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2018 (12) TMI 1938 - AT - Income TaxAddition u/s 14A - section 14A application to insurance business even when the assessee has claimed exempted income u/s 10 - AO was of the view that the income earned on investment made by a Life Insurance company is income earned on normal business and the same has to be assessed under the head income from business or Profession - HELD THAT - As relying on own case 2016 (11) TMI 598 - ITAT MUMBAI we hereby accept the argument of learned Authorized Representative to the extent that in the present situation the provisions of s. 14A need not to apply while granting exempt ion to an income earned on sale of investment primarily because of the reason of the withdrawal or deletion of sub- r. 5(b) to First Schedule of s. 44 of IT Act. Once we have taken this view therefore the enhancement as proposed by learned CIT(A) is reversed and the directions in this regard are set aside. Disallowance on account of carry forward of losses from pension business - HELD THAT - As relying on own case 2016 (11) TMI 598 - ITAT MUMBAI the object of inserting section 10(23AAB) as per the Board Circular No. 762 dated 18/02/1998 was to enable the assessee to offer attractive terms to the contributors. Thus the object of inserting section 10(23AAB) was not with a view to treat the pension fund like jeevan Suraksha Fund outside the purview of insurance business but to promote insurance business by exempting the income from such fund. Therefore in the facts of the present case the decision of the Income-tax Appellate Tribunal in holding that even after insertion of section 10(23AAB) the loss incurred from the insurance business under section 44 of the Income-tax Act 1961 cannot be faulted. - Decided against revenue.
Issues Involved:
1. Deletion of disallowance of deduction/exemption claimed under Section 10(34) of the Income Tax Act, 1961. 2. Deletion of disallowance of expenses related to exempt income under Section 14A of the Income Tax Act, 1961. 3. Deletion of addition made by AO on account of negative reserve. 4. Allowance of carry forward of losses from pension business under Section 10(23AAB) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Deletion of Disallowance of Deduction/Exemption Claimed Under Section 10(34): The Revenue challenged the CIT(A)'s decision to delete the disallowance of the deduction claimed by the assessee under Section 10(34) related to dividend income. The AO had argued that the dividend income forms part of the actuarial valuation for calculating the surplus or deficit, which is considered business income. The CIT(A) deleted the disallowance, referencing previous appellate orders. The Tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's ruling in CIT Vs. ICICI Prudential Insurance Co. Ltd., which confirmed that dividend income is exempt under Section 10(34). 2. Deletion of Disallowance of Expenses Related to Exempt Income Under Section 14A: The Revenue also contested the CIT(A)'s deletion of disallowance under Section 14A, arguing that once the dividend is considered exempt under Section 10(34), the disallowance of related expenses becomes necessary. The Tribunal, following its previous decisions and those of the Bombay High Court, held that the provisions of Section 14A do not apply to the profits and gains of insurance business computed under Section 44 read with Rule 5 of the First Schedule. The Tribunal cited consistent rulings, including those in the cases of ICICI Prudential Insurance Co. Ltd. and Bajaj Allianz General Insurance Co. Ltd., to dismiss the Revenue's appeal on this issue. 3. Deletion of Addition Made by AO on Account of Negative Reserve: The Revenue appealed against the CIT(A)'s deletion of the addition made by the AO concerning the negative reserve, which allegedly reduced the taxable surplus. The Tribunal referenced the Bombay High Court's ruling in CIT Vs. ICICI Prudential Insurance Co. Ltd., which held that the actuarial valuation, including the mathematical reserve, cannot be modified by the AO. The Tribunal confirmed that the computation made by the assessee was in accordance with Rule 2 of the Insurance Act 1938 and upheld the CIT(A)'s decision. 4. Allowance of Carry Forward of Losses from Pension Business Under Section 10(23AAB): The Revenue challenged the CIT(A)'s decision to allow the carry forward of losses from pension business, arguing that Section 10(23AAB) falls under the exemption chapter and thus any income or loss should be excluded from the total income computation. The Tribunal, referencing its previous decisions and the Bombay High Court's ruling in CIT Vs. LIC of India Ltd., held that the loss incurred from the Jeevan Suraksha Fund, an approved pension fund, is part of the insurance business and should be considered in the actuarial valuation. The Tribunal upheld the CIT(A)'s decision, allowing the carry forward of losses. Conclusion: The Tribunal dismissed the Revenue's appeal on all issues, confirming the CIT(A)'s decisions in favor of the assessee. The Tribunal's rulings were consistently supported by previous decisions and the Bombay High Court's judgments, ensuring that the assessee's claims and computations were in accordance with the relevant provisions of the Income Tax Act and the Insurance Act.
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