DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 6(2), MUMBAI, MUMBAI vs. TATA AIG GENERAL INSURANCE CO. LTD, MUMBAI

3. The learned CIT(A) has, on the facts and circumstances of the case and in law, erred in confirming the action of the learned AO in taxing the profit on sale of investments as "Business Income" and not as "Capital Gains".

4. Without prejudice to Ground number 3 above, the learned CIT(A) has, on the facts and circumstances of the case and in law, erred in not taxing the profit on sale of investments by applying the tax rate provided under section 111A of the Act and section 112 of the Act on short term gains and long term gains, respectively.

5. The learned CIT(A), on the facts and circumstances of the case and in law, erred in confirming the action of the learned AO in not allowing deduction of Rs 16,37,818 towards rent equalisation adjustment representing rent paid over and above the rent expense recorded in the books of account.

6. The learned CIT(A), on the facts and circumstances of the case and in law, erred in confirming the action of the learned AO in levying interest under section 234A, by holding that levy of such interest is mandatory and consequential in nature, while no such levy was permissible as per section 234A of the Act as the Appellant had filed return of income (ROI) for the subject year on 28 November 2018, i.e., before the due date of 30 November 2018 applicable for filing of ROI as per section 139(1) of the Act.

7. The learned CIT(A), on the facts and circumstances of the case and in law, erred in confirming the action of the learned AO in levying interest under section 234B and section 234D of the Act.”

(Revenue’s appeal, AY 2018-19)

“1. Disallowance of reinsurance premium paid/payable to non-resident reinsurance. 2. Disallowance of the provision towards claims incurred but nor reported (IBNR) and claims incurred but not enough reported (IBNER).

3. Disallowance of exemption under section 10(34) in respect of dividend.

4. Not allowing deduction of provision of expenses reversed in A.Y. 2017-18 which were already disallowed in earlier years.

5. Disallowance of deduction of expenses which were disallowed in the previous year.

6. Disallowance of deduction for leave encashment.

7. Disallowance of deduction of rent equalization adjustment.

8. Disallowance of depreciation.

9. Disallowance of co-insurance administration fees.”

ITA No.1450/Mum/2024, Assessee’s appeal.

TATA AIG General Insurance Company Ltd. for assessment year 2015-16 by the Coordinate Bench of ITAT Mumbai in assessee’s own case ITA 1834 and 1835, 1815 and 1816/Mum/2023 date of pronouncement 30.10.2024 covering the said order a miscellaneous application is also passed by the Bench bearing M.A. No.52/Mum/2025 arising out of from date of order 27.07.2025. The relevant part of the order of MA of the Coordinate Bench of ITAT is contended as below:

“2.. This impugned miscellaneous application filed by the assessee pertains to ground no.8 relating to claim of deduction of reversal of UEPR as per proviso of Rule 6E of the Income Tax Rules, 1962 (Rules) for the amount of UEPR disallowed in the immediately preceding year, i.e., Assessment Year 2015-16. For the year under consideration, i.e., Assessment Year 2017-18, the deduction of Rs.2,89,63,479/- relates to reversal of UEPR during the said year out of the amount of UEPR disallowed in the year prior to the immediately preceding year which is Assessment Year 2015-16, being not the immediately preceding year. This ground has been allowed by stating that the issue is similar to the issue raised in the earlier year and thus, the finding in the earlier year would apply mutatis mutandis. In principle, the issue is covered in the earlier year though there is a slight change in fact for the year under consideration and therefore for the purpose of completeness, without changing the conclusion so drawn, assessee by way of this miscellaneous application sought an insertion to clarify the conclusion so drawn.

