AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 301
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....allowance of certain expenses invoking the provisions of Section 37(1) of the Income Tax Act 1961 (herein after called the 'Act'). 3. The relevant facts relating to the aforesaid issue are more or less identical in all the appeals filed by the assessee, except, variance quantum. However, since learned First Appellate Authority has taken up the appeal for AY 2014-15 as the lead appeal and applied the decision taken therein to other appeals, the parties before us had also requested to take up the appeal relating to AY 2014-15, ITA No. 2839/Mum/2024 as the lead appeal and proceeded accordingly. In view of the aforesaid, we proposed to take up ITA No. 2839/Mum/2024 as the lead appeal. 4. Briefly stated, the assessee is a resident corporate entity engaged in the business of providing general insurance. The assessee offers general insurance products ranging from motor, health, travel, home & personal accident in the retail space and customized products like property, marine and liability insurance in the corporate space. For the AY 2014-15, the assessee had filed its return of income on 28.11.2014 declaring total income of Rs. 59,53,73,450/- under the normal provisions of the Act. The ....
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....ued by Insurance Regularity and Development Authority of India (IRDAI), the AO observed that the quantum of commission/brokerage that can be paid on general insurance cannot exceed 10% of the premium amount. He further observed that no brokerage can be paid in where agency commission is payable and likewise, agency commission can be paid where brokerage is payable. However, he observed, the amount paid by the assessee to AMA and Team Space exceeds the amount of commission payable in terms with the insurance Act and IRDAI Circular. Further, he observed that since procurement of insurance is a core activity, it cannot be outsourced too other. Accordingly, he issued a show cause notice to the assessee to explain why the payment made to AMA and Team Space should not be disallowed as it falls within the mischief of Explanation-1 to Section 37 of the Act. 6. In response to the query raised by the AO, the assessee furnished a detailed reply submitting that the payment made to the intermediaries/aggregators is not commission per se for motor insurance policy. It was submitted, for facilitating certain non-core activities such as filling up of form, collection of documents and other relate....
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....wance by filing appeal before learned First Appellate Authority, however, it was unsuccessful as learned First Appellate Authority more or less concurred with the view expressed by the AO. 8. Before us, learned counsel appearing for the assessee reiterated the stand taken before the Departmental Authorities. He submitted, when a customer purchases a car from a motor vehicle dealer, to avoid any exigencies along with the car, he also takes a general insurance. He submitted, the insurance is always taken through the registered agent of the insurance company to whom 10% of the premium amount is paid as commission. He submitted, however, to facilitate taking out insurance policy certain administrative function like filling up of form, verification of identity and similar other functions are done, the motor vehicle dealers have engaged personnels in their premises who help out the customers in the preliminary activities. He submitted, since such personnels are in large number and present with every motor vehicle dealer spread across India, it is difficult on the part of the assessee deal with them independently. Therefore, assessee had hire services of aggregators who coordinate with t....
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....hough fall within the core activity, however, it can be outsourced. In this context, he drew our attention to Paragraph Nos. 2, 4 an Annexure-1 of the aforesaid guideline. Further, referring to Circular dated 12.08.2015, issued by IRDAI, learned counsel submitted that other activities such as policy servicing and related activities in support of core activity and non-core activities can be outsourced. Thus, he submitted, outsourcing of policy servicing and related activities to aggregators does not fall foul of any provision contained under the Insurance Act much less Section 40(1) of the Act. He submitted, for breach/violation of any of the rules and regulations of the Act penalty provision has been incorporated in the statute. He submitted, the competent authority under the Insurance Act has not reported any violation by the assessee nor has taken any penal action. Therefore, he submitted, when the competent authority has not alleged any violation, the AO cannot infer violations of the Insurance Act and IRDAI regulations. In this context, he relied upon the following observations of the coordinate Bench in case of Milestone Real Estate Fund vs. ACIT, Mumbai, [2018] 97 taxmann.com....
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.... books of account, records and documents of a Venture Capital Fund through an Inspecting or Investigating Officer and on the basis of such report, the Board can take such measures against the Venture Capital Fund as per section 29 or 30 of the said Regulation. Undisputedly, in case of the present assessee there is no such allegation or action by the SEBI which could demonstrate violation of any conditions imposed by SEBI. At least, no material has been brought before us by the learned Departmental Representative to demonstrate such fact. Thus, in the absence of any allegation or action by the SEBI against the assessee towards violation of SEBI Regulations, the learned Principal Commissioner cannot make such allegation only for the purpose of denying assessee's claim of Milestone Real Estate Fund exemption under section 10(23FB) of the Act. In this context, we may rely upon the following decisions:- i) G.V.K. Biosciences Pvt. Ltd. v/s ACIT, [2014]49 taxmann.com 385; ii) ACIT v/s Small Is Beautiful, [2013] 26 ITR (Trib.) 41; and iii) ITO v/s Gujarat Information Technology Fund, [2011] 45 SOT 529." 10. Finally, learned counsel submitted, based on the orders of CESTAT in cas....
