Transfer pricing adjustment remanded for fresh evidence

Transfer pricing adjustment remanded for fresh evidence verification, while MAT addition on unexpired risks reserve is deleted.

Issue

Whether transfer pricing adjustment determining ALP as NIL for intra-group services should be remanded to the AO/TPO to verify additional contemporaneous evidence provided by the assessee.
Whether reserve for unexpired risks can be added to book profit under Section 115JB when it is not debited to the statement of profit and loss.

Facts

Assessee is a UK-based company engaged in insurance/reinsurance that made payments to its Associated Enterprises (AEs) for support services during AY 2022-23.
The TPO determined the Arm’s Length Price (ALP) of intra-group support service payments at NIL, proposing a transfer pricing adjustment.
The assessee submitted additional contemporaneous evidence (emails, contracts, invoices) at the appellate stage to prove rendition and benefit of services, citing a short 3-day response window for the show-cause notice during original proceedings.
The Assessing Officer also made an addition of ~₹7.72 crores to book profit under Section 115JB in respect of “Reserve for Unexpired Risks”, which was sustained by the DRP.
The reserve for unexpired risks had not been debited to the statement of profit and loss, and identical additions in the assessee’s own case for AY 2020-21 and AY 2021-22 were previously deleted by the Tribunal.

Decision

Transfer Pricing (Matter Remanded): Set aside the lower authorities’ findings and remanded the issue to the AO/TPO for fresh adjudication, allowing verification of the additional evidence to ensure natural justice.
Section 115JB Book Profit (In favour of Assessee): Deleted the addition of ₹7.72 crores to book profit, holding that the reserve for unexpired risks does not fall under clause (b) of Explanation 1 to Section 115JB.

Key Takeaways

Admission of Additional Evidence in TP: Where a short time frame prevents an assessee from filing comprehensive documentation before the TPO, appellate authorities can remand the matter to ensure additional contemporaneous evidence of service rendition is properly verified.
Non-Debited Reserves Excluded from MAT: Reserves that are not debited to the profit and loss account cannot be added back under Explanation 1 to Section 115JB while computing book profits.

IN THE ITAT MUMBAI BENCH ‘J’

Markel Capital Ltd.

Deputy Commissioner of Income-tax, Int Tax

Pawan Singh, Judicial Member
and Jagadish, Accountant Member

IT Appeal No. 1823 (Mum) of 2026
[Assessment year 2022-23]

AUGUST 7, 2026

Farooq Irani, Adv. and Vishal Shah for the Appellant. Ms. Jayshree Thakur, SR. DR for the Respondent.

ORDER

Jagadish, Accountant Member.- This appeal by the assessee is directed against the final assessment order dated 29.12.2025 passed by the Deputy Commissioner of Income Tax (International Taxation), Circle 3(2)(1), Mumbai under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (“the Act”), pursuant to the directions dated 08.12.2025 issued by the Dispute Resolution Panel-3, Mumbai under section 144C(5) of the Act, for the assessment year 2022-23.

2. The assessee has raised the following grounds of appeal:

1. “On the facts and in the circumstances of the case and in law, the Appellant objects to the notice under section 143(2) of the Act dated 31 May 2023 issued by the Assistant Commissioner of Income-tax/Deputy Commissioner of Income-tax (International Taxation), Circle 1(1)(1), Delhi since the said authority lacked jurisdiction over the Appellant.

2. The Assessing Officer erred in passing the order under section 143(3) read with section 144C(13) of the Act on 29 December 2025, which is beyond the period of limitation prescribed under section 153 of the Act.

3. On the facts and in the circumstances of the case and in law, the Assessing Officer erred in computing the total income of the Appellant at Rs.13,65,19,430 instead of the total income of Rs.29,28,390 declared under the normal provisions of the Act.

4. The Assessing Officer/Transfer Pricing Officer erred in making an addition of Rs.7,87,99,410 in respect of payments made to the Associated Enterprise, Markel Services India Private Limited, by determining the arm’s length price of the services at NIL.

5. The Assessing Officer/Transfer Pricing Officer erred in treating the services rendered by Markel Services India Private Limited as intragroup support services and determining the arm’s length price at NIL.

6. The Assessing Officer/Transfer Pricing Officer erred in making an addition of Rs.5,47,91,629 by determining the arm’s length price of the services rendered by its Associated Enterprise, Markel International Services Limited, at NIL.