2.1. For this purpose, the fact is that reversal of reserve for unexpired risk (UEPR) for an amount of Rs.2,89,63,479/- in the books of accounts for the year under consideration was made out of the provision for UEPR created during the earlier financial year relevant to Assessment Year 2015-16 and not the immediately preceding year which 19 Assessment Year 2016-17. In this respect, Rule 6E provides Tonount carried over such reserve or additional reserve which allowed as a deduction under this rule in respect of any previous yeur shall hot be included in the total income for the assessment year relevant id the immediately next succeeding previous year in the revenue account relating to which the amount aforesaid is credited". While drawing the conclusion for the grounds so raised by theassessee, the rule is interpreted by applying the TATA AIG General Insurance Company Ltd. purpose of interpretation, so as to avoid absurdity, for which we are in agreement with the submission made by the assessee that when Rule 6E was inserted in the statute, the insurance policies were only for a period of one year and, therefore, the reversal of the provision for UEPR would always be in the immediately next year and, accordingly, the same was provided in the rules. However, with the development in the insurance business and change in regulation, now insurance policies are permitted to cover span more than one year. In such a case, the reversal of the provision for UEPR would happen in more than one year depending upon the life of the policies. From the perusal of Rule 6E, the intention of the legislature is clear that the provision for UEPR which has been disallowed as deduction in one year should not be taxed in the year of reversal, as it would lead to double taxation. Since the reversal would now happen in more than one year, the rule would have to be interpreted to mean that the said reversal would not be taxable in the year in which it is reversed.

7. The Ld. DR argued and relied on the order of revenue authorities but unable to bring any contrary fact against the submission of the assessee.

8. In our considered view, we find that the disallowance of expenses amount of Rs.2,81,64,694/- pertaining to the EUPR is already allowed of A.Y. 2015-16. By an order of the Coordinate Bench of ITAT, Mumbai in assessee’s own case bearing (supra). Accordingly, the Ld. AO is directed to verify and examination of the same in compliance with aforesaid provision to Rule 6E of the Rules allowed the claim of the assessee after compliance of the condition prescribed in the said proviso for which the reasonable opportunity may be given

TATA AIG General Insurance Company Ltd. to assessee and to explain its case. Accordingly, following the order of the Coordinate Bench we set aside the ground to the file of the Ld. AO . In the result, Ground No.1 of the assessee’s appeal is allowed for statistical purpose.

TATA AIG General Insurance Company Ltd. 44.1. In respect of this claim, reason for revision is based on CBDT circular No. 06/2016 dated 29.02.2016 by which in its para 3(a), an assessee was allowed to claim exemption u/s. 10(38) by treating the income arising from transfer of listed shares and securities held for more than 12 months immediately preceding the date of its transfer as capital gain and such a treatment by the assessee shall not be put in dispute by the Id. AO. The stand of the Id. AO is that assessee in all the earlier years had treated such income as business income. It is only in this assessment year that it has been characterised as capital gain by way of filing of revised return under section 139(5) of the Act. Thus, the aforesaid CBDT circular has given a concession to the assessee which cannot be denied since circulars issued by the CBDT are binding on the Department. To this effect, assessee placed reliance on the decision of Hon'ble Supreme Court in the case of UCO Bank vs. CIT [1999] 237 ITR 889 (SSC). “13.1 It is also important to note about the binding nature of CBDT circular on the Income-tax Authorities for which gainful guidance is taken from the decision of Hon'ble Supreme Court in the case of CIT u. Hero Cycles [1997] 228 ITR 463 (SC) wherein it was held that circulars bind the ITO but will not bind the appellate authority or the Tribunal or the Court or even the assessee.

13.2 In the case of UCO Bank [1999) 237 ITR 889 (SC), Hon'ble Supreme Court while dealing with the legal status of such circulars, observed thus (page 896): "Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter alia, totone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 of the Income-tax Act, which are binding on the authorities in the administration of the Act. Under section 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields the power for its own advantage under the Act is given the right to forgo the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in section 119. The power is given for the purpose of just, proper and efficient management of the work of TATA AIG General Insurance Company Ltd. assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Hard cases which can be properly categorized as belonging to a class, can thus be given the benefit of relaxation of law by issuing circulars binding on the taxing authorities."

