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2019 (11) TMI 1769 - AT - Income TaxAssessment of life insurance companies - Surplus disclosed in the Acturial Report in Form I as changed by way of adjustment - whether CIT(A) has erred in holding that the capital contribution of shareholders account to policy holder account has to be reduced while computing income u/ r.w.s first schedule of IT Act? - HELD THAT:- In any way what we notice is that the computation made by assessee is in accordance with Rule-2 of the Insurance Act 1938 according to which only AO can base his computation. This also corresponds to the way incomes were assessed in earlier years ie. the correct method as per Rule 2 and Sec 44 of IT ACT. In view of the discussion above and after analyzing the Forms, Regulations and Provisions we have no hesitation to hold that the assessee working of actuarial surplus/ deficit is in accordance with Rule 2 of First Schedule. Therefore, assessee grounds on this issue are allowed and AO is directed to modify the order accordingly. This decision has been followed by the Tribunal in the case of HDFC Standard Life Insurance Co. Ltd. [2013 (10) TMI 1072 - ITAT MUMBAI]. Thus, following the same judicial precedence which would apply on the facts of the present case also, we decide the issues raised vide ground no. 1&2 in the department’s appeal in favour of the assessee and against the Department. Addition u/s 14A - Reduce the exempt income u/s 10(34) while computing the income of insurance business of the assessee under section 44 - HELD THAT:- As identical issue has been decided by the co-ordinate bench of the Tribunal in assessee’s own case wherein it has been held that the provisions of section 14A of the Act are not applicable to life insurance companies. Exemption under section 10(34) is allowable on a net basis - HELD THAT:- We in the case of ACIT vs. Bajaj Finance Ltd. [2015 (1) TMI 1383 - ITAT PUNE] has interpreted the provisions of section 143(3) as amended by the Finance Act (2), 1998 w.e.f. 01.10.1998. The co-ordinate bench of the Tribunal has held that the CBDT circular No.549 dated 31.10.1989 and judgment of case of LML [1991 (9) TMI 7 - BOMBAY HIGH COURT] were rendered in the context of assessment year 1989-90 which was prior to the amendment and in the post amendment period, the AO is statutorily empowered to determine the revised income which can even be lower than the returned income. It is apparent from the above that post amendment to section 143(3) of the Act by Finance Act (2), 1998 w.e.f. 01.10.1998, the AO has the power to determine the revised income which can be lower than the returned income. Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO accordingly. The issue raised by the assessee in ground No.1 & 2 are allowed. Section 14A applicable to the life insurance companies - Exemption under section 10(34) of the Act is to be allowed on the amount of dividend earned and not on net basis as the provisions of section 14A of the Act are not applicable to the insurance companies. The additional ground raised by the assessee is allowed.
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