2019 (10) TMI 1402 - AT - Income Tax

Accrual of income - addition on account of accrued interest on loans, debentures and bonds - HELD THAT - As decided in own case 2002 (9) TMI 44 - DELHI HIGH COURT we are of the considered view that the assessee company had rightly not recognised as income for the years as per its accounting policy and as per policy issued by the Insurance Regulatory Development Authority (IRDA). So, finding no illegality or perversity in the findings returned by the ld. CIT (A), ground no .1 is determined against the Revenue. Disallowance u/s 14A in respect of expenditure incurred in relation to income not includible in the total income - HELD THAT - As decided in own case we are of the considered view that the argument addressed by the ld. DR for the Revenue by relying upon the decision rendered by Hon ble Supreme Court in Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT are not sustainable because of the fact that in case of insurance company, the assessee in this case, the income is to be computed as per provisions contained u/s 44 read with Rule 5 of First Schedule, coupled with non- obstante clause and in these circumstances, the AO is not empowered to travel beyond these provisions. Even otherwise, section 14A contemplates an exception for deduction as allowable under the Act are those contained under sections 228 to 438 of the Act and section 44 creates special application of these provisions in case of the insurance companies. The ld. AR for the assessee stated at Bar that the decision rendered by coordinate Bench of the Tribunal right from AYs 2000-01 to 2005-06 have not been challenged in the Hon ble High Court. So, finding no illegality or perversity in the findings deletion made by the ld. CIT (A) , ground no.3 is determined against the Revenue. Disallowance on account of expenses incurred on Guest House maintenance - CIT (A) deleted 50% of the disallowance - HELD THAT - As following the decision rendered by the coordinate Bench of the Tribunal , we are of the considered view that when the expenditure incurred by the assessee company for maintenance of company s own guest houses, the same is covered u/s 30(a) of the Act. The repair expenses thereof would al so be allowed as deduction as section 30(a) of the Act. So, we find no ground to interfere with the findings returned by the ld. CIT (A) and consequently ground no.2 is determined against the Revenue.

Issues Involved:
1. Addition on account of accrued interest on loans, debentures, and bonds.
2. Disallowance under Section 14A in respect of expenditure incurred in relation to income not includible in the total income.
3. Disallowance of 50% of expenses incurred on Guest House maintenance.
4. Computation of income under Section 115JB of the Act.

Detailed Analysis:

1. Addition on account of accrued interest:
The assessee, a public sector undertaking in the non-life insurance business, received an interest income of ?92,00,59,000/-. The Assessing Officer (AO) taxed this interest income, arguing it accrues annually on debentures, loans, and bonds. However, the Tribunal had previously deleted similar additions for AYs 2002-03, 2004-05, 2007-08, 2008-09, and 2011-12. The Tribunal reiterated that the income of an insurance company must be computed per Section 44 of the Act, a special provision prevailing over other provisions. The Tribunal and the Hon’ble Delhi High Court had consistently ruled in favor of the assessee, asserting that the income from insurance business should be computed according to the rules in the First Schedule. Following these precedents, the Tribunal found no illegality in the CIT(A)'s deletion of the addition and ruled in favor of the assessee.

2. Disallowance under Section 14A:
The AO made an addition of ?38,43,09,793/- under Section 14A read with Rule 8D, which the CIT(A) deleted. The Tribunal had previously decided in favor of the assessee for AYs 2001-02 to 2005-06, stating that Section 44, a non obstante clause, governs the computation of insurance business income, which must be done per the First Schedule's rules. The Tribunal noted that Section 14A does not apply to insurance companies as their income computation is strictly regulated by Section 44 and Rule 5 of the First Schedule. Despite the Revenue's reliance on the Maxopp Investment Ltd. case, the Tribunal maintained that the AO cannot bypass the specific provisions for insurance companies. Thus, the Tribunal upheld the CIT(A)'s deletion of the disallowance.

3. Disallowance of Guest House expenses:
The AO disallowed 50% of the ?46,07,865/- expenses incurred on guest house maintenance, which the CIT(A) deleted. The Tribunal had previously ruled in favor of the assessee for AYs 2001-02 to 2005-06, recognizing that expenses for maintaining the company's guest houses are deductible under Section 30(a)(ii) of the Act. The Tribunal reiterated that repair and maintenance expenses for guest houses, whether owned or leased by the company, are allowable deductions. Therefore, the Tribunal found no reason to interfere with the CIT(A)'s decision and ruled against the Revenue.

4. Computation under Section 115JB:
Given the adjudication of the previous grounds, the issue pertaining to Section 115JB became infructuous.

Conclusion:
The appeal by the Revenue was dismissed, with the Tribunal upholding the CIT(A)'s decisions on all contested grounds. The judgment was pronounced in the open court on 22/10/2019.

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