13.3 In the matter of Nayana P. Dedhia (2004) 270 ITR 572 (AP), the Hon'ble Andhra Pradesh High Court held that the guidelines issued by the Board in exercise of powers in terms of section 119 of the Act relaxing the rigours of law are binding on all the officers responsible for implementation of the Act and, therefore, bound to follow and observe any such orders, instructions and directions of the Board. 13.4 In the decision of DCIT v. SunitaFinlease Ltd. (2011) 330 ITR 491 (CG,) it was held by the Hon'ble High Court of Chhattisgarh in para 16 that the administrative Instruction No. 9/2004 issued by the Central Board of Direct Taxes is binding on administrative officer in view of the statutory provision contained in section 143(2), which provides for limitation of 12 months for issuance of notice under section 143(2). While giving its finding, the Hon'ble High Court of Chhattisgarh placed reliance on the decisions in the case of UCO Bank (supra) and Nayana P. Dedhia (supra). 13.5 Hon'ble jurisdictional High Court of Calcutta in the case of Amal Kumar Ghosh (2014) 361 ITR 458 (Cal) dealt with the issue relating to CBDT circular which according to the Department cannot defeat the provisions of law. While giving its observations and finding on the issue, the Hon'ble Court referred to the decision of Hon'ble Chhattisgarh High Court in the case of SunitaFinlease Ltd (supra), which are as under.

TATA AIG General Insurance Company Ltd. of the assessee on sale of investments as held by us while adjudicating on ground no. 4 above. Accordingly, ground no. 5 is allowed.”

14. Upon due consideration of the rival submissions and the material available on record, we find that the issue in dispute has already been conclusively adjudicated by the Coordinate Bench of the ITAT in the assessee’s own case. Respectfully following the said decision, we allow Ground No. 3 raised by the assessee.

Ground No. 4: In view of our decision in favour of the assessee on Ground 15. No. 3, Ground No. 4 does not survive for adjudication and is accordingly dismissed as infructuous.

TATA AIG General Insurance Company Ltd. “57. Now we taken up ground no.6 and 7 in respect of deduction of rent equalisation adjustment claimed by the assessee. In this respect, assessee submitted that in accordance to the applicable Accounting Standards, lease expenditure, i.e. rent expense is recognised in profit and loss account on a straight-line basis over the terms of lease, for example, if rent for three years is 9,000, 10,000 and 11,000 each for the relevant years, in the profit and loss account, Rs. 10,000 would be recognised in all the three years. However, from an income-tax perspective, the same is allowable only to the extent the lease expenditure (i.e., rent) which has been actually incurred (i.e., Rs. 9000/-in the first year, Rs 10,000 in the second year and Rs 11,000 in the third year, in the above example. Therefore, there is a reduction from the profit as per the P&L A/c in the computation of income in the earlier year and an additional claim in the later year. However, over the term of the lease, the rent expense recognised in the P&L A/c and the claim made as per the actual payment of the rent is equalised and, hence, the treatment from an income-tax perspective is nothing but a timing difference.

57.1. For the preceding years, rent expenditure accounted in the P&L A/c was higher than the actual rent expenditure incurred by the Assessee. Hence, such excess amount (i.e., amount debited to P&L A/cvis-à-vis the actual amount of rent paid by the assessee) for the relevant previous year has been disallowed and offered to tax.

57.2. During the captioned year, i.e., AY 2017-18, the actual rent payments made by the Assessee is higher by Rs 60,24,723 vis-à-vis the amount of rent expenditure recorded in the P&L A/c. Since this amount has already been disallowed in the earlier years, the Assessee has claimed a deduction of Rs 60,24,723 during the captioned year and hence, the same should not be disallowed. Further, as the expenditure has been incurred during the relevant year and is for the purpose of the business of the Assessee, the same is allowable as per section 37 of the Act. The Assessee further submits that merely because, the same was not debited to the P&L A/c in the relevant year, is not relevant in view of the facts explained above. Further, as it is a trite law, that entries in the books of account does not determine the treatment of an expenditure for the purpose of computing income under the provision of the Act. Reference is made to the decision of the Apex Court in the case of Kedarnath Jute Mfg. Co. Ltd v. CIT [1971] 82 ITR 363 (SC).

