2022 (11) TMI 127 - AT - Income Tax

Application of section 14A to Insurance business - scope considering the fetters prescribed u/s 44 -- HELD THAT - As decided in assessee s own case for assessment year 2012 13 2020 (11) TMI 601 - ITAT MUMBAI and for assessment year 2013 14 2021 (5) TMI 298 - ITAT MUMBAI Section 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. Besides, the tribunal has also invoked the rule of consistency since the same view of the Tribunal has prevailed in respect of the earlier assessment years i.e., 2000-01, 2001-02 and 2005-06. Adjustment of negative reserve - Mathematical reserves is a part of the Actuarial valuation and the surplus takes into account the mathematical reserve also. Besides the impugned order follows the decision of the Apex Court in LIC of India 1963 (12) TMI 5 - SUPREME COURT wherein the Apex Court has held that the Assessing Officer has no power to modify the account after Actuarial valuation is done. It is also pertinent to note that for the Assessment Year 2007-08, the Assessing Officer had raised an identical issue during the assessment proceedings and thereafter by the assessment order dated 30 December 2009 held that no adjustment of the Actuarial valuation is to be done by following the decision of the Apex Court in LIC of India's case (supra). Therefore we find no substantial question of law arising for our consideration. Allowance of exemption u/s 10 (34) - Tribunal is correct in allowing the dividend income of assesee as exempt u/s. 10(34) as relying on ICICI Prudential life insurance Co Ltd 2015 (7) TMI 1346 - BOMBAY HIGH COURT

Summary

Issues Involved:
1. Allowance of dividend income exemption under Section 10(34) of the Income Tax Act, 1961.
2. Disallowance under Section 14A of the Income Tax Act, 1961.
3. Addition on account of negative reserves.
4. General grounds regarding reliance on pending Supreme Court cases.

Issue-wise Detailed Analysis:

1. Allowance of Dividend Income Exemption under Section 10(34):
The primary issue was whether the CIT(A) was correct in allowing the exemption of Rs. 6,696,593/- under Section 10(34) of the Income Tax Act, 1961. The AO contested this, arguing that the computation of income for insurance businesses should be governed by Section 44, which overrides other provisions, including Section 10(34). The CIT(A) relied on the decision of the Bombay High Court in the case of ICICI Prudential Life Insurance Co. Ltd., where it was held that the dividend income exemption under Section 10(34) is allowable. The Tribunal upheld this view, noting that the issue was covered by the decision of the coordinate bench in the assessee's own case for previous assessment years, and the Bombay High Court had admitted the ground regarding the allowability of dividend income exemption.

2. Disallowance under Section 14A:
The AO disallowed Rs. 3,895,297/- under Section 14A, arguing that it applies to insurance companies as well. The assessee contended that Section 44, which governs the computation of income for insurance companies, excludes the applicability of Section 14A. The CIT(A) deleted the disallowance, referencing the coordinate bench's decision in the assessee's favor for earlier years. The Tribunal supported this, citing the Delhi High Court's decision in the case of The Oriental Insurance Co. Ltd., which held that Section 44 overrides Section 14A for insurance companies.

3. Addition on Account of Negative Reserves:
The AO added Rs. 63,203,000/- on account of negative reserves, arguing that the actuarial valuation should not automatically determine the taxable income. The assessee argued that the income should be assessed based on the actuarial valuation as per Section 44. The CIT(A) deleted the addition, following the coordinate bench's decision in the assessee's favor. The Tribunal upheld this, referring to the Bombay High Court's decision in ICICI Prudential Life Insurance Co. Ltd., which stated that the AO has no power to modify the actuarial valuation.

4. General Grounds Regarding Pending Supreme Court Cases:
The AO raised general grounds, stating that the issues were pending before the Supreme Court. The Tribunal noted that the CIT(A) had followed the coordinate bench's decisions, which were consistent with the High Court's rulings. As such, the Tribunal dismissed these general grounds, emphasizing that the pending status of the Supreme Court cases did not alter the current legal standing.

Conclusion:
The Tribunal dismissed all five appeals filed by the AO for the assessment years 2014-15 to 2018-19, affirming the CIT(A)'s decisions. The Tribunal's order was pronounced in the open court on 31.10.2022.