7. The Assessing Officer erred in computing the book profit of the Appellant at Rs.10,48,69,804 under section 115JB of the Act instead of the book profit of Rs.2,76,79,197 declared in the return of income.

8. The Assessing Officer erred in making an addition of Rs.7,71,90,607 to the net profit while computing the book profit under clause (b) of Explanation 1 to section 115JB of the Act by treating the Reserve for

Unexpired Risks as a reserve.

9. The Assessing Officer erred in considering the provision for Reserve for Unexpired Risks as an unascertained liability.

10. The assessment order is vitiated by errors of law and fact.

11. The assessment order is vitiated by factual errors and by overlooking and/or acting contrary to the material and evidence on record.”

3. Briefly stated, the assessee is a company incorporated in and a tax resident of the United Kingdom and is engaged in the business of insurance/reinsurance. It filed its return of income on 28.11.2022 declaring total income of Rs.29,28,390/- under the normal provisions of the Act and book profit of Rs.2,76,79,197/- under section 115JB of the Act. During the year, the assessee entered into international transactions with its Associated Enterprises. The Transfer Pricing Officer, by order dated 28.01.2025 passed under section 92CA(3) of the Act, determined the arm’s length price of the payments for support services at NIL and proposed an aggregate adjustment of Rs.13,35,91,039/-, comprising Rs.7,87,99,410/- paid to Markel Services India Private Limited and Rs.5,47,91,629 paid to Markel International Services Limited. The draft assessment order dated 13.03.2025 also proposed an addition of Rs.7,71,90,607/- to the book profit in respect of the Reserve for Unexpired Risks. The DRP rejected the objections and the Assessing Officer thereafter passed the impugned final assessment order assessing the total income at Rs.13,65,19,430/- under the normal provisions and computing book profit at Rs.10,48,69,804/-.

4. At the outset, the learned Authorised Representative submitted that the assessee has filed an application under Rule 29 of the Incometax (Appellate Tribunal) Rules, 1963 seeking admission of additional evidence. It was submitted that the additional evidence consists, inter alia, of contemporaneous e-mails concerning regular business operations, business contracts and invoices which substantiate the nature, actual rendition and receipt of the services and the benefit derived therefrom. The learned Authorised Representative explained that the Transfer Pricing Officer issued a show-cause notice on 13.01.2025 requiring a response by 16.01.2025 and, therefore, the assessee was left with only three days to identify and collate the extensive supporting record. It was further submitted that, during the transfer-pricing proceedings, the assessee had primarily focused on the regulatory requirements flowing from the IRDAI (Lloyd’s India) Regulations, 2016 and it was only while preparing the present appeal, upon legal advice, that the necessity of placing the contemporaneous documentary record in its present form was appreciated. The non-production of the evidence before the lower authorities was thus neither deliberate nor attributable to lack of bona fides. He prayed that the evidence be admitted and grounds 3 to 6 relating to the transfer-pricing adjustment be restored to the file of the Assessing Officer/Transfer Pricing Officer for examination afresh. As regards grounds 7 and 8 relating to computation of book profit under section 115JB of the Act, the learned Authorised Representative drew our attention to Explanation 1 to section 115JB and submitted that the Reserve for Unexpired Risks had not been debited to the statement of profit and loss and, therefore, no addition thereof could be made while computing the book profit. He further submitted that an identical issue has been decided by the Tribunal in the assessee’s own case for assessment year 2021-22 and prayed that the Assessing Officer be directed to decide the issue in conformity with the said decision.

5. The learned Departmental Representative relied upon the order of the Transfer Pricing Officer, the directions of the DRP and the final assessment order. He opposed the admission of the additional evidence. Without prejudice, he submitted that, if the additional evidence is admitted, the same requires verification by the Assessing Officer/Transfer Pricing Officer and no finding on its merits may be recorded at this stage. As regards the issue under section 115JB of the Act, he submitted that the matter may be examined by the Assessing Officer in accordance with law.

