1. ' SALEEM AKHTAR, J--This reference relates to the assessment years 1967-68, 1968-69, 1969-70, 1970-71 and 1971-72. The respondent carries on business as a general and life Insurance. In its account the respondent had made provision for taxation amounting to Rs,25,000 in 1967-68, Rs,95,000 in 1968-69 and Rs,1,95,000 in 1969-70. It also made provision for payment of staff gratuity, reserve for bad and doubtful debts and provision for bonus. The Income Tax Officer did not agree with this treatment and added back these amounts. The respondent filed direct appeal to the Appellate Tribunal. The Tribunal following its earlier decision on similar points held that the amounts could not be added back and all additions were deleted. The Department applied for reference under section 136 (1) of the Income Tax Ordinance and the Tribunal framed the following questions:
(1) Whether, in the facts and circumstances of the case, the Income-Tax Appellate Tribunal was right in deleting the add backs of Rs,25,000 in 1967-68, Rs,95,000 in 1968-69 and Rs,1,95,000 in 1969- 70 claimed by the Assessee on account of provision for taxation?
(2) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that provisions for payment of staff gratuity amounting to Rs,50,000 and Rs,1,15,153 respectively, made in the assessm ent years 1970-71 and 1971-72, being not expenditure and hence cannot be added back under rule 6 of the First Schedule to the Income-tax Act?
(3) Whether, on the facts and in the circumstances of this case, the Income-tax Appellate Tribunal was right in deleting the addition, of Rs,49,000 claimed by the respondent-company on account of "Reserve for Bad and Doubtful debts".
(4) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in deleting the add-backs of Rs,76,000 claimed by the assessee on account of provision for bonus"
2. ' Questions Nos.l. 2 and The learned counsel have pointed out that these questions have been considered and decided in Commissioner of Income Tax v. Mercantile Fire and General Insurance Co. Limited, I.T.C. 326 of 1974, Commissioner of Income Tax v. New Jubilee Insurance Company, I.T.R. 88 of 1983, Commissioner of Income Tax v. Adamji Insurance Co. Ltd. ITR No,79 of 1985.
3. ' In view of these judgments the controversy in these questions has been settled. Following the aforestated judgment we answer these questions in the affirmative.
4. ' Question No,3:- ' In the year 1969-70 the respondent had claimed Rs,49,000 on account of reserve for bad and doubtful debt. The Income Tax Officer disallowed holding that it was not permissible. In appeal, the Tribunal accepted the plea of the respondent and deleted the add-back made by the Income Tax Officer. It is well-settled that the Income Tax Officer has no authority to make any addition to the Annual accounts submitted to the Controller of Insurance. In this regard reference can be made to Commissioner of Income Tax v. Alpha Insurance Company PLD 1981 SC 293 where it was observed as follows: "Our conclusions therefore are that:
(i) The rules contained in the First Schedule to the Income Tax Act completely, exhaustively and to the exclusion of every other provision not expressly incorporated, govern the computation of the profits and gains of insurance business,
(ii) the power of the Assessing Authority under rule 6 of the First Schedule to the Income Tax Act does not, like rule 2 of the same Schedule, or on the strength of section 40-C of the Insurance Act or rule 40 of the Insurance Rules, extend to disallowance of the excess management expense,
(iii) the power of the Assessing Authority under first part of rule 6 (ibid) to read just the balance of the profits disclosed by the annual accounts required to be furnished under the Insurance Act, 1938 is restricted to "exclude from it any expenditure, other than expenditure" which may under the provisions of section 10 of the Income-tax Act, be allowed for in computing the profits and gains of a business. The Assessing Authority has to apply an independent mind uncontrolled by Insurance Act to arrive at such a re-adjustment,
(iv) the expenses of management incurred in excess of the limit prescribed under section 40-C of the Insurance Act and rule 40 of the Insurance Rules are not in the nature of penalty, fine or forfeiture for the purposes of their admissibility for deduction as business expenses under section 10 of the Income-tax Act."
5. The consistent view of the Supreme Court and our Court has been that the jurisdiction of income Tax Officer is limited to the provision of Rule 6 and he has to take balance of profits as disclosed in the annual accounts which are submitted to the Controller of Insurance. It would be proper to again refer to Alpha Insurance Co. PLD 1981 SC 293 where the following observation was made:- "The jurisdiction of the Income-tax Officer under rule 6 of the First Schedule to the Income-tax Act is confined to the taking of the profits and gains of any business of insurance other than life insurance "to be the balance of the profits disclosed by the annual accounts, copies of which are required under the Insurance Act, 1938 to be furnished to the Controller of Insurance." This presents the Assessing Authority with a fait accompli, over which he exercises no control. If the law requires such excess to be excluded from the balance-sheet the Assessing Authority cannot reintroduce it.
6. If the law, as in these cases requires such expenses to be included in the balance-sheet, the Assessing Authority cannot exclude it on any principle not made a part of the First Schedule to the Income-tax Act. This brings us back to the starting point namely, that the Income-tax Officer has "no power to do anything not contained in the First Schedule to the Income-tax Act."
7. It is thus clear that the Income-Tax Officer has to refer the rules in Schedule for assessing the profits of an insurance Company and in that regard he cannot exercise any power not contained in it. Applying these principles to the present case we find that in the statement of account furnished to the Controller under Insurance Act, the respondent had written off Rs,49,000 as had debt. The Assessing Officer had no power to delete it. Mr. Shaikh Haider has invited our attention to Commissioner of Income-tax, Bombay City-III v. New India Assurance Co. Ltd. (1080) 122 I.T.R.
633. In this case the Insurance Company had written off debts in the accounts which had been accepted by the Controller of Insurance. The question arose whether amount of such debt could be allowed as deduction in determining the Company's business. The Court answered in favor of the assessee with the following observation:- "Before us the decision of a Division Bench of this Court in South India Insurance Co. Ltd. v. C I T (1977) 106 I T R 969 was cited, where the proper meaning to be ascribed to the word "expenditure" occurring in R.6 has been considered and dealt with (see pages 974 and 975 of the report). The decision of the Supreme Court in Pandean Insurance Co. Ltd's case (1965) 55 I T R 716 (SC) has also been considered in South India Insurance Co's case (1977) 106 I T R 969 (Born). Following the principles laid down in the aforesaid two decisions, it is obvious that the debts written off, viz. Rs,12,927, would be required to be allowed as a deduction in determining the company's business profits for the assessm ent year 1961-62, as the I T 0 could not reconsider the question of their allowance. Accordingly, the question will have to be answered in favor of the assesse."
8. ' For these reasons we answer the questions in the affirmative.