2014 (1) TMI 183 - AT - Income Tax

Expenditure in respect of increase in share capital - Capital or revenue - Held that - in the case of an assessee company which is engaged in the business of Life Insurance the expenditure incurred with regard to increase in share capital is allowable as deduction by treating it as revenue in nature. - Decided in favor of assessee. Additional grounds - requesting the Tribunal to consider the loss from Pension Fund while determining the surplus/(deficit) from the insurance business for the purpose of section 44 - Held that - The Tribunal is empowered to admit any additional ground in the interest of substantial justice if all the facts are already on record - Following CIT vs. Life Insurance Corporation of India 2011 (8) TMI 47 - BOMBAY HIGH COURT - Beyond the period of limitation prescribed if an assessee makes a claim such claim cannot be considered by the AO but at the same time a new ground urged before the Appellate Authority always also be considered in the light of the power vested in the Appellate Authority under the provisions of the Act - The issue was set aside for fresh adjudication.

Summary

Issues:
1. Claim of deduction for expenditure related to increase in share capital under section 44 of the Income Tax Act.
2. Consideration of loss from Pension Fund while determining surplus/(deficit) from insurance business under section 44 of the Act.

Issue 1: Claim of deduction for expenditure related to increase in share capital under section 44 of the Income Tax Act:

The appeals by the assessee company were against the orders passed by the CWT (Appeals), 16, Mumbai for A.Ys. 2005-06 to 2007-08. The main issue revolved around the deduction claimed by the assessee company for the expenditure incurred in connection with the increase in share capital. The AO and CIT(A) contended that such expenditure cannot be considered as revenue in nature based on a decision of the Apex Court. However, the assessee argued that the increase in share capital was necessitated by IRDA regulations for business growth and solvency requirements. The ITAT Mumbai Benches consistently held that in the case of a life insurance business, the expenditure related to an increase in share capital is allowable as a deduction by treating it as revenue in nature under section 44 of the Act. The ITAT, in line with its previous decisions, directed the AO to allow the claim of deduction, as per the principles laid down by the Apex Court and High Courts.

Issue 2: Consideration of loss from Pension Fund while determining surplus/(deficit) from insurance business under section 44 of the Act:

The assessee sought to include the loss from the Pension Fund while determining the surplus/(deficit) from the insurance business for the purpose of section 44 of the Income Tax Act. The assessee initially reduced the loss from the total deficit under the assumption that income from the Pension Fund was exempt from tax. However, a judgment by the Hon'ble Bombay High Court clarified that the loss from the Pension Fund must be considered regardless of the tax exemption status. The assessee raised this additional ground before the Tribunal, justifying the late submission due to the recent legal clarification. The Revenue objected to considering this additional ground, citing a decision of the Apex Court. The Tribunal, following the precedent set by ITAT Mumbai Benches and the decision of the Hon'ble Bombay High Court, admitted the additional ground and directed the AO to reconsider the plea in light of the clarified judgment.

In conclusion, the ITAT Mumbai ruled in favor of the assessee company on both issues. The deduction claim for expenditure related to the increase in share capital was allowed under section 44 of the Income Tax Act based on consistent decisions of the ITAT. Additionally, the Tribunal admitted the additional ground regarding the consideration of loss from the Pension Fund for determining surplus/(deficit) from the insurance business, in line with the substantial justice principle and relevant legal precedents.