2019 (7) TMI 1908 - AT - Income Tax

Applicability of section 14A on insurance business - Addition u/s 14A r.w.r 8D - As argued applicant being insurance company and his total income is computed as per the provisions of section 44 provisions of section 14A read with rule 8D do not apply - HELD THAT - As decided in own case 2016 (11) TMI 598 - ITAT MUMBAI dismiss this ground of appeal of the revenue and direct the AO to delete the addition as held that Tribunal was justify in holding that provisions of section 14A of the Act did not apply to insurance business, even when the assessee has claimed exempted income u/s 10 of the I.T. Act - Decided against revenue. Addition made on account of increment in negative reserves - HELD THAT - We find that the assessee followed the IRDA Recommendations and accordingly prepared the actuarial valuation report including the surplus or deficit. The Rule 2 prescribes only actual valuation in accordance with Insurance Act 1938. Looking at the issue, we noticed that the computation made by the assessee is in accordance with Rule 2 of the Insurance Act 1938, according to which only AO can base his computation. The Revenue has not contested that the working of actuarial surplus / deficit is not in accordance with Rule 2 of 1st Schedule. Accordingly we are of the view that the CIT(A) has rightly deleted the addition and we confirmed the same. Since, the coordinate Bench has decided the identical issue in favour of the assessee by upholding the findings of the Ld. CIT (A) in assessee s own case for the AY 2010-11 2016 (11) TMI 598 - ITAT MUMBAI and since there is no change of facts in the present case, we do not find any reason to take a different view. Hence, respectfully following the decision of the coordinate Bench, we dismiss this ground of appeal of the revenue and direct the AO to delete the addition Addition on account of non granting of deduction taken u/s 10(23AAB) - as argued income includes loss and the income from pension fund does not form part to the total income of the assessee u/s 10(23AAB) - AO held that since income from such pension business is exempt u/s 10(23AAB), the losses incurred has to be treated as exempt and further held that such losses cannot be carried forward - HELD THAT - As decided in 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. Accordingly, questions(c) and (d) are answered in the affirmative, that is, in favour of the assessee and against the revenue.

Summary

Issues Involved:
1. Applicability of Section 14A to insurance business.
2. Addition on account of increment in negative reserves.
3. Addition on account of non-granting of deduction under Section 10(23AAB).

Issue-wise Detailed Analysis:

1. Applicability of Section 14A to Insurance Business
The revenue challenged the CIT(A)'s decision that Section 14A is not applicable to insurance businesses. The Departmental Representative (DR) argued that since the assessee claimed exemption under Section 10(34) for dividend income, the provisions of Section 14A read with Rule 8D should apply. The assessee's counsel countered that this issue was already decided in favor of the assessee in previous years, including AY 2010-11, where the Tribunal held that Section 14A does not apply to insurance businesses due to the non obstante clause of Section 44. The Tribunal upheld the CIT(A)'s decision, referencing past rulings that consistently favored the assessee, and dismissed the revenue's appeal on this ground.

2. Addition on Account of Increment in Negative Reserves
The revenue contested the deletion of an addition of ?10,11,93,000/- made by the AO for the increment in negative reserves. The AO argued that negative reserves reduce the taxable surplus and should be adjusted. The assessee's counsel maintained that this issue was also decided in the assessee's favor in AY 2010-11. The Tribunal cited the Hon'ble Bombay High Court's ruling in CIT vs. ICICI Prudential Insurance Co. Ltd., which stated that the AO cannot modify actuarial valuations as per the Supreme Court's decision in LIC vs. CIT. The Tribunal found no change in the facts of the present case and upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground.

3. Addition on Account of Non-Granting of Deduction under Section 10(23AAB)
The revenue challenged the deletion of an addition of ?3,63,70,719/- made by the AO for non-granting of deduction under Section 10(23AAB). The AO argued that losses from the pension fund, which are exempt under Section 10(23AAB), should not be carried forward. The assessee's counsel argued that this issue was also decided in the assessee's favor in AY 2010-11. The Tribunal referenced the Hon'ble Bombay High Court's decision in CIT vs. LIC of India Ltd., which held that the pension fund remains part of the insurance business and losses should be considered in actuarial valuations. The Tribunal upheld the CIT(A)'s decision and dismissed the revenue's appeal on this ground.

Conclusion
The Tribunal dismissed the revenue's appeal for the assessment year 2013-2014, upholding the CIT(A)'s decisions on all contested issues. The Tribunal consistently referenced past rulings and higher court decisions that favored the assessee, ensuring that the legal principles were uniformly applied.