TaxTMI 
TaxTMI 
2018 (12) TMI 1939
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....the following grounds: - "Ground No. I; Disallowance of expenses under section 14A of the Act read with Rule 8D of the Rules amounting to Its. 3,84,65,018/- The learned CIT(A) erred in holding that expenses incurred by the Appellant in earning exempt income will have to be disallowed under section 14A of the Act. While making the disallowance, the learned ClT(A) has also erred on the following counts: 1.1 The learned CIT(A) erred in not appreciating the fact that the provisions of section 14A of the Act are not applicable to an Insurance company as it is governed by section 44 read with First Schedule of the Act, which has an overriding effect on the provisions relating to computation of income chargeable under the four heads mentioned in section 44 of the Act 1.2 The learned CIT(A) erred in disregarding the tribunal decision in Appellant's own case for AY 2010-I1 and various other tribunal decisions (including that of jurisdictional tribunal) relied upon by the Appellant, wherein it has been held the taxable income of insurance companies shall be computed only in accordance with provisions of section 44 read with First Schedule of t....
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....n assessee's own case for 2006- 07 vide Para 7 to 9: 7. Grounds of appeal no.4 regarding the expenditure under section 14A. 8. We have heard the rival contentions and perused the relevant record. We note that this issue has been considered and decided by the Pune Bench of this Tribunal in the case of Bajaj Allianz General Insurance Company limited V/s Add. CIT in ITA No.1447/PN/2007 for the assessment year 2003-04 order dated 31.08.2009. This Tribunal in the case of JCITV/s M/s Reliance General Insurance co. in ITA No.3085/Mum/2008 for the assessment year 2005-06 vide order dated 26.2.2010 has considered this issue and decided in favour of the assessee. This order was followed by this Tribunal while deciding the issue in ITA No.781/Mum/2007 vide order dated 30.4.2010. Thus, this issue has been consistently decided in favour of the assessee and against the revenue by this Tribunal. The Pune Bench of this Tribunal in the case of Bajaj Allianz General Insurance Company limited V/s Add. CIT (supra) has decided this issue in paragraphs 17 to 20 as under: "17. Finally the quest ion to be answered is about the applicability of s. 14A in respect of sale of in....
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....insurance. I t mandates the tax authorities to compute the taxable income in respect of insurance business in accordance with the provisions of the First Schedule to the Act. In the light of these, their Lordships of Delhi High Court have held that no quest ion of law, much less a substantial quest ion of law survives for their consideration. In other words, order of the Tribunal has been affirmed. Following the same reasoning, addition made by the AO is deleted. 22. We have considered the rival contentions and gone through the records. The provisions of s. 44 read as under: "44. Insurance business.--Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head ' Interest on securities' . 'Income from house property' , 'Capital gains' or ' Income from other sources' , or in s. 199 or in ss. 28 to 43B, the profits and gains of any business ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench of insurance, including any such business carried on by a mutual insurance company or by a co operative society, shall be computed in accor....
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.... by the AO on the plea that the provisions of s.14A was inserted by Finance Act, 2001 w.e.f. 1st April, 1962. It is stated that the investments made by the assessee are both taxable as well as tax free. An estimated disallowance of 50 per cent out of the management expenses incurred and as claimed in the P&L a/c is treated as expenses incur red in connect ion with the looking after tax-free investment. 19. The learned counsel for the assessee vehemently argued that the income of the assessee is to be computed under s. 44 r/w r. 5 of Sch. 1 of the IT Act. Sec. 44 is a non obstinate clause and applies notwithstanding anything to the contrary contained within the provisions of the IT Act relating to computation of income chargeable under different heads, other than the income to be computed under the head 'Profit and gains of business or profession' . For computation of profits and gains of business or profession the mandate to the AO is to compute the said income in accordance with the provisions of ss. 28 to 43B of the Act. In the case of the computation of profits and gains of any business of insurance, the same shall be done in accordance with the rules prescribed....
