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TMI Blog2023 (1) TMI 480X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of taxable income of an assessee engaged in the life insurance business. Thus, in view of non-obstante provisions of section 44 r.w. Rule 2 of First Schedule of the Income Tax Act, which clearly excludes the applicability of provisions of sections 28 to 43B in relation to the computation of income of an assessee engaged in the life insurance business, the provisions of section 14A have no application while computing the income under Chapter IV, we are of the considered opinion that resort to provisions of section 14A cannot be made while computing the income of insurance company - Decided against revenue. Excess provisions of income-tax debited in the books of account as expenditure - According to the AO, such excess provisions cannot be allowed as deduction while computing the profits and gains of business of the respondent-assessee, accordingly, brought such excess provision to tax - HELD THAT:- It is enumerated in clause (a), (b) and (c) of Rule 5, whereas, no such power has been conferred on the Assessing Officer to make any kind of adjustments as disclosed in the profits and gains prepared in accordance with provisions of the Insurance Act in relation to the life i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest income - additional ground of appeal was filed claiming exemption of interest u/s 10(15) - HELD THAT:- CIT(A) can admit an additional ground of appeal which involves pure question of law requiring no investigation into facts as held by the Hon ble Supreme Court in the Case of National Thermal Power Co. Ltd.[ 1996 (12) TMI 7 - SUPREME COURT] and Pruthvi Brokers Shareholders[ 2012 (7) TMI 158 - BOMBAY HIGH COURT] It is not the case of the Department that the interest income claimed by the respondent-assessee is not entitled for exemption u/s 10(15) of the Act. Therefore, we do not find any illegality and perversity allowing the additional ground of appeal by the ld. CIT(A). Accordingly, the ground of appeal filed by the Revenue stands dismissed. - ITA Nos.656 And 657/PUN/2021 - - - Dated:- 10-1-2023 - Shri Inturi Rama Rao, Accountant Member And Shri Partha Sarathi Chaudhury, Judicial Member For the Revenue : Shri Keyur Patel For the Assessee : Shri Percy Pardiwala ORDER PER INTURI RAMA RAO, AM : These are the appeals filed by the Revenue directed against the separate orders of ld. Commissioner of Income Tax (Appeals)- 13, Pune [ the CIT(A) ] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mostly interest is from tax free bonds and the assessee has received various exempt incomes under section 10(23AAB) and section 10(34). 10. The Appellant craves to add, amend, alter or delete any of the above ground of appeal during the course of appellate proceedings before the Hon ble Tribunal. 5. Briefly, the facts of the case are as under : The respondent-assessee is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of life insurance. The Return of Income for the assessment year 2012-13 was filed on 21.09.2012 declaring total income of Rs.1225,29,85,630/-. Against the said return of income, the assessment was completed by the Dy. Commissioner of Income Tax, Circle-1(1), Pune ( the Assessing Officer ) vide order dated 08.03.2016 passed u/s 143(3) r.w.s. 92CA(4) of the Income Tax Act, 1961 ( the Act ) at a total income of Rs.1316,81,70,200/-. While doing so, the Assessing Officer made addition of Rs.5,84,063/- u/s 14A rejecting the contention of the respondent-assessee that the only expenditure of Rs.17,937/- was incurred to earn the exempt income of Rs.6,02,000/-, rejecting the contention of the respondent-assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of computing the taxable income u/s 44 r.w. Rule 2 of First Schedule of the Income Tax Act. The same reasoning was applied by the ld. CIT(A) even with regard to the addition on account of provisions for income-tax on shareholder profits. The ld. CIT(A) also allowed the additional ground of appeal filed by the respondent-assessee seeking the exemption of interest income of Rs.1,57,51,109/- u/s 10(15) placing reliance on the plethora of decisions. Thus, the appeal filed by the assessee before the ld. CIT(A) came to be allowed in its entirety. 8. Being aggrieved by the decision of the ld. CIT(A), the Revenue is in appeal before us in the present appeal. 