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....s exceeds that amount, hence, violates the condition of Section 40(1) r.w.s. 40(2)(b) of the Insurance Act, as also, IRDAI guidelines. In fact, the allegation of the Departmental Authorities is twofold. Firstly, services were never rendered to the assessee by the aggregators and secondly, the payment to the aggregators is not authorized by law. 13. Before we proceed to examine the validity of the aforesaid reasoning of the Departmental Authorities, it is necessary to look into exact charge levelled against the assessee by the Central Excise Department. On a reading of the report of DGCEI, it becomes very much clear that the grievance of the Central Excise Department is with regard to claim of CENVAT credit by Insurance Companies on the service tax paid towards services availed from aggregators/motor vehicle dealers in connection with policy servicing and related activities. Pertinently, in pursuance to investigation report of DGCEI proceedings were initiated by the Central Excise Department against the assessee to examine the claim of CENVAT credit and while deciding the issue, the Commissioner of GST and Central Excise, though, has doubted assessee's claim that services relating ....
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....e. Of course, it is a purely voluntary act of the assessee as the assessee has the option to either get the car insured through the help of motor vehicle dealer or on his own. However, in both the cases the insurance policy is done through the authorized agent of the insurance company. For which, the agent is entitled to commission in terms with Section 40(1) of the Insurance Act and IRDAI guidelines. As per the guidelines, for motor insurance the maximum amount of commission that can be paid to an agent is 10% of the premium amount. Undisputedly, agency commission of 10% has been paid by the assessee. However, before the vehicle is actually insured through an agent certain preliminary work known as policy servicing and related activities is carried out by personnel present in the premises of the motor vehicle dealers. These works include filling up of form, verification of identity, verification of documents, collection of cheque etc. Since, motor vehicle dealers are in large numbers spread across India, the assessee has entered into service agreements with two entities viz. AMA and M/s Team Space who act as aggregators of the actual service providers. The aggregators raise invoic....
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....thority in Corporate Governance Guidelines. The report of internal auditor / concurrent auditor shall be placed before the Audit Committee / Investment Committee / Board Meeting for their information and necessary action) iv. Website Development and Management / Software and other IT Support v. Pay Roll Management vi. HR Services vii. Service Tax Consultancy and Support viii. TDS filing ix. Compliance with labour laws x. Data entry Including Scanning, Indexing Services xi. Printing and posting of reminders and other documents xii. Pre employment medical checkups xiii. Reminders for Premium Payment xiv. Call Centre and outbound calling for registering complaints or answering enquiries xv. Claim Processing for Overseas Medical Insurance Contracts xvi. Tele-marketing xvii. Consultancy Services pertaining to Service Tax, Income Tax and any other taxes payable by insurer xviii. Other Employee Benefits xix. Deployment of personnel within the premises / offices of the Insurer on a contract basis." 16. As could be seen from the above, though policy servicing and related activities fall within core activities, however, there is no prohibition in outsourcing su....
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....h activities were conducted in house so that insurer's ability to fulfil the obligations to Policy holders is not diminished nor effective supervision by the Regulators is impeded; 5. An insurer is required to report the activities outsourced to the Authority as under: a. In case of support activities of core Activities: within 45 days from the date of entering into outsourcing agreement b. In case of non-core activities: within 45 days from the end of every half year I am sure that the Service Tax authorities would keep the Outsourcings guidelines issued by the Authority in view while dealing with the cases recently investigated by its teams. Thanking you, Yours faithfully (TS Vijayan)" 17. As could be seen from the aforesaid clarification issued by the Chairman, IRDA, the activities which support the core activities, such as, policy servicing and related activities can be outsourced. The Departmental Authorities though have rejected the aforesaid claim of the assessee, however, they have failed to establish on record that the payment made by the assessee to aggregators are in relation to services which cannot be outsourced. Much stress has been put by the Assessi....
