2021 (2) TMI 179 - AT - Income Tax

Disallowance u/s. 14A - assessee is engaged in life insurance business and accordingly computed income as per the provisions of section 44 of the Act read with First Schedule of the Act - HELD THAT - This issue was considered in the case of Pr. CIT v. The Oriental Insurance Co. Ltd. 2020 (3) TMI 507 - DELHI HIGH COURT wherein held 44 is a special provision applicable in the cases of insurance companies and applies, notwithstanding anything to the contrary contained in the provisions of the Income-tax Act relating to the computation of income chargeable under different heads. For computing the profits and gains of the business of insurance company, the AO had to resort to section 44 and the prescribed rules, and could not have applied section 28 to 43B, since the same were excluded from the purview of section 44. This necessarily includes the exception provision enshrined under section 14A of the Act. Therefore, in our view, the AO could not have travelled beyond section 44 in the first schedule of the Act. Disallowance u/s. 14A of the Act in the proceedings u/s. 154 - HELD THAT - In AY 2012-13 the AO himself dealt with this issue in the proceedings u/s. 154 of the Act dated 23.03.2016 and specifically observed that the disallowance u/s. 14A includes expenditure relating to pension account and since the entire losses from pension account are excluded from the computation and the above expenditure are included in the losses, the computation of disallowance u/s. 14A was mistake apparent from the record. As such, the ld. DR is precluded in objecting to entertaining a ground relating to disallowance u/s. 14A in the proceedings u/s. 154 of the Act by this Tribunal. Accordingly the ground of appeal by the assessee with regard to disallowance u/s. 14A of the Act is allowed in favour of the assessee. Relief in respect of provisions of section 10(23AAB) - AO did not allow the loss incurred from pension fund which is exempt u/s. 10(23AAB) of the Act to be excluded while determining the actuarial valuation surplus u/s. 44 - HELD THAT - Tribunal in assessee s own case for the AY 2010-11 it would be the case when income is computed under the normal provisions of the Act. However, in the case of Assessee's engaged in life insurance business Income has to be computed as laid down u/s 44 - Section 44 of the Act starts with a non obstante clause and overrides the provisions of the Act relating to computation of income under the various heads of income including income under the head profit and gains of business of insurance. Therefore, we are of the view that stand taken by the DRP cannot be accepted. We, therefore, direct that loss from pension fund which is exempt u/s 10 (23AAB) be excluded while determining surplus as per actuarial valuation surplus u/s 44 - Decided in favour of assessee.

Summary

Issues:
1. Disallowance u/s. 14A of the Income-tax Act, 1961.
2. Relief in respect of provisions of section 10(23AAB) of the Act.

Analysis:
1. Disallowance u/s. 14A of the Income-tax Act, 1961:
- The appeals involved cross appeals by the assessee and revenue against the CIT(Appeals) orders for different assessment years.
- The main issue was the disallowance u/s. 14A of the Act, contested by the assessee engaged in life insurance business.
- The AO and CIT(Appeals) made disallowances u/s. 14A for certain assessment years, which were challenged by the assessee.
- The Hon'ble Delhi High Court's judgment in a similar case was cited, emphasizing that section 44 of the Act overrides section 14A, excluding its applicability to the computation of income of an insurance company.
- The Tribunal upheld the assessee's contentions, ruling in favor of the assessee and against the department.
- The Tribunal also addressed the objection raised by the ld. DR regarding raising the issue of disallowance u/s. 14A in the proceedings u/s. 154, highlighting that the AO had already dealt with this issue, leading to the allowance of the assessee's appeal on this ground.

2. Relief in respect of provisions of section 10(23AAB) of the Act:
- The revenue's appeal focused on allowing relief concerning section 10(23AAB) provisions.
- The AO did not exclude the loss incurred from the pension fund, exempt u/s. 10(23AAB), while determining the actuarial valuation surplus u/s. 44 of the Act.
- The CIT(Appeals) allowed the assessee's appeal based on earlier orders and judgments, leading to the revenue's appeal before the Tribunal.
- The Tribunal, considering a similar issue in a previous case, ruled in favor of the assessee, directing the exclusion of the loss from the pension fund while determining the surplus.
- The Tribunal dismissed the revenue's appeal on this ground, aligning with the consistent view taken in favor of the assessee in similar cases.

In conclusion, the Tribunal allowed all the appeals of the assessee while dismissing the revenue's appeal, providing detailed reasoning and legal interpretations for each issue raised, ultimately resulting in a comprehensive and favorable judgment for the assessee.