TATA AIG General Insurance Company Ltd. 57.3. Further, in relation to section 44 of the Act read with First Schedule, reliance is placed on the Assessee's own decision for AY 2015-16 (ITA No. 1718/Mum/2020) by the co-ordinate bench wherein it had taken a purposive interpretation of Rule 5 of the First Schedule and allowed deduction of expense already disallowed in earlier years. Reference is made to paragraph 4 of the said decision. Reliance is also placed in the case of CIT v J.H. Gotla [1985] 156 ITR 323 (SC) wherein the Hon'ble Apex Court held that the interpretation which results in absurdity is required to be avoided. Assessee thus, prays that the deduction claimed for rent equalisation adjustment of Rs 60,24,723 be allowed.58. Assessee submits as an alternate ground which would only arise if no deduction of Rs 60,24,723 is allowed in respect of rent equalisation adjustment representing lease expenditure rent paid over and above the rent expense recorded in the books of account, then the rent expenditure recognised in the profit and loss account should be allowed as a tax-deductible expenditure under the provisions of the Act in AY 2016-17. Hence, the disallowance made by the assessee in AY 2016-17 on account of rent expenditure recognised in P&L A/c being higher than the actual rent paid, should also be held as not called for, and the rent expenditure recorded in the P&L A/c should be allowed as a tax deductible expenditure in AY 2016-17.

18 We have considered the rival submissions and perused the material available on record. We find that the issue relating to deduction of rent equalisation adjustment is squarely covered by the decision of the Coordinate Bench of the ITAT, Mumbai in the assessee’s own case in & 1835/Mum/2023 (supra). The Coordinate Bench, after examining the accounting treatment, the provisions of the Act, and the judicial precedents including Kedarnath Jute Mfg. Co. Ltd. (supra) held that the deduction representing actual rent paid in excess of the amount debited to the Profit & Loss Account, which had already been disallowed in earlier years, is allowable as a timing difference and cannot be denied merely on the basis of book entries. The Ld. DR, though relied upon the orders of the revenue authorities, could not controvert the binding precedent in the assessee’s own case. Respectfully following the decision of the Coordinate Bench, we hold that the disallowance of rent equalisation amounting to Rs. 16,37,818/- is unsustainable. Accordingly, Ground No. 5 raised by the assessee is allowed.

, (Revenue’s Appeal, AY 2018-19) 21. Ground no.1: The Ld. CIT(A) deleted the addition related to the provision for Claim Incurred But Not Reported (IBNR) and Claim Incurred But Not Enough Reported (IBNER). So the assessee claim that the expenses u/sec. 37(1) amount to Rs.6,45,04,77,112/-. But the Ld. AO rejected the same. The Ld. CIT(A) finally allowed the appeal of the assessee by observing the following facts and adjudicated the issue in favor of the assessee. The relevant para no.8.4 to 8.5 related page no. 44 of the impugned appellate order is reproduced as below:

TATA AIG General Insurance Company Ltd. “8.4 Similar issue was also there for AY 2016-17 and AY 2017-18, where the Ld CIT(A) following the said decision of Hon'ble (TAT has decided the issue in favor of the Appellant.

8.5 Respectfully following the decision of Hon'ble ITAT in assessee's own case and the CIT(A) orders for the previous years, the ground of appeal No. 4 is allowed.”

7.6 Respectfully following the decision of Hon'ble ITAT in assessee's own case and the CIT(A) orders for the previous years, the grounds of Appeal No. 2 & 3 are 7.6 allowed. Accordingly, ground no.2 and 3 of the revenues are dismissed.”

