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TMI Blog2023 (5) TMI 1096X X X X Extracts X X X X X X X X Extracts X X X X ..... he year when it is materialized and not in the year under consideration. 2. On facts and under circumstances of the case the Ld. CIT (A) has erred in law and facts in deleting the disallowance of Rs. 4,47,15,583/- on account of provision for unlogged claim ignoring that this provision was purely on ad-hoc basis and the assessee was already allowed special provision of Rs.17,31,41,001/- in terms of Rule 6E of the IT Act." 4. Assessee in this case is incorporated under the Companies Act, 1956 and is registered with the Insurance Regulatory and Development Authority (IRDA). It is further engaged in the business of selling health insurance products to individuals and corporate. Ld. Counsel of the assessee has summarized the assessee's operation as under :- "2. The Respondent is contractually and legally bound to settle all rightful claims lodged by the insured as per the terms and conditions of the policy taken. Settlement is done through: i. Cashless Mode - The insured's bill is directly settled between the Respondent and the concerned network hospital in which the insured is admitted. There is always a time lag between date of discharge of insured from the hospital and pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is not entitled to claim the same as a deductible expense since in accordance with Rule 6E of the Income tax Rules, 1962, it has claimed 50% of the net premium received by it during the relevant AY as a deduction towards unexpired risk." 7. Upon assessee's appeal, ld. CIT (A) deleted the same. Ld. CIT (A) recorded the following findings :- "i. The provision for unsettled claims outstanding as on March 31"t is not an adhoc provision, but is made on the basis of actual communication received from policy holders. Thus, the same is allowable in terms of principles of law laid down in Kerala Transport Co. vs ACIT, [1994] 50 TT J 435 (Coch. ITAT). ii. The provision for IBNR claims has been made for ascertained liabilities in accordance with IRDA Regulations and therefore the same must be allowed in terms of law laid down in Deputy Commissioner of Income Tax vs National Insurance Co. Ltd. {2016} 72 taxmann.com 116 (Kol. Trib.)." 8. Against this order, Revenue is in appeal before us. We have heard both the parties and perused the records. 9. Ld. DR for the Revenue relied upon the orders of the AO. 10. The submissions of the ld. Counsel of the assessee in relation to disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f accounting, in absence of any proof of underestimation of profits, the presumption shall always be that the entire exercise is revenue neutral. Thus, if the Department's contentions are accepted, the same would amount to double disallowance of the provisions in the hands of the Respondent. Attached herewith as Annexure-1 is a chart clearly depicting this position in the Respondent's case. B. Provision for IBNR Claims 9. The provision in relation to IBNR claims are created in relation to claims incurred but yet to reported by the insured to the Respondent. The Respondent creates the aforesaid provision for unreported claims on the basis of actuarial valuation as mandated by IRDA. 10. It is submitted that the issue in relation to provision for IBNR claims is now well settled. The Respondent relies upon the following orders/judgments wherein it is held that provision for IBNR claims made as per the IRDA regulations are based on actuarial valuation and therefore are ascertained liabilities arrived on a scientific basis: a) DCIT vs. Export Credit Guarantee Corporation, ITA No. 7657 of 2014 (Bom ITAT) [Paras 3.3-3.3.4@Pgs. 16-181 Compilation] b) PCIT VS. National Insu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Department appeals ought to be dismissed. 11. Upon careful consideration, we find that as regards provision for unsettled claims, the AO has made the disallowance by holding that these are adhoc provisions made on account of contingent liabilities and not ascertained liabilities and, therefore, not allowable under section 37 of the Income-tax Act, 1961 (for short 'the Act'). Ld. CIT (A)'s order in this regard read as under :- "4.2 I have carefully considered the facts of the case, submissions of the appellant and the impugned order of the AO. The fundamental submission of the appellant is that since the provision for unsettled claims has been made on basis of actual communication received from the policy holders, it can by no stretch of imagination be considered to be ad-hoc in nature as alleged by the Ld. AO. The appellant has submitted that incurrence of liability and its quantification are two separate aspects and merely because some claims are rejected subsequently being fraudulent/ erroneous in nature, the same cannot be considered to be an ad-hoc provision against contingent liability resulting in disallowance of the said liability, The principle enunciated in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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