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2019 (11) TMI 1769 - AT - Income TaxAssessment of life insurance companies - Surplus disclosed in the Acturial Report in Form I as changed by way of adjustment - whether CIT(A) has erred in holding that the capital contribution of shareholders account to policy holder account has to be reduced while computing income u/ r.w.s first schedule of IT Act? - HELD THAT - In any way what we notice is that the computation made by assessee is in accordance with Rule-2 of the Insurance Act 1938 according to which only AO can base his computation. This also corresponds to the way incomes were assessed in earlier years ie. the correct method as per Rule 2 and Sec 44 of IT ACT. In view of the discussion above and after analyzing the Forms, Regulations and Provisions we have no hesitation to hold that the assessee working of actuarial surplus/ deficit is in accordance with Rule 2 of First Schedule. Therefore, assessee grounds on this issue are allowed and AO is directed to modify the order accordingly. This decision has been followed by the Tribunal in the case of HDFC Standard Life Insurance Co. Ltd. 2013 (10) TMI 1072 - ITAT MUMBAI . Thus, following the same judicial precedence which would apply on the facts of the present case also, we decide the issues raised vide ground no. 1 2 in the department s appeal in favour of the assessee and against the Department. Addition u/s 14A - Reduce the exempt income u/s 10(34) while computing the income of insurance business of the assessee under section 44 - HELD THAT - As identical issue has been decided by the co-ordinate bench of the Tribunal in assessee s own case wherein it has been held that the provisions of section 14A of the Act are not applicable to life insurance companies. Exemption under section 10(34) is allowable on a net basis - HELD THAT - We in the case of ACIT vs. Bajaj Finance Ltd. 2015 (1) TMI 1383 - ITAT PUNE has interpreted the provisions of section 143(3) as amended by the Finance Act (2), 1998 w.e.f. 01.10.1998. The co-ordinate bench of the Tribunal has held that the CBDT circular No.549 dated 31.10.1989 and judgment of case of LML 1991 (9) TMI 7 - BOMBAY HIGH COURT were rendered in the context of assessment year 1989-90 which was prior to the amendment and in the post amendment period, the AO is statutorily empowered to determine the revised income which can even be lower than the returned income. It is apparent from the above that post amendment to section 143(3) of the Act by Finance Act (2), 1998 w.e.f. 01.10.1998, the AO has the power to determine the revised income which can be lower than the returned income. Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO accordingly. The issue raised by the assessee in ground No.1 2 are allowed. Section 14A applicable to the life insurance companies - Exemption under section 10(34) of the Act is to be allowed on the amount of dividend earned and not on net basis as the provisions of section 14A of the Act are not applicable to the insurance companies. The additional ground raised by the assessee is allowed.
Issues Involved:
1. Adjustment of surplus in the actuarial report. 2. Reduction of capital contribution from shareholders' account to policyholders' account while computing income. 3. Reduction of exempt income under section 10(34) while computing income of insurance business. 4. Assessed income being lower than returned income. 5. Exemption under section 10(34) on a net basis. Issue-wise Detailed Analysis: 1. Adjustment of Surplus in the Actuarial Report: The Revenue challenged the CIT(A)'s decision allowing adjustment of surplus disclosed in the actuarial report in Form I. The Tribunal observed that the issue had been previously decided in favor of the assessee by a coordinate bench in the case of ICICI Prudential Insurance Co. Ltd., where it was held that the actuarial valuation must be done according to the unamended Insurance Act, 1938. The Tribunal reaffirmed that the AO's reliance on IRDA regulations was incorrect and upheld the CIT(A)'s decision, dismissing the Revenue's ground. 2. Reduction of Capital Contribution from Shareholders' Account: The Revenue contested the CIT(A)'s decision to reduce the capital contribution of the shareholders' account to the policyholders' account while computing income. The Tribunal noted that this issue was also previously decided in favor of the assessee by the coordinate bench. The Tribunal reiterated that the consolidation of policyholders' and shareholders' accounts for actuarial valuation purposes was correct and upheld the CIT(A)'s decision, dismissing the Revenue's ground. 3. Reduction of Exempt Income under Section 10(34): The Revenue disputed the CIT(A)'s directive to reduce exempt income under section 10(34) while computing the income of the insurance business. The Tribunal referred to its earlier decision in the assessee's case, where it was held that section 14A does not apply to life insurance companies. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's ground. 4. Assessed Income Being Lower than Returned Income: The assessee challenged the CIT(A)'s reliance on a CBDT circular and a Bombay High Court decision, which held that assessed income cannot be lower than returned income. The Tribunal referred to a coordinate bench decision in Bajaj Finance Ltd., which clarified that post-amendment to section 143(3) by the Finance Act (2), 1998, the AO is empowered to determine revised income lower than the returned income. The Tribunal set aside the CIT(A)'s order and directed the AO to reassess the income accordingly, allowing the assessee's grounds. 5. Exemption under Section 10(34) on a Net Basis: The assessee raised an additional ground, arguing that exemption under section 10(34) should not be on a net basis. The Tribunal admitted the additional ground, noting that it was purely legal and emanated from the assessment records. The Tribunal referred to its earlier decision, which held that section 14A does not apply to life insurance companies. Consequently, the Tribunal held that exemption under section 10(34) should be allowed on the amount of dividend earned, not on a net basis, and allowed the assessee's additional ground. Conclusion: The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, directing the AO to reassess the income in accordance with the Tribunal's findings. The Tribunal upheld the CIT(A)'s decisions on the adjustment of surplus, reduction of capital contribution, and reduction of exempt income while computing insurance business income, and allowed the assessee's grounds on assessed income being lower than returned income and exemption under section 10(34) on a net basis.
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