25. We have considered the rival submissions and perused the material available on record. We find that the Ld. CIT(A) has adjudicated the issue by following the order of the Coordinate Bench of the ITAT, Mumbai in the assessee’s own case in dated 25.04.2022 for AY 2015– 16. The said decision was subsequently followed by the Coordinate Bench in the assessee’s own case in & 1835/Mum/2023, order dated 30.10.2024 for AYs 2016–17 and 2017–18. Thus, the issue is no longer res integra. We observe that the Ld. CIT(A) has correctly adjudicated the matter in TATA AIG General Insurance Company Ltd. consonance with the binding precedents of the Coordinate Bench. The Ld. DR could not controvert the findings nor distinguish the earlier decisions of the Tribunal on identical facts. Respectfully following the orders of the Coordinate Bench and in adherence to the principle of judicial consistency, the appeal of the revenue on Ground Nos. 2 and 3 stands dismissed.

26. Ground No. 4: It has been contended that the Department has erroneously raised Ground No. 4, as there was neither any loan against assets nor any profit on sale of assets during the year under consideration. The Ld. DR did not raise any specific objection or controvert the submissions advanced by the Ld. AR in this regard. In the absence of any material to the contrary, Ground No. 4 raised by the revenue is dismissed.

27. Ground No. 5 pertains to the reversal of expenses disallowed in earlier years and the consequent denial of deduction amounting to Rs. 68,56,976/-. The Ld. AO observed that the assessee had disallowed an amount of Rs. 68,56,976/- in earlier years and, during the year under consideration, claimed deduction on account of reversal of such expenses which had earlier been offered to tax. While computing income under the head “Profits and Gains of Business or Profession,” the Ld. AO held that the said claim was not allowable in view of Rule 5 of the First Schedule to the Act and accordingly rejected the claim. In appeal, the Ld. CIT(A) adjudicated the issue and allowed the claim of the assessee. The relevant observations are reproduced below: “12.5 Similar issue was also there for AY 2016-17 and AY 2017-18, where the Ld. CIT(A), following the said decision of the Hon’ble ITAT, has decided the issue in favor of the Appellant.

TATA AIG General Insurance Company Ltd. 12.6 Respectfully following the decision of the Hon’ble ITAT in the Assessee's own case and the CIT(A) orders for the previous years, the ground of appeal no. 11 is allowed.”

Upon consideration of the order of the Ld. CIT(A), we find that the issue has already been duly examined and decided by the Coordinate Bench of the ITAT, Mumbai in order dated 30.10.2024, in favour of the assessee. The Ld. DR was unable to point out any distinguishing facts or bring on record any contrary decision so as to warrant a different view from that taken by the Coordinate Bench and relied upon by the Ld. CIT(A). Accordingly, we hold that the disallowance of Rs. 68,56,976/- is unsustainable in law. We find no infirmity in the order of the learned CIT(A) and, therefore, Ground No. 5 of the revenue’s appeal stands dismissed.

TATA AIG General Insurance Company Ltd. The Ld. DR did not raise any substantive objection to the submissions advanced by the Ld. AR. In view of the above, we find that although the assessee had failed to deduct tax at source in the earlier years, it has duly complied with the provisions in the year under consideration by deducting and depositing the TDS. Therefore, the expenditure is allowable in the impugned assessment year. We do not find any infirmity in the observations of the Ld. CIT(A) on this issue. Accordingly, Ground No. 6 raised by the revenue stands dismissed.

We find that the issue has already been examined and adjudicated by the Coordinate Bench of the ITAT, Mumbai, in the assessee’s own case in vide order dated 25/04/2022 for AY 2015-16 & & 1835/Mum/2023, vide order dated 30.10.2024. The Ld CIT(A) has followed the said binding precedent. In view of the above, we do not find any infirmity in the observations or findings of the Ld. CIT(A). Accordingly, Ground No. 9 raised by the revenue stands dismissed.

16.5 Respectfully following the decision of Hon'ble ITAT in Assessee's own case and the CIT(A) orders for the previous years, the ground of appeal no. 16 is allowed.”