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....ices contained in the invoices used for availing Cenvat Credit do not reflect the true description of the services." 6.2 From the above, it can be seen that the case of the Department is that the payout paid by the appellant to the dealers on the OD premium collected by the dealers from the customers is camouflaged as service provided by the dealers to the appellant; that therefore, the services contained in the invoices have actually not been provided by the dealers to the appellant and thus, CENVAT Credit is not eligible. 7.1 Though in the Show Cause Notice the main allegation is that the description of services in the documents on which credit has been availed is not correct, at the time of adjudication, the main finding is that no services have been provided by the dealers to the appellant and that therefore credit is not eligible. At this juncture, it needs to be pointed out that the Department has no dispute with the Service Tax collected from the appellant by the dealer and remitted to the Government. The assessment of Service Tax paid at the dealer's end has not been disturbed/questioned by the Department; only the credit availed at the service recipient's end h....
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.... 8.2 The brief facts of the said case are that the appellant therein had availed input service credit on "Multi Protocol Label Switching" (MPLS) service based on the Invoices issued by M/s. Brakes India Ltd., Chennai ("M/s. BIL" for short), The appellants were job workers for M/s. BIL. The services were utilized by M/s. BIL for communicating and retrieving the data from the appellant's therein. The Department alleged that the by BSNL and Communications Ltd. to M/s. BIL and that M/s. BIL had services were rendered Reliance raised invoices on the appellants claiming reimbursement under these invoices as MPLS charges along with Service Tax. The Department was of the view that the invoices were raised for reimbursement of expenses and that no service was rendered by M/s. BIL to the appellants and that the appellants were not eligible for credit. The appellants therein had contended that M/s. BIL are retrieving data relating to the assessee's from the server and are further processing the same for their end use and therefore, M/s. BIL is rendering the service. It was also explained by the appellant therein that but for M/s. BIL retrieving the data, the appellant would have retrieved....
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....(Appeals), we find that the Commissioner (Appeals) has travelled beyond the scope of allegation made in the show cause notices. By giving a different interpretation to the nature of transaction, which, in our considered view, could not have been done by the Appellate Authority in the light of the settled position with regard to the Service Tax liability admitted and paid by BIL. Therefore, unless and until, the assessment on BIL had been reopened, the nature of transaction as referred by BIL has to be held to be wrong and the Commissioner (Appeals) could not have given a different interpretation to the nature of claim made by the BIL from the assessee's by interpreting the terminology used in the invoice. The correct test, which ought to have been applied by the Adjudicating Authority, Appellate Authority and the Tribunal, is as to what is the character of payment made by the assessee's on which they have availed the CENVAT credit. 16. In the instant cases, it is not in dispute that whatever the portion of Service Tax component which was collected from the assessee's by BIL was only the amount on which the CENVAT credit has been claimed by the assessee's. Therefore, unless and un....
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....any Ltd. (Supra). The relevant observations of the CESTAT are as under: "4. Heard both sides and perused the records. 5. In this case, it is an undisputed facts that the automotive dealers had paid service tax on the nature of services described in the invoices issued to the appellant; that payment of service tax by such dealers have been accepted by the service tax authorities having jurisdiction over their business premises. Since, the service tax paid by such dealers was availed as Cenvat credit try the appellant, availment of such credit is in conformity with the Cenvat statute. We find that in an identical case, Cenvat credit was denied by the Department, holding that the invoices issued by the automotive dealers are false/fraudulent/invalid, since no service of the description contained therein was rendered by the auto dealer. The dispute was resolved by the co-ordinate Bench of the Tribunal in the case of M/s. Cholamandalam Ms General Insurance Co. Ltd. (supra), holding that since the service tax was paid by the auto dealer, under the taxable head of "Business Auxiliary Service" and the assessment of auto dealer has not been re-opened or questioned, credit availed cannot....
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....disallowance of deduction claimed by the assessee purely based on the report of the Central Excise Authorities is unsustainable. 20 Having held so, it is now necessary to advert to the issue as to whether, the payment can at all be disallowed by invoking Explanation-1 to Section 37(1) of the Act. On a reading of Explanation-1 to Section 37(1) of the Act it becomes clear that any expenditure incurred by assessee for any purpose, which is an offence or is prohibited by law shall not be regarded as expenditure incurred for the purpose of business, hence, no deduction can be allowed. So the exceptions are, the expenditure incurred must not be for any purpose which is an offence, secondly which is prohibited by law. As far as the first limb of Explanation- 1 is concerned, it cannot be said that the expenditure incurred by the assessee is in the nature of an offence. At least there is nothing on record to suggest that any prosecution has been launched against the assessee to try any offence committed under the Insurance Act or the assessee has been held guilty for committing any offence. Second limb of the explanation is for expenditure prohibited by law. The relevant law in the present....