2019 (7) TMI 1857 - AT - Income Tax

Adjustment from the actuarial valuation - assessment of life insurance business - HELD THAT - We noted that this issue is squarely covered by the decision of ITAT in assessee s own case 2017 (8) TMI 1644 - ITAT MUMBAI - We have noted that the Tribunal is taking a consistent view in all the cases of life insurance business and allowing adjustment from surplus arrived at as per actuarial valuation while interpreting section 44 of the Act r.w. Rule -2 of the First Schedule along with the provisions of Insurance Act 1938, Insurance Regulatory and Development Authority Act 1999 and regulations there under. As the issue is squarely covered in favour of the assessee consistently, the Ld. CIT DR could not point out any distinguishing facts in the present case. Hence, we affirm the order of the CIT(A) and dismiss this issue of Revenue s appeal. Transfer between share holders account and policy holders account is tax neutral and not taxable u/s. 44 of the Act r.w. Rule-2 of the First Schedule - HELD THAT - As decided in own case 2017 (8) TMI 1644 - ITAT MUMBAI Tribunal has already concluded that transfer between share holders account and policy holders account is tax neutral and not taxable u/s. 44 of the Act r.w. Rule-2 of the First Schedule. It was the contention of the Revenue that the Revenue has not accepted the decision of the ITAT and further appeals have been filed before the Hon'ble High Court. We noted that it is an admitted position that this issue is squarely covered in favour of the assessee in assessee own case vide orders of the Tribunal, hence, are not interfering in the finding of CIT(A) allowing the claim of the assessee. Even before us, now also the Ld. DR could not distinguish the facts of the present case vis- -vis the orders of the Tribunal in earlier years. 100% depreciation in respect of assets costing less than ₹ 20,000/- - HELD THAT - As there is no dispute on facts, the claim of assessee is that it has been consistently following the policy of providing depreciation @ 100% on the value of assets costing less than ₹ 20,000/-. The contention of the assessee is that since computation of profits and gains of the business of assessee, being in the business of life insurance, is in accordance with the provisions of section 44 of the Act, which over rides section 28 to 43B of the Act are not applicable to the assessee for determining the income from life insurance business. We noted that this issue is now settled and Revenue could not point out any distinguishing facts from earlier years 2017 (8) TMI 1644 - ITAT MUMBAI and 2018 (1) TMI 1585 - ITAT MUMBAI . Hence, we confirm the order of the CIT(A) and dismiss this Ground of Revenue s appeal. Exemption u/s 10(34) in respect to dividend income - dividend income is considered as part of income of Insurance Business and is included as an 'income' by the actuary - HELD THAT - We note that this issue has been consistently decided in favour of the assessee by allowing the claim of exemption on account of dividend u/s. 10(34) of the Act by the Tribunal in earlier years and hence, taking a consistent view, we confirm the order of CIT(A) and this issue of Revenue s appeal is dismissed. Addition u/s 14A r.w.r. 8D - disallowance of expenses relatable to exempt income - CIT(A) held that no disallowance is attracted u/s. 14A of the Act in assessee s own case even if it is held that the assessee is entitled to claim u/s.10(34) of the Act in respect of dividend income -HELD THAT - As noted that the Tribunal is consistently taking a view that no disallowance u/s.14A of the Act r.w. Rule 8D of the Rules can be made while computing a total income of the person engaged in the business of insurance whose profits and gains from insurance business is computed in terms of the provision of section 44 of the Act r.w. First Schedule of the Act. As the Tribunal is consistently taking a view on this issue, we confirm the order of CIT(A) and this common issue is allowed in favour of the assessee. Accordingly, this issue in the appeal of the Revenue is dismissed and that of assessee s appeal is allowed. Carry forward of losses as assessed under the head income from other sources - HELD THAT - This issue is covered in favour of the assessee by Co-ordinate Bench decision in assessee s own case for assessment year 2008-09 2018 (1) TMI 1585 - ITAT MUMBAI wherein the Tribunal has allowed the carry forward of losses u/s. 72. Assessment of income - surplus available in share holders account is to be assessed as income from other sources or an income from insurance business - rates specified u/s.115B - HELD THAT - As decided in own case 2017 (8) TMI 1644 - ITAT MUMBAI these grounds are held in favour of the appellant and the AO is directed to apply the tax rate of 12.5% as per the provisions of section 115B in respect of the surplus in SHA by treating the same as part of the profits and gains of Life Insurance business and in respect of the income assessed as Profits and gains of life insurance business. Claim of deduction on account of decrease in negative reserve - HELD THAT - As in case HDFC STANDARD LIFE INSURANCE COMPANY LTD. AND OTHER VERSUS DCIT (OSD) -1 (1) MUMBAI AND OTHERS 2013 (10) TMI 1072 - ITAT MUMBAI allowed the claim of the assessee - CIT(A) only on this basis allowed the claim of assessee of negative reserve. Since the issue is covered in favour of the assessee in regard to actuarial valuation, we uphold the order of CIT(A). The issued raised by the assessee in regard to negative reserve has become academic and, hence, infructuous.