The Ld. DR was unable to place on record any contrary judicial precedent to rebut the submissions advanced on behalf of the assessee. We find that the issue has already been examined and adjudicated by the Coordinate Bench of the ITAT, Mumbai, in the assessee’s own case in vide order dated 25/04/2022 for AY 2015-16 & & 1835/Mum/2023, vide order

TATA AIG General Insurance Company Ltd. dated 30.10.2024. The Ld CIT(A) has followed the said binding precedent. In view of the above, we do not find any infirmity in the observations or findings of the Ld. CIT(A). Accordingly, Ground No. 10 raised by the revenue stands dismissed.

9. This issue is also covered by the order of the Hon'ble Bombay High Court in the case of General Insurance Corporation of India, 342 ITR 27.

11.5 The jurisdictional Hon'ble Bombay High Court in the case of General Insurance Corporation of India vs. DCIT [2011] 342 ITR 27 (Bom) has clearly held that exemptions u/s 10 of the Act will be available to general insurance company as well.

TATA AIG General Insurance Company Ltd. 11.6 Similar issue was also there for AY 2016-17 and AY 2017-18, where the Ld CIT(A) following the said decision of Hon'ble ITAT, has decided the issue in favor of the Appellant.”

The Ld. DR was unable to place on record any contrary judicial precedent to rebut the submissions advanced on behalf of the assessee. We find that the issue has already been examined and adjudicated by the Coordinate Bench of the ITAT, Mumbai, in the assessee’s own case in & 1702/Mum/2011 vide order dated 20/11/2015 & vide order dated 23.12.2025. The Ld CIT(A) has followed the said binding precedent. In view of the above, we do not find any infirmity in the observations or findings of the Ld. CIT(A). Accordingly, Ground No. 13 raised by the revenue stands dismissed.

TATA AIG General Insurance Company Ltd. “11.6 Similar issue was also there for AY 2016-17 and AY 2017-18, where the Ld CIT(A) following the said decision of Hon'ble ITAT, has decided the issue in favor of the Appellant. 11.7 Respectfully following the decision of Hon'ble ITAT in Assessee's own case and the CIT(A) orders for the previous years, the grounds of appeal no. 9 and 10 are allowed.” It is argued by the Ld. AR that issue is covered by the Coordinate Bench of the ITAT, Mumbai, in the assessee’s own case in & 1702/Mum/2011 vide order dated 20/11/2015.

In our considered view the issue has already been examined and adjudicated by the Coordinate Bench of the ITAT, Mumbai, in the assessee’s own case in & 1702/Mum/2011 (supra). The Ld CIT(A) has followed the said binding precedent. In view of the above, we do not find any infirmity in the observations or findings of the Ld. CIT(A). Accordingly, Ground No. 15 raised by the revenue stands dismissed.

TATA AIG General Insurance Company Ltd. The Ld. CIT(A) has made observation in appellate order at page no. 107 related paragraph 18.2 and 18.3 which is reproduced as below:- “18.2 The AO made disallowance of Rs. 61,29,662/- on account of non-deduction of TDS on co- insurance administration fee. According to AO, these payments attracted TDS as per section 194H of the Act and to keep the issue alive, the AO made an addition of Rs. 61,29,662/-. 18.3 From the record, I find that the issue has been decided by the Hon'ble ITAT Mumbai Bench "E" Mumbai in assessee's own case for A.Y. 2006-07 to 2008-09 (ITA No.3535 & 1702/Mum/2011 and ITA No.4167/Mum/2012). The relevant part is reproduced as under:- xxxxxxxxxxxxxx“

The Ld. DR was unable to place on record any contrary judicial precedent to rebut the submissions advanced on behalf of the assessee. We find that the issue has already been examined and adjudicated by the Coordinate Bench of the ITAT, Mumbai, in the assessee’s own case in & 1702/Mum/2011 (supra). The Ld CIT(A) has followed the said binding precedent. In view of the above, we do not find any infirmity in the observations or findings of the Ld. CIT(A). Accordingly, Ground No. 16 raised by the revenue stands dismissed.