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....d." 4. Ld. Senior DR could not point out any adverse precedent and accordingly we are of the view that this issue is squarely covered in favour of assessee but Hon'ble High Court in ITA No. 710/2013 dated 20/07/2015 admitted substantial question of law on the issue, " whether on the facts and in the circumstances of the case and in law, the Tribunal was justify in holding that provisions of section 14A of the Act did not apply to insurance business, even when the assessee has claimed exempted income u/s 10 of the I.T. Act and has also itself made some disallowance u/s 14A of the Act in the return?" We find that Hon'ble High Court has admitted this as substantial question of law but still it is pending as stated by Ld. Counsel for the assessee. Once the Tribunal is consistently taking this view, according to us, this is a covered issue in favour of assessee. We hold accordingly. This issue is decided in favour of the assessee." 4. Respectfully following Tribunal's decision in assessee's own case cited supra, this issue of assessee's appeal is allowed. 5. The next issue in assessee's appeal is against the order of CIT(A) in deleting the disallowance made by the AO on a....
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....es of the case and in law the Tribunal was justified in deleting the addition made by the Assessing officer on account of loss from Jeevan Suraksha Fund ignoring the settled position of law that income includes loss and that the income from Jeevan Suraksha fund does not form part of the total income of the Assessee Corporation under section 10(23AAB) of the Income-tax Act, 1961? Ld. Counsel referred to para 15 to 18 vide which Hon'ble High Court has answered the issue in favour of the assessee by observing as under: 15. As regard questions(c) and (d) are concerned, the dispute is whether the loss incurred by the assessee from Jeevan Suraksha Fund is liable to be excluded in computing the actuarial valuation surplus in view of the fact that the income from Jeevan Suraksha Fund is exempt under section 10(23AAB) of the Income-tax Act, 1961. 16. The argument of the revenue is that with the insertion of section 10(23AAB) by Finance (No. 2) Act, 1996 with effect from 1-4-1997, the profis as well as loss arising from Jeevan Suiraksha Fund would not be includible in the total income of the assessee and, therefore, while determining the distributable profits of th....
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....sessee and dismissed the ground of revenue's appeal." 7. Respectfully following Tribunal's decision in assessee's own case cited supra, this issue of assessee's appeal is allowed. 8. The first issue in Revenue's appeal i.e. with regard to the order of CIT(A) in deleting the addition made by the AO on account of negative reserve at zero, the surplus of the assessee has been made less than the real actuarial valuation. For this Revenue has raised following ground No. 1: - "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that the negative reserve has an impact of reducing the taxable surplus as per Form 1 and therefore corresponding adjustment for negative reserve" need to be made to arrive at 'taxable surplus'." 9. At the outset Ld. Counsel for the assessee stated this issue is squarely covered in favour of the assessee by the following the assessee's own case in ITAs No. 4110/Mum/2014 & 4130/Mum/2014 vide order dated 12.09.2016, wherein Tribunal held as under: - ""9. At the outset Ld. Counsel for the assessee stated that the similar issue was raised before Hon‟ble Jurisdictional H....
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..... The Revenue has not contested that the working of actuarial surplus / deficit is not in accordance with Rule 2 of 1st Schedule. Accordingly, we are of the view that the CIT(A) has rightly deleted the addition and we confirmed the same. This issue of Revenue's appeal is dismissed." 10. Respectfully following Tribunal's decision in assessee's own case, we confirm the order of CIT (A). This issue of Revenue's appeal is dismissed. 2. The next issue in this appeal of Revenue is as regards to the order of the CIT(A) in deleting the disallowance of deduction/exemption claimed by the assessee u/s. 10(34) of the Act in respect of dividend income. For this Revenue has raised the following ground: - "2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the dividend income of assessee as exempt u/s 10(34) of the I T Act, 1961. ignoring the fact, that dividend income is considered as part of income of Life Insurance Business and is included as an income by the actuary." 11. We have heard rival contentions and gone through the facts and circumstances of the case. In this regard, the ld. counsel for the assessee argued that this iss....
