2020 (12) TMI 575 - HC - Income Tax

MAT applicability u/s 115JB applicability to the insurance companies - HELD THAT - As per the amendment culled in the Act, the issue has to be decided by the Tribunal, however, due to inadvertence, the Tribunal has observedthat Section 115JB is not applicable to the insurance companies and therefore, held that there is no infirmity in the order passed by the CIT (Appeals). Since the provision has been made applicable to the Insurance companies as well with effect from 01.04.2003, the Tribunal has to decide the issue on merits for the assessment year 2013-2014 and decide as to whether the assessing officer was right in computing dis-allowance reserved for unexpired risk provision towards IBNR / IBNER claim and dis-allowance u/s 14(A) read with Rule 18 and the Tribunal to take a decision on merits and in accordance with law, therefore, the matter has to be remanded to the Tribunal for fresh consideration, accordingly, the observations made by the Tribunal in the impugned order are set aside, insofar as it relates to assessment year 2013-2014 and the matter is remanded to the Tribunal to decide the issue with regard to the computation under book profit and whether the assessing officer was right in his computation.

Summary

Issues Involved:
1. Interpretation of Section 115JB of the Income Tax Act for insurance companies.
2. Addition of reserve for unexpired risk in computing book profit under Section 115JB.
3. Deletion of addition for infra payments made to car dealers.

Interpretation of Section 115JB:
The High Court considered the issue of whether Section 115JB of the Income Tax Act, which allows companies to compute book profit, is applicable to insurance companies. The Tribunal erroneously held that Section 115JB did not apply to insurance companies. However, the Court noted that the provision was made applicable to insurance companies from 01.04.2003. Due to this oversight, the matter was remanded to the Tribunal for fresh consideration to decide on the computation under book profit and the correctness of the assessing officer's calculations for the assessment year 2013-2014.

Addition of Reserve for Unexpired Risk:
The Tribunal had noted an issue regarding the addition of reserve for unexpired risk in computing book profit under Section 115JB for various assessment years. However, it was clarified that this issue did not pertain to the assessment year 2013-2014 due to an amendment in Section 115JB by the Finance Act, 2012. The Court affirmed that the issue only applied up to the year 2012-2013. The Tribunal's observations on this matter were set aside for the assessment year 2013-2014, and the issue was remanded for fresh consideration.

Deletion of Addition for Infra Payments:
Regarding the deletion of addition for infra payments made to car dealers, the Court analyzed the findings of the Commissioner of Income Tax (Appeals) and affirmed the decision of the Tribunal. The Court emphasized that the Assessing Officer's conclusion based on information from the Service Tax Authorities was premature, as the investigation was still ongoing. The Court agreed that there was no conclusive evidence to disallow the infra payments, as the investigation had not reached a final decision. The Tribunal's decision to delete the addition for infra payments was upheld, protecting the interests of the Revenue while allowing for future reassessment based on new evidence.

This comprehensive analysis of the legal judgment by the Madras High Court covers the interpretation of Section 115JB for insurance companies, the treatment of reserve for unexpired risk in computing book profit, and the deletion of addition for infra payments made to car dealers for the assessment year 2013-2014.