing Officer to establish both the ‘error’ and the ‘prejudice caused to the Revenue……”.
Order of Hon’ble Chandigarh ITAT in the case of Vardhman Industries Ltd. v. Dy. CIT TTJ 17 (Chandigarh – Trib.)/, which was subsequently upheld by the Hon’ble High Court of Punjab and Haryana dated 25 April 2017 Pr. CIT v. Vardhman Industries Ltd. (Punj and Har)
Order of Hon’ble Delhi High Court in the case of DIT v. Jyoti Foundation  (Delhi) .
In light of the above judicial precedents, it is humbly submitted that the action of the Learned PCIT in remanding the matter back to the Ld. AO to ascertain the claims, without recording the reasons as to why the order is erroneous, is not permissible in law. The Learned PCIT must conduct their own inquiry and clearly establish that the order is both erroneous and prejudicial to the interest of the revenue. Therefore, the remand by the Learned PCIT without such findings is legally unsustainable.In view of the submissions made above, it is humbly prayed that the Impugned Order passed u/s. 263 of the Act is without Jurisdiction and is liable to be quashed.
6. Per contra, ld.DR relied upon the impugned order of the ld. PCIT in extenso.
7. We have heard the rival submissions and perused the record, case law citation and written submission filed. Undisputed facts are that the assessee, Cholamandalam MS General Insurance Co. Ltd., is engaged in the business of general insurance. For AY 2020-21, it filed its return of income on 29.12.2020 declaring total income of Rs.398,85,42,450/. The case was selected for scrutiny and assessment u/s.143(3) read with Section 144B of the Act was completed on 19.09.2022 determining total income at Rs.402,71,51,541/-. Subsequently, the ld.PCIT issued a show cause notice dated 27.09.2024 proposing to revise the assessment u/s. 263 of the Act on the following issues:
1. Allowability of provision for IBNR/IBNER
2. Deduction u/s. 80G
3. Write-off of investments (HTM category)
The ld. PCIT held that the assessment order was erroneous and prejudicial to the interests of the revenue on the ground that proper verification had not been conducted. The assessment was set aside on these issues with directions to the Assessing Officer (AO) to reexamine and pass fresh orders.
Section 263 of the Act empowers the PCIT to revise an order only if the following twin conditions are satisfied:
1. The order of the Assessing Officer is erroneous; and
2. It is prejudicial to the interests of the revenue.
This principle has been authoritatively laid down by the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. (supra ) and reaffirmed in Max India Ltd. (supra).It is also settled law that where two views are possible and the AO has adopted one plausible view, the order cannot be held to be erroneous merely because the Commissioner prefers another view.
Issue No. 1 – Provision for IBNR/IBNER
The records reveal that during scrutiny proceedings, the AO issued specific notices u/s.143(2) and 142(1) calling for details of provisions, including IBNR and IBNER. The assessee furnished detailed submissions explaining actuarial basis of computation, certification by appointed actuary, compliance with IRDAI guidelines and Judicial precedents supporting allowability.The AO examined the material on record and allowed the claim, placing reliance on judicial precedents.The ld. PCIT himself has recorded that the AO had examined the issue but held that the allowance was erroneous. We note that the allowability of IBNR/IBNER has been upheld in various judicial pronouncements including:
•Bharat Earth Movers (supra)
•Rotork Controls India (P) Ltd. (supra)
•Care Health Insurance Ltd. (Supra)
Further, it is not disputed that actuarial certification and regulatory compliance form the basis of such provisioning in insurance business.In our considered view, once the AO has conducted inquiry, examined replies and adopted a legally sustainable view, the same cannot be treated as erroneous. At best, it represents a possible alternative view.Therefore, invocation of Section 263 on this issue is unsustainable.
Issue No. 2 – Deduction u/s. 80G
The ld. PCIT held that deduction u/s. 80G was not allowable in view of Section 115BAA.However, we note that for AY 2020-21, the amendment restricting Chapter VI-A deductions (except Sections 80JJAA and 80M) was made effective from AY 2021-22 onwards. The AO had specifically called for details of donations. He also verified PAN and supporting documents and recorded in the assessment order that the claim was examined and no addition was warranted. Thus, we find that the issue was examined. The claim was legally permissible for AY 2020-21 hence, the order cannot be said to be prejudicial to the revenue. Accordingly, the PCIT’s revision on this issue also fails the twin-condition test u/s. 263 of the Act.
Issue No. 3 – Write-off of Investments (HTM)
The assessee is governed by section 44 read with Rule 5 of the First Schedule to the Act. Under this special regime applicable to insurance companies, computation of profits is based on accounts prepared under regulatory framework, subject only to specified adjustments. The Hon’ble Supreme Court in General Insurance Corporation of India (supra) has clarified that additions/disallowances must strictly conform to Rule 5.The allowability of write-off of investments in the case of insurance companies has been upheld in:
•National Insurance Co. Ltd. (supra)
•Oriental General Insurance Co. Ltd. (supra)
Further, CBDT Circular No.05/2010 clarifies that diminution or writeoff of investments in accordance with IRDA regulations is allowable and corresponding recovery is taxable.The ld.PCIT has merely directed the AO to verify the claim instead of recording a categorical finding that the order is erroneous and prejudicial.The Hon’ble Delhi High Court in DG Housing Projects Ltd. (supra) has held that the Commissioner cannot remand the matter for fishing inquiry without himself recording clear findings of error and prejudice. In the present case, the PCIT has failed to demonstrate how the assessment order is unsustainable in law. Mere possibility of further inquiry cannot justify revision. Therefore, upon careful consideration of the material on record and the judicial precedents cited supra, we hold the Assessing Officer had conducted proper inquiries on all three issues discussed above. The views adopted were plausible and supported by judicial authority. The ld. PCIT has not established that the assessment order is both erroneous and prejudicial to the interests of the revenue. The direction to re-examine amounts to an impermissible remand without a finding of error. Accordingly, the order passed u/s. 263 of the Act dated 20.11.2024 is set aside.
8. In the result, the appeal of the assessee is allowed.