Section 44 overrides section 14A for insurance income, while an unadjudicated computation ground was remitted for reconsideration.

Section 44 read with the First Schedule operates as a special code for computing insurance business income, so the general disallowance mechanism under section 14A cannot be superimposed on that statutory scheme; the disallowance was therefore deleted for the insurance company. A separate ground on computation of income and adoption of the return was not adjudicated by the first appellate authority and was remitted for fresh consideration. The substantive issue on section 14A was decided in favour of the assessee, while the unresolved computation issue was restored for adjudication.

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Issues: (i) Whether the ground relating to computation of income and adoption thereof in the return required restoration to the first appellate authority for adjudication. (ii) Whether section 14A could be applied to an insurance company while computing its income under section 44 read with the First Schedule.

Issue (i): Whether the ground relating to computation of income and adoption thereof in the return required restoration to the first appellate authority for adjudication.

Analysis: The specific grievance on computation had not been adjudicated by the first appellate authority, and there was no finding on the correctness of the basis of computation adopted in the return. As the issue remained undecided on merits, it required examination at the first appellate stage.

Conclusion: The issue was restored to the first appellate authority for fresh adjudication. It was decided in favour of the assessee for statistical purposes.

Issue (ii): Whether section 14A could be applied to an insurance company while computing its income under section 44 read with the First Schedule.

Analysis: Section 44 is a special non obstante provision governing computation of profits and gains of insurance business, and it requires income to be computed in accordance with the First Schedule. In the case of insurance business, the computation mechanism under section 44 prevails, and the ordinary disallowance mechanism under section 14A cannot be superimposed so as to travel beyond the special statutory scheme.

Conclusion: Section 14A was held inapplicable to the assessee insurance company, and the disallowance was deleted. This issue was decided in favour of the assessee.

Final Conclusion: The assessee succeeded on the substantive issue concerning section 14A, while the unresolved computation ground was remitted for adjudication; the departmental appeal failed.

Ratio Decidendi: In the case of an insurance business, section 44 read with the First Schedule is a special code for computation of income and overrides the general disallowance principle under section 14A.

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