6. We have heard the rival submissions and perused the material available on record. The additional evidence sought to be produced comprises contemporaneous primary documents and bears directly upon the controversy whether the services were actually rendered and received, whether the assessee derived benefit therefrom and whether the payments satisfy the arm’s length standard. The adjustment was made principally for want of complete and sufficient evidence concerning the need, rendition and benefit of the services and the underlying costs. The short interval of three days between the show-cause notice and the date fixed for reply, read with the explanation that the assessee had concentrated upon the regulatory framework during the proceedings, constitutes a reasonable explanation for its inability to place the complete documentary record before the Transfer Pricing Officer. We also find that the evidence is relevant and its examination is necessary for a proper adjudication of the issues. In these circumstances, and in the interest of substantial justice, the additional evidence is admitted under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.

7. At the time of hearing, the learned Authorised Representative did not advance any arguments in support of grounds 1 and 2. Accordingly, these grounds are not adjudicated and are left open.

8. Grounds 3 to 6 relate to the transfer-pricing adjustment. Since the additional evidence has not been examined by the lower authorities, adjudicating its probative value for the first time at the appellate stage would deprive the Revenue of an effective opportunity of verification. We therefore set aside the findings of the lower authorities on these grounds and restore grounds 3 to 6 to the file of the Assessing Officer/Transfer Pricing Officer for fresh adjudication in accordance with law. The assessee shall file the complete additional evidence and such further material as may be called for. The Transfer Pricing Officer shall examine the agreements, invoices, contemporaneous correspondence, evidence of rendition and receipt of services, benefit, cost base, allocation keys and mark-up, and determine the arm’s length price by applying the most appropriate method in accordance with law. Needless to state, adequate opportunity of being heard shall be afforded to the assessee. All contentions on these grounds are kept open and we have expressed no opinion on their merits. Accordingly, grounds 3 to 6 are allowed for statistical purposes.

9. Grounds 7 and 8 relate to the addition of Rs.7,71,90,607/- on account of Reserve for Unexpired Risks while computing book profit under section 115JB of the Act. The learned Authorised Representative submitted that clause (b) of Explanation 1 to section 115JB applies only where an amount carried to a reserve has been debited to the statement of profit and loss. According to him, the Reserve for Unexpired Risks was not debited to the statement of profit and loss and, therefore, the foundational condition for making an addition under the said clause was absent. He further submitted that the very same issue in the assessee’s own case for assessment years 2020-21 and 2021-22 has been decided by the Coordinate Bench in ITA Nos.3407 and 4710/Mum/2023, by consolidated order dated 14.08.2024. The Coordinate Bench, following the decision in DCIT v. National Insurance Co. Ltd., held that the Reserve for Unexpired Risks cannot be added while computing book profit under section 115JB and directed deletion of the disallowance. The learned Departmental Representative relied upon the directions of the DRP and the final assessment order.

10. We have considered the rival submissions and perused the material available on record. In paragraph 8.3.1 of its directions, the DRP itself has recorded that the issue is recurring and that similar objections had arisen in assessment years 2020-21 and 2021-22. The DRP nevertheless followed its directions for assessment year 2020-21 and sustained the addition, observing that there was no material change in the facts. However, the directions of the DRP for assessment year 2020-21, on which the impugned directions are founded, were subsequently considered by the Coordinate Bench in the assessee’s own case in Markel Capital Ltd. v. Sarika Jai [IT Appeal Nos. 3407 & 4710 (Mum.) of 2023, dated 14.08.2024]. The Tribunal decided the identical issue in favour of the assessee by relying, inter alia, upon the decision of the Co-ordinate Bench in DCIT v. National Insurance Co. Ltd., wherein it was held that the reserve for unexpired risks, not having been debited to the statement of profit and loss, does not fall within clause (b) of Explanation 1 to section 115JB and is not liable to be added while computing book profit. Thus, the very basis adopted by the DRP does not survive in view of the binding decision of the Coordinate Bench in the assessee’s own case.

11. Since grounds 3 to 6 relating to the transfer-pricing adjustment have been restored to the Assessing Officer/Transfer Pricing Officer and a fresh assessment order is required to be passed, grounds 7 and 8 are also restored to the file of the Assessing Officer with a direction to pass the consequential order on this issue in accordance with the decision of the Tribunal in the assessee’s own case for assessment year 2020-21 in ITA No.3407/Mum/2023, forming part of the consolidated order dated 14.08.2024. The Assessing Officer shall afford adequate opportunity of being heard to the assessee. Accordingly, grounds 7 and 8 are allowed for statistical purposes.

12. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.