9. Ground of appeal no.1 and 10 are general in nature and the same are dismissed as such. 10. Ground of appeal no.2 to 4 challenges the correctness of the finding the ld. CIT(A) in holding that the provisions of section 14A have no application while computing the taxable profits of an assessee engaged in the life insurance business in light of nonobstante provisions of section 44 r.w. Rule 2 of First Schedule of the Income Tax Act. The ld. CIT-DR contends that the provisions of section 44 have application only in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 13. Thus, in view of non-obstante provisions of section 44 r.w. Rule 2 of First Schedule of the Income Tax Act, which clearly excludes the applicability of provisions of sections 28 to 43B in relation to the computation of income of an assessee engaged in the life insurance business, the provisions of section 14A have no application while computing the income under Chapter IV, we are of the considered opinion that resort to provisions of section 14A cannot be made while computing the income of insurance company. We do not find any perversity or illegality in the findings of the ld. CIT(A) on this issue. Accordingly, ground of appeal nos.2 to 4 filed by the Revenue stands dismissed. 14. Ground of appeal no.5 challenges the decision of the ld. CIT(A) allowing the excess provisions of income-tax of Rs.58.36 crores debited in the books of account as expenditure. The factual background ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... First Schedule to the Income-tax Act and satisfying the requirements of the Insurance Act are binding on the assessing officer under the Income-tax Act and he has no general power to correct the errors in the accounts of an insurance business and undo the entries made therein. 16. Again, the above ratio was laid down by the Hon ble Apex Court in the case CIT vs. Oriental Fire and General Insurance Co. Ltd., 291 ITR 370 (SC). The ratio that can be culled out from the above referred judgements of the Hon ble Supreme Court is that notwithstanding anything contained in the provisions of income-tax relating to the computation of chargeable income under head profits and gains of business , the profits of life insurance business are to be computed according to Rule 2 of First Schedule of the Income Tax Act. The provisions of section 44 bars the operations of the provisions of the computation of income under different heads specified therein. Further, the Assessing Officer can only make an adjustment to the surplus/deficit disclosed by actuarial valuations which are permissible under the Rule only. The Assessing Officer had no power to tamper with the surplus/deficit disclosed by ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in the shareholders accounts. The Assessing Officer was of the opinion that the Provision for tax made in respect of profits loss account of shareholders account cannot be allowed as deduction in computing the taxable income of the life insurance business of the respondent-assessee company. Accordingly, a sum of Rs.33,10,50,000/- was brought to tax by the Assessing Officer. On appeal before the ld. CIT(A), the same came to be allowed by holding that preparation of separate Profit Loss Account in respect of both policyholders account and shareholders account is a mere compliance statutory requirement and the shareholders activities is integral part of the business of life insurance carried on by the respondent-assessee and no separate addition is warranted. Accordingly, the ld. CIT(A) directed the Assessing Officer not to make any addition on account of Provision for tax made in respect of shareholders profits disclosed in the shareholders accounts. 18. Being aggrieved, the Revenue is in appeal before us in the present ground of appeal no.6. 19. The ld. CIT-DR submits that the provisions of Insurance Act as amended w.e.f. 2002 requires an assessee to maintain a separat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other sources. The impugned order while allowing the assessee's appeal holds that income earned on shareholders' amount has to be considered as arising out of Life Insurance Business. Moreover in terms of Section 44 of the Act, such income has to be taxed in accordance with First Schedule as provided therein. None of the authorities under the Act nor even before us is it urged that the assessee is carrying on separate business other than life insurance business. Accordingly, the impugned order holding that the income from shareholders' account is also to be taxed as a part of life insurance business cannot be found fault with in view of the clear mandate of Section 44 of the Act. Accordingly Question No. 8 also does not raise any substantial question of law. Thus not entertained. 22. Even the Hon ble Karnataka High Court following the decision relied upon by the Hon ble Bombay High Court in the case of ICICI Prudential Insurance Co. Ltd. (supra) held that where the assessee company was engaged only in life insurance business and was not carrying on any other business, surplus or deficit as per shareholders account is to be aggregated with surplus or deficit with p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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