2019 (4) TMI 959 - AT - Income Tax

Accrual of income - Addition on account of accrued interest on loans debentures and bonds - computation of taxable income earned from business of insurance u/s 44 - HELD THAT - We are of the considered view that the assessee company had rightly not recognised an amount 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. Addition on account of expenses incurred on Guest House repairing - HELD 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)(ii) of the Act. The repair expenses thereof would also be allowed as deduction as section 30(a)(ii) 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. Addition u/s 14A - assessment of insurance company - HELD THAT - Hon ble Supreme Court in Maxopp Investment Ltd . . 2018 (3) TMI 805 - SUPREME COURT OF INDIA 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. 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. 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. No illegality or perversity in the findings deletion made by the ld. CIT (A) ground no.3 is determined against the Revenue.

Summary

Issues Involved:
1. Deletion of addition on account of accrued interest on loans, debentures, and bonds amounting to ?80,52,21,000.
2. Deletion of 50% disallowance of ?47,43,236 on account of expenses incurred on guest house repairing.
3. Deletion of addition of ?49,84,91,810 under section 14A of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Accrued Interest
The Revenue challenged the deletion of the addition of ?80,52,21,000 on account of accrued interest on loans, debentures, and bonds. The Tribunal noted that this issue had already been decided in favor of the assessee in previous assessment years (AYs 2002-03, 2004-05, 2003-04, 2005-06) and confirmed by the Hon’ble Delhi High Court. The Tribunal reiterated that the computation of income for insurance companies is governed by Section 44 of the Income-tax Act, which prevails over other provisions. The Tribunal upheld the CIT(A)’s decision, concluding that the assessee had rightly not recognized the amount as income as per its accounting policy and the Insurance Regulatory Development Authority (IRDA) guidelines. Thus, this ground was determined against the Revenue.

Issue 2: Deletion of Disallowance on Guest House Expenses
The Revenue contested the deletion of 50% disallowance amounting to ?47,43,236 on guest house repairing expenses. The Tribunal observed that this issue had also been consistently decided in favor of the assessee in earlier years (AYs 2001-02 to 2005-06). The Tribunal held that expenses incurred for the maintenance of the company’s guest houses are allowable under Section 30(a)(ii) of the Act. Consequently, the Tribunal found no reason to interfere with the CIT(A)’s findings and determined this ground against the Revenue.

Issue 3: Deletion of Addition under Section 14A
The Revenue appealed against the deletion of ?49,84,91,810 made by the AO under Section 14A read with Rule 8D. The Tribunal noted that the CIT(A) had followed the decisions of the coordinate Bench for earlier years (AYs 2001-02 to 2005-06). The Revenue’s reliance on the Supreme Court’s decision in Maxopp Investment Ltd. vs. CIT was considered, but the Tribunal found it inapplicable to insurance companies. The Tribunal emphasized that the income of insurance companies is computed under Section 44 read with Rule 5 of the First Schedule, which contains a non-obstante clause, thereby excluding the applicability of Section 14A. The Tribunal upheld the CIT(A)’s deletion, noting that the Revenue had not challenged the Tribunal’s earlier decisions in higher courts. Thus, this ground was also determined against the Revenue.

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)’s deletions on all grounds. The order was pronounced in open court on February 25, 2019.