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....o.2 - Original Ground of Appeal No.2.1 & 2.2) -. The issue arises in a peculiar manner in this assessment year. While dealing with the issue of profit on sale of investments, the Assessing Officer proposed to differ from assessee stand and bring to tax the profit on sale of investment. The assessee alternately submitted that the deduction under section 10(38) in respect of long term capital gain was available. When this issue came up before the CIT (A), the CIT (A) not only rejected the claim under section 10(38) but also considered and elaborately discussed how and why the assessee was not eligible for deductions already allowed by the Assessing Officer in respect of 'interest on tax free bonds' amounting to Rs. 3,45,19,352/- under section 10(15) and dividend income amounting to Rs. 270,66,46,489/- under section 10(34). He has elaborately discussed this issue from Para 6 onwards and ultimately made an enhancement of income to an extent of Rs. 274,11,65,844/- the amount which was allowed by the Assessing Officer as exempt under section 10. The contention of the CIT (A) was that the assessee was not eligible for deduction under section 10, once the incomes are brought to tax....
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....e, any expenditure or allowance (including any amount debited to the profit and loss account either by way of a provision for any tax, dividend, reserve or any other provision as may be prescribed) which is not admissible under the provisions of section 30 to (43B) in computing the profits and gains of a business shall be added back; (b) (.........) (c) Such amount carried over to a reserve for unexpired risks as may be prescribed in this behalf shall be allowed as a deduction". The Assessing Officer has in the reasons for reopening the assessment proceeded on the premise that in computing the profits and gains of business for an assessee who carries on general insurance business no other section of the Act would apply and that the computation could be carried out only in accordance with section 44 read with Rule 5 of the First Schedule. In Life Insurance Corporation of India, Bombay v. Commissioner of Income Tax Bombay City-III, a Division Bench of this Court construed the provisions of section 44 and of the First Schedule. The assessee in ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench that case which carried on life insuran....
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....cability of those provisions in the case of an assessee whose assessment is governed by section 44 read with rule 2 in the First Schedule is not excluded". ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench This judgment is sought to be distinguished by the Assessing Officer while disposing of the objections on the ground that the decision was rendered in the context of an assessee which carried on life insurance business to whom Rules 1 to 4 of the First Schedule applied whereas in the case of the assessee in this case which carries on general insurance business Rule 5 could apply. According to the Assessing Officer, Rule 5 would not permit any adjustment to the balance of profit as per annual accounts prepared under the Insurance Act, and hence the judgment would not be applicable. The Assessing Officer has clearly not noticed that the decision in Life Insurance Corporation (supra) though rendered in the context of an assessee which carries on life insurance business, followed an earlier decision of a Division Bench of this Court in Commissioner of Income-Tax v. New India Assurance Co Ltd . That was a case of an assessee which carried on non lif....
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.... High Court the issue as to whether a sum of Rs. 3 crores, being a provision for redemption of preference shares, was not liable to be added back in the total income of the assessee for AY 1977-78?. The Supreme Court held that a plain reading of rule 5(a) of the First Schedule made it clear that in order to attract the applicability of the provision the amount should firstly be an expenditure or allowance and secondly it should be one not admissible under the provisions of section 30 to 43A. The Supreme Court held that the sum of Rs. 3 crores in that case which was set apart as a provision for redemption of preference shares could not have been treated as an expenditure and hence could not have been added back under rule 5(a). In that context the Supreme Court held as follows: "There is another approach to the same issue. Section 44 of the Income-tax At read with the rules contained in the First Schedule to the Act lays down an artificial mode of computing the profits and gains of insurance business. For the purpose of income-tax, the figures in the accounts of the assessee drawn up in accordance with the provisions of the First Schedule to the Income-tax Act and satisfyin....