Summary

Issues Involved:
1. Adjustment from actuarial valuation
2. Tax neutrality of transfers between shareholders' and policyholders' accounts
3. Claim of 100% depreciation
4. Exemption under Section 10(34) for dividend income
5. Disallowance of expenses related to exempt income under Section 14A read with Rule 8D
6. Carry forward of losses assessed under "Income from Other Sources"
7. Taxation of surplus in shareholders' account
8. Deduction for decrease in negative reserve
9. Exemption under Section 10(23AAB) for surplus in pension business
10. Disallowance of provision for wealth tax
11. Interest under Section 234B
12. Initiation of penalty proceedings under Section 271(1)(c)

Detailed Analysis:

1. Adjustment from Actuarial Valuation:
The first issue concerns the CIT(A)'s decision allowing adjustment from the actuarial valuation, relying on ITAT decisions in similar cases. The AO did not accept the computation of profit and gains from the life insurance business made by the assessee. The CIT(A) allowed the claim based on previous ITAT decisions, and the Tribunal upheld this, noting that the issue is consistently decided in favor of the assessee.

2. Tax Neutrality of Transfers Between Accounts:
The second issue is whether transfers between shareholders' and policyholders' accounts are tax-neutral. The CIT(A) held that these transfers are tax-neutral, following ITAT decisions. The Tribunal confirmed this, noting consistent rulings in favor of the assessee.

3. Claim of 100% Depreciation:
The third issue involves the claim of 100% depreciation on assets costing less than ?20,000. The AO disallowed this claim, but the CIT(A) allowed it based on ITAT decisions in earlier years. The Tribunal upheld the CIT(A)'s decision, noting no distinguishing facts from previous years.

4. Exemption under Section 10(34) for Dividend Income:
The fourth issue is the exemption of dividend income under Section 10(34). The AO disallowed this exemption, but the CIT(A) allowed it, relying on ITAT decisions. The Tribunal confirmed the CIT(A)'s decision, noting consistent rulings in favor of the assessee.

5. Disallowance of Expenses Related to Exempt Income:
The fifth issue concerns the disallowance of expenses related to exempt income under Section 14A read with Rule 8D. The AO made a protective disallowance, which the CIT(A) restricted. The Tribunal upheld the CIT(A)'s decision, noting consistent ITAT rulings that no disallowance under Section 14A is attracted for insurance businesses.

6. Carry Forward of Losses Assessed Under "Income from Other Sources":
The sixth issue is the carry forward of losses assessed under "Income from Other Sources." The CIT(A) allowed the carry forward of business losses, subject to verification by the AO. The Tribunal upheld this, noting consistent ITAT rulings in favor of the assessee.

7. Taxation of Surplus in Shareholders' Account:
The seventh issue is whether the surplus in shareholders' account should be taxed as "Income from Other Sources" or as part of insurance business income. The CIT(A) held it should be taxed as part of insurance business income at a special rate. The Tribunal confirmed this, following consistent ITAT rulings.

8. Deduction for Decrease in Negative Reserve:
The eighth issue involves the deduction for a decrease in negative reserve. The CIT(A) did not allow this deduction, noting that the increase in negative reserve was not treated as taxable in earlier years. The Tribunal upheld this, noting consistent ITAT rulings that the AO cannot disturb actuarial valuations.

9. Exemption under Section 10(23AAB) for Surplus in Pension Business:
The ninth issue is the exemption under Section 10(23AAB) for surplus in the pension business. The CIT(A) allowed this exemption, and the Tribunal upheld the decision, noting consistent ITAT rulings in favor of the assessee.

10. Disallowance of Provision for Wealth Tax:
The tenth issue concerns the disallowance of the provision for wealth tax. The CIT(A) allowed the provision, and the Tribunal upheld this, noting consistent ITAT rulings.

11. Interest under Section 234B:
The eleventh issue is the applicability of interest under Section 234B. The CIT(A) did not address this, and the Tribunal noted the issue but did not provide a specific ruling.

12. Initiation of Penalty Proceedings under Section 271(1)(c):
The final issue is the initiation of penalty proceedings under Section 271(1)(c). The CIT(A) did not address this, and the Tribunal noted the issue but did not provide a specific ruling.

Conclusion:
The Tribunal dismissed the appeals of the Revenue and allowed the appeals of the assessee, following consistent ITAT rulings on the various issues involved. The decisions were based on established precedents and consistent interpretations of the relevant sections of the Income Tax Act.